Q4 2019 Earnings Call

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Gentlemen, thank you for staying high and welcome to the fourth quarter 2019, and he asks Multistage earnings conference call. At this time off line just got lines are in listen only mode. After the speakers presentation they'll be a question and answer session.

Ask a question during this session you on the press Star one on your telephone. Please be advised that today's conference is being recorded if you acquire any further assistance. Please press star zero.

I'd now like to have the conference over to your speaker today, Brian Hummer CFO. Please go ahead Sir.

Thank you Catherine Thank you to everybody joining NCS multistage as fourth quarter and full year 2019 conference call. Our call today will be led Bart by our CEO, Robert Dipper and I will also provide comments.

Before we begin todays call, we'd like to caution listeners that some of the statements that will be made on this call it could be forward looking.

To the extent that our remarks today contain information other than historical information. Please note that we're relying on the safe harbor protections afforded by federal law.

Such forward looking statements may include comments regarding future financial results and are subject to several known and unknown risks I'd like to refer you to the press release issued last night, along with other public filings made from time to time with the Securities and Exchange Commission that outline those risks I also need to point out that in our earnings release and introduce conference call.

Well, we refer to adjusted EBITDA adjusted EBITDA margin adjusted EBITDA less share based compensation and free cash flow all of which are non-GAAP measures of operating performance. We use these measures of operating performance because they allow us to compare performance consistently over various periods without regard to costs associated with our current capital stock.

Sure and in a manner that we believe better reflects our operating performance.

A press release and the updated Investor presentation, which was posted yesterday onto our web site or both available at NCS multistage Dot com.

They provide reconciliations of these non-GAAP financial measures to the nearest GAAP financial measures with that said I'll turn the call over to Robert.

Thank you Ryan welcome to our investors analysts and employees joining our fourth quarter 2019 earnings conference call. Today I'll review some of our key accomplishments for 2019 and discuss our strategic priorities for 2020 I'll also briefly discuss our outlook in each of the U.S. Canadian and international markets after that I'll turn it over time.

Ryan to discuss the quarterly results in more detail and provide guidance for the upcoming quarter after which I'll provide some closing remarks.

First I want to thank our employees. It is through the hard work dedication and ingenuity of our people and we were able to achieve so much in 2019 and it takes the effort of the entire team to position us to achieve our near and long term objectives.

During 2019, we continued to pair our efficiency, enabling technologies with our service capabilities to help our customers optimize their operations and maximize the value of their assets are focused offerings of products and services delivers tremendous value to our customers key examples include within fracturing systems.

Repeat the put out a press release in December highlighting how the use of our technology saves them significant time and money on completions accelerates production and may enable additional projects are purple sill frac plugs from will be precision have gained significant market share by outperforming competing products.

Customers gain efficiencies in pumped down and drill out times with this product.

Even more impressive has been the market acceptance of our purple Sill Express system, a factory assembled unit that combines our frac plug with a limited use setting tool, reducing onsite hs any risk during plug and perf operations.

Our tracer diagnostic service line helps operators assess parents job well relationships and strategies to mitigate well the well interference customers use these learnings to adjusted or well spacing and development plans to maximize financial returns on capital efficiencies, which is critical in current environment.

Within well construction, our airlock system provides our customers with greater assurance of lending casing and extended reach laterals optimizing the cost of their field developments.

The technology can also reduce casing running time, providing a net savings to a customer.

We deliver all these products and services through an exceptional and highly trained fill operations team and support our customers operations, we operate in a safe and efficient manner and all we do with a commitment to safety that extends to our employees and our customers I'm incredibly proud of our team and our safety record. Our total recordable incident rate has been.

20.3, and 0.4 and each of the last three years, which compares very favourably to industry benchmarks.

The value that we bring to our customers across the portfolio allowed us to outperform underlying industry activity levels in each of our operating regions.

Our us revenue was flat year over year in 2019. This compares to a decline in the average us horizontal rig count of 8% and estimates of a decline in us well drills of 5%.

International revenue grew by 11% year over year outperforming the 8.5% growth in the average international land rig count.

In Canada, our revenue fell by 21% year over year far outpacing both the Canadian or the average Canadian land rig count and the PC Mac estimate for wells drilled in Canada, both of which declined by 25% to 30%.

Lastly, I want to touch on regarding our performance in 2019 is our cost discipline and free cash flow generation.

We made several jet adjustments through the year as market conditions deteriorated.

We did this to rightsize the business and to maximize free cash flow.

We implemented a reduction in force in July that had an immediate impact on reducing our cost base by approximately $5 million on an annualized basis.

We also reined in our capital spending through the year, our net capex for the year of $5 million was well below the initial range. We laid out at this time last year of $9 million to $13 million.

As a result, we generated free cash flow of approximately $13 million. We utilize this free cash flow and cash on hand at the beginning of year to pay the $10 million onetime earn out to our joint venture partner and will be precision and to reduce our debt balance by nearly $13 million.

As a result, we have a very strong balance sheet with net debt of only $1.7 million at the end of year.

Our 2019 free cash flow as a percentage of our current equity market capitalization or free cash flow yield is 25%.

We also evaluate free cash flow as a percentage of our enterprise value, which is 18%. These calculations are derived from our page from page four of our presentation.

Our focus on and ability to generate free cash flow continues to be one of the cornerstones of the NCS story.

As page seven of the presentation demonstrates we have grown our free cash flow each year since 2015 with the sole exception being 2018, when we renovated our technology center in Calgary and implemented a new and robust ERP system.

Those two strategic investments totaled over $11 million and we don't expect investments of assuming similar magnitude of the near future.

Our strategic priorities for 2020 are straightforward first we will continue to bring tangible value to our customers through our differentiated product and service offerings. In this we plan to commercialize new products that will facilitate both near term opportunities and set the stage for longer term growth second we will continue to strive to have.

Revenue performance that exceeds underlying industry activity trends in each of the U.S., Canada in international markets. We're highly focused on our international business International business increased.

From our international revenue as a total as a percentage of total increase from 6% to 8% of our total revenue last year, and we expect international revenue to exceed 10% of our total revenue in 2020.

Finally, we aim to increase our free cash flow generation in 2020, our capital light business model facilitates free cash flow generation.

This free cash flow will allow us to further enhance our strong balance sheet and provides flexibility to capitalize on potential strategic opportunities.

I'll now briefly review the market environment in our current strategies in each of our geographic markets, starting with Canada. Our current expectation for full year industry activity would be flat to lower by 5%.

Drilling at Cannes activity in Canada is off to a stronger start in 2020, then to 2019, but we havent seen indications of increases in full year capital budgets. We believe we're well positioned to grow our revenue in Canada in 2020 as compared to 2019 outperforming industry activity.

Our team in Canada continues to impress me with what they have accomplished in a challenging market environment. The group continues to deliver on our business strategies in that market growing our market share in fracturing systems, and cross selling our products and services across our customer base.

The momentum we've seen in recent quarters continued in the fourth quarter.

During Q4, we grew our revenue by 24% as compared to the fourth quarter of 2018.

The average comparative rig count was lower by 23%.

Let me repeat that 24% growth in a market that declined 23% that is differentiated performance.

This can happen without a truteam effort between sales and operations. The team is delivering excellent execution in the field supporting our sales efforts and strengthening our customer relationships the quality and efficiency of our field operations continue to differentiate us from our competition.

We are benefiting from the Technology Center, we opened in 2019 nearly 140 customers from over 35 companies toured the Tech center during 2019.

These tours highlight the breadth of our capabilities as well as the rigorous testing. This supports our current product service and service offering and new product development initiatives. The technology Center has been a great investment for us.

We're also encouraged by positive regulatory developments related to major projects underway to improve pipeline egress for Canadian crude. If these projects are completed they should improve the relative economics for our Canadian customers, who have been operating under constrained environment for sometime now.

For the US our current expectation is the customer capital spending will fall by 10% to 15% as compared to 2019.

We would expect the impacts to well count and completion count to be less severe likely lower by single digits, reflecting increased efficiencies and lower pricing in some product and service lines.

We believe we are well positioned to outperform the overall market in the us through continued share gains, especially within fracturing systems and repeat precision.

Within fracturing systems, we continue to target our sales efforts to specific applications were pinpoints stimulation delivers operational benefits and cost savings to our customers.

Many of our fracturing systems customers are also key targets for our recently introduced enhanced oil recovery offerings.

Repeat precision continues to grow share in the very competitive space. This illustrates the robust performance of our purple sill, frac plug and the inherent HSD advantages of limited use setting tool.

We believe that international markets are likely to significantly outperformed North America in 2020 with customer capital spending increasing 5% to 10%.

We continue to grow our international customer base, reducing our reliance on any single region, which was partially responsible for our international revenue improving from $4 million in the first half of 2019, Dover $11.5 million in the second half.

We expect that momentum to continue into 2020, despite some seasonality in the north Sea and China in the first quarter.

On a positive note activity in Argentina has rebounded after a slower a period of slower activity in late 2019 related to the elections here and a period of significant inflation the market there has stabilized considerably.

We continue to learn more about the grown of ours and its impact on China in the world.

Bob go out all of those who are directly impacted by the situation and we are hopeful that the international efforts to contain the spread of ours and identify effective treatments are successful as possible as each week passes the impact of the virus on the world's economy and on oil demand is becoming more acute and increases the risk of further activity reductions in North America.

Specific to NCS operations, we currently expect to resume completions activity in China. During the second quarter of 2020, and we have had a limited impact on our supply chain.

While we believe that we can outperform the industry activity based on the value preface proposition of our products and services, we remain committed to cost discipline supporting our gross margins and managing capital expenditures and SDMA.

We believe the investments and initiatives of the past several years, including our reinvestment our investment in repeat precision and our technology Center provides us with opportunities for capital efficient growth and increased free cash flow generation.

Continuing to improve our cost position is critical given the current industry environment.

We're in a very competitive industry and one in which activity levels for our customers continued to decline in North America, we've taken steps to right size our operations for the current market environment and won't hesitate to do so again, if the industry conditions change we have been and will remain good stewards of capital. We believe that we can deliver modest growth while in.

Proving our financial returns and growing free cash flow.

I will not now as Ryan to discuss our financial results in more detail.

Thank you Robert.

As reported in yesterday's earnings release, our fourth quarter revenues were $52.1 million, 4% higher than the prior years fourth quarter and inline with the midpoint of the guidance we provided on last quarters earnings call.

In addition, our fourth quarter revenue in each of the U.S., Canada and international markets fell within the guidance that we provided on last quarter's call.

On a sequential basis revenue in the fourth quarter was 14% lower than revenue in the third quarter with seasonally driven sequential decreases in each of the U.S., Canada in international markets.

Full year revenue for 2019 of $205 million represented a 9% decrease as compared to 2018.

Gross profit defined as total revenue less total cost of sales, excluding depreciation and amortization expense was $26.1 million in the fourth quarter or 50% of revenue compared to $24.2 million or 48% of revenue in the prior years fourth quarter.

This gross margin percentage was above the high end of the guidance, we provided for the quarter for a sequential comparison gross profit was $28.6 million or 47% of revenue in the third quarter.

Selling general and administrative costs were $22.2 million in the fourth quarter as compared to 20.3 million in the prior years fourth quarter and were also higher than the third quarters level of $20.4 million.

During the quarter, we recorded provision for bad debt expense of approximately $1.8 million related to a single customer which was the primary driver for the increase and for SGN a to be above the guidance for the quarter.

Our reported SGN a include share based compensation and certain nonrecurring expenses, including certain litigation costs nonrecurring expenses totaled $1.2 million in the fourth quarter.

Adjusted EBITDA for the fourth quarter was $8.3 million as compared to $7.8 million in the prior years fourth quarter adjusted EBITDA as a percentage of total revenue was 16% in the quarter.

Our full year adjusted EBITDA in 2019 was $28.2 million, reflecting 14% of revenue and compares to $49.7 billion in 2018.

For the fourth quarter, our depreciation and amortization expense totaled $2.6 million. We had net income attributable to non controlling interest of $2.2 million in the quarter, reflecting net income at repeat precision.

Our average in basic diluted share counts for the quarter were both 46.9 million.

Turning now to cash flow items in the balance sheet.

Cash flow from operations for the fourth quarter was $13.1 million and it was $17.9 million for the full year, our net capital expenditures for the fourth quarter were zero point $6 million and $5.0 million for the full year.

As a result, our free cash flow for the quarter was $12.6 million and it was $12.9 million for the full year in 2019.

At the end of the year, we had $11.2 million in cash and total debt of $12.9 million, which included $10 million, which was drawn under our us revolving credit facility with the remainder being capital leases.

We reduced our debt balance by $3.4 million during the quarter and by $12.8 million during the year.

I'll close with a few points of guidance for the first quarter.

We currently expect total revenue in the first quarter to be $56 million to $62 million, we expect our us revenue to be between 22 and $24 million, reflecting a relatively slow pace for increased activity during the first quarter, which we believe could accelerate through the middle of the year.

In Canada, we expect a seasonal sequential increase in revenue to 31% to $34 million driven by a strong start activity in 2020 and continued market share gains.

The range remains wide due to uncertainty regarding the timing of the onset of weather driven spring breakup.

We expect our international revenue to be approximately $4 million to $5 million as we benefit from ongoing work, we have across multiple geographies offset by seasonal winter declines in the north Sea and in China with China also impacted by a slowdown related to the Corona virus.

We expect our gross margin to be between 44.5, and 47.5%, reflecting a decrease relative to the fourth quarter, primarily driven by geographic mix impacts.

We expect our reported SGN, a inclusive of share based compensation and nonrecurring items to be between 22, and a half and 23 and a half million dollars.

This includes approximately $3.3 million and share based compensation and over $1.5 million in litigation expenses.

As DNA typically increases in the first quarter relative to the fourth quarter due to higher payroll taxes and full accruals for incentive compensation in the new year.

We expect our share based compensation expense to decline during the year as our pre IPO options will be fully expensed in may leading to a reduction in the second quarter and beyond.

In addition, we expect our nonrecurring litigation expenses to decline in the second quarter and thereafter, as we expect to conclude the trial phase with respect to a U.S. matter.

I will note that significant percentage of incentive compensation under our 2020 planned utilizes cash settled awards. This minimizes dilution for our shareholders, but may introduce more volatility into our reported share based compensation expense as cash settled awards are subject to quarterly remeasurement.

We expect our first quarter depreciation and amortization expense to be approximately $2.7 million and we expect our net interest expense to be zero point $3 million in the first quarter.

Our expected gross capital expenditures for 2020.

As between $3 million to $5 million a further reduction from 2019, we continue to evaluate business opportunities that may support additional capital investment, especially at repeat precision if we're to move forward with such opportunities. They would have attractive cash on cash return profiles and enhance the earnings power of our business.

I'll take the next few minutes to discuss NCS as free cash flow generation in 22020.

I would refer you to slide 22 of the Investor presentation that we posted last night.

As we are not providing any full year EBITDA or adjusted EBITDA guidance will simply bridge from an illustrative EBITDA to walk through sources and uses of cash to arrive at the free cash flow for this illustrative adjusted EBITDA less share based compensation.

Several of these bridge items have a range and any summary figures will utilize the midpoint of the ranges provided.

Beginning with our adjusted EBITDA by share based compensation, we add $10 million to $12 million and share based compensation for the year.

This number excludes potential impacts from the Remeasurement related to cash settled awards.

As the cash impact for those during 2020 would be minimal from there, we deduct $5 million to $7 million.

Comprises cash interest cash taxes, and other items, including the nonrecurring litigation expenses.

Yearend working capital for NCS typically runs at approximately 30% to 35% of annual revenue and with our focus on cash flow. We are working towards achieving the lower end of that range in 2020.

The next bar represents the next net Capex that I spoke to earlier of $3 million to $5 million.

Some of these items resulted in free cash flow equaling adjusted EBITDA less share based compensation minus approximately $3 million.

This bridge is very similar to 2019, when our adjusted EBITDA less share based compensation of $16 million as provided in our earnings release translated to free cash flow of $12.9 million I'll now hand, it over to Robert for closing remarks. Thank you Ryan.

Before we open up the call for Q in a I'd like to highlight some of our accomplishments in Canada. Our team is executing on our strategy to increase our market share and cross sell products and services to fully capitalize on our strong market presence, we increased fourth quarter revenue on a year over year basis by 24%, Despite a 23% reduction in rig count in.

In addition, we completed more wells for our customers in 2019 than we did in 2018 distributor demonstrating our market share gains.

In the U.S., we continue to see strong performance it would be precision and we had increased activity in fracturing systems in the second half of 2019, which has continued into the first quarter.

We continue to grow our presence in international markets, which we believe have a more stable near and medium term outlook than due North America.

We have ongoing work in Argentina, Oman, and the North sea, which should each have steady activity throughout the year, we have trials for multiple products and services upcoming in the middle East later this year.

I'll close with a couple of brief comments.

Our industry continues to face significant challenges, especially in North America as customers continue to reduce spending in activity levels. I believe NCS is positioned to succeed in this environment, we deliver a focused portfolio of technologies that helps our customers operate more efficiently and optimize the value of their assets.

We are pursuing accretive growth, including in international markets, which we expect to grow to more than 10% of our revenue this year.

We are focused on optimizing our cost structure in capital spending for the current environment. One example of this is that we recently consolidated our Houston area of footprint from three facilities to two allowing us to reduce our rent expense with minimal additional capital.

We maintain a capital light business model, which facilitates free cash flow generation and is supported by strong balance sheet. Our top financial priority is free cash flow growth with that we'd be happy to take your questions.

Thank you.

As a reminder to ask a question you need to press star one on your telephone.

To draw your question press the pound key.

And our first question comes from Ian Macpherson with Simmons Your line is open.

Thanks, Good morning, Robert and Ryan.

Congratulations on the really strong.

Canadian performance, there, especially among other things.

You mentioned in your Threed strategic priorities Robert number one commercializing new products can you expand on that a little bit I know, we've heard from some of the other.

Downhole.

Completions.

Technology companies talking about increasing.

Cluster intensity on on the plug and perf side, you've talked about how that translates on sleeves or what other.

New product Rollouts.

You to speak to that point that you made.

Yes, sure Theres there is.

Theres a few things that we're not going to talk about today that that.

Leads for.

That would lead towards sorry about that.

That touches on cluster efficiency, but what I would say is some of the products that were coming out with our newer versions of our sliding sleeves that give customers number one a cost savings from where they are today, so even improved over over some of the recent the more recent ones that we've had.

Sliding sleeves that have a three position system. So they have assistant position is closed those sleeve can be running the wells submitted in place. It can be opened frac through and then.

As the customer decides that they want to use that welford injector injector in future applications. The sleeve can be moved to a third position, which provides a choking the well so that lateral can be used.

Once all this leaves replacing that choke position it can be used for injection and the injection can be controlled with very little if any additional capital expense to be able to make that conversion.

Some of the other things that we're we're looking at and working on and expect to come out in the near term are.

Some changes in our composite plug line, which makes our composite plugs, even more efficient than they are today.

We're also working on and treasure diagnostics, some additional new tracers as well as some support products for the treasure product lines and then finally, our IAR project, we've talked about in the past we continue to make progress with that as we've.

Said in the past when we first introduced it do you guys. It's a longer term project.

We expect to we generate some revenue with it last year and we have additional field trials already scheduled this year for some of those products and we expect to have additional trials scheduled later in the year, that's more of a play for down the road, but we're investing in the near term opportunities as well as alarmed long term opportunities.

That's great. Thanks for all that color.

And then maybe on the international side can you expand a little bit on which markets are.

Being the above average growth profile that you see for this year outside North America.

Yes, I think internationally the two markets that were most focused on in terms of opportunities for growth would be in the north sea and in Argentina.

As as we continue to come online with the OCC or BP project.

The whole team the other service companies that were working within our VP has gotten more efficient and we hope to see increased activity there for that product that project.

We're also having conversations with several other operators in the area that were that has been spurred by the success that offer BP has had used in this type of technology. So thats an area that Sam that pretty exciting for us and it looks like it's going to be more longer term.

Not longer term and being able to to achieve revenue, but longer term in terms of how long last and then Argentina as I mentioned in the comments I was a pretty rough second half of the year last year in Argentina with the political environment in India hyperinflation, but we've seen that turned the corner in the first quarter this year, having conversations with customers now.

About annual programs, we did in the last half of the year. The the industry was virtually shut down with the exception of the locally MPS. The international operators that were in joint ventures with them with the locals just there was just basically no activity, but we're seeing that turned the corner now in fact, we're we have work awarded in Argentina that.

We didn't have before so we're out we think that that's going to pick up as well for us, but we also have a number of other areas that we've been making progress over the last couple of years in where we have field trials.

And we have actual work scheduled in new areas force internationally, so that it's a growth opportunity for us and as I said earlier, we're investing in it.

Great well thanks for all the good color this morning and.

Good luck between 20 present executive.

Thank you. Our next question comes from George O'leary with Tudor Pickering. Your line is open.

Good morning, guys.

Morning, George.

Hi, just from a broad brush strokes perspective, what did you could brain that geographic mix for your fracturing has done in the US in 2018 and then.

Any how that's changing as we progressed into 2020 are there any moves there any basins, where you're seeing.

More notable adoption of your systems in the us in 2020.

Sure George as we've talked about before.

We found specific applications in the us market, where pinpoint stimulation works well and add value in many cases more value than competing completions technology. So we focused on those and geographically those areas are in multiple basins. So parts of the Permian.

Eight both in Texas, and net and new Mexico.

And the Rockies there are few basins up there, where the where the technology works really well and in some areas in the in the mid Con we also see.

Starting to see some areas of interest in the Appalachian. So I would say, primarily we think about it more for from the Permian areas and the Rockies, but we're also seeing some areas, where we maybe able to get increased activity as well one of the things that that we struggled with in the past that we struggled with when we first came into the U.S market was.

With plug and perf being the predominant.

Completion methodology.

The infrastructure was set up for plug and perf set up to support it and the Frac fleets where sized for horsepower that was more than double the requirements for doing pinpoint. So when we would go out and do a pinpoint job a frac fleet that was twice more than twice as big as it needed to be also with a built more than twice as big as it needs to be would show up and Thats.

Something that we struggled with from day, one it's such a cost disadvantage to us if we can't reduce the horsepower cost on location because not required.

But more recently over the last few months.

We found frac companies more willing to work with us and size there frac fleets to the size that we actually need and price at accordingly, and so we were working with that with a couple of Frac companies now that we're pretty pretty far advanced with we've already started doing jobs jointly with them, where we are packaging the coal tubing the of the Frac spread.

Ads and the pinpoint stimulation technology together and it looks like we're getting a little bit of momentum with that so if that if that does continue then that may open up other opportunities that we don't have today, but we have seen that it does make pinpoint more competitive with plug and perf, especially on and single well applications.

That's very helpful color Robert Thank you and then next question was on the margin side of the equation. The margins were very strong from a gross margin perspective in.

In the fourth quarter and the guidance was burned down sequentially.

In the first quarter of 2020, I think you cited mix. So when was that mostly just things on the cost side of the equation.

That drove that better margins in the fourth quarter and then as we look forward to the first quarter in can you feel that getting a little bit norm on what in terms of mix that geographic or product mix.

It is driving net change in gross margins.

Yes sure. George This is this is Ryan with respect to margin in the fourth quarter.

Yes, we certainly did have very good performance, there, where there was a bit of that that was driven just through some.

As advantageous relationships that we had with vendors that impacted the quarter.

And I think those are specific to the quarter and don't necessarily fully flow through into 2020, although we expect certain of those arrangements to provide benefits on a continuing basis.

And really from a mix standpoint, it has to do more with geographic than it does product line.

As you can see with the guidance that we gave there's very very strong growth in the Canadian market and we've been growing our revenue in there and doing a great job taking market share, but that market has been very competitive for a long time and the operators there have been faced with a very low cost environment for a long time so.

The margins tend to be a little bit skinnier. So as you see growth in the Canadian share in Q1 that drives the margin down a bit the other piece to that is that quarter over quarter international is going to be down slightly in there for a lower part of the mix.

The international I guess products and service lines that we participate in tend to be a little bit less competitive as far as the number of competitors that we see in the markets as compared to North America. So.

That's really it from a geographic standpoint, nothing specific to product or service mix.

Okay. That's super helpful. Just sneak in one more more more equipment. If I said it can you frame.

Your market share up in Canada, and the fracturing systems that have the business.

Even if in broad brush strokes, maybe not exact number but seems like you guys have taken notable share there.

I see in the fourth quarters, where do you guys think used it from the market share perspective up in Canada.

Yes, we believe our market shares there now are in the range of 20% to 25%.

Alright, great I'll turn it back over thanks.

Thanks George.

Thank you. Our next question comes from Sean Meakim with Jpmorgan. Your line is open.

Thanks, Good morning.

Morning.

So she and eight I'm curious what other cost out scenarios you Ron if we remain in the current MP spending environment in North America, or maybe even if we see a decline in the back half with 20 in the 21 Simon I understand your.

Positioned to outgrow the market, but the delta is pretty modest at the moment just given.

The limitations on the environment so.

It seems like Thats, an area, where you could boost free cash I'm, just curious how you're balancing holding on to upside optionality versus trying to boost that cash flow near term nor are we satisfy with free cash at current levels.

Yes, Sean this is Robert.

So no we're never satisfied we as we said earlier as Ron said early we intend to growth free cash flow in 2020 versus 2019, we as you know last year, we had a restructuring.

And we made some adjustments we restructured the organization in terms of personnel, we took out some layers of management and we achieved about an annual cost savings primarily in as DNA of about $5 million annually.

We believe that were rightsized for the market right now based on what our expectations are to continue to outgrow the market.

But if if we are not able to perform at the levels that that we think we are the market turns in a way. That's that's not expected now and then we're fully prepared to reevaluate and make changes required they'll they'll require more structural changes.

Okay fair enough I appreciate that.

Can you doubled or that the tracers business. So I know you mentioned some new products in the works.

Seeing more intensity of demand in the us from those customers maybe.

As they're slowing down sometimes there's more willingness to look at new adoption of technology or are you finding that tracers and more of a discretionary spend just curious how youre seeing that in the field today.

Yeah, I'd say that we're seeing a bit of a pull back and customers using tracers as broadly so I would say that some of the.

The market for tracers has progressed a bit.

From some of the smaller operators that we've worked with they they view that as almost like a science budget in some cases. So we have seen some pullback. There. However, some of the larger customers who use customers are used tracers for different reasons.

We really haven't seen that pull back in and we continue the same activity levels with those customers.

There's a few competitors still in the market. It's just like any other service line, it's very very competitive right now.

But we still were sold in our terms our own in terms of market share.

We have new tracers in terms of additional tracer signatures that we've recently introduced we have more that are under development and we continue to refine the way that customers can use tracers to look at inter well interference and we think thats really going to be the driver for treasure adoption going forward in the marketplace.

Is being able to add more capabilities to be able to better understand.

Well interference.

Great. Thanks, Robert Thank you.

Thank you and we have a question from correct Paul.

Paula with RBC Your line is open.

Hey, good morning.

One Kurt Warner.

Hey, Koodo is again on a on great performance up in Canada, essentially so and it dovetails maybe into line of questioning from where I said the strength of your performance over time in Canada is is remarkable.

The challenges in the US are I think pretty obvious given the competitive nature size. So as we look forward here Robert.

So what what kind of things can you potentially take from you know the lessons you've learned up in Canada.

And look down here in the us in potentially have the same sort of market share.

Yes, I know you mentioned a number new different product offerings that you got coming in you are making market penetration. So I don't want to make light of that at all but I just want to get it kind of general sense from you as to what you could take from Canada down here into us and how you could potentially accelerate market penetration.

Yes, one of the really big success stories for Canada has been the cross selling that's occurred there. So the Canadian market through 2018 was primarily fracturing systems.

And then tracers when are we brought brought Sds tracers and.

But really there with the focus was almost 100% on fracturing systems, but as the.

The the current market seem to persist in Canada through 2018, and it was it really difficult market, we were coming off of a couple of years of market share declines in Canada. The team made the decision in Canada to really get focused on cross selling opportunities. So getting some of the other products and services that we have from NCS.

Getting those into Canada, getting the customers involved with it and and getting the interest high enough that we could we could actually go up and start and start doing that so thats been part of 2018 and into 2019, that's been a strong focus form and that is one big reason for the successes because they've been very successful in the cross training.

We had crossed formal cross training sessions with our sales team.

The guys that we the sales folks that we have in place or had in place. They were experts in fracturing systems, but most of them didn't really have exposure to some of the other products and services that we offer so theyve, we made aware of that and at the very least had them in the spot where they could at least recognize opportunities and now we're so.

Being more diverse product opportunities there. So if we would still be focused 100% on fracturing systems in Canada.

It would be a bit a lot different story. So what we did in 2019 is we took that same training and we did the same thing with our Salesforce here in the US. So we just wrap that up around the end of around the end of 2019. The first the first wave of it because it truly is an ongoing process and on and now were.

We're already starting to see the benefits from that in the US where we've got salespeople that are selling multiple product lines to the same customers as they have been calling on for years.

So I.

I think that coupled with additional products and services that were introducing is the way that we're going to.

Continue to accelerate market share growth in the us as well.

Thats great color. Thank you for that.

Just kind of curious too in the context of as you're doing this cross selling and you're introducing new products and services.

Im wondering if you can kind of frame the the competitive pricing environment for us in both the USA and Canada.

Well, it's very competitive I'm, not I'm not sure exactly what you're looking for but it's super competitive in both Canada and the US I mean, a relative to last couple of years. It isn't stabilizing to a certain extended that just as intense as it has been just some incremental color along that we really helpful.

Yeah, I would say in Canada the.

It is.

The drive for the bottom has slowed down a lot. It is at least flat down in Canada, So a year ago.

It was everyday we were having conversations about price with our customers. So it feels like it's flattened out in Canada, we havent seen.

The pressure over the last several months that we had before.

In the US it seems the same thing we saw several months ago.

Significant pressure on almost every service line not just the ones that we provide but some of our competitors as well, but that seems to do have tapered off a little bit now as well.

Is it over I don't know, where we're going to have another wave of it there it's always possible if we see the us market.

Change adversely more than what we expect I mean, it could be our customers come back to us again.

So far it seems to have leveled off.

Okay, great. Thank you appreciate that.

Thank you.

Thank you and I'm showing no further questions at this time I'd like to turn the call back to Robert number for closing comments.

Thanks, Catherine on behalf of our management team and our board, we'd like to thank everyone on the call today, including our shareholders in the research analysts who cover NCS, but especially our employees I extend my appreciation to our nearly 400 employees around the globe as well as the team it would be precision I continue to believe that we have the best team in the industry and our performance backs that up.

Industry, the talents effort and dedication of this team that NCS is able to grow our customer base provide exemplary customer service and drive the innovations that we bring to the industry.

We appreciate everyone's interest in Ngs multi stage and we look forward to talking again on our next quarterly call our earnings call in May.

Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.

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