Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- NCS Multistage Holdings Inc (NCSM, Financial) reported a 17% year-over-year increase in second-quarter revenue, reaching $29.7 million.
- The company's adjusted gross margin for the quarter was 40%, exceeding their guided range.
- International revenues saw a significant increase of almost 250%, driven by North Sea frac system sales and tracer work in the Middle East.
- Adjusted EBITDA for the second quarter was $0.9 million, surpassing the guided range and showing a year-over-year improvement of over $3 million.
- NCSM's balance sheet remains strong, with a cash balance of $18.6 million and a positive net cash position of $9.7 million as of June 30, 2024.
Negative Points
- Canadian revenues declined by 16% year-over-year due to wet weather conditions and E&P consolidation transactions.
- Sequentially, second-quarter revenues decreased by 32%, with Canada declining by over 60% due to normal seasonality.
- The company reported a net loss of $3.1 million for the second quarter, although this was an improvement over the prior year's net loss.
- There is potential downside risk to Canadian activity due to ongoing wildfires, which could impact future revenues.
- The company's trading multiple is currently at 3.3 times enterprise value to 2024 EBITDA, which is below the median of its peer set.
Q & A Highlights
Q: Can you provide more details on the factors influencing the third-quarter guidance?
A: The low end of the range includes conservatism for potential wildfire impacts in Canada, though no current issues are observed. International activities might shift timing-wise, but the guidance range accounts for these potential slippages. (Ryan Hummer, CEO)
Q: What stage is NCSM in regarding international market penetration?
A: In the North Sea, we are in the middle innings, having expanded our customer base. In the Middle East, we are in earlier stages, focusing on penetrating the market with tracer diagnostics and other product lines over time. (Ryan Hummer, CEO)
Q: Can you break down the royalty income contribution from new agreements and catch-up payments?
A: The second quarter was ahead of the traditional run rate due to a new licensee and catch-up payments. Future royalty income is expected to be between $1 million and $1.3 million per quarter. (Ryan Hummer, CEO)
Q: What is the average number of sleeves per well, and what could be the impact of increasing this number?
A: In the Montney, the average is between 100 and 150 sleeves per well. Some operators are moving towards tighter density and longer laterals, which could significantly increase the number of sleeves per well. (Ryan Hummer, CEO)
Q: What are the expectations for international opportunities in 2025?
A: The North Sea is expected to drive the most impactful increase in international revenue next year, with continued growth opportunities in the Middle East. (Ryan Hummer, CEO)
Q: How do you see the impact of wildfires on Canadian operations?
A: While there is potential for impact, no significant issues have been observed so far. The guidance range includes some conservatism for this potential risk. (Ryan Hummer, CEO)
Q: What are the key drivers for revenue growth in 2024?
A: Revenue growth is expected from increased sales of Repeat Precision's products in the US and Canada, and from fracturing systems and tracer diagnostics in international markets, particularly the North Sea and Middle East. (Ryan Hummer, CEO)
Q: Can you elaborate on the strategic investments in international markets?
A: Investments in the North Sea and Middle East have expanded our customer base and market opportunities, contributing to strong results and setting the stage for further growth. (Ryan Hummer, CEO)
Q: What are the expectations for adjusted EBITDA and free cash flow in 2024?
A: Adjusted EBITDA is expected to range from $16.5 million to $19.5 million, with free cash flow between $6 million and $10 million after distributions to noncontrolling interests. (Ryan Hummer, CEO)
Q: How does NCSM's trading multiple compare to its peers?
A: NCSM's trading multiple is currently at 3.3 times enterprise value to 2024 EBITDA, which is below the peer median, reflecting a favorable growth and balance sheet profile not yet recognized in the trading multiple. (Ryan Hummer, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
