NCS Multistage Holdings, Inc. (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. With a strong foothold in North America and a growing international presence, NCS has demonstrated its ability to navigate the cyclical nature of the oilfield services industry.

Business Overview and History

NCS was incorporated in Delaware on November 28, 2012, under the name Pioneer Super Holdings, Inc. and changed its name to NCS Multistage Holdings, Inc. on December 13, 2016. The company went public in May 2017, completing its initial public offering of common stock to accelerate its growth and expand its product and service offerings.

NCS's primary offerings include its fracturing systems products and services, which enable efficient pinpoint stimulation of oil and natural gas wells. The company began providing pinpoint stimulation products and services in 2006. Over the years, NCS has expanded its product and service offerings to include casing buoyancy systems, liner hanger systems, toe initiation sleeves, and tracer diagnostics services.

The company's fracturing systems can be used in both cemented and open-hole wellbores, allowing customers to precisely place stimulation treatments in a more controlled and repeatable manner compared to traditional completion techniques. As an extension of its fracturing systems, NCS also offers enhanced recovery systems, which enable customers to inject water, other fluids, or gases in a controlled manner to increase hydrocarbon production.

NCS has faced several legal challenges throughout its history. In 2018, the company filed a patent infringement lawsuit against Kobold Corporation, Kobold Completions Inc. and 2039974 Alberta Ltd. in the Federal Court of Canada, alleging that Kobold's fracturing tools and methods infringed on several of NCS's Canadian patents. This litigation is still ongoing, with NCS believing it has strong grounds to appeal a 2023 decision against the company. Additionally, in 2019, NCS was a defendant in a lawsuit in the District Court of Winkler County, Texas, which was ultimately settled in 2023 with the company's insurance carrier paying the agreed-upon settlement amounts. NCS was also a defendant in a lawsuit in a state district court in Wyoming, which settled in 2023.

Despite these legal challenges, NCS has continued to focus on developing and commercializing innovative solutions to complex customer challenges. The company has made significant progress in expanding its international presence and implementing cost reduction initiatives to improve its operational efficiency.

Financial Snapshot

NCS has demonstrated resilience in its financial performance, navigating the cyclical nature of the oilfield services industry. In 2023, the company reported total revenues of $142.47 million, a decline from the $155.63 million reported in 2022. However, the company's adjusted EBITDA for 2023 was $1.86 million, a significant improvement from the $4.73 million reported in 2022.

For the full year 2024, NCS reported total revenues of $162.56 million, a 14.1% increase from 2023. This growth was driven by gains in international and Canadian product sales and services revenues, as well as higher U.S. product sales, partially offset by lower U.S. services revenues. The company's gross margin improved to 39.9% in 2024 from 37.5% in 2023, primarily due to an increase in higher-margin international work and benefits from operational restructuring efforts.

For the first nine months of 2024, NCS reported total revenues of $118 million, a 10% increase compared to the same period in 2023. The company's adjusted EBITDA for the first nine months of 2024 was $14.1 million, a 48% increase year-over-year. This strong performance can be attributed to the company's focus on cost optimization initiatives implemented in 2023, as well as its successful expansion into international markets.

In the third quarter of 2024, NCS reported revenue of $44.0 million, representing a 15% year-over-year increase. The company's net income for the quarter was $4.1 million. NCS's Q3 2024 adjusted EBITDA of $7.1 million exceeded their guided range of $5 million to $7 million.

Liquidity and Financial Position

As of September 30, 2024, NCS had a cash balance of $15.3 million and total debt of $8.1 million, primarily in the form of finance lease obligations. The company's strong liquidity position, with $37 million in total available liquidity, including $21.7 million available under its undrawn $35 million ABL Facility, provides it with the financial flexibility to navigate market fluctuations and pursue strategic growth opportunities.

NCS's debt-to-equity ratio stands at 0.087, indicating a conservative capital structure. The company's current ratio of 4.15 and quick ratio of 2.54 further demonstrate its strong short-term liquidity position.

Geographic Performance and Revenue Breakdown

Approximately 63% of NCS's 2024 revenue was generated in Canada, underlining the company's strong presence in the Canadian market. The company also has significant sales in the United States and growing operations in Argentina, the Middle East, and the North Sea.

In terms of product and service offerings, approximately 60% of NCS's revenue in 2024 was derived from fracturing systems products and services and enhanced recovery systems. Repeat Precision, in which NCS owns a 50% controlling interest, accounted for 20% of revenue, while well construction products and tracer diagnostics services each contributed 10% to the total revenue.

Operational Highlights and Outlook

NCS's core strategies for creating value for its stakeholders include building upon its leading market positions, capitalizing on international and offshore opportunities, and commercializing innovative solutions to complex customer challenges.

In the fracturing systems product line, NCS has demonstrated its ability to provide unique value to its customers. During the third quarter of 2024, the company helped a customer in Canada mitigate the impact of seismic events during fracturing operations by employing its sliding sleeve technology, which allowed the customer to continue operations without interruption.

NCS has also made strides in its international expansion, with its international revenue for the first nine months of 2024 already exceeding the full-year 2023 international revenue. The company has grown its tracer diagnostics services in the Middle East, expanded its customer base for fracturing systems in the North Sea, and benefited from increased activity in Argentina's Vaca Muerta region. International revenue represented 10% of total revenue in the first nine months of 2024, up from 5% in the same period last year.

Looking ahead, NCS expects to meet or exceed its prior record level of annual revenue from international markets of more than $15 million, which was established in 2019. The company is also optimistic about the North Sea market, where its key customers are proceeding with multi-well development projects that will span several years.

In terms of new product development, NCS has successfully tested a larger version of its frac sleeve and service tool designed for 7-inch casing, which expands the company's addressable market to include projects with greater flow rate requirements, such as offshore applications, water disposal wells, carbon capture and sequestration, geothermal, and SAGD operations.

Guidance and Future Outlook

For the fourth quarter of 2024, NCS expects total revenue in the range of $38 million to $42 million. This includes Canadian revenue of $26 million to $28 million, U.S. revenue of $9 million to $10 million, and international revenue of $3 million to $4 million. The company anticipates an adjusted gross margin between 40% and 42% for Q4 2024, with adjusted EBITDA ranging from $4.0 million to $6.5 million.

For the full year 2024, NCS has increased its guidance, now expecting revenue of $155.5 million to $159.5 million, representing an 11% increase compared to 2023. The company has also raised its full-year 2024 adjusted EBITDA range to approximately $18 million to $20.5 million, with a midpoint of $19.3 million. This represents a $4.3 million increase to the midpoint of the adjusted EBITDA range from NCS's initial full-year 2024 guidance.

NCS expects net capital expenditures for 2024 to be approximately $1.2 million, less than 1% of revenue. The company anticipates generating between $6 million and $10 million in free cash flow in 2024 after distributions to non-controlling interests. NCS projects its cash position at the end of 2024 to exceed $20 million, more than $7 per diluted share.

Risks and Challenges

Despite NCS's strong performance and growth prospects, the company faces several risks and challenges inherent to the oilfield services industry. These include:

1. Commodity price volatility: The demand for NCS's products and services is heavily dependent on oil and natural gas prices, which can be volatile and subject to global market conditions.

2. Competitive landscape: NCS operates in a highly competitive industry, with large multinational corporations and smaller regional players vying for market share. The company's ability to maintain and grow its market position depends on technological capabilities, service quality, safety performance, and pricing.

3. Supply chain disruptions: The company's operations can be impacted by disruptions in the supply of raw materials, components, and outsourced services, which could affect its ability to meet customer demand. NCS has experienced some supply chain disruptions and higher prices for raw materials, components, and outsourced services, though these pressures have begun to moderate.

4. Regulatory environment: NCS's business is subject to a complex regulatory landscape, including environmental, health, and safety regulations that could increase the company's compliance costs or restrict its operations.

5. Geopolitical risks: NCS's international operations expose the company to political, economic, and social instability in certain regions, which could disrupt its business activities.

6. Pricing pressures: NCS continues to face significant competitive pressures across its product and service offerings, which has constrained its ability to raise prices to offset rising costs, particularly during periods of higher cost inflation.

Conclusion

NCS Multistage Holdings, Inc. has demonstrated its ability to navigate the cyclical nature of the oilfield services industry, leveraging its innovative product and service offerings, strategic international expansion, and cost optimization initiatives. With a strong balance sheet, improving financial performance, and a clear growth strategy, the company is well-positioned to capitalize on opportunities in both North America and international markets, while managing the inherent risks of the industry.

As NCS continues to execute on its core strategies, including expanding its international presence, developing innovative technologies, and maintaining financial discipline, the company appears poised for continued growth and value creation. However, investors should remain mindful of the challenges and risks inherent in the oilfield services sector, including commodity price volatility, intense competition, and potential supply chain disruptions. With its strong liquidity position and focus on operational efficiency, NCS is well-equipped to navigate these challenges and deliver long-term value to its stakeholders.