NCS Multistage (NASDAQ:NCSM) Research Update

Highlights:

• Arrowhead is updating its coverage on NCS Multistage Holdings, Inc (“NCS” or the “Company”) with a fair value bracket of USD 33.17 – USD 40.54 (Share Price on June 12, 2023: USD 18.56) based on Discounted Cash Flow Valuation and Company Comparable Valuation.
• NCS is an oilfield services and equipment company, which provides highly engineered products and associated services to support onshore and offshore oil and gas well completion and field development projects. The Company offers products and services in four categories: Fracturing Systems (including Enhanced Oil Recovery products), Well Construction, Tracer Diagnostics, and Repeat Precision.
• NCS has established leadership positions across a focused product line portfolio. The Company claims to be the worldwide leader in pinpoint stimulation and North America’s top provider of tracer diagnostics services. NCS has achieved double-digit revenue growth YoY over the past few quarters, including a Revenue of USD 43.6 million in Q1’23, translating to 11.4% growth over Q1’22.
• The Company completed successful field trials of the PurpleFire perforating gun with a wireline company at the end of Q3’22 and began selling the product through several other wireline customers. The Company expects Revenue from PurpleFire perforating gun to increase starting in the second half of FY’23.
• The Company maintains lean operations by outsourcing most of its supply chain activities to local and overseas partners and only managing core business aspects like R&D, design, engineering, assembly/testing, and quality control internally. This allows the Company to operate on a “capital-light” business model with a smaller fixed asset base and limited investments in field equipment and customized vehicles.
• NCS incurred a Net Loss of USD 15.0 million in Q1’23, primarily because of a USD 17.5 million provision that it created for a law suite in which a customer imputed damage caused to its wells on a design flaw in components supplied to it by one of NCS’s third-party suppliers in 2018. A judgment passed on May 15, 2023, ordered NCS to pay USD 42.5 million in damages. However, NCS expects a large portion, if not all these damages, to be covered by insurance. Adjusting for the litigation expense of USD 17.5 million, NCS’s adjusted Net Income (net of tax) was USD 1.2 million in Q1’23.