NCS Multistage Holdings, Inc. (NASDAQ:NCSM): Navigating the Oilfield Services Landscape with Innovative Solutions

Published on September 24, 2024 | Ticker: NCSM

NCS Multistage Holdings, Inc. (NASDAQ:NCSM) is a leading provider of highly engineered products and support services that facilitate the optimization of oil and natural gas well construction, well completions, and field development strategies. The company's diverse portfolio of offerings, including fracturing systems, enhanced recovery systems, tracer diagnostics services, and well construction products, positions it as a key player in the oilfield services industry.

Financials

In the fiscal year 2023, NCS Multistage reported annual revenue of $142,471,000, a decrease from the previous year's figure of $151,235,000. Despite the revenue decline, the company's net income improved, reaching -$3,153,000 compared to -$14,996,000 in the prior year. The company's operating cash flow for the year was $4,774,000, while its free cash flow stood at $2,582,000.

For the first quarter of 2024, NCS Multistage reported revenues of $43,858,000, a 0.7% increase compared to the same period in 2023. The company's product sales accounted for 72% of total revenues, while services represented the remaining 28%. Geographically, the company's revenues were primarily driven by Canada, which contributed 72% of total revenues, followed by the United States at 23% and other international markets at 5%.

Operational Highlights and Outlook

NCS Multistage's management team has outlined three core strategies to drive the company's growth and value creation: building upon its leading market positions, capitalizing on international and offshore opportunities, and commercializing innovative solutions to complex customer challenges.

In the first quarter of 2024, the company demonstrated its commitment to these strategies. In Canada, the company's revenue increased by 3% year-over-year, despite a 6% decline in the average rig count, highlighting its ability to leverage its strong market position and customer relationships. Internationally, NCS Multistage has been successful in securing new customers in the North Sea and expanding its tracer diagnostics services in the Middle East, with international revenues expected to exceed $7.2 million in the first half of 2024, compared to $3.3 million in the same period of 2023.

The company's focus on innovation has also yielded positive results, with successful field trials for a completion system designed for deepwater operations and the company's pinpoint oriented perforating gun system at Repeat Precision. Additionally, NCS Multistage has made inroads into the SAGD market in Canada, a first for the company, and expects to install a well in the second quarter of 2024 that will represent its highest ever sleeve count in the U.S. at over 200 sleeves.

For the full year 2024, NCS Multistage has provided guidance for revenue in the range of $150 million to $160 million, representing a potential increase of up to 12% compared to 2023. The company has also increased its adjusted EBITDA guidance range to $14.5 million to $17.5 million, with a midpoint of $16 million, reflecting the impact of the business optimization initiatives undertaken in 2023 and the company's relatively fixed operating expenses.

Liquidity

As of March 31, 2024, NCS Multistage had a strong liquidity position, with $14 million in cash and total debt of $8.9 million, primarily consisting of finance lease obligations. The company's available borrowing base under its undrawn ABL Facility was $20.4 million, and Repeat Precision had $6 million of outstanding borrowings under a promissory note that was repaid in full in April.

The company's management expects to generate positive free cash flow in 2024, despite a modest investment in net working capital to support revenue growth. This, combined with the company's resilient balance sheet, provides NCS Multistage with financial and strategic flexibility to pursue its growth initiatives and navigate the evolving oilfield services landscape.

Competitive Positioning and Valuation

NCS Multistage's focus on innovative solutions, international expansion, and operational efficiency has positioned the company favorably among its publicly traded oilfield services and equipment peers. The company's expected revenue and earnings growth for 2024 is above the median of its peer group, as illustrated in the company's investor presentation.

However, the company's trading multiple, at 3.4x enterprise value to 2024 EBITDA, is approximately 1 multiple turn below the peer with the next lowest multiple and 2 multiple turns below the peer median. This suggests that the market may not be fully recognizing the value of NCS Multistage's growth prospects and balance sheet strength.

Risks and Challenges

While NCS Multistage has demonstrated its ability to navigate the industry's challenges, the company faces several risks and uncertainties that investors should consider. These include fluctuations in oil and natural gas prices, intense competition, supply chain disruptions, labor shortages, and the potential impact of regulatory changes and environmental concerns on the oil and gas industry.

Additionally, the company's international expansion efforts, particularly in the Middle East and North Sea, come with inherent risks related to political and economic instability, currency fluctuations, and the ability to effectively manage local partnerships and operations.

Conclusion

NCS Multistage's diverse product and service offerings, innovative mindset, and strategic focus on high-growth markets position the company as a compelling investment opportunity in the oilfield services sector. The company's strong financial position, coupled with its commitment to operational excellence and technology development, suggest that it is well-equipped to navigate the industry's challenges and capitalize on emerging opportunities.

As NCS Multistage continues to execute on its core strategies and deliver innovative solutions to its customers, investors may find the company's growth prospects and valuation attractive relative to its peers, despite the current market conditions.

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