0001692427-20-000052.txt : 20201104 0001692427-20-000052.hdr.sgml : 20201104 20201104162933 ACCESSION NUMBER: 0001692427-20-000052 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20201104 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20201104 DATE AS OF CHANGE: 20201104 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NCS Multistage Holdings, Inc. CENTRAL INDEX KEY: 0001692427 STANDARD INDUSTRIAL CLASSIFICATION: OIL, GAS FIELD SERVICES, NBC [1389] IRS NUMBER: 461527455 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-38071 FILM NUMBER: 201287110 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 8-K 1 ncsm-20201104x8k.htm 8-K 2020 Q3 8-K for Earnings Release

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 8-K

CURRENT REPORT



Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934



November 4, 2020

Date of Report (Date of earliest event reported)



NCS Multistage Holdings, Inc.

(Exact name of Registrant as specified in its charter)





 

 

Delaware

001-38071

46-1527455

(State or other jurisdiction of incorporation)

(Commission File Number)

(IRS Employer Identification Number)



19350 State Highway 249, Suite 600

Houston, Texas 77070

(Address of principal executive offices) (Zip code)



(281) 453-2222

(Registrant’s telephone number, including area code)



Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:





 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)



 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)



 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))



 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))



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 Global Select Market



Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).





 



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.  


 

Item 2.02Results of Operations and Financial Condition.



On November 4, 2020, NCS Multistage Holdings, Inc. (the “Company”) issued a press release announcing its results for the quarter ended September 30, 2020. A copy of the Company’s press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.



The information contained in this Item 2.02 and the accompanying exhibit is being furnished and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of Section 18. Furthermore, the information contained in this Item 2.02 and the accompanying exhibit shall not be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated therein by reference.



Item 9.01Financial Statements and Exhibits.





 

 

 

 

(d)

 

Exhibits.



 

 

 



Exhibit

 

 



Number

 

Description of the Exhibit



99.1

 

Press Release dated November 4, 2020.




 

SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.







 

 

 

Date: November 4, 2020

NCS Multistage Holdings, Inc.

 



 

 

 



By:  

/s/ Ryan Hummer

 



 

Ryan Hummer

 



 

Chief Financial Officer and Treasurer

 




EX-99.1 2 ncsm-20201104xex99_1.htm EX-99.1 2020 Q3 Exhibit 99.1

Exhibit 99.1

 





 

Picture 1

NCS Multistage Holdings, Inc. 

19350 State Highway 249, Suite 600

Houston, Texas 77070



PRESS RELEASE



NCS MULTISTAGE HOLDINGS, INC. ANNOUNCES THIRD QUARTER 2020 RESULTS



Third Quarter Results



·

Total revenues of $16.3 million, a 73% year-over-year decrease and an 87% increase from the second quarter of 2020

·

Net loss of $(5.9) million and loss per diluted share of $(0.12) 

·

Adjusted EBITDA of $(2.1) million, an increase of $5.8 million from the second quarter of 2020 

·

$8.6 million in cash on hand and $6.0 million of total debt as of September 30, 2020

·

Net cash provided by operating activities and free cash flow of $14.5 million and $13.3 million, respectively, for the nine months ended September 30, 2020



HOUSTON, November 4, 2020 – NCS Multistage Holdings, Inc. (NASDAQ: NCSM) (the “Company,” “NCS,” “we” or “us”), a leading provider of highly engineered products and support services that facilitate the optimization of oil and natural gas well completions and field development strategies, today announced its results for the quarter  ended September 30, 2020.



Financial Review



Total revenues were $16.3 million for the quarter ended September 30, 2020, which was a decrease of 73% compared to the third quarter of 2019. This decrease reflected reductions in product sales and services volumes in North America as well as lower pricing for certain products and services, including composite plugs and tracer diagnostics and lower product sales in international markets. The decrease in both activity and pricing resulting from the decline in market conditions, primarily related to the Coronavirus disease 2019 (“COVID-19”) pandemic, had a negative impact on our revenues during the three months ended September 30, 2020 as drilling rig and completion activity in the U.S. declined sequentially throughout 2020 before stabilizing at low levels at the end of the third quarter and did not experience a material seasonal increase in Canada in the third quarter of 2020. Total revenues increased by 87% as compared to the second quarter of 2020 with increases of 103% in the United States, 146% in Canada and 25% outside of North America. 



Gross profit, which we define as total revenues less total cost of sales exclusive of depreciation and amortization, was $6.1 million, or 37% of total revenues, in the third quarter of 2020, compared to $28.6 million, or 47% of total revenues, in the third quarter of 2019. Cost of sales as a percentage of total revenues increased due to the significant reduction in revenue, leading to under-utilization of manufacturing capacity and field service personnel, as well as a reduction in pricing for certain products and services. 



Selling, general and administrative (“SG&A”) expenses totaled $12.5 million in the third quarter of 2020, a decrease of $8.0 million as compared to the third quarter of the prior year.  This overall decrease in expense reflects declines in compensation and benefits, share-based compensation, travel and entertainment, professional fees and research and development expenses.



Net loss was $(5.9) million, or $(0.12) per diluted share, for the quarter ended September 30, 2020,  which included a net impact of $0.8 million (after tax effect of $1.2 million, or $0.02 per diluted share) related to realized and unrealized foreign currency losses and the write-off of deferred loan costs as well as a benefit related to a reduction in foreign tax expense. As with the first and second quarters of 2020, income tax was impacted by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and income tax valuation allowances recorded to reduce the carrying value of deferred tax assets. Adjusted net loss, which excludes these items, was $(4.6) million, or $(0.10) per diluted share, for the quarter ended September 30, 2020. This compares to a net income of $3.6 million, or $0.08 per diluted share, in the third quarter of 2019, which included a net impact of $0.1 million (after tax effect of $(6.8) million, or $(0.15) per diluted share) related to realized and unrealized foreign currency gains and losses as well as the tax impact of the income tax valuation allowance recorded to reduce the carrying value of our U.S. deferred tax asset and the tax effect of a non-deductible goodwill impairment recorded in the second quarter of 2019. Adjusted net loss, which excludes these items, was $(3.2) million, or $(0.07) per diluted share, for the quarter ended September 30, 2019. 



Adjusted EBITDA was $(2.1) million for the quarter ended September 30, 2020,  a decrease of $(15.7) million as compared to the third quarter of 2019 and an increase of $5.8 million as compared to the second quarter of 2020.  

 

1

 


 

 



Capital Expenditures and Liquidity



The Company incurred capital expenditures of $1.2 million, net, for the nine months ended September 30, 2020 and $4.4 million, net, for the nine months ended September 30, 2019.



As of September 30, 2020, the Company had $8.6 million in cash and $6.0 million in total debt, with our senior secured credit facility remaining undrawn.  The borrowing base under the senior secured credit facility as of September 30, 2020 was $4.2 million. The Company’s net working capital, which we define as our current assets, excluding cash and cash equivalents, minus our current liabilities, excluding current maturities of long-term debt, was $53.0 million at September 30, 2020.



Settlement Agreement



In October 2020, Repeat Precision, LLC (“Repeat Precision”) entered into a settlement with Diamondback Industries, Inc (“Diamondback”) and Derrek Drury (“Drury”), which will be effectuated through a Chapter 11 plan of reorganization that was filed by Diamondback and is currently set for confirmation on November 12, 2020. The agreement terminates if the bankruptcy court does not approve the plan by December 31, 2020. In connection with Repeat Precision releasing Diamondback and Drury from the monetary damages in the judgment awarded in the litigation between the parties and certain other claims, Repeat Precision expects to receive: (i) an upfront cash payment of approximately $15.5 million, (ii) the transfer of U.S. Patent No. 9,810,035 from Diamondback to Repeat Precision, (iii) payments for future sales of a  certain setting tool sold by Diamondback or its successor as restitution, until $5 million has been paid in total, and (iv) a note from Drury payable in two years in the principal amount of up to $5 million secured by certain properties and other collateral. Repeat Precision and another claimant in the Diamondback bankruptcy have also agreed to provide mutual releases of all claims in exchange for consideration to be received by Repeat Precision, which is also conditioned on the effectiveness of the Chapter 11 plan. There are no assurances that the terms of any settlement will become effective, including uncertainty as to whether a Chapter 11 plan will be approved by the bankruptcy court, or that the Company will receive any portion of the settlement consideration.



Potential Reverse Stock Split and Authorized Share Reduction



On October 27, 2020, funds affiliated with Advent International Corporation, who beneficially hold 29,568,536 shares of the Company’s common stock as of such date, or approximately 62.6% of its shares of common stock, had executed and delivered to the Board of Directors a written consent approving a proposal to effect a reverse stock split of the Company’s issued and outstanding common stock, with a ratio of 1-for-20 (the “reverse stock split”) and to reduce the number of authorized shares of common stock by the same ratio as the reverse stock split. On October 27, 2020, the Company’s Board of Directors approved the above reverse stock split and authorized share reduction. The effective date for the reverse stock split is anticipated to be on or about December 1, 2020. The Company expects its common stock to begin trading on the NASDAQ Global Select Market on a split-adjusted basis when the market opens on December 1, 2020. The Company’s Board of Directors reserves its right to elect not to proceed and abandon the reverse stock split if it determines, in its sole discretion, that this reverse stock split is no longer in the best interests of the Company’s stockholders.



Review and Outlook 



NCS’s Chief Executive Officer, Robert Nipper commented, “NCS’s performance in the third quarter demonstrated the resilience of our team, the strength of our business model and technology and the effectiveness of the cost reduction and liquidity enhancement measures we have implemented over the last several months.



We had sequential revenue growth in each of the U.S., Canada and International markets. Our sequential revenue growth of over 100% in the U.S. reflected a significant increase in activity at both Repeat Precision and Tracer Diagnostics, our most completions-oriented product lines. Revenue in Canada increased by 146% sequentially, primarily driven by a seasonal rebound in activity, though the increase from trough activity levels occurred later than in typical years.



Our gross margin increased to 37% in the third quarter from 27% in the second quarter as we benefitted from better fixed cost absorption that resulted in an incremental margin of nearly 50%. This improvement was supported by actions we have taken to rationalize our field service footprint and to drive additional efficiencies in our supply chain.



The impact of our cost reduction initiatives was further demonstrated in the quarter as well. Our SG&A of $12.5 million was $3.0 million lower than the second quarter and $8.0 million lower than last year’s third quarter, a reduction of 39%. We remain on track to reduce our SG&A in 2020 by over $25 million as compared to 2019.



We have continued to be successful in controlling our capital expenditures. We currently expect our gross capital expenditures for the year to be between $2.0 and $2.5 million, but importantly, we’ve been able to offset much of the capital spending through vehicle sales, which have totaled $1.0 million thus far this year.



2


 

 

This has allowed us to maintain a strong balance sheet, with net cash of $2.6 million and an undrawn revolving credit facility at September 30, 2020. In addition, we had net working capital at the end of the third quarter of $53.0 million.



We have made significant investments in technology over the years and have a robust intellectual property portfolio. We are pleased that Repeat Precision has reached a settlement with Diamondback Industries and Derrek Drury, which we hope will bring closure to a matter that has consumed significant time and financial resources over the last two years. In addition, we have completed several patent license agreements related to our AirLock casing buoyancy technology, demonstrating the value of our proprietary technology and providing NCS with an additional revenue stream.



NCS is committed to a continued NASDAQ listing, and our Board has recently approved a reverse stock split which we believe will allow us to regain compliance with NASDAQ minimum bid requirements later this year.



As we look forward to the fourth quarter, we currently anticipate that in the U.S. we will continue to see modest improvements in the horizontal rig count through the fourth quarter and that the average level of completions activity in the fourth quarter will also increase modestly as compared to the third quarter, with normal holiday-related reductions in activity in December. In Canada, the land rig count is currently 85, a meaningful improvement over the average land rig count of 46 during the third quarter. We expect the average Canadian rig count to stay well above average third-quarter levels throughout the fourth quarter. We currently expect that international activity will fall slightly during the fourth quarter, with significant regional variations driven by market conditions and by COVID-19.



As always, I want to take this opportunity to express gratitude to the incredible people we have at NCS and at Repeat Precision. I truly appreciate the enormous effort that our people are putting in and the sacrifices that have been made by everyone at NCS to support the Company and each other through this challenging market environment.”



Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA Less Share-Based Compensation, Adjusted Net (Loss) Income, Adjusted Net (Loss) Earnings per Diluted Share, Free Cash Flow and net working capital are non-GAAP financial measures. For an explanation of these measures and a reconciliation, refer to “Non-GAAP Financial Measures” below.



Conference Call



The Company will host a conference call to discuss its third quarter 2020 results on Thursday,  November 5, 2020 at 7:30 a.m. Central Time (8:30 a.m. Eastern Time). To join the conference call from within the United States, participants may dial (844) 400-1696. To join the conference call from outside of the United States, participants may dial (703) 736-7385. The conference access code is 1837259. Participants are encouraged to log in to the webcast or dial in to the conference call approximately ten minutes prior to the start time. To listen via live webcast, please visit the Investors section of the Company’s website, http://www.ncsmultistage.com.



An audio replay of the conference call will be available shortly after the conclusion of the call and will remain available for approximately seven days. It can be accessed by dialing (855) 859-2056 within the United States or (404) 537-3406 outside of the United States. The conference call replay access code is 1837259. The replay will also be available in the Investors section of the Company’s website shortly after the conclusion of the call and will remain available for approximately seven days.



About NCS Multistage Holdings, Inc.



NCS Multistage Holdings, Inc. is a leading provider of highly engineered products and support services that facilitate the optimization of oil and natural gas well completions and field development strategies. NCS provides products and services to exploration and production companies for use in horizontal wells in unconventional oil and natural gas formations throughout North America and in selected international markets, including Argentina, China, Russia, the Middle East and the North Sea.  NCS’s common stock is traded on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “NCSM.” Additional information is available on the website, www.ncsmultistage.com.



3


 

 

Forward Looking Statements



This press release contains forward-looking statements within the meaning of the “safe harbor” provisions 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. 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 gas exploration and production activity within Canada and the United States; oil and natural gas price fluctuations; the risks and uncertainties relating to public health crises, including the COVID-19 pandemic and its continuing impact on market conditions and our business, financial condition, results of operations, cash flows and stock price; the reduction in our senior secured credit facility borrowing base or our inability to comply with the covenants in our debt agreements depending on the duration of the decline in market conditions primarily related to the COVID-19 pandemic and our ability to negotiate with our lenders; risks and uncertainties relating to cost reduction efforts or savings we may realize from such cost reduction efforts; risks and uncertainties related to the potential delisting of our common stock from NASDAQ; loss of significant customers; inability to successfully implement our strategy of increasing sales of products and services into the United States; significant competition for our products and services that results in pricing pressures, reduced sales, or reduced market share;  competitive pressure resulting from a significant decline in industry activity; 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 and goodwill; our inability to successfully develop and implement new technologies, products and services; our inability to protect and maintain critical intellectual property assets; currency exchange rate fluctuations; losses and liabilities from uninsured or underinsured business activities; the financial health of our customers including their ability to pay for products or services provided; our inability to obtain sufficient liquidity on reasonable terms, or at all; our failure to identify and consummate potential acquisitions; our inability to integrate or realize the expected benefits from acquisitions; impact of severe weather conditions; restrictions on the availability of our customers to obtain water essential to the drilling and hydraulic fracturing processes; our inability to meet regulatory requirements for use of certain chemicals by our tracer diagnostics business; change in trade policy, including the impact of additional tariffs; changes in legislation or regulation governing the oil and natural gas industry, including restrictions on emissions of greenhouse gases; 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,  the CARES Act and the U.S. Tax Cuts and Jobs Act of 2017; loss of our information and computer systems; system interruptions or failures, including cyber-security breaches, identity theft or other disruptions that could compromise our information; our failure to establish and maintain effective internal control over financial reporting; our success in attracting and retaining qualified employees and key personnel; and our inability to satisfy technical requirements and other specifications under contracts and contract tenders and other factors discussed or referenced in our filings made from time to time with the Securities and Exchange Commission. Any forward-looking statement made by us in this press release 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.



Contact

Ryan Hummer

Chief Financial Officer

(281) 453-2222

IR@ncsmultistage.com 

4


 

 

NCS MULTISTAGE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)









 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Nine Months Ended



 

September 30,

 

September 30,



 

2020

 

2019

 

2020

 

2019

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

$

11,660 

 

$

43,756 

 

$

55,948 

 

$

110,933 

Services

 

 

4,652 

 

 

17,017 

 

 

23,646 

 

 

42,458 

Total revenues

 

 

16,312 

 

 

60,773 

 

 

79,594 

 

 

153,391 

Cost of sales

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

7,874 

 

 

23,796 

 

 

35,191 

 

 

57,032 

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

 

 

2,334 

 

 

8,413 

 

 

12,024 

 

 

25,021 

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

 

 

10,208 

 

 

32,209 

 

 

47,215 

 

 

82,053 

Selling, general and administrative expenses

 

 

12,474 

 

 

20,441 

 

 

48,782 

 

 

66,360 

Depreciation

 

 

1,000 

 

 

1,461 

 

 

3,446 

 

 

4,382 

Amortization

 

 

103 

 

 

1,153 

 

 

1,340 

 

 

3,451 

Change in fair value of contingent consideration

 

 

 —

 

 

 —

 

 

 —

 

 

37 

Impairment

 

 

 —

 

 

 —

 

 

50,194 

 

 

7,919 

(Loss) income from operations

 

 

(7,473)

 

 

5,509 

 

 

(71,383)

 

 

(10,811)

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(876)

 

 

(424)

 

 

(1,622)

 

 

(1,497)

Other income, net

 

 

414 

 

 

259 

 

 

580 

 

 

349 

Foreign currency exchange loss, net

 

 

(260)

 

 

(131)

 

 

(467)

 

 

(678)

Total other expense

 

 

(722)

 

 

(296)

 

 

(1,509)

 

 

(1,826)

(Loss) income before income tax

 

 

(8,195)

 

 

5,213 

 

 

(72,892)

 

 

(12,637)

Income tax (benefit) expense

 

 

(3,058)

 

 

(1,396)

 

 

(9,956)

 

 

10,200 

Net (loss) income

 

 

(5,137)

 

 

6,609 

 

 

(62,936)

 

 

(22,837)

Net income attributable to non-controlling interest

 

 

726 

 

 

2,988 

 

 

3,233 

 

 

7,809 

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

 

$

(5,863)

 

$

3,621 

 

$

(66,169)

 

$

(30,646)

(Loss) earnings per common share

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

(0.12)

 

$

0.08 

 

$

(1.40)

 

$

(0.66)

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

 

$

(0.12)

 

$

0.08 

 

$

(1.40)

 

$

(0.66)

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

47,351 

 

 

46,892 

 

 

47,240 

 

 

46,552 

Diluted

 

 

47,351 

 

 

46,921 

 

 

47,240 

 

 

46,552 





5


 

 

NCS MULTISTAGE HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS*

(In thousands, except share data)

(Unaudited)







 

 

 

 

 

 



 

September 30,

 

December 31,



 

2020

 

2019

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,635 

 

$

11,243 

Accounts receivable—trade, net

 

 

14,130 

 

 

41,960 

Inventories, net

 

 

36,586 

 

 

39,921 

Prepaid expenses and other current assets

 

 

3,251 

 

 

2,444 

Other current receivables

 

 

10,425 

 

 

5,028 

Total current assets

 

 

73,027 

 

 

100,596 

Noncurrent assets

 

 

 

 

 

 

Property and equipment, net

 

 

24,511 

 

 

32,974 

Goodwill

 

 

15,222 

 

 

15,222 

Identifiable intangibles, net

 

 

2,689 

 

 

45,248 

Operating lease assets

 

 

5,634 

 

 

5,071 

Deposits and other assets

 

 

3,497 

 

 

3,460 

Deferred income taxes, net

 

 

65 

 

 

Total noncurrent assets

 

 

51,618 

 

 

101,981 

Total assets

 

$

124,645 

 

$

202,577 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable—trade

 

$

3,149 

 

$

8,549 

Accrued expenses

 

 

3,594 

 

 

3,451 

Income taxes payable

 

 

365 

 

 

1,883 

Operating lease liabilities

 

 

1,918 

 

 

2,052 

Current maturities of long-term debt

 

 

1,446 

 

 

1,481 

Other current liabilities

 

 

2,349 

 

 

2,364 

Total current liabilities

 

 

12,821 

 

 

19,780 

Noncurrent liabilities

 

 

 

 

 

 

Long-term debt, less current maturities

 

 

4,537 

 

 

11,436 

Operating lease liabilities, long-term

 

 

4,364 

 

 

3,487 

Other long-term liabilities

 

 

1,965 

 

 

1,373 

Deferred income taxes, net

 

 

880 

 

 

2,956 

Total noncurrent liabilities

 

 

11,746 

 

 

19,252 

Total liabilities

 

 

24,567 

 

 

39,032 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued and outstanding at

 

 

 

 

 

 

September 30, 2020 and December 31, 2019

 

 

 —

 

 

 —

Common stock, $0.01 par value, 225,000,000 shares authorized, 47,439,214 shares issued

 

 

 

 

 

 

and 47,197,895 shares outstanding at September 30, 2020 and 46,905,782 shares issued

 

 

 

 

 

 

and 46,813,117 shares outstanding at December 31, 2019

 

 

474 

 

 

469 

Additional paid-in capital

 

 

430,902 

 

 

424,633 

Accumulated other comprehensive loss

 

 

(83,659)

 

 

(80,811)

Retained deficit

 

 

(265,198)

 

 

(199,029)

Treasury stock, at cost; 241,319 shares at September 30, 2020 and 92,665 shares

 

 

 

 

 

 

at December 31, 2019

 

 

(809)

 

 

(652)

Total stockholders’ equity

 

 

81,710 

 

 

144,610 

Non-controlling interest

 

 

18,368 

 

 

18,935 

Total equity

 

 

100,078 

 

 

163,545 

Total liabilities and stockholders' equity

 

$

124,645 

 

$

202,577 

_____________________

*

Preliminary

6


 

 

NCS MULTISTAGE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)







 

 

 

 

 

 



 

Nine Months Ended



 

September 30,



 

2020

 

2019

Cash flows from operating activities

 

 

 

Net loss

 

$

(62,936)

 

$

(22,837)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

4,786 

 

 

7,833 

Impairment

 

 

50,194 

 

 

7,919 

Amortization of deferred loan cost

 

 

226 

 

 

236 

Write-off of deferred loan costs

 

 

606 

 

 

 —

Share-based compensation

 

 

6,477 

 

 

9,380 

Provision for inventory obsolescence

 

 

1,198 

 

 

417 

Deferred income tax (benefit) expense

 

 

(2,069)

 

 

9,281 

Gain on sale of property and equipment

 

 

(514)

 

 

(300)

Change in fair value of contingent consideration

 

 

 —

 

 

37 

Provision for doubtful accounts

 

 

895 

 

 

1,715 

Payment of contingent consideration

 

 

 —

 

 

(3,042)

Proceeds from note receivable

 

 

300 

 

 

 —

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable—trade

 

 

25,814 

 

 

(9,552)

Inventories, net

 

 

1,386 

 

 

(8,218)

Prepaid expenses and other assets

 

 

(2,754)

 

 

723 

Accounts payable—trade

 

 

(4,555)

 

 

12,272 

Accrued expenses

 

 

131 

 

 

(915)

Other liabilities

 

 

1,421 

 

 

(805)

Income taxes receivable/payable

 

 

(6,098)

 

 

671 

Net cash provided by operating activities

 

 

14,508 

 

 

4,815 

Cash flows from investing activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,882)

 

 

(4,990)

Purchase and development of software and technology

 

 

 —

 

 

(251)

Proceeds from sales of property and equipment

 

 

704 

 

 

816 

Net cash used in investing activities

 

 

(1,178)

 

 

(4,425)

Cash flows from financing activities

 

 

 

 

 

 

Equipment note borrowings

 

 

 —

 

 

835 

Payments on equipment note and finance leases

 

 

(1,268)

 

 

(4,552)

Line of credit borrowings

 

 

5,000 

 

 

 —

Payments on revolver

 

 

(15,000)

 

 

(7,000)

Payment of contingent consideration

 

 

 —

 

 

(6,958)

Treasury shares withheld

 

 

(157)

 

 

(330)

Distribution to noncontrolling interest

 

 

(3,800)

 

 

(3,400)

Proceeds from the issuance of ESPP shares

 

 

 —

 

 

1,025 

Payment of deferred loan cost related to senior secured credit facility

 

 

(482)

 

 

(871)

Net cash used in financing activities

 

 

(15,707)

 

 

(21,251)

Effect of exchange rate changes on cash and cash equivalents

 

 

(231)

 

 

248 

Net change in cash and cash equivalents

 

 

(2,608)

 

 

(20,613)

Cash and cash equivalents beginning of period

 

 

11,243 

 

 

25,131 

Cash and cash equivalents end of period

 

$

8,635 

 

$

4,518 

Noncash investing and financing activities

 

 

 

 

 

 

Leased assets obtained in exchange for new finance lease liabilities

 

$

5,102 

 

$

1,371 

Leased assets obtained in exchange for new operating lease liabilities

 

$

2,573 

 

$

336 

Return of vehicles under finance lease

 

$

(722)

 

$

 —





7


 

 

NCS MULTISTAGE HOLDINGS, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION

(In thousands, except per share data)  

(Unaudited)



Non-GAAP Financial Measures 



EBITDA is defined as net (loss) income before interest expense, net,  income tax expense and depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted to exclude certain items which we believe are not reflective of ongoing operating performance or which, in the case of an impairment and share-based compensation, are non-cash in nature. Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of total revenues. Adjusted EBITDA Less Share-Based Compensation is defined as Adjusted EBITDA minus share-based compensation expense. Adjusted Net (Loss) Income is defined as net (loss) income attributable to NCS Multistage Holdings, Inc. adjusted to exclude certain items which we believe are not reflective of ongoing performance. Adjusted Net (Loss) Earnings per Diluted Share is defined as Adjusted Net (Loss) Income divided by our diluted weighted average common shares outstanding during the relevant period. Free cash flow is defined as net cash provided by (used in) operating activities less purchases of property and equipment (inclusive of the purchase and development of software and technology) plus proceeds from sales of property and equipment, as presented in our consolidated statement of cash flows. Net working capital is defined as total current assets, excluding cash and cash equivalents, minus total current liabilities, excluding current maturities of long-term debt. Net working capital excludes cash and cash equivalents and current maturities of long-term debt to evaluate the investment in working capital required to support our business. We believe that Adjusted EBITDA, Adjusted Net (Loss) Income and Adjusted Net (Loss) Earnings per Diluted Share are important measures that exclude costs that management believes do not reflect our ongoing operating performance and, in the case of Adjusted EBITDA, certain costs associated with our capital structure. We believe that Adjusted EBITDA Less Share-Based Compensation presents our financial performance in a manner that is comparable to the presentation provided by many of our peers. We believe free cash flow is useful because it provides information to investors regarding the cash that was available in the period that was in excess of our needs to fund our capital expenditures and other investment needs. We believe that net working capital is useful in analyzing the cash flow and working capital needs of the Company, including determining the efficiencies of our operations and our ability to readily convert assets into cash. Accordingly, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA Less Share-Based Compensation, Adjusted Net (Loss) Income, Adjusted Net (Loss) Earnings per Diluted Share,  Free Cash Flow and net working capital are key metrics that management uses to assess the period-to-period performance of our core business operations. We believe that presenting Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA Less Share-Based Compensation, Adjusted Net (Loss) Income, Adjusted Net (Loss) Earnings per Diluted Share and Free Cash Flow enables investors to assess our performance from period to period using the same metrics utilized by management and that Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA Less Share-Based Compensation, Adjusted Net (Loss) Income and Adjusted Net (Loss) Earnings per Diluted Share enable investors to evaluate our performance relative to other companies that are not subject to such factors.



EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA Less Share-Based Compensation, Adjusted Net (Loss) Income, Adjusted Net (Loss) Earnings per Diluted Share, Free Cash Flow and net working capital (our “non-GAAP financial measures”) are not defined under generally accepted accounting principles (“GAAP”), are not measures of net income, income from operations, cash provided by operating activities, working capital or any other performance measure derived in accordance with GAAP, and are subject to important limitations. Our non-GAAP financial measures may not be comparable to similarly titled measures of other companies in our industry and are not measures of performance calculated in accordance with GAAP. Our non-GAAP financial measures have important limitations as analytical tools and you should not consider them in isolation or as substitutes for analysis of our financial performance as reported under GAAP and they should not be considered as alternatives to net income (loss),  cash provided by operating activities, working capital or any other performance measures derived in accordance with GAAP as measures of operating performance or as alternatives to cash flow from operating activities as measures of our liquidity.



The tables below set forth reconciliations of our non-GAAP financial measures to the most directly comparable measure of financial performance calculated under GAAP:



NET WORKING CAPITAL*







 

 

 

 

 

 



 

September 30,

 

December 31,



 

2020

 

2019

Working capital

 

$

60,206 

 

$

80,816 

Cash and cash equivalents

 

 

(8,635)

 

 

(11,243)

Current maturities of long term debt

 

 

1,446 

 

 

1,481 

Net working capital

 

$

53,017 

 

$

71,054 

_____________________

*

Preliminary



8


 

 

NCS MULTISTAGE HOLDINGS, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION

(In thousands, except per share data)  

(Unaudited)



ADJUSTED NET LOSS AND ADJUSTED NET LOSS PER DILUTED SHARE





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Nine Months Ended



 

September 30, 2020

 

September 30, 2019

 

September 30, 2020

 

September 30, 2019



 

Effect on
Net Loss

 

Impact on Diluted Loss Per Share

 

Effect on
Net Income (Loss)

 

Impact on Diluted Earnings (Loss) Per Share

 

Effect on
Net Loss

 

Impact on Diluted Loss Per Share

 

Effect on
Net Loss

 

Impact on Diluted Loss Per Share

Net (loss) income attributable to

    NCS Multistage Holdings, Inc.

 

$

(5,863)

 

$

(0.12)

 

$

3,621 

 

$

0.08 

 

$

(66,169)

 

$

(1.40)

 

$

(30,646)

 

$

(0.66)

Adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impairment (a)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

50,194 

 

 

1.07 

 

 

7,919 

 

 

0.17 

Realized and unrealized losses (b)

 

 

216 

 

 

 —

 

 

124 

 

 

 —

 

 

427 

 

 

0.01 

 

 

667 

 

 

0.01 

Write-off of deferred loan costs (c)

 

 

606 

 

 

0.01 

 

 

 —

 

 

 —

 

 

606 

 

 

0.01 

 

 

 —

 

 

 —

Change in fair value of contingent

    consideration (d)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

37 

 

 

 —

Income tax impact from

    adjustments (e)

 

 

394 

 

 

0.01 

 

 

(6,973)

 

 

(0.15)

 

 

616 

 

 

0.01 

 

 

11,757 

 

 

0.26 

Adjusted net loss attributable to

     NCS Multistage Holdings, Inc.

 

$

(4,647)

 

$

(0.10)

 

$

(3,228)

 

$

(0.07)

 

$

(14,326)

 

$

(0.30)

 

$

(10,266)

 

$

(0.22)

_____________________

(a)

Represents non-cash impairment charges for property and equipment and intangible assets during 2020 and a non-cash impairment charge for goodwill in 2019 as the fair values were lower than the carrying values.

(b)

Represents realized and unrealized foreign currency translation losses primarily due to movement in the foreign currency exchange rates between the periods.

(c)

Represents deferred loan costs of $0.6 million that were expensed during the third quarter of 2020 due to the amendment to our senior secured credit facility in August 2020. The reduction in deferred loan costs were commensurate with the reduction in potential capacity.

(d)

Represents the difference between the December 31, 2018 liability balance and the $10.0 million cash payment for the Repeat Precision earn-out consideration, which was paid to our joint venture partner on January 31, 2019.

(e)

Represents the income tax adjustments including a reduction in foreign income tax, valuation allowance recorded to reduce the carrying value of both our U.S. and Canadian deferred tax assets in 2020 and the impact of income tax adjustments including the valuation allowance recorded to reduce the carrying value of our U.S. deferred tax asset and the tax effect of a non-deductible goodwill impairment in 2019.

9


 

 

NCS MULTISTAGE HOLDINGS, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION

(In thousands)

(Unaudited)



ADJUSTED EBITDA, ADJUSTED EBITDA MARGIN, AND ADJUSTED EBITDA LESS SHARE-BASED COMPENSATION







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Nine Months Ended



 

September 30,

 

September 30,



 

2020

 

2019

 

2020

 

2019

Net (loss) income

 

$

(5,137)

 

$

6,609 

 

$

(62,936)

 

$

(22,837)

Income tax (benefit) expense

 

 

(3,058)

 

 

(1,396)

 

 

(9,956)

 

 

10,200 

Interest expense, net

 

 

876 

 

 

424 

 

 

1,622 

 

 

1,497 

Depreciation

 

 

1,000 

 

 

1,461 

 

 

3,446 

 

 

4,382 

Amortization

 

 

103 

 

 

1,153 

 

 

1,340 

 

 

3,451 

EBITDA

 

 

(6,216)

 

 

8,251 

 

 

(66,484)

 

 

(3,307)

Impairment (a)

 

 

 —

 

 

 —

 

 

50,194 

 

 

7,919 

Share-based compensation (b)

 

 

1,602 

 

 

2,872 

 

 

6,274 

 

 

9,154 

Professional fees (c)

 

 

1,249 

 

 

1,363 

 

 

2,211 

 

 

3,740 

Foreign currency exchange loss (d)

 

 

260 

 

 

131 

 

 

467 

 

 

678 

Change in fair value of contingent consideration (e)

 

 

 —

 

 

 —

 

 

 —

 

 

37 

Severance and other termination benefits (f)

 

 

844 

 

 

721 

 

 

5,618 

 

 

721 

Other (g)

 

 

151 

 

 

278 

 

 

927 

 

 

923 

Adjusted EBITDA

 

$

(2,110)

 

$

13,616 

 

$

(793)

 

$

19,865 

Adjusted EBITDA Margin

 

 

(13)%

 

 

22% 

 

 

(1)%

 

 

13% 

Adjusted EBITDA Less Share-Based Compensation

 

$

(3,712)

 

$

10,744 

 

$

(7,067)

 

$

10,711 

_____________________

(a)

Represents non-cash impairment charges for property and equipment and intangible assets during 2020 and a non-cash impairment charge for goodwill in 2019 as the fair values were lower than the carrying values.

(b)

Represents non-cash compensation charges related to share-based compensation granted to our officers, employees and directors.

(c)

Represents non-capitalizable costs of professional services incurred in connection with legal proceedings and the evaluation of potential acquisitions. During the second quarter of 2020, we received $1.1 million of proceeds from our directors and officers liability insurance related to the reimbursement of legal expenses that we incurred to defend a director and officer in the Diamondback litigation.

(d)

Represents realized and unrealized foreign currency translation gains and losses primarily due to movement in the foreign currency exchange rates between the periods.

(e)

Represents the difference between the December 31, 2018 liability balance and the $10.0 million cash payment for the Repeat Precision earn-out consideration, which was paid to our joint venture partner on January 31, 2019.

(f)

Reflects charges incurred in connection with the reductions in workforce implemented in 2020 and 2019.

(g)

Represents the impact of a research and development subsidy that is included in income tax expense (benefit) in accordance with GAAP along with other charges and credits.



FREE CASH FLOW







 

 

 

 

 

 



 

Nine Months Ended



 

September 30,



 

2020

 

2019

Net cash provided by operating activities

 

$

14,508 

 

$

4,815 

Purchases of property and equipment

 

 

(1,882)

 

 

(4,990)

Purchase and development of software and technology

 

 

 -

 

 

(251)

Proceeds from sales of property and equipment

 

 

704 

 

 

816 

Free cash flow

 

$

13,330 

 

$

390 













10


 

 

NCS MULTISTAGE HOLDINGS, INC.

REVENUES BY GEOGRAPHIC AREA

(In thousands)

(Unaudited)







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Nine Months Ended



 

September 30,

 

September 30,



 

2020

 

2019

 

2020

 

2019

United States

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

$

8,192 

 

$

21,639 

 

$

29,319 

 

$

62,272 

Services

 

 

1,143 

 

 

6,915 

 

 

5,588 

 

 

18,370 

Total United States

 

 

9,335 

 

 

28,554 

 

 

34,907 

 

 

80,642 

Canada

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

 

2,762 

 

 

18,531 

 

 

24,740 

 

 

43,953 

Services

 

 

931 

 

 

7,590 

 

 

9,819 

 

 

18,670 

Total Canada

 

 

3,693 

 

 

26,121 

 

 

34,559 

 

 

62,623 

Other Countries

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

 

706 

 

 

3,586 

 

 

1,889 

 

 

4,708 

Services

 

 

2,578 

 

 

2,512 

 

 

8,239 

 

 

5,418 

Total Other Countries

 

 

3,284 

 

 

6,098 

 

 

10,128 

 

 

10,126 

Total

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

 

11,660 

 

 

43,756 

 

 

55,948 

 

 

110,933 

Services

 

 

4,652 

 

 

17,017 

 

 

23,646 

 

 

42,458 

Total revenues

 

$

16,312 

 

$

60,773 

 

$

79,594 

 

$

153,391 





11


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