NCS Multistage Holdings, Inc. Q4 FY2024 earnings call

• NCS's vision is to be a globally recognized trusted partner and bold innovator, enabling customers' resource development through technology-driven solutions. - Core strategies: Build upon leading market positions (e.g., success in Montney Formation with single-point entry completions and advancing fracturing systems technology globally), capitalize on international and offshore opportunities (international revenue doubled to 10% of total in 2024), and commercialize innovative solutions (commercialized crack systems for SAGD, enhanced airlock casing buoyancy system). - Guiding principles: Maximize financial flexibility (net cash position at year-end nearly $18 million, free cash flow of $12 million in 2024) and uphold the promise (enhanced employee recognition, quality certification, new product development workflow, improved safety). - 2025 goals: Grow revenue in excess of market activity in primary markets, obtain field trials for new technology, improve employee engagement and safety, and generate free cash flow.

In the fourth quarter, revenues reached $45.0 million, marking a 20% increase compared to the prior year. All regions contributed to the year-over-year growth, with international revenue surging by 280%, Canada by 20%, and the U.S. by 18%. The fourth quarter adjusted gross profit stood at $19.4 million, corresponding to an adjusted gross margin of 43%, an improvement from 37% in the same period of 2023. For the full year 2024, revenues totaled $162.6 million, representing a growth of over $20 million or 14% compared to 2023. International revenue reached an all-time high of $16.5 million, accounting for 10% of the total revenue. The full year adjusted gross margin improved to 41% from 39% in 2023.

• First quarter 2025: Expected total revenue in the range of $42 million to $46 million. U.S. revenue is projected to be between $8 million and $9 million, international revenue between $2 million and $3 million, and Canadian revenue between $32 million and $34 million. Adjusted gross margin is expected to be between 39% and 42%, and adjusted EBITDA between $4.5 million and $6.5 million. - 2025 full year: Anticipated overall customer activity is flat to down in the U.S., with a slight increase in Canada and core international markets. Full year revenue is expected to range from $165 million to $175 million, and adjusted EBITDA from $20 million to $23 million. Impacted by the strengthening of the U.S. dollar relative to the Canadian dollar, expected to reduce revenue by approximately $4 million and adjusted EBITDA by $2.5 million to $3 million.

• Exchange rate fluctuations, particularly the strengthening of the U.S. dollar relative to the Canadian dollar, which impacts revenue and adjusted EBITDA. - Potential impacts from threatened or enacted trade actions involving the U.S., Canada, and Mexico.

Q: Good morning. I appreciate you taking my question. I just want to kind of start to see if there was a -- to try to get a sense of the cadence for the year. Is there any early indication on the spring break up in Canada? I know you mentioned Canada kind of had a more robust holiday season than was expected. Do you think maybe that might be a bit of a pull forward in revenues into Q4 of last year? Maybe any other seasonal variants that we should be aware of going into 2025?

A: Yes, thanks, Dave. Maybe I'll speak big picture first in that we would expect the impacts of seasonality in 2025 to mimic for the most part what you saw in 2024. Then moving specifically into Canada, I think it's right that Mike mentioned that we got off to a strong start in that first week of January, maybe stronger than we would in other years. We're in the environment right now where we are heading into break up. Some of the activity in Saskatchewan and Southern Alberta is already tailing off. You've got road bans going into place. However, the recount in some of the more northern areas is holding in there for the time being. So at this point, I'd say we'll expect pretty typical seasonality with respect to the Canadian operations. I will point out that 2024 ended up being a very favorable year from a weather condition standpoint. We came into the year concerned about the potential for drought conditions and water shortages, which did not materialize as we moved through the second quarter. Operating conditions were pretty favorable throughout the year. So we'll just have to see how spring breakup plays out. It's different every year and it's just not predictable. Typically, we do see activity start to move lower here in the last 2, 3 weeks of March and start to pick up again in June. But we've got to just deal with what Mother Nature delivers on that front.

Q: Good morning. Thank you for including me. Ryan, as you continue to build cash, I'm just curious, are there any little small tech-type related businesses that would be good plug-ins to your business? And are you actively looking at anything along those lines?

A: Yes, John, great question. So the short answer is yes, right, because I think some of the same attributes, as far as the benefits of organic revenue growth for NCS would also apply on the M&A front. Again, with our business model, we've got really good operating leverage to organic revenue growth, but it also positions us. We operate in multiple product lines and in multiple geographies. So, it opens up a lot of potential good opportunities on the M&A front where we might be able to bring in a business that, as you said, may have a technology that started to have some traction in the U.S., but we can work with that management team to take it and grow it into Canada and other international markets. So we are actively looking at M&A opportunities. What I'd say is we'll certainly look at ones where the kind of the strategic fit and the operational logic of that would be very, very clear. And where we would expect to generate some synergies in the combination such that you pay a reasonable price for the business and have a view towards post synergies having it be a very attractive transaction.

Q: Good morning. Thank you for including me. And then the final one for me is just on the R&D front. Is there anything that you guys are working on today that could come to market later this year, or early next year that gives you some excitement? Just elaborate on what might be in the pipeline.

A: So, the answer is actually -- obviously, yes, there's some stuff we're working on that's exciting to us. I'd say for most of that, we're either just finishing up some of the engineering work to where we are going to be building the prototypes and take it out. So, I don't want to get too far ahead of myself, those products need to make it through field trial. We need to see if whether there are any adjustments we need to make. But you go back to kind of the prepared remarks that we made and we are looking to kind of open up some new market segments for NCS. There are technologies that are fully developed, internally by NCS. And we've got some areas where we're kind of partnering with other companies to incorporate their technology inside NCS technology that could drive some growth for us, right, once if they find the home in the market that we think they will.