Q4 2023 NCS Multistage Holdings Inc Earnings Call
Okay.
Operator: Good day, and thank you for standing by. Welcome to the NCS Multistage Fourth Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode.
Good day, and thank you for standing by and welcome to the NCS Multistage fourth quarter 'twenty.
At this time all participants are in a listen only mode.
Operator: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mike Morrison, Chief Financial Officer. Please go ahead, Mr. Morrison.
Please be advised that today's conference is being recorded I would now like to hand, the conference over to your square first speaker today, Mike Martin Chief Financial Officer. Please go ahead Mr. Martin.
Operator: Good day, and thank you for standing by. Welcome to the NCS Multistage Fourth Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode.
Good day.
And thank you for standing by and welcome to the <unk>.
NCS Multistage fourth quarter 2023 conference call at this time, all participants are in a listen only mode.
Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised.
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Operator: To withdraw your question, please press star 1-1. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mike Morrison, Chief Financial Officer. All right, you may begin. Ladies and gentlemen, please stand by. Your conference will resume momentarily.
Your question. Please press star one on one please be advised that today's conference is being recorded I would now like to hand, the conference over to your first speaker today, Mike Morrison Chief Financial Officer.
You may begin.
Michael L. Morrison: We're experiencing technical difficulties. Please remain on your line. Your conference will resume shortly. Hey, good morning. This is Mike Morrison. Sorry for the delay.
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Ryan Hummer: Thank you for joining the NCS Multistage fourth quarter and full year 2023 conference call. Our call today will be led by our CEO, Ryan Hummer, and I will also provide comments. I want to remind listeners that some of today's comments include forward-looking statements, such as our financial guidance and comments regarding our future expectations for financial results in business operations. These statements are subject to many risks and uncertainties that could cause our actual results to differ materially from any expectation expressed herein. Please refer to our most recent annual report on Form 10-K and our latest SEC filings for risk factors and cautions regarding forward-looking statements. Our comments today, as well as our results of operations, including in our earnings release, contain the following non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, adjusted gross profit and margin, adjusted net loss, adjusted loss per share, free cash flow, and free cash flow less distributions to non-controlling entrants. The underlying details and reconciliations of these non-GAAP measures to the most comparable GAAP financial measures are provided I'll now turn the call over to Ryan.
Hey, Good morning. This is Mike Morrison, sorry for the delay.
Thank you for joining the NCS multistage fourth quarter and full year 2023 conference calls.
Our call today will be led by our CEO, Ryan and I will also provide comments.
I want to remind listeners that some of today's comments include forward looking statements such as our financial guidance and comments regarding our future expectations for financial results and business operations.
These statements are subject to many risks and uncertainties that could cause our actual results to differ materially from any expectation expressed herein.
Please refer to our most recent annual report on Form 10-K, our latest SEC filings for risk factors and cautions regarding forward looking statements or comments today as well as our results of operations included in our earnings release contain the following non-GAAP financial measures, including adjusted EBITDA adjusted EBITDA margin adjusted gross.
And margin adjusted net loss adjusted loss per share free cash flow and free cash flow less distributions to noncontrolling interest.
Ryan Hummer: Thank you, Mike. And welcome to our investors, analysts, and employees who are joining us for our fourth quarter and full year 2023 earnings conference. I'll review our performance in 2023 and how our efforts and accomplishments throughout 2023 have positioned us for company-specific growth opportunities in 2024. I'll also outline our strategic objectives for this year. Mike will follow and cover the financial results for the quarter. 2023 turned out to be much more challenging than we had anticipated at this time last year for our industry and for NCS. Activity in the U.S. declines throughout the year, with the anticipated bottoming of the rig count slipping further as the year progresses.
Detailed reconciliations of these non-GAAP measures to the most comparable GAAP financial measures to provided in our fourth quarter and full year earnings release, which can be found on our website NCS multistage dot com I'll now turn the call over to Ryan.
Right.
Thank you, Mike and welcome to our investors analysts and employees, joining our fourth quarter and full year 2023 earnings conference call.
Our performance in 2023, and how our efforts and accomplishments throughout 2023 and have positioned us for company specific growth opportunities in 2024.
Also outlined our strategic objectives for this year.
Mike will follow and cover the financial results for the quarter.
2023 turned out to be much more challenging than we had anticipated at this time last year for our industry and for NCS.
Ryan Hummer: In Canada, while activity started strong in the first quarter of 2023, we observed a similar trend of declining year-over-year activity in the second half of last year. The decline in activity levels and the resulting impact on the competitive environment limited our pricing power, resulting in a year-over-year decline in revenue of 8% in 2020, with revenue declines for each of our U.S., Canadian, and international operations. In response to the changing market environment, we took meaningful action by consolidating certain operations districts in the U.S. and manufacturing facilities in Mexico. We also reduced headcount and aligned our U.S. and international operations teams under common leadership.
Activity in the U S declined throughout the year with the anticipated bottoming of the rig count slipping further as the year progressed in.
In Canada, while activity started strong in the first quarter of 2023, we observed a similar trend of declining year over year activity in the second half of last year.
The decline in activity levels, and the resulting impact on the competitive environment limited our pricing power, resulting in a year over year decline in revenue of 8% in 2023 with revenue declines for each of our U S, Canada and international operations.
In response to the changing market environment, we took meaningful action by consolidating certain operations districts in the U S and manufacturing facilities in Mexico, We also reduced head count and aligned our U S and international operations teams under common leadership.
Ryan Hummer: These actions, along with the tireless work of our supply chain team and technical personnel and tracer diagnostics, allowed us to maintain our adjusted gross margin at 39% in 2020, consistent with the prior year despite the decline in revenue. We also proactively reduced our SG&A spend, resulting in a $1.8 million reduction in SG&A expense in 2023 as compared to 2022. A meaningful reduction given the inflationary pressure on wages and the overall cost environment.
These actions along with the tireless work of our supply chain team and technical personnel in tracer diagnostics allowed us to maintain our adjusted gross margin at 39% in 2023.
Assistant with the prior year, despite the decline in revenue.
We also proactively reduced our SG&A expense, resulting in a $1.8 million reduction in SG&A SG&A expense in 2023 as compared to 2022.
For reduction given the inflationary pressure on wages and the overall cost environment.
Ryan Hummer: We expect that our cost reduction actions will result in an annualized benefit of approximately $4 million, of which we realized less than half during 2023 due to the timing of those actions. Adjusted EBITDA in 2023 was nearly $12 million compared to approximately $15 million in 2022. We improved our pre-cash flow performance by approximately $5 million in 2003 compared to 2000 and in 2023 compared to 2022. Specifically, we generated $2.6 million in free cash flow after distributions to our JV partner last year, compared to a negative free cash flow of $2.1 million in 2022. For 2024, we anticipate a further decline in annual average activity industry levels in North America compared to 2023, with activity levels in the U.S. projected to be lower by as much as 10 percent. We currently believe that activity levels in Canada are not likely to decline by the same magnitude, driven in part by both the TMX expansion and the LNG Canada projects nearing completion, which should support activity. This is tempered by possible water restrictions for producers in Canada during the summer months due to ongoing drought conditions and low current water levels.
We expect that our cost reduction actions will result in an annualized benefit of approximately $4 million.
Of which we realized less than half during 2023 due to the timing of those actions.
Adjusted EBITDA in 2023 was nearly $12 million compared to approximately $15 million in 2022.
We improved our free cash flow performance by approximately $5 million in 2003 compared to 2000 2023 compared to 2022.
Typically we generated $2 6 million and free cash flow after distribution strategy JV partner last year compared to negative free cash flow of $2 $1 million in 2022.
For 2024, we anticipate a further decline in annual average activity industry levels in North America compared to 2023 with activity levels in the U S projected to be lower by as much as 10%.
We currently believe that activity levels in Canada are not likely to decline by the same magnitude driven in part by both the <unk> expansion and the LNG, Canada project nearing completion, which should support activity.
Was tempered by possible water restrictions for producers in Canada during the summer months due to ongoing drought conditions and low current water levels.
Ryan Hummer: Despite these activity declines, we expect to grow our revenue in 2024 compared to 2023 as a result of the significant progress made in 2023 to expand our presence in new markets and to better align our product and service offering with certain customers, including large independents in the U.S. and Canada, international oil companies, and national oil companies. I'll highlight a few of these company-specific efforts and opportunities across our product and service offerings. Beginning with fracturing systems,
Despite these activity declines we expect to grow our revenue in 2024 compared to 2023 as a result of the significant progress made in 2023 to expand our presence in new markets and to better align our product and service offering with certain customers, including large independents in the U S and Canada International oil companies and National.
Oil companies.
Okay.
I'll highlight a few of these company specific.
Efforts and opportunities across our product and service lines bigger.
Beginning with fracturing systems as previously discussed we continue to expand our customer base in the North Sea for 2024, we expect to install or provide service for at least five customers during the year, including our first <unk> installs for two of these customers.
Ryan Hummer: As previously discussed, we continue to expand our customer base in the North. For 2024, we expect to install or provide service for at least five customers during the year, including our first sleeve installs for two of these customers. In Canada, we recently successfully completed our first fracturing system job for a targeted application in the oil sands as part of a SAG-D development. This work extended from a longstanding customer relationship in their more conventional oil and gas operation. We expect to build on the success for this customer through additional high-temperature applications, and we'll look to replicate the success with other SAG-B producers. In the U.S., we successfully completed an onshore trial well with a strategic partner, working to develop a system for use in deep water environments such as the Gulf of Mexico.
In Canada, we recently successfully completed our first fracturing systems job for a targeted application in the oil sands as part of its IV development.
This work extended from a longstanding customer relationship and they're more conventional oil and gas operations.
We expect to build on the success for this customer through additional high temperature applications, and we'll look to replicate the success with other savvy producers.
In the U S. We successfully completed an onshore trial well with a strategic partner working to develop a system for use in deepwater environments, such as the Gulf of Mexico.
Ryan Hummer: This follows successful surface testing completed earlier in 2023. The sleeves for this trial well were installed in late 2023, with service activity occurring in early 2020. The successful trial validates a new sleeve design and application for NCS, positioning us to participate in the technically demanding deepwater market. In addition, we have a very interesting project plan for the U.S. in the second quarter, whereby a customer plans to install over 200 sleeves in a well to evaluate enhanced recovery strategies for disaster. This will be the most NCS sleeves ever run in a well in the U.S. and the most ever NCS 5 12-inch sleeves run in a well globally.
This followed a successful surface testing completed earlier in 2023.
This leaves for this trial well were installed in late 2023 with service activity occurring in early 2024.
The successful trial validate a new sleek design and application for NCS positioning us to participate in a technically demanding deepwater market in.
In addition, we have a very interesting project plan for the U S. In the second quarter, whereby a customer plans to install over 200 sleeves in a well to evaluate enhanced recovery strategies for its asset base.
Will be the most ever NCS leaves run in a well in the U S and the most ever NCS five and a half inch leaves run NOL globally.
Ryan Hummer: Within Well Construction, we successfully expanded the operating envelope for our airlock casing buoyancy system, building on the voice of the customer to enable operation at higher temperatures, higher pressures, and also to accommodate the additional torque enabled by the premium connection. In addition, we will continue to add new size categories of these systems to meet varied customer applications in the future. We recently introduced our Slim Stem Refract Liner Hanger System at a trade show near Houston. This new technology will enable high-intensity refracts in previously under-stimulated wells.
Within well construction, we successfully expanded the operating envelope, our airlock casing buoyancy system building on the voice of the customer to enable operation at higher temperatures and higher pressures and also to accommodate the additional pork enabled by premium connections. In addition, we continue to add new size categories of these systems to meet the very customer applications.
The appeal.
We recently introduced our slim stand re frac liner hanger system at a trade show near Houston. This new technology will enable high intensity of Refracts and previously under stimulated wells. This product was designed with significant customer input and provide certain contingencies and operational benefits that we believe are unique to our system.
Ryan Hummer: This product was designed with significant customer input and provides certain contingencies and operational benefits that we believe are unique to our system. We expect to conduct field trials of this system over the next several months. In Tracer Diagnostics, we expect 2024 to be a year of meaningful growth in international markets. We plan to enter two new markets this year, each of which will require additional testing of our chemicals. Testing in one such region is complete, and we expect testing in the other market during the first half of 2020.
We expect to conduct field trials of this system over the next several months.
And tracer diagnostics, we expect 2024 to be a year of meaningful growth in international markets. We plan to enter two new markets. This year use of which required additional testing of our chemicals testing in one such region is complete and we expect to complete testing and the other market during the first half of 2024.
Ryan Hummer: Perhaps most importantly, we expect a significant expansion of our tracer diagnostics business in the Middle East. We are finalizing the details of a multi-pad project which could position the Middle East to be our second largest tracer market this year, only behind the U.S. At Repeat Precision, we've had good successes as well. A well-respected EMT company decided to run our FrackSure Express system with multiple Permian Basin frack crews after an extensive test of multiple composite plug providers. The test utilized several different diagnostic tools to evaluate key plug features, such as how well the plugs hold pressure during the crack job, drill-out time, and wash time.
Perhaps most importantly, we expect a significant expansion of our tracer diagnostics business in the Middle East. This year, we are finalizing the details of our multi pad project, which could position the middle east to be our second largest tracer market. This year only behind the U S.
At repeat precision we've had good successes as well a well respected E&P company decided to run a fracture express system with multiple Permian basin Frac crews after an extensive test of multiple composite plug providers.
<unk> utilized several different diagnostic tools to evaluate key quote features such as how well the plugs hold pressure during the frac job drill out time in Washington.
Ryan Hummer: Our work with this customer began last December and is ramping up throughout the first quarter of 2024. On the product development front, RETEAT has had initial successful field trials of its pinpoint internally oriented perforated gun, which is designed to control various oriented perforating patterns, a practice that is becoming more prevalent across the EMP customer base in North America. The pinpoint system maintains the benefits of the PurpleFire perforating gun systems, which include pre-assembly in a manufacturing environment, ease of use in the field, reduced HSE risk, and compatibility with a customer's preferred shapes chart.
With this customer began last December and is ramping up throughout the first quarter of 2024.
On the product development drive repeat as add initial successful field trials of its pinpoint internally oriented perforating gun system, which is designed to control various oriented perforating patterns, our practices, becoming more prevalent across the E&P customer base in North America the.
The pinpoint system maintains the benefits of the peripheral buyer perforating gun systems, which include pre assembly in a manufacturing environment ease of use them appeal reduced HSE risk and compatibility with a customer's preferred shaped charge.
Ryan Hummer: I'll provide a quick update on a few legal matters. Regarding the previously disclosed legal matter in Texas, in December 2023, NCS, the plaintiff, and our insurance carrier reached a settlement where the insurance carrier agreed to pay the settlement amounts to the plaintiff, resulting in no cash payments by NCS. Consequently, we reversed our previously recorded litigation provision of $40.8 million during the fourth quarter of 2023. As for the previously disclosed patent infringement case in Canada, the parties attended a mediation meeting in late February 2024. While no agreement has been reached, both parties have expressed interest in continuing with settlement discussions. However, if a settlement cannot be reached, we believe that applicable law supports strong grounds for appeal.
I'll provide a quick update on a few legal matters now.
Regarding the previous previously disclosed legal matter in Texas in December 2023, NCS, the plaintiff and our insurance carrier reached a settlement for the insurance carrier agreed to pay the settlement amounts to the plaintiff, resulting in no cash payments by NCS.
Consequently, we reversed our previously recorded litigation provision of $48 million during the fourth quarter of 2023.
As for the previously disclosed patent infringement case in Canada. The parties attended a mediation meeting in late February 2024, while no agreement has been reached both parties have expressed interest in continuing with settlement discussions.
However, if a settlement cannot be reached we believe that applicable law supports strong grounds for appeal on the decision. However, the litigation process could continue on for several years.
Ryan Hummer: However, the litigation process could continue for several years. Finally, our goals for 2024 are straightforward and are aligned with the long-term strategy that I discussed at length in last quarter's call. In 2024, we aim to grow revenue in a flat or declining market and improve our adjusted EBITDA margin, all while generating free cash flow. We aim to obtain field trials for our new offerings and be successful in our new market. We'll continuously improve employee engagement and ensure workplace safety.
Finally, our goals for 2024 are straightforward and are aligned with the long term strategy that I discussed at length in last quarter's call.
In 2024, we aim to grow revenue in a flat or declining market and improve our adjusted EBITDA margin, all while generating free cash flow.
We aim to obtain field trials for our new offerings are successfully enter new markets.
We will continuously improve our employee engagement and ensure workplace safety and finally, we will improve our processes and collaboration within the company. So that we can be more efficient and effective.
Michael L. Morrison: And finally, we'll improve our processes and collaboration within the company so that we can be more efficient and effective. Mike will now review our results for the fourth quarter and our guidance for the first quarter of 2020. Thank you, Ryan.
Mike will now review our results for the fourth quarter and our guidance for the first quarter of 2024.
Thank you Ryan as reported in yesterday's earnings release, our fourth quarter revenues were $35 2, million% to 12% decrease compared to last year's fourth quarter, our Canadian revenues were up by 1%, while our U S and international revenues were down, 33% and 40% respectively.
Michael L. Morrison: As reported in yesterday's earnings release, our fourth-quarter revenues were $35.2 million, a 12% decrease compared to last year's fourth quarter. Our Canadian revenues were up by 1%, while our U.S. and international revenues were down 33% and 40%, respectively. Lower natural gas prices in the U.S. negatively impacted customer activity levels while the timing of activity with our customers in the North Sea negatively affected international revenue. Sequentially, revenues in the fourth quarter decreased by 8%, with Canada down by 11%, international down by 45%, but U.S. revenues increased by 14%. The improvement in the U.S. was driven by higher sales of sliding sleeves and repeats composite plugs, and the decrease in Canada was primarily related to normal year-end seasonality. Our adjusted gross profit, defined as total revenues less total cost of sales, excluding depreciation and amortization expense, was $12.9 million in the fourth quarter of 2023, representing an adjusted gross margin of 37%, down compared to our adjusted gross margin of 40% for the same The decline in adjusted gross margin was primarily attributable to an overall decline in revenues and revenue mix, with the larger portion of the decline coming from our higher-margin service revenue.
Lower natural gas prices in the U S negatively impacted customer activity levels, while the timing of activity with our customers in the north sea negatively affected international revenues sequentially revenues in the fourth quarter decreased by 8% with Canada down by 11% international down by 45%.
But U S revenues increased by 14% improvement in the U S was driven by higher sales of sliding sleeves and repeats composite plugs and the decrease in Canada was primarily related to normal year end seasonality.
Our adjusted gross profit defined as total revenues less total cost of sales, excluding depreciation and amortization expense was $12 9 million in the fourth quarter of 2023, representing an adjusted gross margin of 37% down compared to our adjusted gross margin of 40% for the same period in 2022 the decline in adjusted.
Gross margin was primarily attributable to an overall decline in revenues and revenue mix with a larger portion of the coring coming from our higher margin service revenues.
Michael L. Morrison: Our revenues for the full year of 2023 were $142.5 million, a decline of 8% compared to the full year of 2022. Despite this decline in full year revenues, our adjusted gross margin of 39% was consistent with the prior year. Selling general and administrative costs were $13.2 million for the fourth quarter, remaining flat compared to the same period last year.
Our revenues for the full year of 2023 were $142 5 million a decline of 8% compared to the full year of 2022. Despite this decline in full year revenues are adjusted gross margin of 39% was consistent with the prior year.
Selling general and administrative costs were $13 2 million for the fourth quarter remaining flat compared to the same period last year for.
Michael L. Morrison: For the full year of 2023, our SG&A costs were $56.5 million, a decline of approximately $2 million compared to 2022. For the fourth quarter, we reported net income of $39.6 million, or diluted earnings per share of $15.80, compared to net income of $2 million or diluted earnings per share of $0.81 for the same period in 2022. For the fourth quarter, our fourth quarter net income was positively impacted by the settlement of the Texas legal matter, resulting in no cash payment by NCS. Excluding this benefit, our adjusted net loss for the fourth quarter of 2023 was $900,000, or an adjusted loss per share of $0.36.
For the full year of 2023, our SG&A costs were $56 5 million a decline of approximately $2 million compared to 2022 or.
For the fourth quarter, we reported net income of $39 6 million or diluted earnings per share of $15 80.
Compared to net income of $2 million or diluted earnings per share of <unk> 81 cents for the same period in 2022.
Our fourth quarter, our fourth quarter net income was positively impacted by the settlement of the Texas legal matter, resulting in no cash payment by Mcs. Excluding this benefit our adjusted net loss for the fourth quarter of 2023 was 900000 or an adjusted loss per share of 36 cents.
Michael L. Morrison: Adjusted EBITDA for the fourth quarter was $2.5 million, a decline compared to adjusted EBITDA of $6.4 million for the same period in 2022. For the full year of 2023, our adjusted EBITDA was $11.9 million, a decline of $3.2 million compared to 2022. Turning now to cash flow items in the balance sheet, during the fourth quarter, we generated cash flow from our operations and free cash flow after JV distributions of $6.2 million and $5.6 million, respectively. Our full-year 2023 free cash flow after JV distributions was $2.6 million. On December 31st, we had $16.7 million in cash and total debt of $8.2 million, which consisted entirely of finance lease obligations, resulting in a positive net cash position of $8.6 million. At the end of December, the borrowing base availability under our undrawn ABL facility was $16.4 million, and Repeat had no outstanding borrowings under its promissory note.
Adjusted EBITDA for the fourth quarter was $2 5 million a decline compared to adjusted EBITDA of $6 4 million for the same period in 2022 for the full year of 2023, our adjusted EBITDA was 11.9 million a decline of $3 2 million compared to 2022.
Turning now to cash flow items in the balance sheet.
During the fourth quarter, we generated cash flow from our operations and free cash flow after JV distributions of $6 2 million and $5 6 million respectively. Our full year 2023 free cash flow after JV distributions was $2 6 million.
On December 31, we had $16 7 million in cash and total debt of $8 2 million, which consisted entirely of finance lease obligations, resulting in a positive net cash position of $8 6 million at the end of December the borrowing base availability under our Undrawn ABL facility was $16 4 million.
And <unk> had no outstanding borrowings under their promissory note.
Michael L. Morrison: Now, turning now to a few points of guidance for the first quarter. We currently expect first quarter revenues in the range of $36 million to $40 million, with the low end of the range showing a slight improvement sequentially, and the high end showing a modest improvement in both Canada and the U.S. We expect U.S. revenues in the range of $9 million to $10 million, international revenue of $1 million to $2 million, and Canadian revenue of $26 million to $28 million. We expect our adjusted gross margin to be between 38 and 41 percent, an improvement over our adjusted gross margin compared to the fourth quarter of 2023. We expect our adjusted EBITDA to be between 3 and 4 million and our first quarter depreciation and amortization expense to be approximately 1.2 million. With that, I'll hand it back over to Ryan to provide our full year 2024 guidance and for closing remarks. All right.
Turning now to a few points of guidance for the first quarter.
We currently expect first quarter revenues in the range of $36 million to $40 million with the low end of the range showing a slight improvement sequentially in the high end showing a modest improvement in both Canada and the U S. We expect U S revenues in the range of nine to 10 million international revenue of $1 million to $2 million and Canadian revenue of 26.
The $28 million.
We expect our adjusted gross margin to be between 38% and 41% an improvement to our adjusted gross margin compared to the fourth quarter of 2023, we expect our adjusted EBITDA to be between three and $4 million in our first quarter depreciation and amortization expense to be approximately $1 2 million.
With that I'll hand, it back over to Ryan to provide our full year 2020 for guidance and for closing remarks.
Ryan Hummer: Thank you, Mike. Our full-year guidance for 2024 is as follows. We currently expect full-year revenue to be between $145 and $160 million and full-year adjusted EBITDA in a range of $13 to $17 million. We expect that our revenue growth will primarily result from increased sales at repeat precision in the US and in international markets, the North Sea and the Middle East in particular. We expect gross capital expenditures for 2024 of two to three million dollars. While working capital may represent a modest use of cash during the year, we expect free cash to be free cash flow positive again during 2024, further strengthening our robust balance sheet and providing us with strategic flexibility. We expect to achieve revenue and adjusted EBITDA growth even though we believe that overall market activity will be lower in North America in 2024 than in 2023, reflecting both industry efficiency gains and a cautious view on natural gas-directed activity. However, we do expect industry spending and activity in markets outside of North America to increase modestly in 2014. And also, just with respect to our guidance, due to the seasonality of our business and consistent with prior years, we anticipate that the achievement of our annual Adjusted EBITDA guidance range will be weighted to the second half of the year.
Alright, Thank you Mike.
So our full year guidance for 2024 is as follows. We currently expect full year revenue to be between 145 and $160 million in full year adjusted EBITDA in a range of $13 million to $17 million.
We expect that our revenue growth will primarily result from increased sales at repeat precision in the U S and in international markets, the North Sea and the Middle East in particular, we.
We expect gross capital expenditures for 2024 up $2 million to $3 million.
While working capital May represent a modest use of cash during the year, we expect free cash to be free cash flow positive again during 2020 for further strengthening our robust balance sheet and providing us with strategic flexibility.
We expect to achieve revenue and adjusted EBITDA growth, even though we believe that the overall market activity will be lower in North America for 2024, then in 2023, reflecting both industry efficiency gains and a cautious view on natural gas directed activity.
We do expect industry spending and activity in markets outside of North America to increase modestly in 2024.
Also just with respect to our guidance due to the seasonality of our business and consistent with prior years, we anticipate that the achievement of our annual adjusted EBITDA guidance range will be weighted to the second half of the year.
Ryan Hummer: Before we open to Q&A, I'll close with a couple of brief comments. I'm proud of the way the NCS team navigated the challenges that we faced during 2020. We made the necessary adjustments to adapt to the market environment, advanced our technology portfolio, and remained focused on the business, despite several external distractions. We stand to benefit from multi-year investments that we've made to position ourselves for growth in international markets and the efforts to align our company and our technology with certain large customers, including the large independents, international oil companies, and national oil companies. We have maintained the infrastructure required to support the revenue growth we are anticipating this year.
Before we open to Q&A I'll close with a couple of brief comments.
I'm proud of the way the team at NCS navigated the challenges that we faced during 2023, we made the necessary adjustments to adapt to the market environment advanced our technology portfolio and remain focused on the business. Despite several external distractions.
We stand to benefit from multi year investments that we've made to position ourselves for growth in international markets and the efforts to align our company and our technology with certain large customers, including the large independents international oil companies national oil companies.
We maintained the infrastructure required to support the revenue growth we are anticipating this year.
Ryan Hummer: At the midpoint of our guidance ranges, we expect revenue growth of 7%, but we will increase our adjusted EBITDA by 25%, delivering strong incremental margins as we leverage our fixed cost base and benefit from the cost reduction efforts we enacted in 2020. The technologies that we are commercializing this year are aligned with the needs of our customers, adding to our portfolio and expanding both our market presence and our addressable market. And finally, we enter 2024 with a strong balance sheet and a liquidity position, ending 2023 with a cash balance of nearly $17 million.
At the midpoint of our guidance ranges, we expect revenue growth of 7%, but we grew our adjusted EBITDA by 25% delivering strong incremental margins as we leverage our fixed cost base and benefit from the cost reduction efforts, we enacted in 2023.
The technologies that we are commercializing this year are aligned with the needs of our customers, adding to our portfolio and expanding both our market presence and our addressable market.
And finally, we entered 2024 with a strong balance sheet liquidity position and in 2023 with a cash balance of nearly $17 million. In addition, as we expect to add to that cash balance by generating positive free cash flow again in 2024, we'll have additional financial and strategic flexibility.
Operator: In addition, as we expect to add to that cash balance by generating positive free cash flow again in 2024, we'll have additional financial and strategic flexibility. With that, we'll welcome any questions. Thank you. As a reminder, to ask a question, you'll need to press star 1 1 on your telephone. To withdraw your question, please press star 1 1 again.
With that we'll welcome any questions.
Thank you.
To ask a question you will need to press star one on your telephone.
Your question. Please press Star one again, please wait for your name to be announced please standby, while we compile the Q&A roster.
One moment for your first question.
Yes.
Our first question comes from the line of Dave storms with Stonegate. Your line is now open.
Operator: Please wait for your name to be announced. Please stand by while we compile the Q&A... One moment for our first question. Our first question comes from the line of Dave Storms with Stonegate. Your line is now open. Dave Storms, your line is now open. Hello, good morning. Hey, good morning. There it is. Sorry about that.
Dave storms. Your line is now open.
Hello, Good morning.
Hey, good morning.
Sorry about that.
David Joseph Storms: Um, your guide to nice growth year over year, especially given the current market environment. I know you talked about some of the puts and takes you prepared for Marks. Just hoping you could go a little more in detail on the Positive Upside Surprise. Trans Mountain Pipeline? Is it the, you know, maybe restrengthening in your mix?
You're guiding to a nice growth year over year, especially given the current market environment.
I know you talked about some of the puts and takes in your prepared remarks, just hoping you could go a little more in detail on what could be some of that positive upside surprises at the Trans mountain pipeline is it.
Ryan Hummer: Just any more information we could get on that would be helpful. Yeah, absolutely. We'll talk about that at a pretty high level. I think, as we were kind of concluding the prepared remarks, Yeah, the two big pieces for us that we expect will allow us to grow faster than the market as we move forward in 2024 really have to do with repeat precision and the customer relationship and opportunity that developed late last year after that extensive testing of the plugs. So with that, we're starting to work with a customer on two different crews in the Permian Basin, and we expect that could pick up from there a bit further.
Maybe <unk> of re strengthening in your mix just any more information with you get on that would be helpful.
Yes, absolutely we will talk to that at a pretty high level. I think is as we were kind of concluding the prepared remarks.
Yeah, the two big pieces for us that we expect will allow us to grow faster than the market as we move forward into 2024 really has to do with repeat precision and the customer relationship and opportunity to develop late last year after that extensive testing of the plugs.
So.
With that.
We're starting to work with.
The customer on two different crews in the Permian basin, we expect that could pick up from there a bit further.
Ryan Hummer: So that work just started in December, so you'll get really the full year-over-year impact of that customer win as we move through 2024. The Canadian business, we're expecting to be relatively flat year-over-year at this point from a revenue standpoint in a market that's flat to down a little bit. As far as potential upsides to the Canadian market, we've talked a little bit in the past about how we're enabling customers to really change the way they do business in certain areas.
So that work just started in December so you get really the full year over year impact of that customer win as we move through 2024.
The Canadian business, we're expecting to be relatively flat year over year at this point from a revenue standpoint, and a market thats flat to down a little bit as far as potential upsides to the Canadian.
So the Canadian market, we've we've talked a little bit in the past around how we're enabling.
Customers too to really change the way they do business in certain areas.
Ryan Hummer: So we've had some really good wins in the deep basin with customers that are looking at running more sleeves in a given lateral length, so higher sleeve density. And as that program and completion design takes hold with other operators in the region, that could be a source of upside for us. There's also a new area that we started working with a customer who's been a long-standing customer across a couple of different companies who bought some assets and has a new company who's pushing more high-intensity and complex completions design in another area of the deep basin. So between those and also the upsides of continuing to grow our market share with the purple seal plugs and the repeat precision portfolio in Canada.
So we've had some really good wins in the deep basin with customers. They are looking at running.
Running more sleeves in a given lateral length, so higher higher sleeve density and is that sort of program and completion design. If that takes hold with other operators in the region that could be a source of upside for US. There is also a new area that we started working with a customer who has been a longstanding customer across a couple of different companies.
Who who Boston assets and has a new company, who is pushing more high intensity in complex completions design and another area of the deep basin. So between those and then also upsides and continuing to grow our market share with the purple seal Cluttons therapy precision portfolio in Canada, I think theres, probably some some upside there but at this.
Ryan Hummer: I think there's probably some upside there, but at this point, we're looking at relatively flat year-over-year in Canada and hopefully, can start to execute on some of that upside to drive our performance versus the plan. But as far as kind of what's baked into the guidance for the upside, in addition to repeat, which I mentioned earlier, the other big part is international. So having grown that customer portfolio to five customers that we will be working with either on an install or service basis, we'll see a nice growth in the North Sea. And then, additionally, growth in the tracer work in the Middle East. We talked before about how we thought that that region, and one national oil company in particular, could turn into our third-largest operating opportunity for tracers in time. That's being accelerated a bit and could even be the second-largest for us, surpassing Canada and trailing only the U.S.
Point, where we're looking at relatively flat.
Year over year in Canada, and hope, we can start to execute on some of that upside to drive outperformance versus the plan.
But as far as kind of what's baked into the guidance and the upside in addition to repeat which I mentioned earlier the other big part is international so with having grown that customer portfolio to five customers that we'll be working with either in an installer service basis, we'll see a nice growth in the north sea.
And then additionally, the growth in the tracer work in the Middle East we've talked before about how we thought that that region.
One one national oil company in particular could turn into our third largest operating REIT opportunity for for tracers in time, that's being accelerated a bit and could even be the second largest for our surpass in Canada and trailing only the U S. So really it's yes.
Ryan Hummer: So really, it's, you know, a flattish baseline in the U.S. with upside from a couple of specific opportunities that repeat flattishing Canada and really executing internationally on the opportunities that we've been really working hard to secure over the last few years. Very helpful, thank you. And then just one more if I could, it sounds like you've accomplished a lot of Clausevabem's initiatives over the last few 23, I gave you an update. Focus on that. How many more levers do you have to pull here?
Flattish baseline in the us with upside from a couple of specific opportunities that repeat flattish in Canada and really executing internationally on the opportunities that we've been really working hard to secure over the last few years.
That's very helpful. Thank you and then just one more if I could.
It sounds like you've accomplished a lot of cost savings initiatives over the last year about 23.
I'll give you an opportunity to focus on that.
How many more levers do you have to pull here and I guess kind of what's your appetite.
Ryan Hummer: And I guess kind of what's your appetite? Yeah, so you're certainly right that, you know, with 2003 and the reduction in activity, especially in the U.S., from a market standpoint, that gave us the impetus to really take a hard look at our cost base from an operational standpoint. We did that by consolidating some facilities in the field and also in the manufacturing work at Repeat that supports our business globally. So we made sure we're running as efficiently as possible. We're going to always be focused on, you know, continuous improvement, driving costs out of the system, whether that's working through our supply chain team and engineering to reduce the standard cost of our products, or whether it's continuing to take a hard look at every dollar on the SG&A side. But what I'll say is we're looking to grow in 2024. Within that, there are going to be some strategic investments that we make both on the capital side and the personnel side to support that growth. So I think it's going to be, you know, more of a balanced year from a cost standpoint.
To continue working on that.
Yes. So you are certainly right that.
With 2003, and a reduction in activity, especially in the U S from a market standpoint.
That gave us the impetus to really take a hard look at our cost base from an operational standpoint, we did that through consolidating some facilities in the field and also in the manufacturing work at repeat that supports <unk>.
Whereas our business globally, we made sure we're running as efficiently as possible, we're going to always be focused on continuous improvement driving cost out of the system, whether that's working through our supply chain team and engineering to reduce the standard cost of our products.
Or whether it's continuing to take a hard look at every dollar on the SG&A side, but what what I'll say is where we're looking at growing in 2024 within that theyre going to be some some strategic investments that we made both on the capital side and the personnel side to support that growth.
So it's going be more of a balanced year from a cost standpoint.
Ryan Hummer: We'll be as efficient as we can, but I don't know that we'll be looking to take that same level of cost out of the system as we move forward. We're just going to make sure that we, you know, are able to justify and leverage the cost base that we have. Thanks for taking my questions and good luck. Alright, thank you. Thank you. As a reminder to ask a question, that's star number one one. Our next question comes from the line of John Daniel from Daniel Energy Partners. Your line is now open. Hey, good morning.
We'll be as efficient as we can but I don't know that we'll be looking to take that same level of cost out assistant we move forward, we're just going to make sure that we have.
That we're able to justify and leverage the cost base that we have.
Understood. Thanks for taking my questions and good luck in first quarter alright.
Alright, Thanks, Ed. Thank you as a reminder to ask a question Thats Star one one.
Our next question comes from the line of.
John Daniel.
Daniel Energy Partners. Your line is now open.
John Daniel: Thanks, Ryan, for including me. Yeah, absolutely. This might be a soft question; it's actually not meant to be, but like you talked about some field trials that you've kicked off, I'm curious if you could provide some more descriptive color as to when you know if the trials are successful, in your guidance do you assume that they are successful and there's growth from that, or is there potential upside as you think about the next couple of years? Just any color would be helpful. Yeah, that's a good question, John.
Hey, good morning, Thanks, Ryan for including me, Yes, absolutely.
This might be a soft question actually not meant to be but you talked about some field trials that youre kicked off.
I'm curious if you could provide some more descriptive color as tab.
When do you know if the trials are successful.
D S. In your guidance do you assume that it's successful and there is some growth from that or is that potential upside as you think about the next couple of years, just any color would be helpful.
Yes.
Good question John.
Ryan Hummer: And internally, you know, we're tracking a significant number of field trial opportunities, and we've obviously got different measures of success for each of those. When you get to the field trial stage, you've gone through a pretty lengthy product development effort. You've gone through your manufacturing design process. And you expect that, you know, when you get out on that field trial, there may be some additional learnings as well. So what I'd say is for the things that are within that field trial category, we expect some contribution here in 2023, but not a tremendous amount of contribution. I think it really does set the stage for the longer-term growth trajectory. So if we execute on those field trials, either, you know, we've nailed it the first time, and we go straight into production, or, you know, we make one more iteration, and get back out there. And it's something that could be more of a revenue generator down the road.
We are in internally.
We're tracking a significant number of field trial opportunities and we've got obviously different measures of success for each of those.
When you get to the field trial stage, you've gone through a pretty lengthy product development effort.
Gone through your manufacturing design effort.
And you expect that when you get out on that field trial, there may be some additional earnings.
As well so what I'd say is for the things that are within that field trial category. We expect some contribution here in 2023, but not a tremendous amount of contribution.
I think it really does more set the stage for the longer term growth trajectory. So if we execute on those field trials.
Either we've nailed it the first time when we go straight to production or we make one more iteration get back out there and it's something that that could be more of a revenue generator down the road. So we've talked in the past right. We kind of pulled back some of our development effort in 2020 in 'twenty, one and ramp that back up.
Ryan Hummer: So we've talked in the past, right? We kind of pulled back some of our development efforts in 2020 and 21, and we ramped that back up in 2022 and 23. And that's really starting to bear fruit.
In 2022, and 'twenty, three and that's really starting to bear fruit, we got a lot of really interesting technology that we're getting out there a lot of good customer interaction and engagement around the products that we're bringing to market.
Ryan Hummer: We've got a lot of really interesting technology that we're getting out there, and a lot of good customer interaction and engagement around the products that we're bringing to market. Okay, the next one I had, Ryan, and I apologize, I'm driving, so I wasn't able to write down copious notes, but you talked about getting on two crews, I think it was the Permian you mentioned, when you win that, what did they see in your product that they liked, and how do you spread the gospel, if you will, about the success of something? Yeah, absolutely.
Okay.
The next one I had Ryan.
I apologize I'm driving to August enabled us write down copyist notes, but you talked about getting on to <unk> I think it was the Permian you mentioned.
When you win when you win that.
What do they see in your product that they like and how do you spread the gospel. If you will on the success of something like that.
Ryan Hummer: Thanks for the question there, John. So that customer, you know, I would view them as being, you know, one of the technology leaders in the EMP space. And every now and then, they'll do something like they did in 2023, where they take a look at, you know, a number of different providers in a certain space. In this case, it was the BRAC plugs, and we were one of, I think it was six or seven different competitors that were evaluated there. As I said, there was a lot of work that was done, including, you know, fiber optics, tracers, and other, you know, other diagnostic tools for them to determine, across a set of performance criteria, which plug performed the best.
Yeah, absolutely. Thanks for the question there John.
So that customer.
I would view them as being one of the one of the technology leaders in the E&P space.
And every now and then they will do something like they did in 2023, where they take a look at.
Number the different providers in a certain space in this case it was the <unk> clubs and we were one of them I think it was six or seven different competitors that were evaluated there.
As I said there was a lot of work that was done used including fiber optics tracers and other.
The other diagnostic tools for them to determine across a set of performance criteria, right, which which bug performed the best.
Ryan Hummer: So we're certainly encouraged with the results there and them starting to work with us. And yeah, we've kicked off with a couple of crews with them in the Permian. I think there's a chance to grow in that area. How do you spread the gospel? I think it's internally with that customer. They've got some other operating regions as well.
So we're certainly encouraged with the results there and then starting to work with us and we've kicked off with a couple of cruise with them in the Permian I think there's a chance to grow in that area. How do you spread the gospel, having internally that customer they've got some other operating regions as well.
Ryan Hummer: That customer is also one that's obviously very well-connected in the West Texas community, and they're willing to share to some extent why they made some of the decisions they made about going with us long term. So we're certainly working every angle there and taking the work that was done, the extensive sort of testing and technical work that was done by that one customer, and making sure that that can kind of translate and be utilized by more customers in the area to help us grow the business. Okay, I appreciate the incremental call, and thank you for including me. Yeah, absolutely. Thanks, John. Thank you. At this time, I'm asking no further questions. I'd like to turn the conference back over to Mr. Ryan Hummer, Chief Executive Officer, for closing remarks. All right.
That customer is also one that is very obviously very well connected in the west, Texas community and they are they're willing to share to some extent.
Ray why why they made some decisions they made about going with us long term.
So we're certainly.
Working every angle, there and taking that to.
The work that was done right I sensitive sort of testing and technical work that was done by that one customer and making sure that that can kind of translate and.
Be utilized by by more customers in the area to help us grow the business.
Okay.
I appreciate the incremental color. Thank you for including me.
Absolutely Thanks John.
Thank you.
At this time I'm showing no further questions I'd like to turn the conference back over to Mr. Ryan Hummer.
<unk> Executive officer for closing remarks, alright.
Ryan Hummer: Thanks, Norma. On behalf of our management team and our board, we'd like to thank everyone on the call today, including our shareholders, analysts, and especially our employees. I truly appreciate the depth and breadth of the expertise of our people at NCS and Repeat Precision and the passion and effort that our people bring to their work. Our team continues to provide excellent service to our customers and is commercializing new products and services that will enable our customers to be more successful. We're taking on demanding and technically challenging work and delivering results.
Alright, Thanks, Amit.
On behalf of our management team and our board, we'd like to thank everyone on the call today, including our shareholders analysts and especially our employees.
Truly appreciate the depth and breadth of the expertise of our people at NCS in repeat precision and the passion and effort that our people bring to their work.
Our team continues to provide excellent service to our customers is commercializing new products and services that will enable our customers to be more successful, we're taking on demanding and technically challenging work in delivering results. We appreciate everyone's interest in NCS multistage and we look forward to speaking again on our next quarterly earnings call.
This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
Operator: We appreciate everyone's interest in NCS Multistage, and we look forward to speaking again at our next quarterly hearing. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone has a wonderful day. Cantabrapa, beneficiary of the New Neuquen Act, www.cantabrapa.org Still want more? Let us know in React. Tell us what you think, and share this information. Thanks for watching. Voice toward za Clap for de mayo Candy Angel Update We get to hear what we want to hear, either in the comments or by speaking here. Thanks for listening.
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