NCS Multistage(NCSM) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The second quarter revenues were $8.7 million, which is 78% lower than the prior year’s second quarter and 84% lower than the first quarter [24][10] - Gross profit was $2.3 million, representing 27% of revenue, compared to $16.7 million or 42% of revenue in the prior year’s second quarter [25] - Selling, general and administrative (SG&A) costs were $15.5 million, down $7.4 million or 32% from the prior year’s second quarter [27] - Adjusted EBITDA for the second quarter was negative $7.9 million, compared to negative $1 million in the prior year [29] - Free cash flow for the quarter was over $16 million, with a total of over $19 million for the first six months of the year [21][30] Business Line Data and Key Metrics Changes - U.S. operations saw a revenue decline of 78% and Canadian operations experienced a decline of 95% in the second quarter compared to the first quarter [10] - The company noted a rebound in completion activity in the U.S. for the frac plug product line and tracer diagnostic services in the third quarter [12] - International revenue represented 30% of total revenue, despite shutdowns and travel restrictions impacting business [15] Market Data and Key Metrics Changes - Rig counts in the U.S. and Canada reached multi-decade lows during the second quarter, with U.S. completions activity falling more swiftly than rig counts [10] - Canadian rig count fell to a low of only 12 rigs in late June, with a muted rebound to 47 active rigs as of the last Friday [14] - The company expects third quarter total revenue to increase by at least 75% compared to the second quarter, driven by increased completions activity [34] Company Strategy and Development Direction - The company has taken decisive actions to lower its cost structure, including a workforce reduction of over 45% in the U.S. and Canada [17] - The company aims to increase the share of revenue generated from outside North America and has made progress in qualifying products and services in the Middle East [16] - The company is focused on maintaining liquidity and has amended its revolving credit facility to enhance financial flexibility [20][32] Management's Comments on Operating Environment and Future Outlook - Management indicated that the second quarter represented the trough in industry activity, with expectations for recovery in the third quarter [22] - The company is positioned to weather the current industry downturn and benefit from a rebound in activity [39] - Management expressed confidence in the ability to generate free cash flow for the full year 2020, despite anticipated working capital headwinds [21][56] Other Important Information - The company expects to reduce reported SG&A expenses in 2020 by over $25 million compared to 2019 [19] - The expected growth capital expenditures for the full year 2020 have been revised to $2 million to $3 million, significantly lower than previous guidance [37] Q&A Session Summary Question: Can you walk through some of the primary structural cost reductions? - Management discussed various moves to lower manufacturing costs and maintain control over assembly operations, indicating that these cost reductions are expected to remain in place for the next 12 to 18 months [47][49] Question: What is driving the sequential revenue increase despite lower average rig counts? - Management explained that the increase in revenue is due to a favorable customer mix and increased activity from customers with higher market shares, particularly in the U.S. and Canada [67] Question: What is the liquidity covenant on the new revolver? - The liquidity covenant requires maintaining $7.5 million of liquidity, defined as cash on hand and controlled accounts related to the facility [70] Question: Is the reduced CapEx budget sustainable? - Management confirmed that the reduced CapEx budget is sustainable, primarily focused on necessary machinery for new product lines [78] Question: What is the company's stance on potential consolidation in the industry? - Management acknowledged that there are too many service companies and indicated openness to consolidation opportunities that make sense, while emphasizing the importance of maintaining a strong balance sheet [81]