0001437749-24-014375.txt : 20240502 0001437749-24-014375.hdr.sgml : 20240502 20240502161454 ACCESSION NUMBER: 0001437749-24-014375 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 77 CONFORMED PERIOD OF REPORT: 20240331 FILED AS OF DATE: 20240502 DATE AS OF CHANGE: 20240502 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NCS Multistage Holdings, Inc. CENTRAL INDEX KEY: 0001692427 STANDARD INDUSTRIAL CLASSIFICATION: OIL, GAS FIELD SERVICES, NBC [1389] ORGANIZATION NAME: 01 Energy & Transportation IRS NUMBER: 461527455 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38071 FILM NUMBER: 24908443 BUSINESS ADDRESS: STREET 1: 19350 STATE HIGHWAY 249 STREET 2: SUITE 600 CITY: HOUSTON STATE: TX ZIP: 77070 BUSINESS PHONE: 281-453-2222 MAIL ADDRESS: STREET 1: 19350 STATE HIGHWAY 249 STREET 2: SUITE 600 CITY: HOUSTON STATE: TX ZIP: 77070 10-Q 1 ncsm20240331_10q.htm FORM 10-Q ncsm20240331_10q.htm
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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

Quarterly Report Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2024

 

OR

 

Transition Report Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

 

For the transition period from   ______  to  ______

 

Commission file number: 001-38071

 

NCS Multistage Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

46-1527455

 
 

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification number)

 
     
 

19350 State Highway 249, Suite 600

   
 

Houston, Texas

 

77070

 
 

(Address of principal executive offices)

 

(Zip Code)

 

 

Registrants telephone number, including area code: (281) 453-2222

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

NCSM

Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes ☑   No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes ☑   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

Large accelerated filer

Accelerated filer

 
 

Non-accelerated filer

☑  

Smaller reporting company

 
   

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes    No ☑

 

As of May 1, 2024, there were 2,502,564 shares of common stock outstanding.

 

 

 

TABLE OF CONTENTS

 

   

Page

PART I. FINANCIAL INFORMATION

     

Item 1.

Financial Statements (Unaudited)

 
 

Condensed Consolidated Balance Sheets

3

 

Condensed Consolidated Statements of Operations

4

 

Condensed Consolidated Statements of Comprehensive Income (Loss)

5

 

Condensed Consolidated Statements of Stockholders’ Equity

6

 

Condensed Consolidated Statements of Cash Flows

7

 

Notes to Unaudited Condensed Consolidated Financial Statements

8

     

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

     

Item 4.

Controls and Procedures

27

     

PART II. OTHER INFORMATION

     

Item 1.

Legal Proceedings

28

     

Item 1A.

Risk Factors

28

     
Item 5. Other Information 28
     

Item 6.

Exhibits

29

     

Signatures

 

30

 

 

 

 

PART I. FINANCIAL INFORMATION

ITEM 1.  Financial Statements

NCS MULTISTAGE HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 

Assets

        

Current assets

        

Cash and cash equivalents

 $14,004  $16,720 

Accounts receivable—trade, net

  33,919   23,981 

Inventories, net

  39,237   41,612 

Prepaid expenses and other current assets

  1,695   1,862 

Other current receivables

  4,065   4,042 

Insurance receivable

     15,000 

Total current assets

  92,920   103,217 

Noncurrent assets

        

Property and equipment, net

  23,143   23,336 

Goodwill

  15,222   15,222 

Identifiable intangibles, net

  4,240   4,407 

Operating lease assets

  4,461   4,847 

Deposits and other assets

  873   937 

Deferred income taxes, net

  66   66 

Total noncurrent assets

  48,005   48,815 

Total assets

 $140,925  $152,032 

Liabilities and Stockholders’ Equity

        

Current liabilities

        

Accounts payable—trade

 $8,489  $6,227 

Accrued expenses

  3,814   3,702 

Income taxes payable

  350   364 

Operating lease liabilities

  1,556   1,583 

Accrual for legal contingencies

     15,000 

Current maturities of long-term debt

  2,441   1,812 

Other current liabilities

  2,547   3,370 

Total current liabilities

  19,197   32,058 

Noncurrent liabilities

        

Long-term debt, less current maturities

  6,443   6,344 

Operating lease liabilities, long-term

  3,365   3,775 

Other long-term liabilities

  202   213 

Deferred income taxes, net

  239   249 

Total noncurrent liabilities

  10,249   10,581 

Total liabilities

  29,446   42,639 

Commitments and contingencies (Note 10)

          

Stockholders’ equity

        

Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued and outstanding at March 31, 2024 and December 31, 2023

      

Common stock, $0.01 par value, 11,250,000 shares authorized, 2,540,626 shares issued and 2,485,708 shares outstanding at March 31, 2024 and 2,482,796 shares issued and 2,443,744 shares outstanding at December 31, 2023

  25   25 

Additional paid-in capital

  445,404   444,638 

Accumulated other comprehensive loss

  (86,248)  (85,752)

Retained deficit

  (263,547)  (265,617)

Treasury stock, at cost, 54,918 shares at March 31, 2024 and 39,052 shares at December 31, 2023

  (1,913)  (1,676)

Total stockholders' equity

  93,721   91,618 

Non-controlling interest

  17,758   17,775 

Total equity

  111,479   109,393 

Total liabilities and stockholders' equity

 $140,925  $152,032 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

NCS MULTISTAGE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

   

Three Months Ended

 
   

March 31,

 
   

2024

   

2023

 

Revenues

               

Product sales

  $ 31,758     $ 31,430  

Services

    12,100       12,124  

Total revenues

    43,858       43,554  

Cost of sales

               

Cost of product sales, exclusive of depreciation and amortization expense shown below

    19,692       18,833  

Cost of services, exclusive of depreciation and amortization expense shown below

    6,595       6,180  

Total cost of sales, exclusive of depreciation and amortization expense shown below

    26,287       25,013  

Selling, general and administrative expenses

    13,830       16,151  

Depreciation

    1,073       943  

Amortization

    167       167  

Income from operations

    2,501       1,280  

Other income (expense)

               

Interest expense, net

    (100 )     (209 )

Provision for litigation, net of recoveries

          (17,514 )

Other income, net

    1,137       292  

Foreign currency exchange (loss) gain

    (498 )     55  

Total other income (expense)

    539       (17,376 )

Income (loss) before income tax

    3,040       (16,096 )

Income tax expense (benefit)

    487       (1,100 )

Net income (loss)

    2,553       (14,996 )

Net income (loss) attributable to non-controlling interest

    483       (27 )

Net income (loss) attributable to NCS Multistage Holdings, Inc.

  $ 2,070     $ (14,969 )

Earnings (loss) per common share

               

Basic earnings (loss) per common share attributable to NCS Multistage Holdings, Inc.

  $ 0.83     $ (6.10 )

Diluted earnings (loss) per common share attributable to NCS Multistage Holdings, Inc.

  $ 0.82     $ (6.10 )

Weighted average common shares outstanding

               

Basic

    2,508       2,452  

Diluted

    2,539       2,452  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

NCS MULTISTAGE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

 

  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 

Net income (loss)

 $2,553  $(14,996)

Foreign currency translation adjustments, net of tax of $0

  (496)  (99)

Comprehensive income (loss)

  2,057   (15,095)

Less: Comprehensive income (loss) attributable to non-controlling interest

  483   (27)

Comprehensive income (loss) attributable to NCS Multistage Holdings, Inc.

 $1,574  $(15,068)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

NCS MULTISTAGE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(In thousands, except share data)

(Unaudited)

 

  

Three Months Ended March 31, 2024

 
  

Preferred Stock

  

Common Stock

  

Additional
Paid-In

  

Accumulated
Other
Comprehensive

  

Retained

  

Treasury Stock

  

Non-controlling

  

Total
Stockholders'

 
  

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

Loss

  

Deficit

  

Shares

  

Amount

  

Interest

  

Equity

 

Balances as of December 31, 2023

    $   2,482,796  $25  $444,638  $(85,752) $(265,617)  (39,052) $(1,676) $17,775  $109,393 

Share-based compensation

              766                  766 

Net income

                    2,070         483   2,553 

Distribution to noncontrolling interest

                             (500)  (500)

Vesting of restricted stock

        57,830                         

Shares withheld

                       (15,866)  (237)     (237)

Currency translation adjustment

                 (496)              (496)

Balances as of March 31, 2024

    $   2,540,626  $25  $445,404  $(86,248) $(263,547)  (54,918) $(1,913) $17,758  $111,479 

 

  

Three Months Ended March 31, 2023

 
  

Preferred Stock

  

Common Stock

  

Additional
Paid-In

  

Accumulated
Other
Comprehensive

  

Retained

  

Treasury Stock

  

Non-controlling

  

Total
Stockholders'

 
  

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

Loss

  

Deficit

  

Shares

  

Amount

  

Interest

  

Equity

 

Balances as of December 31, 2022

    $   2,434,809  $24  $440,475  $(85,617) $(262,464)  (26,335) $(1,389) $18,233  $109,262 

Share-based compensation

              913                  913 

Net loss

                    (14,969)        (27)  (14,996)

Vesting of restricted stock

        41,489   1   (1)                  

Shares withheld

                       (11,086)  (264)     (264)

Currency translation adjustment

                 (99)              (99)

Balances as of March 31, 2023

    $   2,476,298  $25  $441,387  $(85,716) $(277,433)  (37,421) $(1,653) $18,206  $94,816 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

NCS MULTISTAGE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

   

Three Months Ended

 
   

March 31,

 
   

2024

   

2023

 

Cash flows from operating activities

               

Net income (loss)

  $ 2,553     $ (14,996 )

Adjustments to reconcile net income (loss) to net cash used in operating activities:

               

Depreciation and amortization

    1,240       1,110  

Amortization of deferred loan costs

    51       51  

Share-based compensation

    902       1,265  

Provision for inventory obsolescence

    316       104  

Deferred income tax expense

    5       23  

Gain on sale of property and equipment

    (172 )     (83 )

Provision for litigation, net of recoveries

          17,514  

Net foreign currency unrealized loss (gain)

    373       (205 )

Proceeds from note receivable

    61       229  

Changes in operating assets and liabilities:

               

Accounts receivable—trade

    (10,282 )     (1,917 )

Inventories, net

    1,521       (3,786 )

Prepaid expenses and other assets

    29       933  

Accounts payable—trade

    2,355       831  

Accrued expenses

    130       274  

Other liabilities

    (1,339 )     (1,719 )

Income taxes receivable/payable

    377       (1,179 )

Net cash used in operating activities

    (1,880 )     (1,551 )

Cash flows from investing activities

               

Purchases of property and equipment

    (299 )     (503 )

Purchase and development of software and technology

    (13 )     (61 )

Proceeds from sales of property and equipment

    176       84  

Net cash used in investing activities

    (136 )     (480 )

Cash flows from financing activities

               

Payments on finance leases

    (449 )     (387 )

Line of credit borrowings

    1,158       3,581  

Payments of line of credit borrowings

    (602 )     (3,349 )

Treasury shares withheld

    (237 )     (264 )

Distribution to noncontrolling interest

    (500 )      

Net cash used in financing activities

    (630 )     (419 )

Effect of exchange rate changes on cash and cash equivalents

    (70 )     (151 )

Net change in cash and cash equivalents

    (2,716 )     (2,601 )

Cash and cash equivalents beginning of period

    16,720       16,234  

Cash and cash equivalents end of period

  $ 14,004     $ 13,633  

Noncash investing and financing activities

               

Assets obtained in exchange for new finance lease liabilities

  $ 696     $ 629  

Assets obtained in exchange for new operating lease liabilities

  $     $ 38  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 
7

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 

 

Note 1.  Basis of Presentation

 

Nature of Business

 

NCS Multistage Holdings, Inc., a Delaware corporation, through its wholly owned subsidiaries and subsidiaries for which it has a controlling voting interest (collectively referred to as the “Company,” “NCS,” “we,” “our” and “us”), is primarily engaged in providing engineered products and support services for oil and natural gas well construction, well completions and field development strategies. We offer our products and services primarily to exploration and production companies for use both in onshore and offshore wells. We operate through service facilities principally located in Houston and Odessa, Texas; Tulsa, Oklahoma; Calgary, Red Deer, Grande Prairie and Estevan, Canada; Neuquén, Argentina and Stavanger, Norway.

 

Basis of Presentation

 

Our accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities Exchange Act of 1934, as amended, issued by the Securities Exchange Commission (“SEC”) and have not been audited by our independent registered public accounting firm. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with our financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023 (“Annual Report”). We consolidate Repeat Precision, LLC and its subsidiary (“Repeat Precision”), a 50% owned entity, with operations in the United States and Mexico, because NCS has a controlling voting interest. The other party’s ownership is presented separately as a non-controlling interest. In the opinion of management, these condensed consolidated financial statements reflect all normal, recurring adjustments necessary for a fair statement of the interim periods presented. The results of operations for interim periods are not necessarily indicative of those for a full year. All intercompany accounts and transactions have been eliminated for purposes of preparing these condensed consolidated financial statements. In addition, certain reclassifications of prior period balances have been made to conform to the current period presentation. The reclassifications had no effect on the previously reported net loss.

 

Significant Accounting Policies

 

Our significant accounting policies are described in “Note 2. Summary of Significant Accounting Policies” in our Annual Report.

 

Recent Accounting Pronouncements

 

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU improves income tax disclosures including a requirement for specific categories in the effective tax rate reconciliation, additional information for reconciling items that meet a quantitative threshold, certain disclosures pertaining to income taxes paid (net of refunds received) and amendments to other disclosure requirements. The new standard is effective for fiscal years beginning after December 15, 2024 and should be applied prospectively although retrospective application is permitted. Early adoption is also permitted for financial statements that have not yet been issued. We are currently evaluating the impact of the adoption of this guidance.

 

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU improves reportable segment disclosure requirements on an annual and interim basis and includes requirements for entities with a single reportable segment. The improvements include disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), the title and position of the CODM and explanation of how the CODM uses the reported measure of segment profit or loss in assessing performance and allocating resources along with other disclosure requirements. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and should be applied retrospectively. Early adoption is permitted. We are currently evaluating the impact of the adoption of this guidance.

 

8

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 

Note 2.  Segment and Geographic Information

 

We have determined that we operate in one reportable segment that has been identified based on how our chief operating decision maker manages our business. 

 

We aggregate revenue for presentation based on qualitative factors including the nature of the products and services, the nature and commonality of production processes, a shared customer base primarily in North America, the scope of geographic operations and a common industry and regulatory environment. However, we present revenue on a geographic basis, segregated between product sale and service revenues.

 

The following table summarizes revenue by geographic area attributed based on the current billing address of the customer (in thousands):

 

  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 

United States

        

Product sales

 $7,767  $8,060 

Services

  2,244   3,259 

Total United States

  10,011   11,319 

Canada

        

Product sales

  22,675   22,561 

Services

  8,994   8,110 

Total Canada

  31,669   30,671 

Other Countries

        

Product sales

  1,316   809 

Services

  862   755 

Total other countries

  2,178   1,564 

Total

        

Product sales

  31,758   31,430 

Services

  12,100   12,124 

Total revenues

 $43,858  $43,554 

 

 

Note 3.  Revenues

 

Disaggregation of Revenue

 

We sell our products and services primarily in North America and in selected international markets. See above "Note 2. Segment and Geographic Information" for our disaggregated revenue by geographic area.

 

Contract Balances

 

If the timing of the delivery of products and provision of services is different from the timing of the customer payments, we recognize either a contract asset (performance precedes contractual due date in connection with estimates of variable consideration) or a contract liability (customer payment precedes performance) on our condensed consolidated balance sheet.

 

The following table presents the current contract liabilities as of  March 31, 2024 and  December 31, 2023 (in thousands):

 

Balance at December 31, 2023

 $460 

Additions

  88 

Revenue recognized

  (326)

Balance at March 31, 2024

 $222 

 

We currently do not have any contract assets or non-current contract liabilities. Our contract liability as of March 31, 2024 and  December 31, 2023 is included in other current liabilities on the condensed consolidated balance sheets. Our performance obligations for our product and services revenues are typically satisfied before the customer’s payment; however, prepayments may occasionally be required. Revenue recognized from the contract liability balance was $0.3 million for the three months ended March 31, 2024. There was no revenue recognized from the contract liability balance for the three months ended March 31, 2023.

 

Practical Expedient

 

We do not disclose the value of unsatisfied performance obligations when the related contract has a duration of one year or less. We recognize revenue equal to what we have the right to invoice when that amount corresponds directly with the value to the customer of our performance to date.

 

9

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 

Note 4.  Inventories, net

 

Inventories consist of the following as of March 31, 2024 and  December 31, 2023 (in thousands):

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 

Raw materials

 $2,252  $2,395 

Work in process

  361   559 

Finished goods

  36,624   38,658 

Total inventories, net

 $39,237  $41,612 

 

 

Note 5.  Other Current Receivables

 

Other current receivables consist of the following as of March 31, 2024 and  December 31, 2023 (in thousands):

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 

Current income tax receivables

 $1,016  $1,418 

Employee receivables

  201   249 

Other receivables

  2,848   2,375 

Total other current receivables

 $4,065  $4,042 

 

Employee receivables primarily consist of amounts paid by us for foreign withholding tax paid on behalf of employees working on international assignments, which is expected to be reimbursed to us by the employees when refunded as foreign tax credits on their home-country tax returns. As of  March 31, 2024 and  December 31, 2023, a primary component of the other receivables balance is $1.2 million related to a company-owned life insurance policy associated with a non-qualified deferred compensation plan which was terminated in late 2023. We expect to utilize the proceeds from the liquidation of the insurance policy to fund the disbursements to settle liabilities under the terminated plan by the end of 2024. The associated liability of $1.2 million is included in other current liabilities on the accompanying condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023. In addition, the other receivables balances includes amounts associated with a technical services and assistance agreement with our partner in Oman, of which $0.9 million as of March 31, 2024 and December 31, 2023 pertains to the year ended December 31, 2023, and an additional $0.3 million as of March 31, 2024, pertains to the three month period then ended.

 

 

Note 6.  Property and Equipment

 

Property and equipment by major asset class consist of the following as of March 31, 2024 and  December 31, 2023 (in thousands):

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 

Land

 $1,597  $1,630 

Building and improvements

  7,519   7,742 

Machinery and equipment

  19,693   19,378 

Computers and software

  2,599   2,408 

Furniture and fixtures

  710   722 

Vehicles

  264   265 

Right of use assets - finance leases

  12,689   12,709 

Service equipment

  57   57 
   45,128   44,911 

Less: Accumulated depreciation and amortization

  (22,643)  (21,912)
   22,485   22,999 

Construction in progress

  658   337 

Property and equipment, net

 $23,143  $23,336 

 

10

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 

The following table presents the depreciation expense associated with the respective income statement line items for the three months ended March 31, 2024 and 2023 (in thousands):

 

  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 

Cost of sales

        

Cost of product sales

 $468  $362 

Cost of services

  148   154 

Selling, general and administrative expenses

  457   427 

Total depreciation

 $1,073  $943 

 

We evaluate our property and equipment for impairment whenever changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. We determined there were no triggering events that indicated potential impairment of our property and equipment for the three months ended March 31, 2024 and 2023, respectively, and accordingly no impairment loss has been recorded.

 

 

Note 7.  Goodwill and Identifiable Intangibles

 

The carrying amount of goodwill is summarized as follows (in thousands):

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 

Gross value

 $177,162  $177,162 

Accumulated impairment

  (161,940)  (161,940)

Net

 $15,222  $15,222 

 

We perform an annual impairment analysis of goodwill as of December 31, or whenever there is a triggering event that indicates an impairment loss may have been incurred. As of March 31, 2024 and 2023, we did not identify any triggering events for Repeat Precision, our only reportable unit with goodwill, that would indicate potential impairment. Therefore, no goodwill impairment has been recorded for the three months ended March 31, 2024 and 2023, respectively.

 

Identifiable intangibles by major asset class consist of the following (in thousands):

 

   

March 31, 2024

 
 

Estimated

 

Gross

         
 

Useful

 

Carrying

  

Accumulated

  

Net

 
 

Lives (Years)

 

Amount

  

Amortization

  

Balance

 

Technology

1 - 20

 $3,958  $(928) $3,030 

Customer relationships

10

  4,100   (2,938)  1,162 

Total amortizable intangible assets

   8,058   (3,866)  4,192 

Technology - not subject to amortization

Indefinite

  48      48 

Total identifiable intangibles

 $8,106  $(3,866) $4,240 

 

   

December 31, 2023

 
 

Estimated

 

Gross

         
 

Useful

 

Carrying

  

Accumulated

  

Net

 
 

Lives (Years)

 

Amount

  

Amortization

  

Balance

 

Technology

1 - 20

 $3,958  $(863) $3,095 

Customer relationships

10

  4,100   (2,836)  1,264 

Total amortizable intangible assets

   8,058   (3,699)  4,359 

Technology - not subject to amortization

Indefinite

  48      48 

Total identifiable intangibles

 $8,106  $(3,699) $4,407 

 

11

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 

Total amortization expense, which is associated with selling, general and administrative expenses on the condensed consolidated statements of operations, was $0.2 million for each of the three months ended March 31, 2024 and 2023, respectively.

 

Identifiable intangibles are tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. As of March 31, 2024, we evaluated potential triggering events and determined that there were no triggering events which indicated potential impairment of our intangibles, which are substantially related to our Repeat Precision asset group. Therefore, we did not record any impairment charges related to our identifiable intangibles for the three months ended March 31, 2024 and 2023.

 

 

Note 8.  Accrued Expenses

 

Accrued expenses consist of the following as of March 31, 2024 and  December 31, 2023 (in thousands):

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 

Accrued payroll and bonus

 $2,786  $2,255 

Property and franchise taxes accrual

  331   251 

Severance and other termination benefits

  170   436 

Accrued other miscellaneous liabilities

  527   760 

Total accrued expenses

 $3,814  $3,702 

 

As previously disclosed in our Annual Report, we implemented certain restructuring efforts during 2023 to streamline our tracer diagnostics operations, consolidate facilities in the United States and Mexico, for Repeat Precision, and to eliminate redundancies in the structure of certain U.S. and international operations management and support functions. In addition, in July 2023, an executive officer and NCS agreed that he would leave his position. In connection with these restructuring efforts, we incurred severance and other charges of $1.9 million in 2023. Of this amount, we paid $1.1 million in 2023 and $0.2 million for the three months ended  March 31, 2024, with a remaining severance and other termination benefits accrual of $0.2 million as of March 31, 2024. We expect this severance and other termination benefits liability to be fully paid by July 2024.

 

 

Note 9.  Debt

 

Our long-term debt consists of the following as of March 31, 2024 and  December 31, 2023 (in thousands):

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 

ABL Facility

 $  $ 

Repeat Precision Promissory Note

  556    

Finance leases

  8,328   8,156 

Total debt

  8,884   8,156 

Less: current portion

  (2,441)  (1,812)

Long-term debt

 $6,443  $6,344 

 

The estimated fair value of total debt as of March 31, 2024 and  December 31, 2023 was $7.8 million and $7.1 million, respectively. The fair value of the Repeat Precision Promissory Note (as defined below) approximated the carrying value due to a variable interest rate and the ability to repay the note at any time. The fair value of the finance leases was estimated using Level 2 inputs by calculating the sum of the discounted future interest and principal payments at our incremental borrowing rate through the date of maturity.

 

12

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 

Below is a description of our financing arrangements.

 

ABL Facility

 

On May 3, 2022, we entered into a secured asset-based revolving credit facility (the “ABL Facility”) under which credit availability is subject to a borrowing base calculation. The ABL Facility is governed by the Credit Agreement dated as of May 3, 2022, by and between NCS Multistage Holdings, Inc. (“NCSH”), Pioneer Investment, Inc. (“Pioneer”), NCS Multistage, LLC, NCS Multistage Inc. (“NCS Canada”), the other loan parties thereto, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent and as a lender under the facility provided therein (the “Credit Agreement”). Concurrent with the entry into our Credit Agreement on May 3, 2022, our prior ABL facility was terminated. On April 16, 2024, we entered into the first amendment to the Credit Agreement to modify the benchmark that may be used for loans in Canadian dollars in connection with the cessation of the CDOR Rate and transition to the CORRA Rate.

 

The ABL Facility consists of a revolving credit facility in an aggregate principal amount of $35.0 million made available to borrowers, of which up to $10.0 million may be made in Canadian dollars and $7.5 million may be made available for letters of credit. Total borrowings available to the borrowers under the ABL Facility may be limited subject to a borrowing base calculated on the sum of cash in a specified pledged account, eligible accounts receivables and eligible inventory, provided it does not include the assets of Repeat Precision. Our available borrowing base under the ABL Facility as of  March 31, 2024 was $20.4 million. The ABL Facility will mature on May 3, 2027. As of March 31, 2024 and  December 31, 2023, we had no outstanding indebtedness under the ABL Facility.

 

Borrowings under the ABL Facility may be made in U.S. dollars with interest calculated using either the “ABR”, the “Adjusted Daily Simple SOFR” or the “Adjusted Term SOFR Rate”, and in Canadian dollars with interest calculated using the “Canadian Prime Rate” or the “Adjusted Term CORRA Rate” (each as defined in the amended and restated Credit Agreement). Borrowings bear interest plus a margin that varies depending on our leverage ratio as follows: (i) for ABR based loans, between 1.40% and 2.40%, and (ii) for Adjusted Daily Simple SOFR, Adjusted Term SOFR Rate, Canadian Prime Rate, and Adjusted Term CORRA Rate, between 2.40% and 3.40%. We must also pay a commitment fee calculated at 0.25% to 0.50% per annum, based on unused commitments. The applicable interest rate at March 31, 2024 was 8.0%. We incurred interest expense related to the ABL Facility, including commitment fees, of less than $0.1 million for each of the three months ended March 31, 2024 and 2023, respectively.

 

The obligations of the borrowers under the ABL Facility are guaranteed by NCSH and each of our U.S. and Canadian subsidiaries (other than Repeat Precision), as well as each of our future direct and indirect subsidiaries organized under the laws of the United States or Canada (subject to certain exceptions), and are secured by substantially all of the assets of NCSH and its subsidiaries, in each case, subject to certain exceptions and permitted liens.

 

The Credit Agreement requires, as a condition to borrowing, that available cash on hand after borrowings does not exceed $10.0 million. The Credit Agreement also requires us to (i) maintain, for quarters during which liquidity is less than 20% of the aggregate revolving commitments, a fixed charge coverage ratio of at least 1.0 to 1.0 and (ii) to prepay advances to the extent that the outstanding loans and letter of credit amounts exceed the most recently calculated borrowing base. As of March 31, 2024, we were in compliance with these financial covenants. The Credit Agreement also contains customary affirmative and negative covenants, including, among other things, restrictions on the creation of liens, the incurrence of indebtedness, investments, dividends and other restricted payments, dispositions and transactions with affiliates.

 

The Credit Agreement includes customary events of default for facilities of this type (with customary materiality thresholds and grace periods, as applicable). If an event of default occurs, the lenders party to the Credit Agreement may elect (after the expiration of any applicable notice or grace periods) to declare all outstanding borrowings under such facility, together with accrued and unpaid interest and other amounts payable thereunder, to be immediately due and payable. The lenders party to the Credit Agreement also have the right upon an event of default thereunder to terminate any commitments to provide further borrowings, or to provide additional financing in excess of the borrowing base limit, or to proceed against the collateral securing the ABL Facility.

 

We capitalized direct costs of $1.0 million in connection with the Credit Agreement, which are being amortized over the term of the ABL Facility using the straight-line method. Amortization of the deferred financing charges of $0.1 million for each of the three months ended March 31, 2024 and 2023, respectively, was included in interest expense, net.

 

Repeat Precision Promissory Note

 

On February 16, 2018, Repeat Precision entered into a promissory note for an aggregate borrowing capacity of $4.3 million with Security State Bank & Trust, Fredericksburg (the “Repeat Precision Promissory Note”). The Repeat Precision Promissory Note has been renewed several times and is scheduled to mature on August 10, 2024. The note bears interest at a variable interest rate based on prime plus 1.00%. The applicable interest rate at March 31, 2024 was 9.5%. The Repeat Precision Promissory Note is collateralized by certain equipment, inventory and receivables of Repeat Precision. Total borrowings may be limited subject to a borrowing base calculation, which includes a portion of Repeat Precision’s eligible receivables, inventory and equipment. As of March 31, 2024, Repeat Precision had $0.6 million of outstanding indebtedness under the promissory note. As of December 31, 2023, there was no outstanding indebtedness under the promissory note. Repeat Precision’s indebtedness is guaranteed by Repeat Precision and is not guaranteed by any other NCS entity.

 

Finance Leases

 

We lease assets under finance lease arrangements including an office and laboratory in Tulsa, Oklahoma, as well as facilities in Odessa, Texas, and certain operating equipment and software. We also maintain a vehicle leasing arrangement with a fleet management company through which we lease light vehicles and trucks that meet the finance lease criteria.

 

13

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 

Note 10.  Commitments and Contingencies

 

Litigation

 

In the ordinary course of our business, from time to time, we have various claims, lawsuits and administrative proceedings that are pending or threatened with respect to commercial, intellectual property and employee matters.

 

Texas Matter

 

NCS was a defendant in a lawsuit in the District Court of Winkler County, Texas (the “Texas Matter”) that was settled in December 2023, where the insurance carrier agreed to pay the mutually-agreed settlement amounts to the plaintiff in settlement of all liabilities, resulting in no cash payments by NCS. The lawsuit was filed in September 2019 by plaintiffs Boyd & McWilliams Energy Group, Inc. et. al. claiming damage to their wells in 2018 resulting from an alleged product defect related to components provided by a third-party supplier. In May 2023, we believed the jury awarded damages of $17.5 million against us to the plaintiff, which we expensed as a separate line within the other income (expense) section of the accompanying condensed consolidated statement of operations for the three months ended March 31, 2023. Subsequently, a judgment was rendered, above our initial expectations from the jury verdict, awarding the plaintiff total damages of $42.5 million. During 2023, we accrued $40.8 million which included this judgment amount and estimated court costs, less $2.0 million previously paid to the plaintiff by our insurance carrier. During the fourth quarter of 2023, in connection with entering into a settlement agreement, we reversed the accrual for this legal contingency of $40.8 million. As of December 31, 2023, because we had entered into a settlement agreement where the insurance carrier agreed to pay all amounts due to the plaintiff in early 2024, we recorded an insurance receivable for expected but unpaid insurance recoveries and a remaining provision for legal contingencies of $15.0 million. The settlement was fully paid by the insurance carrier in January 2024.

 

Canada Patent Matters

 

●  On July 24, 2018, we filed a patent infringement lawsuit seeking unspecified damages against Kobold Corporation, Kobold Completions Inc. and 2039974 Alberta Ltd. (“Kobold”) in the Federal Court of Canada (“Canada Court”), alleging that Kobold’s fracturing tools and methods infringe on several of our Canadian patents. On July 12, 2019, Kobold filed a counterclaim seeking unspecified damages alleging that our fracturing tools and methods infringe on their patent. The patent infringement litigation against Kobold and their counterclaim was heard in early 2022.

 

On October 10, 2023, the judge rendered a decision against us holding that our asserted patents are invalid and that we are infringing the Kobold asserted patent. The Canada Court ordered us to pay Kobold approximately $1.8 million ($2.5 million in Canadian dollars) in costs and disbursements, including taxes payable thereon, and granted an injunction prohibiting us from any further infringement of the specified patent. We paid this amount to Kobold in November 2023. 

 

We believe that applicable law supports strong grounds to appeal the decision by the Canada Court as well as to reduce the costs award significantly. We have appealed the judgment and believe we have strong arguments that may lead to a reversal of substantial portions of the decision, although a loss may be reasonably possible. We expect the appeal to be heard by late 2024, and a decision granted by mid-2025. If we do not prevail in the appeal phase, the damages portion would then be decided by the Canada Court and we do not know what damages, if any, will be awarded to Kobold. We would expect any damages awarded to be more modest because of the relative ease and minimal cost in implementing changes to our product to comply with the injunction, with such changes resulting in no significant commercial impact to date. 

 

●  On April 6, 2020, Kobold filed a separate patent infringement lawsuit seeking unspecified damages against us in the Canada Court, alleging that our fracturing tools infringe on their Canadian patents. In the summary judgment phase, we have successfully dismissed some of the asserted products. However, we were not able to dismiss all of the claims because there remained factual determinations that were not possible in a summary judgment proceeding for our other products. We believe we have strong arguments of invalidity and non-infringement in this matter. This patent infringement litigation has not yet been assigned a trial date.

 

Other Patent Matters

 

In connection with our patent infringement jury verdict against Nine Energy Services, Inc. (“Nine”), the Western District of Texas, Waco Division (“Waco District Court”) entered final judgment in June 2022 and awarded NCS approximately $0.5 million in damages for Nine’s infringement of U.S. Patent No. 10,465,445 (“the ’445 Patent”). At a hearing in December 2022, the Waco District Court announced it would be awarding hundreds of thousands of dollars in supplemental damages, interest, and costs and ordered Nine to pay an ongoing royalty for the sale of infringing casing flotation devices for the life of the ’445 Patent. In addition, in August 2022 in connection with our patent infringement jury verdict against TCO AS, the jury awarded NCS approximately $1.9 million in damages for TCO AS’s infringement of the ’445 Patent. The Waco District Court has entered the final judgment in that case, and we are seeking an award of ongoing royalties for TCO AS’s continued post-judgment infringement, supplemental damages, interest, and cost which should be heard by the Waco District Court in May 2024. Both cases remain subject to appeal. Therefore, we have not recorded any potential gain contingencies associated with these matters in the accompanying condensed consolidated statements of operations.

 

In accordance with GAAP, we accrue for contingencies where the occurrence of a material loss is probable and can be reasonably estimated. Our legal contingencies may increase or decrease, on a matter-by-matter basis, to account for future developments. Although the outcome of any legal proceeding cannot be predicted with any certainty, our assessment of the likely outcome of litigation matters is based on our judgment of a number of factors, including experience with similar matters, past history, precedents, relevant financial information and other evidence and facts specific to each matter.

 

14

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 

Note 11.  Share-Based Compensation

 

During the three months ended March 31, 2024, we granted 24,366 equity-classified restricted stock units (“RSUs”) with a weighted average grant date fair value of $15.35 to the nonemployee members of the Board of Directors. The RSUs granted to the members of our Board of Directors generally vest on the one year anniversary of the grant date and either settle at vesting or, if the director has elected to defer the RSUs, within thirty days following the earlier of the termination of the director’s service for any reason or a change of control.

 

During the three months ended March 31, 2024, we granted 202,225 equivalent stock units, or cash-settled, liability-classified RSUs (“ESUs”), with a weighted average grant date fair value of $15.35. When ESUs are granted to employees, they are valued at fair value, which we measure at the closing price of our common stock on the date of grant. Since ESUs will be settled in cash, we record a liability, which is remeasured each reporting period at fair value based upon the closing price of our common stock until the awards are settled. The ESUs generally vest and settle over a period of three equal annual installments beginning on or around the anniversary of the date of grant. The cash settled for any ESU will not exceed the maximum payout established by our Compensation, Nominating and Governance Committee of the Board of Directors.

 

In addition, during the three months ended March 31, 2024, we granted 56,157 performance stock unit awards (“PSUs”), which have a performance period from January 1, 2024 to December 31, 2026. The PSUs grant date fair value of $15.27 was measured using a Monte Carlo simulation. The number of PSUs ultimately issued under the program is dependent upon our total shareholder return relative to a performance peer group (“relative TSR”) over the three year performance period. Each PSU associated with the March 2024 award will settle for between zero and 1.25 shares of our common stock in the first quarter of 2027. The threshold performance level (25th percentile relative TSR) earns 50% of the target PSUs, the mid-point performance level (50th percentile relative TSR) earns 100% of the target PSUs and the maximum performance level (75th percentile relative TSR) or greater earns 125% of the target PSUs.

 

Total share-based compensation expense for all awards was $0.9 million and $1.3 million for the three months ended March 31, 2024 and 2023, respectively.

 

 

Note 12.  Income Taxes

 

The computation of the annual estimated effective tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected operating income (or loss) for the year, projections of the proportion of income (or loss) earned and taxed in foreign jurisdictions, permanent and temporary differences and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is acquired or additional information is obtained. The computation of the annual estimated effective tax rate includes applicable modifications, which were projected for the year, such as certain book expenses not deductible for tax, tax credits and foreign deemed dividends.

 

Our effective tax rate (“ETR”) from continuing operations was 16.0% and 6.8% for the three months ended March 31, 2024 and 2023, respectively. The income tax expense and benefit for the three months ended March 31, 2024 and 2023, respectively, primarily relates to results generated by our U.S. and certain foreign businesses. The income tax provision for both the three months ended March 31, 2024 and 2023 does not include effects of losses within the United States, Canada, or other jurisdictions, from which we cannot currently benefit. In addition, for both the three months ended March 31, 2024 and 2023 the income tax provision includes effects of changes in valuation allowances established against our previously recognized deferred tax assets, including against net operating loss carryforwards, in the United States, Canada, or other jurisdictions. For both the three months ended March 31, 2024 and 2023, due to the impact of the valuation allowances on tax expense, significant variations exist in the customary relationship between income tax expense and pretax accounting income.

 

15

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 

Note 13.  Earnings (Loss) Per Common Share

 

The following table presents the reconciliation of the numerator and denominator for calculating earnings (loss) per common share from net income (loss) (in thousands, except per share data):

 

  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 

Numerator

        

Net income (loss)

 $2,553  $(14,996)

Less: income (loss) attributable to non-controlling interest

  483   (27)

Net income (loss) attributable to NCS Multistage Holdings, Inc.

 $2,070  $(14,969)
         

Denominator

        

Basic weighted average number of shares

  2,508   2,452 

Dilutive effect of stock options, RSUs and PSUs

  31    

Diluted weighted average number of shares

  2,539   2,452 
         

Earnings (loss) per common share

        

Basic

 $0.83  $(6.10)

Diluted

 $0.82  $(6.10)
         

Potentially dilutive securities excluded as anti-dilutive

  74   154 

 

 

 

   

 

Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes thereto included in this Quarterly Report on Form 10-Q (Quarterly Report) and with our audited financial statements and the related notes thereto included in our Annual Report on Form 10-K (“Annual Report”), filed with the Securities and Exchange Commission (the SEC). This discussion and analysis contains forward-looking statements regarding the industry outlook, estimates and assumptions concerning events and financial and industry trends that may affect our future results of operations or financial condition and other non-historical statements. These forward-looking statements are subject to numerous risks and uncertainties, including but not limited to the risks and uncertainties described in “—Cautionary Note Regarding Forward-Looking Statements and Risk Factors. Our actual results may differ materially from those contained in or implied by these forward-looking statements. As used in this Quarterly Report, except where the context otherwise requires or where otherwise indicated, the terms Company, NCS, we, our and us refer to NCS Multistage Holdings, Inc.

 

Overview and Outlook

 

We are 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. We provide our products and services primarily to exploration and production (“E&P”) companies for use in onshore and offshore wells, predominantly wells that have been drilled with horizontal laterals in both unconventional and conventional oil and natural gas formations. Our products and services are utilized in oil and natural gas basins throughout North America and in selected international markets, including the North Sea, the Middle East, Argentina and China. We provide our products and services to various customers, including leading large independent oil and natural gas companies and major oil companies.

 

Our primary offering is our fracturing systems products and services, which enable efficient pinpoint stimulation: the process of individually stimulating each entry point into a formation targeted by an oil or natural gas well. Our fracturing systems products and services can be used in both cemented and open-hole wellbores and enable our customers to precisely place stimulation treatments in a more controlled and repeatable manner as compared with traditional completion techniques. Our fracturing systems products and services are utilized in conjunction with third-party providers of pressure pumping, coiled tubing and other services. As an extension of fracturing systems, we offer enhanced recovery systems, which enable our customers to inject water, other fluids, or gases in a controlled manner with the objective of increasing the number of hydrocarbons produced from their assets.

 

We own a 50% interest in Repeat Precision, LLC (“Repeat Precision”), which sells composite frac plugs, perforating guns and related products. We provide tracer diagnostics services for well completion and reservoir characterization that utilize downhole chemical and radioactive tracers. We sell products for well construction, including casing buoyancy systems, liner hanger systems and toe initiation sleeves. We operate in one reportable segment that has been identified based on how our chief operating decision maker manages our business.

 

Our products and services are primarily sold to North American E&P companies and our ability to generate revenues from our products and services depends upon oil and natural gas drilling and completion activity in North America. Oil and natural gas drilling and completion activity is directly influenced by oil and natural gas prices.

 

Based on E&P company activity to date and expected capital budgets for the remainder of 2024, as well as industry reports, we believe that annual average industry drilling and completion activity in Canada will be flat to slightly lower compared to 2023 and may be impacted by fresh water rationing in certain regions in Canada due to recent drought conditions, thereby potentially reducing completions activity in those regions. We expect activity in the United States to decline on average by 5% to 10% compared to 2023, although such activity may increase modestly throughout the remainder of 2024 from recent levels. We continue to expect international industry activity to improve on average between 5% to 10% in 2024 as compared to 2023.

 

Oil and natural gas prices were volatile in 2023, and this volatility continued into 2024, as a result of unrest associated with the ongoing war between Russia and Ukraine, the Israeli-Hamas conflict, and the potential for escalation of tensions in the Red Sea. If conflict escalates in the Middle East, it could result in further commodity price volatility. However, to mitigate the impact of uncertain economic conditions on the oil market, certain countries continue to extend voluntary crude oil output cuts and maintain spare capacity, with the ability to increase production relatively quickly, if needed. See further discussion below on oil and natural gas pricing.

 

We continue to face intense competitive pressure across all of our product and services offerings, which has and may continue to have a negative impact on market share and operating margins for certain product lines. Furthermore, this competitive pressure constrains our ability to raise prices in an inflationary environment, which was more pronounced in early to mid-2023 but has since partially improved.

 

For the past two years, we have experienced modest disruptions to our supply chain, and higher prices for certain raw materials, including steel and chemicals, and purchased components and outsourced services. This cost inflation persisted throughout 2022 and continued into 2023, though prices for steel have begun to moderate. While we have endeavored to increase customer prices to defray our higher raw material and component costs, these price increases have not always fully offset our higher input costs. We also experienced tight labor conditions starting in 2022, which has led to increased employee turnover, delays in filling open positions and labor cost inflation, which impacted both our cost of sales and selling, general and administrative (“SG&A”) expenses and resulted in higher salaries, hourly pay rates and benefit costs. However, labor cost inflation while still elevated, began to decrease during the latter part of 2023.

 

To counter inflationary pressures on the economy, central banks, including the U.S. Federal Reserve, increased reference interest rates several times between March 2022 and July 2023, an action which typically is expected to increase borrowing costs and restrain economic activity. In March 2024, the U.S. Federal Reserve did not increase the benchmark interest rate which remains unchanged in 2024 to date, amid signs of more persistent inflation and strong economic growth. While the U.S. Federal Reserve has not changed the benchmark interest rate recently and rate cuts are possible later in 2024, unfavorable inflation data could delay any action.

 

 

Market Conditions

 

Oil and Natural Gas Drilling and Completion Activity

 

While oil and natural gas prices remain volatile, the average WTI crude oil pricing remained relatively flat in the first quarter of 2024 as compared to the fourth quarter of 2023. During the first quarter of 2024, members of OPEC and certain other countries, including Russia (informally known as “OPEC+”) agreed to an extension of additional crude oil production cuts of 2.2 MMBBL/D until the end of June 2024. Since 2022, OPEC + has implemented various production cuts to address the uncertain outlook in the global economic and oil markets.

 

Natural gas pricing continues to be volatile and has decreased in 2024 to an average of $2.15 per MMBtu during the first quarter of 2024 compared to an average of $2.74 per MMBtu during the fourth quarter of 2023. Realized natural gas prices for Canadian E&P customers are typically at a discount to U.S. Henry Hub pricing. Natural gas pricing declined in 2023 due to overall warm winter weather conditions and extended downtime at an LNG export facility, which decreased near-term demand and led to robust levels of natural gas in storage, which has negatively impacted drilling and completion activity in certain regions, particularly in the United States. In 2024, natural gas prices have further declined as a result of a mild winter and continued high surplus level in natural gas storage. 

 

Sustained meaningful declines in commodity prices, or sustained periods when the local pricing received in regional markets is below benchmark pricing, known in the industry as high differentials, would be expected to lead North American E&P companies to reduce drilling and completion activity, which could negatively impact our business.

 

Listed and depicted below are recent crude oil and natural gas pricing trends, as provided by the Energy Information Administration (“EIA”) of the U.S. Department of Energy:

 

   

Average Price

 

Quarter Ended

 

WTI Crude (per Bbl)

   

Brent Crude (per Bbl)

   

Henry Hub Natural Gas (per MMBtu)

 

3/31/2023

  $ 75.93     $ 81.07     $ 2.64  

6/30/2023

    73.54       77.99       2.16  

9/30/2023

    82.25       86.65       2.59  

12/31/2023

    78.53       84.01       2.74  

3/31/2024

    77.50       82.92       2.15  

 

a02.jpg

 

a03.jpg
 

Listed and depicted below are the average number of operating onshore rigs in the United States and in Canada per quarter since the first quarter of 2023, as provided by Baker Hughes Company. The quarterly changes, particularly for the second quarter Canadian land rig count, can be partially attributed to seasonality of activity in that market:

 

   

Average Drilling Rig Count

 

Quarter Ended

 

U.S. Land

   

Canada Land

   

North America Land

 

3/31/2023

    744       221       965  

6/30/2023

    699       116       815  

9/30/2023

    630       187       817  

12/31/2024

    601       180       781  

3/31/2024

    602       208       810  

 

a01.jpg
 
Over the past several years, North American E&P companies have been able to reduce their cost structures and have also utilized technologies, including ours, to increase efficiency and improve well performance. The average U.S. land rig count and completion activity has decreased since the highs reached in the fourth quarter of 2022. In the first quarter of 2024, the average U.S. land rig count was 602, which was flat compared to the fourth quarter of 2023 but declined by 19% as compared to the same period in 2023. The average land rig count in Canada for the first quarter of 2024 was lower by 6% compared to the same period in 2023. We currently expect U.S. rig counts and completion activity for 2024 to be lower than the 2023 annual average level, but higher than the level at year-end 2023, rising throughout the year, but we expect the Canadian activity level for the year to remain flat to slightly lower than last year.

 

A substantial portion of our business is subject to seasonality, which results in quarterly variability. In Canada, we typically experience higher activity levels in the first quarter of each year, as our customers take advantage of the winter freeze to gain access to remote drilling and production areas. In the past, our revenue in Canada has declined during the second quarter due to warming weather conditions that result in thawing, softer ground, difficulty accessing well sites and road bans that curtail drilling and completion activity. Access to well sites typically improves throughout the third and fourth quarters in Canada, leading to activity levels that are higher than in the second quarter, but usually lower than activity in the first quarter. Similar to 2023, Canadian completions activity could be impacted by more extensive wildfires that are usually experienced in the spring and summer seasons, in addition to certain regions in Canada that may ration the use of fresh water due to recent drought conditions. Our business can be impacted by a reduction in customer activity during the winter holidays in late December and early January. In some years, customers in the United States and Canada may exhaust their capital budgets prior to the end of the year, resulting in lower drilling and completion activity during the fourth quarter.

 

How We Generate Revenues

 

We derive our revenues from the sale of our fracturing systems and enhanced recovery systems products and the provision of related services, the sale of composite frac plugs, perforating guns and related products through Repeat Precision and from sales of our tracer diagnostics services, casing buoyancy systems, liner hanger systems and toe initiation sleeves products.

 

Product sales represented 72% of our revenues for each of the three months ended March 31, 2024 and 2023, respectively. Most of our sales are on a just-in-time basis, as specified in individual purchase orders, with a fixed price for our products. We occasionally supply our customers with large orders that may be filled on negotiated terms. Services represented 28% of our revenues for each of the three months ended March 31, 2024 and 2023, respectively. Services include tool charges and associated personnel services related to fracturing systems and tracer diagnostics services. Our services are provided at agreed upon rates to customers for the provision of our downhole frac isolation assembly, which may include our personnel, and for the provision of tracer diagnostics services.

 

During periods of low drilling and well completion activity, or as may be needed to compete in certain markets, we may, in some instances, lower the prices of our products and services. Our revenues are also impacted by well complexity since wells with more stages typically result in longer jobs, which may increase revenue attributable to the use of more sliding sleeves or increase composite frac plug sales, and increase the volume of services we provide.

 

The percentages of our revenues derived from sales in Canada and denominated in Canadian dollars were approximately 72% and 70% for the three months ended March 31, 2024 and 2023, respectively. Our Canadian contracts are typically invoiced in Canadian dollars; therefore, the effects of foreign currency fluctuations impact our revenues and are regularly monitored. Strengthening of the U.S. dollar, our reporting currency, relative to the Canadian dollar would result in lower reported revenues, partially offset by lower reported cost of sales and SG&A expenses.

 

 

Although most of our sales are to North American E&P companies, we also have sales to customers outside of North America, and we expect sales to international customers to increase over time. These international sales are made through local NCS entities or to our local operating partners typically on a free on board or free carrier basis with a point of sale in the United States. Some of the locations in which we have operating partners or sales representatives include the Middle East and China. Our operating partners and representatives do not have authority to contractually bind NCS but market our products in their respective territories as part of their product or services offering.

 

Costs of Conducting our Business

 

Our cost of sales is comprised of expenses relating to the manufacture of our products in addition to the costs of our support services. Manufacturing cost of sales includes payments made to our suppliers for raw materials and payments made to machine shops for the manufacture of product components and finished assemblies and costs related to our employees that perform quality control analysis, assemble and test our products. In addition, Repeat Precision operates a manufacturing facility with supporting personnel in Mexico, which has allowed us to reduce our costs for certain product categories. We review forecasted activity levels in our business and either directly procure or support our vendors in procuring the required raw materials with sufficient lead time to meet our business requirements. We obtain certain chemicals utilized in our tracer diagnostics services business from suppliers in China, which are subject to tariffs that increase our costs, although these tariffs have recently declined. Prices for certain raw materials, including steel and chemicals and for purchased components and outsourced services, have increased in recent years due to inflation, exacerbated by the impacts resulting from Russia’s continuing invasion of Ukraine, although prices for steel have begun to moderate. Cost of sales for support services includes compensation and benefit-related expenses for employees who provide direct revenue generating services to customers in addition to the costs incurred by these employees for travel and subsistence while on site. Cost of sales includes other variable manufacturing costs, such as shrinkage, obsolescence, revaluation and scrap related to our existing inventory and costs related to the chemicals used and laboratory analysis associated with our tracer diagnostics services.

 

Our SG&A expenses are comprised of compensation expense, which includes compensation and benefit-related expenses for our employees who are not directly involved in revenue generating activities, including those involved in our research and development activities, as well as our general operating costs. These general operating costs include, but are not limited to: rent and occupancy for our facilities, information technology infrastructure services, software licensing, advertising and marketing, third party research and development, risk insurance and professional service fees for audit, legal and other consulting services. Our SG&A expenses also include litigation expenses, severance expenses and expected credit losses.

 

In an effort to streamline operations and gain efficiencies, in 2023 we implemented several cost reduction initiatives, including consolidation of our tracer diagnostics operations, consolidation of Repeat’s manufacturing footprint in Mexico, restructuring of certain U.S. and international operations, and the elimination of various support positions. As a result of these efforts, we expect to realize annualized cost savings of approximately $4.0 million in 2024. See “Note 8. Accrued Expenses” to the accompanying unaudited condensed consolidated financial statements for further discussion.

 

The percentage of our operating costs denominated in Canadian dollars (including cost of sales and SG&A expenses but excluding depreciation and amortization expense) approximated 29% and 37% for the three months ended March 31, 2024 and 2023, respectively.

 

 

Results of Operations

 

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

 

The following tables summarize our results of operations, gross margins and revenues by geographic area for the periods presented (dollars in thousands):

 

   

Three Months Ended

                 
   

March 31,

   

Variance

 
   

2024

   

2023

   

$

   

% (1)

 

Revenues

                               

Product sales

  $ 31,758     $ 31,430     $ 328       1.0 %

Services

    12,100       12,124       (24 )     (0.2 )%

Total revenues

    43,858       43,554       304       0.7 %

Cost of sales

                               

Cost of product sales, exclusive of depreciation and amortization expense shown below

    19,692       18,833       859       4.6 %

Cost of services, exclusive of depreciation and amortization expense shown below

    6,595       6,180       415       6.7 %

Total cost of sales, exclusive of depreciation and amortization expense shown below

    26,287       25,013       1,274       5.1 %

Selling, general and administrative expenses

    13,830       16,151       (2,321 )     (14.4 )%

Depreciation

    1,073       943       130       13.8 %

Amortization

    167       167             %

Income from operations

    2,501       1,280       1,221       95.4 %

Other income (expense)

                               

Interest expense, net

    (100 )     (209 )     109       52.2 %

Provision for litigation, net of recoveries

          (17,514 )     17,514       100.0 %

Other income, net

    1,137       292       845       289.4 %

Foreign currency exchange (loss) gain, net

    (498 )     55       (553 )     NM %

Total other income (expense)

    539       (17,376 )     17,915       103.1 %

Income (loss) before income tax

    3,040       (16,096 )     19,136       118.9 %

Income tax expense (benefit)

    487       (1,100 )     1,587       144.3 %

Net income (loss)

    2,553       (14,996 )     17,549       117.0 %

Net income (loss) attributable to non-controlling interest

    483       (27 )     510       NM %

Net income (loss) attributable to NCS Multistage Holdings, Inc.

  $ 2,070     $ (14,969 )   $ 17,039       113.8 %

 


(1)

NM – Percentage not meaningful

 

 

   

Three Months Ended

                 
   

March 31,

   

Variance

 
   

2024

   

2023

   

$

   

%

 

Gross Margin and Gross Margin Percentage:

                               

Cost of product sales, exclusive of depreciation and amortization expense

  $ 19,692     $ 18,833     $ 859       4.6 %

Depreciation and amortization attributable to cost of product sales

    468       362       106       29.3 %

Cost of product sales

    20,160       19,195       965       5.0 %

Product sales gross profit

  $ 11,598     $ 12,235     $ (637 )     (5.2 )%

Product sales gross margin

    36.5 %     38.9 %                
                                 

Cost of services, exclusive of depreciation and amortization expense

  $ 6,595     $ 6,180     $ 415       6.7 %

Depreciation and amortization attributable to cost of services

    148       154       (6 )     (3.9 )%

Cost of services

    6,743       6,334       409       6.5 %

Services gross profit

  $ 5,357     $ 5,790     $ (433 )     (7.5 )%

Services gross margin

    44.3 %     47.8 %                
                                 

Total cost of sales

  $ 26,903     $ 25,529     $ 1,374       5.4 %

Total gross profit

  $ 16,955     $ 18,025     $ (1,070 )     (5.9 )%

Total gross margin

    38.7 %     41.4 %                

 

   

Three Months Ended

                 
   

March 31,

   

Variance

 
   

2024

   

2023

   

$

   

%

 

Revenues by Geographic Area:

                               

United States

                               

Product sales

  $ 7,767     $ 8,060     $ (293 )     (3.6 )%

Services

    2,244       3,259       (1,015 )     (31.1 )%

Total United States

    10,011       11,319       (1,308 )     (11.6 )%

Canada

                               

Product sales

    22,675       22,561       114       0.5 %

Services

    8,994       8,110       884       10.9 %

Total Canada

    31,669       30,671       998       3.3 %

Other Countries

                               

Product sales

    1,316       809       507       62.7 %

Services

    862       755       107       14.2 %

Total other countries

    2,178       1,564       614       39.3 %

Total

                               

Product sales

    31,758       31,430       328       1.0 %

Services

    12,100       12,124       (24 )     (0.2 )%

Total revenues

  $ 43,858     $ 43,554     $ 304       0.7 %

 

Revenues

 

Revenues were $43.9 million for the three months ended March 31, 2024 as compared to $43.6 million for the three months ended March 31, 2023. Increases in Canadian and international product sales and services revenues were primarily attributable to higher frac service revenues in Canada and an international project in the North Sea, respectively. A decrease in U.S. product sales and services revenues was largely related to overall declines in activity levels in 2024 compared to 2023. The average rig count in the United States decreased in the first quarter of 2024 by 19%, compared to the same period in 2023, while the average rig count in Canada decreased by only 6%. Sales of our products in the United States continue to be affected by lower natural gas prices, which had a negative impact on customer activity levels. Overall, product sales for the three months ended March 31, 2024 were $31.8 million as compared to $31.4 million for the three months ended March 31, 2023. Services revenues totaled $12.1 million for each of the same periods. 

 

Cost of sales

 

Cost of sales was $26.9 million, or 61.3% of revenues, for the three months ended March 31, 2024 compared to $25.5 million, or 58.6% of revenues, for the three months ended March 31, 2023. The increase in the cost of sales as a percentage of revenues was primarily impacted by increases in product costs driven by historical increases in the cost of steel and continued labor wage inflation. For the three months ended March 31, 2024, cost of product sales was $20.2 million, or 63.5% of product sales revenue, and cost of services was $6.7 million, or 55.7% of services revenue. For the three months ended March 31, 2023, cost of product sales was $19.2 million, or 61.1% of product sales revenue, and cost of services was $6.3 million, or 52.2% of services revenue.

 

 

Selling, general and administrative expenses

 

Selling, general and administrative expenses were $13.8 million for the three months ended March 31, 2024 as compared to $16.2 million for the three months ended March 31, 2023. This decrease in expense reflects the realization of cost-savings associated with restructuring efforts during 2023, as well as a $0.6 million decline in relative annual incentive bonus accruals year-over-year, and lower professional fees, share-based compensation and insurance expense of $0.7 million, $0.4 million, and $0.2 million, respectively.

 

Provision for litigation, net of recoveries

 

Provision for litigation totaled $17.5 million during the three months ended March 31, 2023 and relates to the Texas Matter, as previously described in our Annual Report, for which we accrued a judgment that was later settled by all parties during the fourth quarter of 2023, resulting in no cash payments by NCS and a reversal of this accrual. The settlement was fully paid by the insurance carrier in January 2024. See “Note 10. Commitments and Contingencies” to the accompanying unaudited condensed consolidated financial statements for further discussion.

 

Other income, net

 

Other income, net was $1.1 million for the three months ended March 31, 2024 as compared to $0.3 million for the three months ended March 31, 2023. The increase in other income was attributable to incremental royalty income and a profit share benefit associated with our technical services and assistance agreement with our local Oman partner, for which, we had previously recorded annually at year end, but began to record quarterly during the second quarter of 2023.

 

Foreign currency exchange (loss) gain, net

 

Foreign currency exchange (loss) gain, net was $(0.5) million for the three months ended March 31, 2024 as compared to $0.1 million for the three months ended March 31, 2023. The change was due to the movement in the foreign currency exchange rates between the periods, primarily the Canadian dollar relative to the U.S. dollar.

 

Income tax expense (benefit)

 

Income tax expense was $0.5 million for the three months ended March 31, 2024 as compared to a benefit of $1.1 million for the three months ended March 31, 2023. Our effective tax rate (“ETR”) from continuing operations was 16.0% and 6.8% for the three months ended March 31, 2024 and 2023, respectively. The income tax expense and benefit for the three months ended March 31, 2024 and 2023, respectively, primarily relates to results generated by our U.S. and certain foreign businesses. The income tax provision for both the three months ended March 31, 2024 and 2023 does not include effects of losses within the United States, Canada, or other jurisdictions, from which we cannot currently benefit. In addition, for both the three months ended March 31, 2024 and 2023 the income tax provision includes effects of changes in valuation allowances established against our previously recognized deferred tax assets, including against net operating loss carryforwards, in the United States, Canada, or other jurisdictions. For both the three months ended March 31, 2024 and 2023, due to the impact of the valuation allowances on tax expense, significant variations exist in the customary relationship between income tax expense and pretax accounting income.

 

Liquidity and Capital Resources

 

Our primary sources of liquidity are our existing cash and cash equivalents, cash flows from operations and potential borrowings under our ABL Facility and the Repeat Precision Promissory Note (as defined below). As of March 31, 2024, we had cash and cash equivalents of $14.0 million, and total outstanding indebtedness of $8.9 million primarily related to finance lease obligations. Our secured asset-based revolving credit facility (the “ABL Facility”) consists of an asset-based revolving credit facility in an aggregate principal amount of $35.0 million. Total borrowings are limited to a borrowing base calculated on the sum of cash in a specified pledged account, eligible accounts receivable and eligible inventory, provided it does not include credit for the assets of Repeat Precision. At March 31, 2024, our available borrowing base under the ABL Facility was $20.4 million, with no outstanding borrowings. The amount available to be drawn under the ABL Facility may decline from current levels due to reductions in our borrowing base or a springing financial covenant if our business were to be adversely impacted by a decline in market conditions. We were in compliance with our debt covenants at March 31, 2024.

 

In addition, Repeat Precision’s promissory note with Security State Bank & Trust, Fredericksburg (the “Repeat Precision Promissory Note”) has total aggregate borrowing capacity of $4.3 million. As of March 31, 2024, Repeat Precision has $0.6 million of outstanding indebtedness under the promissory note.

 

 

We believe that our cash on hand, cash flows from operations and potential borrowings under our ABL Facility and the Repeat Precision Promissory Note will be sufficient to fund our capital expenditure and liquidity requirements for the next twelve months and after. Our principal liquidity needs have been, and are expected to continue to be, capital expenditures, working capital, debt service and potential mergers and acquisitions.

 

Our capital expenditures for the three months ended March 31, 2024 and 2023 were $0.3 million and $0.6 million, respectively. We plan to incur approximately $1.5 million to $2.5 million in capital expenditures during 2024, which includes (i) upgrades to our tracer diagnostics deployment, sampling and laboratory equipment, (ii) upgrades to our manufacturing and field service equipment to support North American fracturing systems and well construction businesses, (iii) new computers and engineering workstations and (iv) software development and implementation.

 

To the extent we require additional liquidity to fund our capital requirements, including our finance lease obligations, or repay existing indebtedness, we would expect to obtain it through the incurrence of additional indebtedness, the proceeds of equity issuances, or a combination thereof. We cannot provide assurance that we will be able to obtain this additional liquidity on reasonable terms, or at all. Our liquidity and ability to meet our obligations and fund capital requirements also depend on our future financial performance including the ability to manage costs, which is subject to general economic, financial and other factors that are beyond our control. Accordingly, we cannot provide assurance that our business will generate sufficient cash flow from operations or that funds will be available from additional indebtedness, the capital markets or otherwise to meet our liquidity needs. If we decide to pursue one or more significant acquisitions, we may incur additional debt or sell equity to finance such acquisitions, which could result in incremental expenses or dilution.

 

Cash Flows

 

The following table provides a summary of cash flows from operating, investing and financing activities for the periods presented (in thousands):

 

   

Three Months Ended

 
   

March 31,

 
   

2024

   

2023

 

Net cash used in operating activities

  $ (1,880 )   $ (1,551 )

Net cash used in investing activities

    (136 )     (480 )

Net cash used in financing activities

    (630 )     (419 )

Effect of exchange rate changes on cash and cash equivalents

    (70 )     (151 )

Net change in cash and cash equivalents

  $ (2,716 )   $ (2,601 )

 

Operating Activities

 

Net cash used in operating activities was $1.9 million compared to $1.6 million for the three months ended March 31, 2024 and 2023, respectively. Net income was significantly higher in 2024 compared to 2023. During the first quarter of 2023, we recorded a net loss associated with a $17.5 million provision for litigation, which subsequently settled and for which the provision was reversed during the fourth quarter of 2023. Excluding the impact of this provision, net income would have only increased year-over-year by less than $0.1 million. The use of funds for the first quarter of 2024 largely reflects higher trade receivable balances than the prior year, due to the timing associated with when revenues are earned throughout the quarter and collections, relative to the same period in 2023, offset somewhat by the corresponding timing associated with payments for materials and other components of cost of goods sold, and favorable inventory management during the first quarter of 2024.

 

 

Investing Activities

 

Net cash used in investing activities was $0.1 million and $0.5 million for the three months ended March 31, 2024 and 2023, respectively, reflecting a lower level of investment in property and equipment and software and technology, combined with an increase in proceeds from sales of property and equipment.

 

Financing Activities

 

Net cash used in financing activities was $0.6 million and $0.4 million for the three months ended March 31, 2024 and 2023. Our primary uses of funds for the three months ended March 31, 2024 and 2023 were principal payments of $0.4 million for each period related to our finance leases, payments of $0.2 million and $0.3 million, respectively, for treasury shares withheld to settle withholding tax requirements for equity-settled share-based compensation, a distribution of $0.5 million to Repeat Precision's other joint venture partner for the three months ended March 31, 2024, and net borrowings of $0.6 million and $0.2 million, respectively, under the Repeat Promissory Note.

 

Material Cash Requirements 

 

There have been no significant changes in our material cash requirements from those disclosed in the Annual Report for the year ended December 31, 2023.

 

Critical Accounting Estimates

 

There are no material changes to our critical accounting estimates from those included in the Annual Report for the year ended December 31, 2023.

 

Recently Issued Accounting Pronouncements

 

See “Note 1. Basis of Presentation” to our unaudited condensed consolidated financial statements for a discussion of the recent accounting pronouncements issued by the Financial Accounting Standards Board.

 

Smaller Reporting Company Status

 

We are a “smaller reporting company” as defined by Section 12b-2 of the Exchange Act, meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public float of less than $250 million. As a smaller reporting company, we may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies that do not qualify for the classification, including among other things, providing only two years of audited financial statements.

 

Cautionary Note Regarding Forward-Looking Statements

 

This Quarterly Report includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods, or by the inclusion of forecasts or projections. Examples of forward-looking statements include, but are not limited to, statements we make regarding the outlook for our future business and financial performance, such as those contained in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Important factors that could cause our actual results to differ materially from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market and regulatory conditions and the following:

 

 

declines in the level of oil and natural E&P activity in Canada, the United States and internationally;

 

 

oil and natural gas price fluctuations;

 

 

 

significant competition for our products and services that results in pricing pressures, reduced sales, or reduced market share;

 

 

inability to successfully implement our strategy of increasing sales of products and services into the U.S. and international markets;

 

 

loss of significant customers;

 

 

losses and liabilities from uninsured or underinsured business activities and litigation;

 

 

our failure to identify and consummate potential acquisitions;

 

 

the financial health of our customers including their ability to pay for products or services provided;

 

 

our inability to integrate or realize the expected benefits from acquisitions;

 

 

our inability to achieve suitable price increases to offset the impacts of cost inflation;

 

 

loss of any of our key suppliers or significant disruptions negatively impacting our supply chain;

 

 

risks in attracting and retaining qualified employees and key personnel;

 

 

risks resulting from the operations of our joint venture arrangement;

 

 

currency exchange rate fluctuations;

 

 

impact of severe weather conditions;

 

 

our inability to accurately predict customer demand, which may result in us holding excess or obsolete inventory;

 

 

impairment in the carrying value of long-lived assets including goodwill;

 

 

failure to comply with or changes to federal, state and local and non-U.S. laws and other regulations, including anti-corruption and environmental regulations, guidelines and regulations for the use of explosives;

 

 

change in trade policy, including the impact of tariffs;

 

 

our inability to successfully develop and implement new technologies, products and services that align with the needs of our customers, including addressing the shift to more non-traditional energy markets as part of the energy transition;

 

 

our inability to protect and maintain critical intellectual property assets or losses and liabilities from adverse decisions in intellectual property disputes;

 

 

loss of, or interruption to, our information and computer systems;

 

 

system interruptions or failures, including complications with our enterprise resource planning system, cybersecurity breaches, identity theft or other disruptions that could compromise our information;

 

 

our failure to establish and maintain effective internal control over financial reporting;

 

 

restrictions on the availability of our customers to obtain water essential to the drilling and hydraulic fracturing processes;

 

 

changes in legislation or regulation governing the oil and natural gas industry, including restrictions on emissions of greenhouse gases;

 

 

our inability to meet regulatory requirements for use of certain chemicals by our tracer diagnostics business;

 

 

the reduction in our asset-based revolving credit facility borrowing base or our inability to comply with the covenants in our debt agreements; and

 

 

our inability to obtain sufficient liquidity on reasonable terms, or at all.

 

For the reasons described above, as well as factors identified in “Item 1A. Risk Factors” in this Quarterly Report and the section of the Annual Report entitled “Risk Factors,” we caution you against relying on any forward-looking statements. Any forward-looking statement made by us in this Quarterly Report speaks only as of the date on which we make it. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

 

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk 

 

For our quantitative and qualitative disclosures about market risk, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report for the year ended December 31, 2023. Our exposure to market risk has not changed materially since December 31, 2023.

 

Item 4.  Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2024. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer, concluded that, as of March 31, 2024, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes to our internal control over financial reporting that occurred during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

PART II. OTHER INFORMATION

 

Item 1.  Legal Proceedings

 

See “Note 10. Commitments and Contingencies” of our unaudited condensed consolidated financial statements for further information regarding our legal proceedings.

 

Item 1A.  Risk Factors

 

There have been no material changes from the risk factors disclosed in our Annual Report for the year ended December 31, 2023.

 

Item 5.  Other Information

 

During the quarter ended March 31, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

 

 

 

Item 6.  Exhibits

 

Exhibit

   

No.

 

Description

* 10.1   Amended Credit Agreement, dated as of April 16, 2024, by and among NCS Multistage Holdings, Inc., Pioneer Investment, Inc., NCS Multistage, LLC, NCS Multistage Inc., and the other loan parties thereto and JPMorgan Chase Bank, N.A. and the lenders party thereto.

*

31.1

 

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*

31.2

 

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

**

32.1

 

Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

**

32.2

 

Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

***

101.INS

 

Inline XBRL Instance Document

***

101.SCH

 

Inline XBRL Taxonomy Extension Schema

***

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase

***

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase