NCS Multistage Holdings, Inc.

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.

Highlights:

• Total revenues of $43.6 million, an 11% year-over-year increase and an 8% increase compared to the fourth quarter of 2022
• Net loss of $(15.0) million and loss per share of $(6.10), compared to a net loss of $(1.5) million and a loss per share of $(0.64) in the first quarter of 2022
• Adjusted net income of $1.2 million, a $3.0 million improvement from the first quarter of 2022, resulting in adjusted earnings per diluted share of $0.50
• Adjusted EBITDA of $4.9 million, an increase of $2.6 million from the first quarter of 2022
• $13.6 million in cash and $8.4 million of total debt as of March 31, 2023

Highlights:

Q1 2023 Performance:

• Total revenue of $43.6 million, an 11% increase compared to Q1 2022
• U.S. revenue of $11.3 million; Canadian revenue of $30.7 million; International revenue of $1.6 million
• Cost of sales, excluding depreciation and amortization, of $25.0 million
• S,G&A of $16.2 million, including $0.9 million of non-cash share-based compensation
• Adjusted EBITDA* of $4.9 million, an increase of $2.6 million compared to Q1 2022

Q1 2023 Balance Sheet and Cash Flow:

• March 31 cash balance and total debt of $13.6 million and $8.4 million, respectively
• Net working capital* of $61.7 million and $55.0 million at 3/31/23 and 3/31/22, respectively
• Q1 net capital expenditures of $0.5 million and free cash flow* of $(2.0) million

Q2 2023 Financial Guidance*:

• Total Revenue of $27 – $30 million
• Adjusted EBITDA of $(3) – $(2) million
• Depreciation and amortization expense of $1 million

Full Year 2023 Financial Guidance*:

• Total revenue of $170 – $185 million
• Adjusted EBITDA of $20 – $25 million
• Gross capital expenditures of $3 – $5 million

Highlights:

• NCS Multistage Holdings, Inc. will host a conference call to discuss its first quarter 2023 results on Wednesday, May 10, 2023 at 7:30 a.m. Central Time.
• Participants can access the call by dialing 1-833-630-1956 and joining at least 10 minutes prior to the event start. The replay will be available in the Investors section of the Company’s website shortly after the conclusion of the call.

Highlights:

• Arrowhead is updating its coverage on NCS Multistage Holdings, Inc (“NCS” or the “Company”) with a fair value bracket of USD 45.89 – USD 56.08 (Share Price on March 29, 2023: USD 23.00) 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 (“EOR”) 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 been able to achieve high double-digit growth in revenue over the past few periods including a 31.3% increase in FY’22 as compared to FY’21 and its most recent guidance indicates a full-year FY’23 Revenue of USD 175 million to USD 190 million.
• 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 this would significantly increase its Revenue from PurpleFire perforating guns from the second or third quarter 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. As a result, the Company’s capex was 0.7% of Revenue in FY’22.
• Oil and Gas prices have reduced from their peak in May 2022, but they are still higher compared to historical prices. Renewed government support at least in the short term, and a focus on energy independence have encouraged many companies in the US to commit additional capital to drill more wells. Additionally, the rising energy demand and the European embargo on Russian oil have led to an increase in drilling activity in North America. This is expected to create a derived demand for Oil drilling, and equipment manufacturers like NCS.

Highlights:

Q4 2022 Performance:

• Total revenue of $40.2 million, an 11% increase compared to Q4 2021
  • U.S. revenue of $13.5 million; Canadian revenue of $24.7 million; International revenue of $1.9 million
• Cost of sales, excluding depreciation and amortization, of $24.1 million
• S,G&A of $13.2 million, including $1.0 million of non-cash share-based compensation
• Adjusted EBITDA of $6.4 million*

Year-end 2022 Balance Sheet and Full-Year 2022 Cash Flow:

• December 31 cash balance and total debt of $16.2 million and $7.9 million, respectively
• Full year 2022 net capital expenditures of $0.7 million and free cash flow* of ($2.1) million
• Net working capital of $55.2 million and $48.0 million at 12/31/22 and 12/31/21, respectively

Q1 2023 Financial Guidance:

• Total Revenue of $43 – $47 million
• Adjusted EBITDA of $4 – $5 million
• Depreciation and amortization expense of $1 million

Full Year 2023 Financial Guidance:

• Total revenue of $175 – $190 million
• Adjusted EBITDA of $20 – $25 million
• Gross capital expenditures of $4 – $5 million

Highlights:

Fourth Quarter Results:

• Total revenues of $40.2 million, an 11% year-over-year increase
• Net income of $2.0 million, compared to $1.7 million for the fourth quarter of 2021, a $0.3 million improvement resulting in earnings per diluted share of $0.81
• Adjusted EBITDA of $6.4 million, slightly below the fourth quarter of 2021
• $16.2 million in cash and $7.9 million of total debt as of December 31, 2022

Full Year Results:

• Total revenues of $155.6 million, a 31% increase over the prior year
• Net loss of $(1.1) million, compared to a net loss of $(4.7) million in 2021, a $3.6 million improvement resulting in loss per diluted share of $(0.45)
• Adjusted EBITDA of $15.1 million, compared to $9.1 million in 2021, a $6.0 million improvement

Highlights:

• NCS Multistage Holdings, Inc. will host a conference call to discuss its fourth quarter and full year 2022 results on Tuesday, March 7, 2023 at 7:30 a.m. Central Time (8:30 a.m. Eastern Time)
• NCS will issue its fourth quarter and full year 2022 earnings release the evening prior to the conference call
• To access the conference call, please dial 1-833-630-1956 and ask to join the NCS Multistage call. It is recommended that participants join at least 10 minutes prior to the event start

Highlights:

• Arrowhead is updating its coverage on NCS Multistage Holdings, Inc (“NCS” or the “Company”) with a fair value bracket of USD 47.17 – USD 57.65 (Share Price on December 2, 2022: USD 26.61) 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 five categories: Fracturing Systems, Well Construction, Tracer Diagnostics, Repeat Precision, and Enhanced Oil Recovery (“EOR”) Products.
• 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. The Company believes that its AirLock, which is the anchor product for its Well Construction product line, and which has achieved over 13,000 runs with a 99.99% success rate, was the first economical casing buoyancy system in the world.
• Since the beginning of 2022, the number of customers purchasing PurpleSeal composite plugs in Canada has been increasing, which has helped NCS generate prospects for composite plugs as well as NCS’s full wellbore offering. The Company launched a new product offering called the PurpleFire factory-assembled modular perforating gun system which is currently in field trials. During Q3’22, the Company reported successful initial trials of the Purple Fire Express system (which is an integrated downhole tool string for plug-and-perf completions) with several additional wireline customers.
• NCS aims to emerge as a top OFSE market player by developing and integrating innovative technologies into the market. Currently, NCS holds a total of 105 patents, up from 19 US and 23 international patents at the time of its IPO in April 2017.
• 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. Due to its smaller capex requirements, NCS is able to generate higher free cash flows than many of its competitors.
• NCS was significantly affected by the Covid-19 outbreak because of its direct exposure to the Oil & Gas industry, which is among the worst affected by Covid. The Company’s revenue almost halved in 2020 compared to 2019 because customers had to reduce or suspend oilfield operations. But the demand for oil and gas has improved since the lows of mid-2020 and E&P customers have slowly begun to increase activity. After surpassing FY’19 level in Q3’21, Canadian rig counts have continued to increase, and US drilling and completion activity is also increasing
• Oil and Gas prices are increasing because of Russia’s invasion of Ukraine. Renewed government support, at least for the short term, and a focus on energy independence have encouraged many companies in the US to commit additional capital to drill more wells. Additionally, soaring energy demand and the European embargo on Russian oil have increased drilling activity in North America. These are expected to create a derived demand for oil drilling, and equipment manufacturers like NCS.