NCS Multistage(NCSM) - 2023 Q4 - Annual Results

Press Release Overview Company Information NCS Multistage Holdings, Inc. is a leading provider of engineered products and support services optimizing oil and gas well construction, completion, and field development strategies - NCS Multistage Holdings, Inc. (Nasdaq: NCSM) is a leading provider of engineered products and support services focused on optimizing oil and gas well construction, completion, and field development strategies[2] Announcement Highlights The company reported Q4 and full-year 2023 results, showing revenue declines but a significant Q4 net income increase due to a legal settlement 2023 Fourth Quarter and Full-Year Key Financial Data | Metric | Q4 2023 (Millions USD) | Q4 2022 (Millions USD) | Full-Year 2023 (Millions USD) | Full-Year 2022 (Millions USD) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $35.2 | $40.2 | $142.5 | $155.6 | | Net Income (Loss) | $39.6 | $2.0 | $(3.2) | $(1.1) | | Diluted EPS (Loss) | $15.80 | $0.81 | $(1.27) | $(0.45) | | Adjusted Net Loss | $(0.9) | $1.8 | $(1.3) | $(0.2) | | Adjusted Diluted EPS (Loss) | $(0.36) | $0.75 | $(0.51) | $(0.09) | | Adjusted EBITDA | $2.5 | $6.4 | $11.9 | $15.1 | | Free Cash Flow (after non-controlling interest distributions) | - | - | $2.6 | $(2.1) | Financial Review Fourth Quarter 2023 Results Q4 2023 total revenue decreased by 12% to $35.2 million, driven by lower sales across regions, while net income surged due to a $40.8 million legal settlement reversal 2023 Fourth Quarter Key Financial Metrics | Metric | Q4 2023 (Millions USD) | Q4 2022 (Millions USD) | Year-over-Year Change | | :--- | :--- | :--- | :--- | | Total Revenue | $35.2 | $40.2 | -12% | | Gross Profit | $12.3 | $15.6 | -21.2% | | Gross Margin | 35% | 39% | -4.0 pp | | Adjusted Gross Profit | $12.9 | $16.1 | -19.9% | | Adjusted Gross Margin | 37% | 40% | -3.0 pp | | Selling, General and Administrative Expenses (SG&A) | $13.2 | $13.2 | 0% | | Other Income | $0.4 | $1.4 | -71.4% | | Net Income (Loss) | $39.6 | $2.0 | +1880% | | Diluted EPS | $15.80 | $0.81 | +1850.6% | | Adjusted Net Loss | $(0.9) | $1.8 | Loss Widened | | Adjusted Diluted EPS (Loss) | $(0.36) | $0.75 | Loss Widened | | Adjusted EBITDA | $2.5 | $6.4 | -60.9% | - Total revenue decline primarily resulted from decreased product sales and services in the US and international markets, and reduced Canadian service revenue, partially offset by increased Canadian product sales[3] - Net income significantly increased due to the Texas legal settlement, with the company reversing a previously recorded $40.8 million litigation accrual without cash payment[8][9] - Adjusted EBITDA decreased by $3.9 million, primarily due to lower revenue[10] Full Year 2023 Results Full-year 2023 total revenue decreased by 8% to $142.5 million, with expanded net losses, but significant improvements in operating and free cash flow 2023 Full-Year Key Financial Metrics | Metric | Full-Year 2023 (Millions USD) | Full-Year 2022 (Millions USD) | Year-over-Year Change | | :--- | :--- | :--- | :--- | | Total Revenue | $142.5 | $155.6 | -8% | | Gross Profit | $53.4 | $58.4 | -8.6% | | Gross Margin | 37% | 38% | -1.0 pp | | Adjusted Gross Profit | $55.6 | $60.4 | -7.9% | | Adjusted Gross Margin | 39% | 39% | 0.0 pp | | Net Income (Loss) | $(3.2) | $(1.1) | Loss Widened | | Adjusted Net Loss | $(1.3) | $(0.2) | Loss Widened | | Adjusted EBITDA | $11.9 | $15.1 | -21.2% | | Cash Flow from Operating Activities | $4.8 | $(1.4) | Improved by $6.2 Million | | Free Cash Flow (after non-controlling interest distributions) | $2.6 | $(2.1) | Improved by $4.7 Million | - Full-year revenue decline primarily reflects reduced US product sales and decreased service activities across the US, Canada, and international markets, partially offset by increased Canadian and international product sales[11] - Cash flow improvement is mainly attributed to a smaller increase in net working capital in 2023 compared to 2022, partially offset by a higher net loss[13] Liquidity and Capital Expenditures As of December 31, 2023, the company maintained $16.7 million in cash, $8.2 million in total debt, and $16.4 million in available credit, with stable working capital 2023 Year-End Liquidity and Capital Expenditures | Metric | December 31, 2023 (Millions USD) | December 31, 2022 (Millions USD) | | :--- | :--- | :--- | | Cash | $16.7 | $16.2 | | Total Debt | $8.2 | - | | Available ABL Revolving Credit Facility | $16.4 | - | | Working Capital | $71.2 | $70.0 | | Capital Expenditures (Net) | $1.7 | $0.7 | - The company maintained a strong balance sheet and liquidity position[23] Legal Matters Texas Litigation Settlement In December 2023, the company settled Texas litigation with insurers paying the settlement, resulting in a $40.8 million litigation accrual reversal - The Texas legal litigation has been settled, with insurance companies paying the settlement and NCS incurring no cash payment[16][24] - The company reversed a previously recorded $40.8 million litigation accrual in Q4 2023[8][16] Canada Patent Infringement Case Mediation for the Canadian patent infringement case in late February 2024 did not result in an agreement, with the company planning an appeal - Mediation for the Canadian patent infringement case did not result in an agreement, but parties intend to continue discussions[17] - The company has paid approximately $1.8 million in fees and expenses and believes there are strong grounds to appeal the court's decision to significantly reduce the cost award[17] Management Review and Outlook 2023 Performance Summary Despite challenging market conditions in 2023 leading to reduced revenue, the company achieved growth in Canadian PurpleSeal composite frac plugs and secured new North Sea clients - Total revenue for 2023 was $142.5 million, an 8% year-over-year decrease, with Canadian, US, and international market revenues declining by 3%, 18%, and 23% respectively[21] - Despite revenue decline, the company achieved significant growth in Canadian PurpleSeal composite frac plug revenue and customer base, and added new frac system clients in the North Sea[21] - Through streamlined operations and cost reductions, the company maintained an adjusted gross margin of 39% and reduced SG&A expenses by $1.8 million[22] 2024 Outlook and Strategy For 2024, the company anticipates varied regional activity, aiming to outperform industry trends through customer expansion, new projects, and product innovation 2024 Industry Activity Outlook | Region | 2024 Activity Outlook (vs. 2023) | | :--- | :--- | | Canada | Flat to Slightly Down | | United States | Down 5% to 10% (expected to rebound by year-end) | | International | Up 5% to 10% | - The company believes its product and service portfolio value and ongoing innovation will enable it to outperform industry activity changes in 2024, particularly achieving revenue growth in the US and international markets[26] - 2024 strategic priorities include: i) solidifying leading market positions; ii) capturing international and offshore opportunities; and iii) commercializing innovative solutions for complex client challenges[28] Additional Information Conference Call Details A conference call on March 8, 2024, will discuss Q4 and full-year 2023 results and updated guidance, with live webcast and replay available - The conference call will be held on March 8, 2024, at 7:30 AM Central Time (8:30 AM Eastern Time), with a live webcast and approximately seven-day replay available[31][32] About NCS Multistage Holdings, Inc. NCS Multistage Holdings, Inc. is a leading provider of engineered products and support services for optimizing oil and gas well construction and field development - The company provides products and services primarily for onshore and offshore oil and gas wells, especially horizontal wells, in North America and selected international markets like the North Sea, Middle East, Argentina, and China[33] Forward-Looking Statements This press release contains forward-looking statements subject to inherent uncertainties and risks that may cause actual results to differ materially from expectations - Forward-looking statements are based on current expectations and assumptions but are subject to inherent uncertainties, risks, and changing circumstances that may cause actual results to differ materially from expectations[36] - Key risk factors include decreased oil and gas exploration and production activity, volatile oil and gas prices, intense competition, inability to successfully execute strategies, customer loss, litigation losses, and supply chain disruptions[36] Contact Information Contact information for Mike Morrison, Chief Financial Officer and Treasurer, is provided for investor inquiries - Contact: Mike Morrison, Chief Financial Officer and Treasurer, Phone: (281) 453-2222, Email: IR@ncsmultistage.com[37] Condensed Consolidated Financial Statements Condensed Consolidated Statements of Operations Q4 2023 net income surged to $39.8 million due to a legal settlement reversal, while full-year 2023 saw a $3.1 million net loss, with total revenue declining Condensed Consolidated Statements of Operations Summary (Thousands USD) | Metric | Q4 2023 (Thousands USD) | Q4 2022 (Thousands USD) | Full-Year 2023 (Thousands USD) | Full-Year 2022 (Thousands USD) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | 35,247 | 40,186 | 142,471 | 155,632 | | Cost of Sales (excluding D&A) | 22,359 | 24,108 | 86,868 | 95,228 | | Selling, General and Administrative Expenses | 13,221 | 13,190 | 56,518 | 58,338 | | Operating Income (Loss) | (1,555) | 1,813 | (5,531) | (2,253) | | Litigation Accrual (Reversal), Net | 40,696 | — | (1,802) | — | | Net Income (Loss) | 39,849 | 2,291 | (3,111) | (952) | | Net Income (Loss) Attributable to NCS Multistage Holdings, Inc. | 39,639 | 1,979 | (3,153) | (1,102) | | Diluted EPS (Loss) | 15.80 | 0.81 | (1.27) | (0.45) | Condensed Consolidated Balance Sheets As of December 31, 2023, total assets increased to $152.0 million, driven by higher current assets, while total liabilities also rose due to legal accruals Condensed Consolidated Balance Sheets Summary (Thousands USD) | Metric | December 31, 2023 (Thousands USD) | December 31, 2022 (Thousands USD) | | :--- | :--- | :--- | | Cash and Cash Equivalents | 16,720 | 16,234 | | Accounts Receivable, Net | 23,981 | 27,846 | | Inventory, Net | 41,612 | 37,042 | | Insurance Receivable | 15,000 | — | | Total Current Assets | 103,217 | 87,663 | | Total Assets | 152,032 | 138,599 | | Accounts Payable | 6,227 | 7,549 | | Accrued Legal Contingencies | 15,000 | — | | Total Current Liabilities | 32,058 | 17,693 | | Total Liabilities | 42,639 | 29,337 | | Total Stockholders' Equity | 91,618 | 91,029 | | Total Equity | 109,393 | 109,262 | Condensed Consolidated Statements of Cash Flows Full-year 2023 operating cash flow turned positive to $4.8 million, a significant improvement from 2022, with increased investing outflows and decreased financing outflows Condensed Consolidated Statements of Cash Flows Summary (Thousands USD) | Metric | Full-Year 2023 (Thousands USD) | Full-Year 2022 (Thousands USD) | | :--- | :--- | :--- | | Cash Flow from Operating Activities | 4,774 | (1,423) | | Cash Flow Used in Investing Activities | (1,683) | (698) | | Cash Flow Used in Financing Activities | (2,441) | (2,742) | | Net Change in Cash and Cash Equivalents | 486 | (5,934) | | Cash and Cash Equivalents, End of Period | 16,720 | 16,234 | Revenues by Geographic Area Total revenue declined in Q4 and full-year 2023, with decreases in US and international markets, while Canadian product sales grew in Q4 but overall Canadian revenue slightly fell Revenues by Geographic Area (Thousands USD) | Region | Q4 2023 (Thousands USD) | Q4 2022 (Thousands USD) | Full-Year 2023 (Thousands USD) | Full-Year 2022 (Thousands USD) | | :--- | :--- | :--- | :--- | :--- | | United States | | | | | | Product Sales | 6,411 | 9,458 | 26,613 | 34,009 | | Services | 2,695 | 4,057 | 11,206 | 12,228 | | Total United States | 9,106 | 13,515 | 37,819 | 46,237 | | Canada | | | | | | Product Sales | 17,884 | 16,721 | 71,946 | 71,176 | | Services | 7,087 | 8,014 | 26,161 | 29,695 | | Total Canada | 24,971 | 24,735 | 98,107 | 100,871 | | Other Countries | | | | | | Product Sales | 3 | 131 | 1,888 | 674 | | Services | 1,167 | 1,805 | 4,657 | 7,850 | | Total Other Countries | 1,170 | 1,936 | 6,545 | 8,524 | | Total Revenue | 35,247 | 40,186 | 142,471 | 155,632 | - Compared to Q3 2023, total revenue decreased by 8%, with Canadian revenue down 11%, international revenue down 45%, and US revenue up 14%, driven by increased sales of sliding sleeves and composite plugs[4] Non-GAAP Financial Measures Reconciliations Overview of Non-GAAP Measures The company utilizes non-GAAP financial measures like Adjusted EBITDA and Free Cash Flow to assess core business performance and enable comparative investor evaluation - Non-GAAP financial measures are not defined by GAAP and should not be considered in isolation or as a substitute for GAAP-reported financial performance analysis[47] - Management uses these metrics to evaluate period performance of core business operations and enable investors to assess the company's performance relative to other companies unaffected by specific factors[48] Net Working Capital Net working capital, defined as total current assets excluding cash minus total current liabilities excluding current portion of long-term debt, was $56.3 million as of December 31, 2023 - Net working capital is used to assess working capital investment required to support operations, analyze cash flow and working capital needs, including operational efficiency and asset liquidity[50] Net Working Capital Reconciliation (Thousands USD) | Metric | December 31, 2023 (Thousands USD) | December 31, 2022 (Thousands USD) | | :--- | :--- | :--- | | Working Capital | 71,159 | 69,970 | | Cash and Cash Equivalents | (16,720) | (16,234) | | Current Portion of Long-Term Debt | 1,812 | 1,489 | | Net Working Capital | 56,251 | 55,225 | Adjusted Gross Profit and Margin Adjusted gross profit, defined as total revenue less cost of sales excluding depreciation and amortization, was $12.9 million in Q4 2023, with a 36.6% margin Adjusted Gross Profit and Margin Reconciliation (Thousands USD) | Metric | Q4 2023 (Thousands USD) | Q4 2022 (Thousands USD) | Full-Year 2023 (Thousands USD) | Full-Year 2022 (Thousands USD) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | 35,247 | 40,186 | 142,471 | 155,632 | | Cost of Sales (excluding D&A) | 22,359 | 24,108 | 86,868 | 95,228 | | Gross Profit | 12,284 | 15,588 | 53,398 | 58,432 | | Gross Margin | 34.9% | 38.8% | 37.5% | 37.5% | | Adjusted Gross Profit | 12,888 | 16,078 | 55,603 | 60,404 | | Adjusted Gross Margin | 36.6% | 40.0% | 39.0% | 38.8% | Adjusted Net Income (Loss) and EPS Adjusted net income (loss) is defined as net income (loss) attributable to NCS Multistage Holdings, Inc., adjusted for specific non-recurring items Adjusted Net Income (Loss) and EPS Reconciliation (Thousands USD) | Metric | Q4 2023 (Thousands USD) | Q4 2022 (Thousands USD) | Full-Year 2023 (Thousands USD) | Full-Year 2022 (Thousands USD) | | :--- | :--- | :--- | :--- | :--- | | Net Income (Loss) Attributable to NCS Multistage Holdings, Inc. | 39,639 | 1,979 | (3,153) | (1,102) | | Litigation Accrual (Reversal), Net | (40,696) | — | 1,802 | — | | Constructed Asset Write-off | 652 | — | 652 | — | | Adjusted Net Income (Loss) | (894) | 1,841 | (1,254) | (214) | | Adjusted Diluted EPS (Loss) | (0.36) | 0.75 | (0.51) | (0.09) | Adjusted EBITDA and Margin Adjusted EBITDA, defined as EBITDA adjusted for non-recurring or non-cash items, was $2.5 million in Q4 2023 with a 7% margin, significantly lower than 2022 - Adjusted EBITDA excludes costs not reflecting ongoing operating performance, intellectual property litigation, and certain capital structure-related costs[62] Adjusted EBITDA and Margin Reconciliation (Thousands USD) | Metric | Q4 2023 (Thousands USD) | Q4 2022 (Thousands USD) | Full-Year 2023 (Thousands USD) | Full-Year 2022 (Thousands USD) | | :--- | :--- | :--- | :--- | :--- | | Net Income (Loss) | 39,849 | 2,291 | (3,111) | (952) | | EBITDA | 41,265 | 4,561 | 1,859 | 4,733 | | Litigation Accrual (Reversal), Net | (40,696) | — | 1,802 | — | | Constructed Asset Write-off | 652 | — | 652 | — | | Share-based Compensation Expense | 879 | 953 | 4,164 | 3,453 | | Professional Service Fees | 262 | 846 | 1,548 | 5,665 | | Adjusted EBITDA | 2,529 | 6,398 | 11,949 | 15,110 | | Adjusted EBITDA Margin | 7% | 16% | 8% | 10% | | Adjusted EBITDA less Share-based Compensation Expense | 1,650 | 5,445 | 7,785 | 11,657 | Free Cash Flow Free cash flow, defined as operating cash flow less capital expenditures plus asset sales, was $3.1 million for full-year 2023, a significant improvement - Free cash flow provides investors with information on cash available during the period beyond capital expenditures and other investment needs[69] Free Cash Flow Reconciliation (Thousands USD) | Metric | Full-Year 2023 (Thousands USD) | Full-Year 2022 (Thousands USD) | | :--- | :--- | :--- | | Cash Flow from Operating Activities | 4,774 | (1,423) | | Purchases of Property and Equipment | (1,882) | (1,035) | | Purchases and Development of Software and Technology | (310) | (96) | | Proceeds from Sales of Property and Equipment | 509 | 433 | | Free Cash Flow | 3,091 | (2,121) | | Distributions to Non-Controlling Interests | (500) | — | | Free Cash Flow after Non-Controlling Interest Distributions | 2,591 | (2,121) |