NCS Multistage Holdings, Inc. Q1 FY2025 earnings call

• NCS had a strong start in 2025 with Q1 revenue exceeding the guided range. Canadian performance was standout with $38 million revenue in Q1, a 19% increase. - Core strategies: Build upon leading market positions, with progress in Canada's fracturing systems product line. Capitalize on international and offshore opportunities, with international revenue reaching 10% in 2024 and progress in North Sea, Middle East, and Latin America. Commercialize innovative solutions, with field trials for new products and projects like the 7 inch sliding sleeve application in Alaska and qualification of fracturing system sleeves for higher temperature ratings.

First quarter revenue was $50 million, exceeding the high end of the guided range. Canadian Q1 revenue was $38 million, an increase of 19% compared to Q1 2024, accounting for a significant portion of total revenue. International revenue reached 10% of total revenue in 2024, and in Q1 2025, international revenue contributed to the overall performance. US revenue declined by 6% in Q1 2025. Adjusted gross margin was 44%, exceeding the guided range. Adjusted EBITDA was $8.2 million, an improvement from $6.1 million in Q1 2024.

Second quarter total revenue expected in range of $26 million to $29 million, with Canadian revenue $12 million to $13 million, US revenue $10.5 million to $11.5 million, and international revenue $3.5 million to $4.5 million. Adjusted gross margin expected to range from 37% to 39%, adjusted EBITDA from negative $2 million to break even. Full year 2025 guidance maintains annual revenue of $165 million to $175 million, adjusted EBITDA range of $20 million to $24 million, and free cash flow after distributions to joint venture partner of $7 million to $11 million.

Risks include threatened or enacted trade actions like tariffs on steel imports and products from China, which impact costs. Commodity price environment weakness, geopolitical uncertainty, and OPEC+ production actions that can lead to reduced customer and industry activity levels.

Q: Hey, good morning everyone and thank you for taking my questions. Thinking about the scale that you guys are able to achieve going forward, are there any break points that we should maybe be aware of in terms of capacity constraints or anything like that that may be on the horizon?

A: There's really not, Dave, and we think about that in two ways, right. One is through the supply chain where we have some vertical integration through the operations at Repeat Precision which supports us both in the Repeat Precision sales and in the sliding sleeve business for Canada. But we generally operate an outsourced manufacturing model and believe there's plenty of capacity at our supply chain partners to continue to service as we grow without requiring additional investment or having to have anything that would impact our gross margin profile there. And then when we think about really the infrastructure that we have across our operating business, right, we've got a presence and a sales force in place to serve the US, Canada, Argentina, the North Sea, the Middle East that can accommodate significant additional growth. I think what you might see is in certain individual international markets, if we achieve scale, we might decide to have a little bit more in country presence there. An example of that is this year we are likely to set up an entity in the UK. We've got increased business on the UK side of the North Sea. We have an operating entity in Norway already. So we may do something there this year. And then as business grows in the Middle East, we may have more local service personnel that we decide to locate in country versus some of those jobs that we serve by rotating people from other regions as the work pops up. So, no real break point. We'll just find where we hit that critical mass of repeatable revenue, where it makes sense for us to put some additional investment into certain geographies.

Q: Understood. Very helpful. And then I guess, thinking about the sales pipeline, I guess kind of what are you seeing there from a texture standpoint? Are you building more inbound calls as customers are trying to maybe beat some of this macro uncertainty, or are you seeing yourselves, folks sitting a little more idle as everyone's waiting for the dust to settle? Maybe just any color there would be very helpful.

A: Yeah. Yeah. Thanks, Dave. Obviously, I think there's a lot of scenario planning that's going on in real time within our customer base. We have seen over the course of the last, even just the last week or so, oil prices in particular start to come down a bit. So look, it's early, but we are anticipating that there will be decisions made here in the course of the next couple weeks that will pull some activity out of the market, especially if WTI hangs in there with a five handle. Again, I think that that starts to come into the market first through private operators and maybe some of the smaller publics. I think your larger public companies and international oil companies in North America, they plan a little bit differently, but certainly they will react to commodity prices, as they need to. So I'd say the discussions are fluid right now and that speaks to North America, especially in Canada, where we're sitting in breakup. So a period of lower activity right now where the customers are planning what their winter drilling activity will look like. So the conversations are ongoing. What I can say is I feel really good about our technology portfolio because our solutions are generally designed to provide customers with an ability to operate more efficiently, to save cost, or to generate more economic value through their resources. So I think we've got the right portfolio to help our customers win and survive through this environment, but we won't be immune to lower activity.

Q: Good morning, guys. Ryan, it would seem that second half could get pretty dicey at least certainly here in the US. I'm just curious, given the strength of your balance sheet and which is about to get better, do you see yourself leaning more towards using market disruptions to go after tactical M&A deals, or do you think you lean more conservative and hoard cash and just ride this thing out?

A: Yeah. So John, we'll certainly be active in evaluating the M&A market. And I think one of the things that at least we've experienced in the past is when you have changes in the market environment and market opportunity, it takes a little bit of time for seller price expectations to adjust. So certainly we'll engage in discussions and think about deploying cash through M&A where, where it makes sense. We do expect the balance sheet to continue to continue to strengthen. And I also think that if we don't find that right M&A opportunity, we have a pretty outstanding investment opportunity within NCS as well. So again, if we don't find opportunities to deploy that capital externally, I think we and the Board will have conversations around what makes sense with respect to return of capital to shareholders or even kind of thinking through whether it makes sense to buy NCS stock back.

Q: Good morning, guys. Can you hear me? The first question is that 3 million estimate for the international revenue for Q2. Is that tracer work to well construction? And what's the pipeline for the North Sea projects in Q2 and Q3 to compensate for any kind of project delays that you're seeing?

A: Yeah, this is Mike, appreciate your question. I would say part of the question you asked is that attributed to well construction? I would say yes, part of it is well construction in the Middle East with the agreement that we have and the throughput that we're seeing. It's also we have some tracer activity that we experienced last year that we continue to see activity in that. The North Sea, I would say North Sea, that is -- there are some opportunities. We continue to see those opportunities. I think for our guidance, there is some in the second quarter, but probably more weighted toward the back half of the year as we look to the North Sea.

Q: The Canadian activity might have been stronger than anticipated. Did you see any pull forward due to the current macroeconomic conditions, the current policy conditions? Is there any pull forward that we have to model into?

A: For Canada in the first quarter, it's hard to attribute much of that specifically to a pull forward. I think what we did see in the first quarter was some generally favorable or benign weather conditions. So we got off to a little bit stronger start in January. There was a pretty short holiday break towards the end of last year. And then we've had our customers kind of continue to work into past the first week in March and sometimes you do see activity fall off pretty quickly there. I think another piece of it that's maybe just a little bit more fundamental that's helped us in March has been a bit of a transition in activity where we picked up more work with customers that will work through breakup, whether that be on the frac system side, also the success we've had in building the composite plug business in Canada, a lot of the operators there will set up their well pads, they can work through breakup. So I don't think we're going to have as drastic a fall off typically through the second quarter as we've had in prior years. It'll still be a big reduction for us, but we're working to build up that base of customers that work through the second quarter and help to mitigate at least some of that seasonality.

Q: Given the tariff and the price increases that you might have to pass through and as you're testing these new products in the north, especially in the US market, how well is the pricing environment or are there any pushbacks and are you able to maintain pricing discipline as you test these products, you think?

A: Yeah, so and there's, there's sort of two components to it. One is when we're bringing in a new technology, right, or that will have a benefit, that will help the operator save money or avoid a potential disruption, typically we can get paid for that. It's not a lot, right, but we can generally get a pretty good margin on new technology we bring to market. The question around pricing discipline and the question around passing through cost, I think this is going to be a bit more of a challenge certainly where we're seeing relatively low commodity prices, operators potentially dropping activity at the same time that we and other service companies will be facing increased costs. We'll see that in the form of steel. Others will see it and we'll see it a bit, still some pressure on the labor side. So it's going to be a more challenging environment to pass some of the costs that we're seeing on the tariff side through to customers. There will be areas where we're able to do it and areas where we'll strategically have to consider whether or not we try to really push that or not. But we will be as disciplined as we can. We're not going to lead the market down, but I can't speak to some of what our competitors will do on the pricing front, unfortunately.

Q: Is the pricing environment different in Canada as opposed to the US? Is it vastly different or is it similar?

A: Well, I think the broad similarity and the broad truth is that when commodity prices come down, our customers will look to the service companies to help contribute and help them lower their well cost to maintain activity as much as possible. That's true in Canada, it's true in the US. I think part of it has to do really with the differentiation that you're able to provide through your products and services. And I think we're very well placed certainly with our frac systems product line in Canada. And from an operational standpoint, what we're able to enable in that market, we've got a pretty nice differentiation versus the peer set. So while there will be certainly price pressure coming from competitors, I think we do offer distinct advantages operationally that the competitors can't meet.