20200930 Q3 10-Q

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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 September 30, 2020

☐ 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)

Registrant’s 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 Global Select 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 November 3, 2020, there were 47,198,367 shares of common stock outstanding.

Table of Contents

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 (Loss) Income	5
	Condensed Consolidated Statements of Stockholders’ Equity	6
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37

Item 4.	Controls and Procedures	37

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	38

Item 6.	Exhibits	41

Signatures		42

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

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		6
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 (Note 9)
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

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

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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

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

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NCS MULTISTAGE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

(Unaudited)



	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)
Foreign currency translation adjustments, net of tax of $0		809		(1,017)		(2,848)		2,005
Comprehensive (loss) income		(4,328)		5,592		(65,784)		(20,832)
Less: Comprehensive income attributable to non-controlling interest		726		2,988		3,233		7,809
Comprehensive (loss) income attributable to NCS Multistage Holdings, Inc.	$	(5,054)	$	2,604	$	(69,017)	$	(28,641)

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

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NCS MULTISTAGE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data)

(Unaudited)


	Three and Nine Months Ended September 30, 2020
	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, 2019	—	$	—	46,905,782	$	469	$	424,633	$	(80,811)	$	(199,029)	(92,665)	$	(652)	$	18,935	$	163,545
Share-based compensation	—		—	—		—		2,950		—		—	—		—		—		2,950
Net (loss) income	—		—	—		—		—		—		(51,549)	—		—		2,642		(48,907)
Distribution to noncontrolling interest	—		—	—		—		—		—		—	—		—		(3,050)		(3,050)
Vesting of restricted stock	—		—	481,996		5		(5)		—		—	—		—		—		—
Shares withheld	—		—	—		—		—		—		—	(137,855)		(151)		—		(151)
Currency translation adjustment	—		—	—		—		—		(5,249)		—	—		—		—		(5,249)
Balances as of March 31, 2020	—	$	—	47,387,778	$	474	$	427,578	$	(86,060)	$	(250,578)	(230,520)	$	(803)	$	18,527	$	109,138
Share-based compensation	—		—	—		—		1,722		—		—	—		—		—		1,722
Net loss	—		—	—		—		—		—		(8,757)	—		—		(135)		(8,892)
Exercise of stock options	—		—	13,500		—		—		—		—	—		—		—		—
Vesting of restricted stock	—		—	13,324		—		—		—		—	—		—		—		—
Shares withheld	—		—	—		—		—		—		—	(4,493)		(2)		—		(2)
Currency translation adjustment	—		—	—		—		—		1,592		—	—		—		—		1,592
Balances as of June 30, 2020	—	$	—	47,414,602	$	474	$	429,300	$	(84,468)	$	(259,335)	(235,013)	$	(805)	$	18,392	$	103,558
Share-based compensation	—		—	—		—		1,602		—		—	—		—		—		1,602
Net (loss) income	—		—	—		—		—		—		(5,863)	—		—		726		(5,137)
Distribution to noncontrolling interest	—		—	—		—		—		—		—	—		—		(750)		(750)
Vesting of restricted stock	—		—	24,612		—		—		—		—	—		—		—		—
Shares withheld	—		—	—		—		—		—		—	(6,306)		(4)		—		(4)
Currency translation adjustment	—		—	—		—		—		809		—	—		—		—		809
Balances as of September 30, 2020	—	$	—	47,439,214	$	474	$	430,902	$	(83,659)	$	(265,198)	(241,319)	$	(809)	$	18,368	$	100,078

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

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NCS MULTISTAGE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data)

(Unaudited)


	Three and Nine Months Ended September 30, 2019
	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, 2018	1	$	—	45,100,771	$	451	$	411,423	$	(84,030)	$	(166,206)	(28,308)	$	(337)	$	14,930	$	176,231
Share-based compensation	—		—	—		—		2,968		—		—	—		—		—		2,968
Net (loss) income	—		—	—		—		—		—		(11,966)	—		—		2,088		(9,878)
Distribution to noncontrolling interest	—		—	—		—		—		—		—	—		—		(600)		(600)
Vesting of restricted stock	—		—	168,563		2		(2)		—		—	—		—		—		—
Shares withheld	—		—	—		—		—		—		—	(54,529)		(309)		—		(309)
Proceeds from the issuance of ESPP shares	—		—	156,486		2		675		—		—	—		—		—		677
Cemblend exchangeable shares	(1)		—	1,326,935		13		(13)		—		—	—		—		—		—
Currency translation adjustment	—		—	—		—		—		1,537		—	—		—		—		1,537
Balances as of March 31, 2019	—	$	—	46,752,755	$	468	$	415,051	$	(82,493)	$	(178,172)	(82,837)	$	(646)	$	16,418	$	170,626
Share-based compensation	—		—	—		—		3,314		—		—	—		—		—		3,314
Net (loss) income	—		—	—		—		—		—		(22,301)	—		—		2,733		(19,568)
Currency translation adjustment	—		—	—		—		—		1,485		—	—		—		—		1,485
Balances as of June 30, 2019	—	$	—	46,752,755	$	468	$	418,365	$	(81,008)	$	(200,473)	(82,837)	$	(646)	$	19,151	$	155,857
Share-based compensation	—		—	—		—		2,872		—		—	—		—		—		2,872
Net income	—		—	—		—		—		—		3,621	—		—		2,988		6,609
Distribution to noncontrolling interest	—		—	—		—		—		—		—	—		—		(2,800)		(2,800)
Vesting of restricted stock	—		—	36,285		—		—		—		—	—		—		—		—
Shares withheld	—		—	—		—		—		—		—	(9,540)		(21)		—		(21)
Proceeds from the issuance of ESPP shares	—		—	115,192		1		346		—		—	—		—		—		347
Currency translation adjustment	—		—	—		—		—		(1,017)		—	—		—		—		(1,017)
Balances as of September 30, 2019	—	$	—	46,904,232	$	469	$	421,583	$	(82,025)	$	(196,852)	(92,377)	$	(667)	$	19,339	$	161,847

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

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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)	$	—

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

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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 completions and field development strategies. We offer our products and services primarily to exploration and production companies for use in onshore wells. We operate through service facilities principally located in Houston and Odessa, Texas; Tulsa, Oklahoma; Billings, Montana; Morgantown, West Virginia; Calgary, Red Deer, Grande Prairie and Estevan, Canada; Neuquén, Argentina and Stavanger, Norway.

Basis of Presentation

Our accompanying unaudited 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. The condensed consolidated balance sheet at December 31, 2019 is derived from our audited financial statements. However, certain information and footnote disclosures required by GAAP for complete annual financial statements have been omitted or condensed as permitted by the rules and regulations of the SEC, and, therefore, these interim financial statements should be read in conjunction with our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 3, 2020. As NCS has the controlling voting interest in Repeat Precision, LLC (“Repeat Precision”), the other party’s ownership percentage 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. Certain reclassifications have been made to conform 2019 balances to our 2020 presentation on the condensed consolidated balance sheets. All intercompany accounts and transactions have been eliminated for purposes of preparing these condensed consolidated financial statements.

Recent Accounting Pronouncements

Pronouncements Adopted in 2020

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-15, Intangibles - Goodwill and Other-Internal-Use Software (Subtopic 350-40). The ASU aligns the requirements to capitalize implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements to capitalize implementation costs incurred to develop or obtain internal-use software. For public entities, this guidance became effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption was permitted, including adoption in any interim period. We adopted ASU No. 2018-15 on a prospective basis on January 1, 2020, with no material impact on our condensed consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820). The ASU modifies, removes and adds certain disclosure requirements on fair value measurements. For public entities, this guidance became effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption was permitted for all amendments. Alternatively, entities could early-adopt certain eliminated or modified disclosure requirements and delay the adoption of all new disclosure requirements until the effective date. We adopted ASU No. 2018-13 on January 1, 2020, with no material impact on our condensed consolidated financial statements.

Pronouncements Not Yet Effective

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848). The ASU provides optional guidance for a limited period of time to ease the potential burden in accounting for contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or other interest rates used globally that could be discontinued. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. We are currently evaluating the impact of the adoption of this guidance.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU No. 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. For public

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NCS MULTISTAGE HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

entities, this guidance is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. We are currently evaluating the impact of the adoption of this guidance.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326). This ASU introduces a new impairment model that is based on expected credit losses rather than incurred credit losses for financial instruments, including trade accounts receivable. It requires an entity to measure expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The new standard was to become effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. In November 2019, the FASB issued ASU No. 2019-10, which deferred the effective dates for certain accounting guidance (ASUs). The effective date for ASU No. 2016-13 will remain the same for public business entities that are SEC filers, except for entities who are deemed smaller reporting companies (“SRC”). The effective date for all other entities, including SRCs, will begin after December 15, 2022 and interim periods within those fiscal years. NCS qualifies as a SRC. We are currently evaluating the impact of the adoption of this guidance.

Note 2. Revenues

Disaggregation of Revenue

We sell our products and services primarily in North America and in selected international markets. Revenue by geography is attributed based on the current billing address of the customer. The following table depicts the disaggregation of revenue by geographic region (in thousands):


	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

Contract Balances

When 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. We currently do not have any contract assets or non-current contract liabilities. The following table includes the current contract liabilities as of September 30, 2020 and December 31, 2019 (in thousands):