Q1 2021 NCS Multistage Holdings Inc Earnings Call
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Good day, and thank you for standing by and welcome to quarter. One 2021, NCS Multistage earnings conference call. At this time all participants are in listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star and then.
And the number one on your telephone keypad.
And the advice that today's conference is being recorded if you require any further assistance. Please press star zero and I would now like to transfer and at the conference over to your Speaker Mr. Ryan Hummer. Please go ahead.
Thank you and thank you for joining the NCS multistage and first quarter 2001 conference call. Our call today will be led by our CEO, Robert Nipper and I will also provide comments wed.
We'd like to caution listeners that some of the statements made on this call could be forward looking and to the extent that our remarks today contain information other than historical information. Please note that we're relying on federal safe Harbor protections such.
Such forward looking statements may include comments regarding our future expectations for financial results and business operations and are subject to known and unknown risks and uncertainties, including with respect to the COVID-19 pandemic and its impact on the global economy oil demand and our company.
I'd like to refer you to our press release issued last night, along with other public filings made from time to time with the SEC that outline those risks.
And today's call, we refer to adjusted EBITDA free cash flow and net working capital, which are non-GAAP financial measures. We use these measures because they allow us to compare and financial performance consistently over various periods without regard to costs associated with our current capital structure and in a manner that we believe better reflects our operating performance.
Press release, and the updated Investor presentation posted yesterday both.
Both of which are available on our website NCS multistage dotcom provide reconciliations of these non-GAAP financial measures to the most comparable GAAP financial measure I will now turn the call over to Robert Thanks, Ryan and welcome to our investors analysts and employees joining our first quarter 2021 earnings conference call.
Our performance and the first quarter was largely in line with the guidance. We provided in early March I will briefly discuss our results and outlook for each of the U S, Canada and international markets.
Starting with the U S. Our revenue of $7 $8 million and the first quarter slightly outperformed our guidance of six 5% to $7 $5 million as March revenues exceeded our expectations for both repeat precision and our fracturing systems product line.
Volumes at repeat precision and have increased from the lower levels seen early in the first quarter and the upgrades that we made to our plug design and provide the reliability that we and our customers have come to expect.
With WT on pricing stabilizing at or above $60, a barrel, we've seen an increase and fracturing systems work and the U S. As private operators have increased activity and the basins, where pinpoint completions using sliding sleeves and demonstrated our operational benefits for our customers.
As a result, we expect that we will return to sequential revenue growth and the U S and the second quarter.
Our Canadian revenue of $22 million and the first quarter was near the high end of our guidance of 19 to 20 and a half million dollars. Despite weather driven activity reductions from spring breakup, starting about a week earlier than normal.
And I'm very pleased with the initial adoption of our terrorists leave for waterflood applications and Canada is post completion activity presents an exciting opportunity for NCS, we expect that our Canadian business will exhibit typical seasonality with <unk>.
Periods of low activity through May before recovering and June through the winter drilling season.
And this stands in Stark contrast to last year when rig counts reached multi decade lows and activity didn't rebound until August or September.
And we're encouraged by discussions with our customers about both the timing and scope of their expected activity after spring breakup weather permitting.
This is also reflected and the most recent survey by the Petroleum Services Association of Canada, which recently increased their expectation for the number of wells to be drilled in Canada, and 2021 by 11% as compared to their initial expectations on January.
International operations were very slow for us and the first quarter as recovery has lagged North America, which is reflected in our international revenue of only a half a million dollars during the quarter.
International activity has started to recover for us and the second quarter and we believe that it will continue to increase as we move into the second half of the year.
We continue to remain focused on managing our costs and have maintained discipline on SG&A and capital spending our SG&A for the first quarter of 2021 decreased by 39% as compared to the first quarter of 2020.
Our net capital expenditures for the quarter were only $1 million highlighting both the capital light nature of our business and our financial discipline.
We have also retained our strong balance sheet with approximately $6 million and net cash and an undrawn revolver as of March 31.
The borrowing base of our revolver at the end of March exceeded $14 million.
Our entire team at NCS has done a tremendous job and I'm proud to say that we've continued our track record of zero reportable incidents from 2020 into 2021 with no reportable incidents thus far this year.
Now I'll ask Ron to discuss our financial results in more detail.
Thank you Robert.
As reported in yesterday's earnings release, our first quarter revenues were $28 5 million, 48% lower than the prior year's first quarter on a sequential basis, However, revenue and the first quarter was 4% higher than revenue and the fourth quarter of last year with a seasonally driven and 45% increase and Canada offset by reductions of 31% and <unk>.
59% and the U S and international markets respectively.
Profit defined as total revenue less total cost of sales, excluding depreciation and amortization expense was $10 2 million and the first quarter or 36% of revenue compared to $23 9 million or 44% of revenue and the prior year's first quarter.
For a sequential comparison and gross profit was $11 7 million or 43% of revenue and the fourth quarter of last year.
Our gross margin percentage decreased primarily due to the product design changes implemented at repeat precision during the first quarter as well as mix impacts related to our geographic revenue contributions.
Selling general and administrative costs were $12 8 million and the first quarter, which was $8 1 million or 39% lower as compared to the 28 $28 million, we had and the first quarter of last year our.
On a reported SG&A includes share based compensation and certain nonrecurring expenses, including certain litigation costs and the first quarter nonrecurring litigation expenses totaled zero point $9 million and noncash share based compensation expense totaled $1 2 million.
Our adjusted EBITDA for the first quarter was <unk> $1 million as compared to $9 2 million and the prior year's first quarter and represented a decrease of $2 $9 million as compared to the fourth quarter of 2020.
Our depreciation and amortization expense and the quarter was $1 1 million and our net income attributable to Noncontrolling interest and repeat precision was a loss of <unk> $1 million per quarter.
Turning now to cash flow items and the balance sheet our.
Our cash flow from operations for the first quarter was negative $1 8 million and our net capital expenditures for the first quarter was 0.1 million, resulting in free cash flow for the quarter of negative $1 9 million.
On March 31, 2021, we had $12 million and cash and total debt of $5 $7 million with a credit facility undrawn or.
Our borrowing base under the credit facility was $14 4 billion at March 31, and repeat precision currently has access to over $4 million and borrowing capacity that is separate from our revolver.
In addition, NCS had net working capital of $55 5 million on March 31 2021.
Turning now to a few points of guidance for the second quarter.
We currently expect our second quarter total revenue to be between $17 five and $25 million.
Within this we expect our U S revenue to be between 11 and $12 million, the midpoint of which would be higher than we had and the fourth quarter of 2020, we expect our international revenue to be between one five and $2 5 million recovering from the low levels and the first quarter and we expect our Canadian revenue to be between five and $6 million reflecting.
And the seasonal impact of spring breakup.
We expect our gross margin to be roughly in line with the first quarter between 35, and 38% with the impact of sequential growth and the U S and international markets offset by fixed cost under absorption and Canada during the quarter we.
We expect our reported SG&A inclusive of share based compensation and non recurring items to be between $12, five and $13 million and the second quarter. This includes approximately $1 1 million and noncash share based compensation and approximately <unk> 9 million and litigation expenses.
We expect our second quarter, depreciation and amortization expense to be approximately $1 1 million and our net interest expense to be 0.2 million.
Primarily reflecting unused facility fees and the amortization of debt issuance costs.
We are also introducing some high level full year guidance for 2021.
We currently expect our full year revenue to be between 110, and $125 million and our full year adjusted EBITDA to be between five and $10 million consistent with the presentation and our earnings release.
We continue to expect our gross capital expenditures for 2021 to be between 1% and $2 million.
Within this guidance, we expect a continued improvement and U S revenue and the second half of the year, both and fracturing systems and at repeat precision. We also expect a more normal seasonal pattern for our Canadian business and 2021, and then we saw during 2020.
We anticipate that activity and the international markets will improve and the summer and early fall, especially in our North sea operations with activity and the Middle East also increasing through the year as field access improves.
Visibility remains limited however, and this guidance assumes a continuation of oil demand normalization throughout 2021 as economies recover and vaccination progress enables more travel as well as continued OPEC plus support of the oil market among other things on.
And I'll hand, it over to Robert for closing remarks, Thanks, Brian before we open up the call for Q&A I'll close with a couple of brief comments, we believe that we're well positioned to return our U S operations to sequential growth and the second quarter and our fracturing systems activity and the U S is levered to smaller operators that had been increasing activity, thus far and 2021 we.
Maintain a strong position and the Canadian market, which is exhibited much higher trough activity levels. This year as compared to 2020 and is likely to return to normal seasonal activity patterns as we progress through the year, we have the infrastructure in place to support revenue growth and each of our markets without the need to incur additional.
Material SG&A expense, we continue to.
And invest in technology to continually enhance our current products and services to bring new innovations to our customers and to secure and protect our intellectual property and.
And our strong balance sheet working capital position and borrowing base are strategic assets for NCS and support working capital requirements associated with the organic growth.
And with that we will welcome any questions.
Yes.
Thank you.
As a reminder to ask a question you will need to press Star and then the number one on your telephone keypad to withdraw your question. Please press the pound key please.
Please standby, while we compile the question and answer roster.
Your first question comes from the line of John.
Danielle.
Sir Your line is open you can ask your question.
Thank you very much guys. Thanks for putting me on the call the and.
Guidance is helpful.
Just one question. This morning, you alluded to a product tied to post completion.
Elaborate on that and just what the opportunity is for that type of market.
Could you say that again, John you kind of broke up a bit and im sorry.
Alluded to a product tied to post completion activity.
And wondering if you could elaborate on that and the opportunity and correct.
Yes, so that's that's our tariffs product line. So it's.
It's a sliding sleeve.
That we have the ability to.
We have multi positions when we opened the sleep and one of the things that we can do with it versus just having a sleeve thats open is there is a just think about it as a metering valve and so what customers do with this is they can run on a multiple sleeves and they're well.
Tariffs and when they put them into the injection mode. So we injected into a horizontal well instead of the fluid going wherever the soft spot and the rock is or wherever the breakthrough and the rock is.
We control the amount of fluid that goes into the well and to each of the compartments. So our customers are actually having a lot of success and their fields using this type of product and so that's what we're talking about okay. When did you guys introduced that.
We actually introduced the terrorist type system.
Probably close to a year ago, but and I fully.
It is fully commercial down.
Got it and you see im assuming that product opportunities globally, not just in core markets is that fair.
Yes.
Anywhere that there is a secondary recovery.
Recovery going on where and.
And with horizontal wells, Okay makes sense, okay, and Thats, all I had hardware growth you're correct.
No problem. Thanks, John Thank you.
Thank you again to ask a question Thats Star and then the number one on your telephone keypad.
And then the number one on your telephone and Keybanc.
We don't have any question at this time I would now like to hand, the conference over to our CEO, Mr. Robert Nipper for closing remarks.
Thank you Reuben on behalf of our management team and the board, we'd like to thank everyone on the call today, including our shareholders and the research analysts who cover NCS, but especially our employees are truly appreciate the enormous effort that our people are putting in and the sacrifices that have been made by everyone on the NCS to support the company and each other through this very difficult last couple of years, we continued on.
Operating safely with zero recordable incidents. This year. Our team continues to provide excellent service to our customers and is developing new products and services that will enable our customers to be more successful our people have done a tremendous job and managing the many challenges that have come with the continued impacts from COVID-19, we are only as good as our people and I believe we have the best team and the industry.
And we appreciate everyone's interest and NCS multistage, and we look forward and talking again on our next quarterly earnings call.
And to everyone.
This concludes today's conference call. Thank you for participating you may now disconnect.
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