Q4 2024 NCS Multistage Holdings Inc Earnings Call
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Operator: Good day and thank you for standing by.
Speaker Change: Good day and thank you for standing by welcome to the Q4 and full year 2020 for NCS Multistage earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you'll need to press star one on your telephone.
Operator: Welcome to the Q4 and full year 2024 NCS Multistage Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 1-1 again.
Speaker Change: You will then hear an automated message advising you your hand, just raised to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Mike Martin CFO. Please go ahead Sir.
Operator: Please be advised that today's conference is being recorded.
Michelle: I would now like to hand the conference over to your speaker today, Mike Morrison, CFO. Please go ahead, sir.
Michael Morrison: Thank you, Michelle, and thank you for joining the NCS Multistage fourth quarter and full year 2024 conference call.
Mike Martin: Thank you Michelle and thank you for joining the NCS multistage fourth quarter and full year 2024 conference call. Our call today will be led by 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 expectations for future financial <unk>.
Michael Morrison: Our call today will be led by 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 expectations for future 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 on this call.
Speaker Change: And business operations.
Speaker Change: These statements are subject to many risks and uncertainties that could cause our actual results to differ materially from any expectation expressed on this call.
Michael Morrison: 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.
Speaker Change: 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 or comments today as well as our results of operations included in our earnings release contain the following non-GAAP financial measures adjusted EBITDA adjusted EBITDA margin adjusted gross profit adjusted gross.
Michael Morrison: Our comments today, as well as our results of operations included in our earnings release, contain the following non-GAAP financial measures, adjusted EBITDA, adjusted EBITDA margin, adjusted gross profit, adjusted gross margin, free cash flow, and free cash flow less distributions to non-controlling interest. These non-GAAP measures and reconciliations to the most comparable GAAP financial measures are provided in our fourth quarter and full year earnings release, which can be found on our website at ncsmultistage.com.
Speaker Change: Free cash flow and free cash flow less distributions to noncontrolling interests.
Speaker Change: non-GAAP measures and reconciliations to the most comparable GAAP financial measures are provided in our fourth quarter and full year earnings release, which can be found on our website at NCS multistage Dot Com I will now turn the call over to Ryan.
Ryan Hummer: I'll now turn the call over to Ryan. Thank you, Mike, and welcome to our investors, analysts and employees joining our fourth quarter and full year 2024 earnings conference. I'll begin by reviewing NCS's vision and core business strategies, including a discussion of our complementary product and service portfolio and certain accomplishments in 2024 and early 2025 in alignment with our strategy.
Speaker Change: Right.
Ryan Hummer: Thank you, Mike and welcome to our investors analysts and employees, joining our fourth quarter and full year 2024 earnings conference call.
Ryan Hummer: I'll begin by reviewing Ncs's vision, and core business strategies, including a discussion of our complementary product and service portfolio.
Ryan Hummer: And accomplishments in 2024, and early 2025 and alignment with our strategies.
Ryan Hummer: I'll also outline our strategic objectives for 2020.
Ryan Hummer: Also outlined our strategic objectives for 2025.
Ryan Hummer: Mike will follow covering the financial results. NCS's vision is to be globally recognized as a trusted partner in bold enabling our customers resource development strategies through our technology driven solutions and reliable In practice, we pursue this vision through a cohesive product and service offering designed to enable our customers to reliably maximize the value of their unconventional assets. This applies across diverse markets. in the more mature markets in North America, emerging high-growth unconventional developments in Argentina and the Middle East, and in more conventional geographies like the North Sea, where we're successfully deploying unconventional technologies and technologies.
Mike Martin: Mike will follow covering the financial results for the quarter.
Speaker Change: Ncs's vision is to be globally recognized as a trusted partner in bold innovator.
Speaker Change: Enabling our customers' resource development strategies through our technology driven solutions in a reliable expertise.
Speaker Change: In practice, we pursue this vision through a cohesive product and service offering designed to enable our customers to reliably maximize the value of their unconventional assets.
Speaker Change: This applies across diverse markets and the more mature markets in North America emerging high growth unconventional developments in Argentina, and the middle East and a more conventional geographies like the north Sea, where we're successfully deploying unconventional technologies and techniques.
Ryan Hummer: We are collaborating with our customers to open new markets for our products and services in technically demanding environments, including innovative solutions for SAG-D, deepwater, and geothermal.
Speaker Change: We are collaborating with our customers to open new markets for our products and services and technically demanding environments, including innovative solutions for Sag D deepwater and geothermal.
Ryan Hummer: As we've discussed before, we have three core strategies that are supported by two guiding I'll review each, including recent progress, to demonstrate how we are enabling long-term value creation for our state. The first core strategy is to build upon our leading market This includes strengthening our comprehensive product portfolio in Canada and extending our proven track record in fracturing systems technology globally. A notable success came in late 2024, when a customer operating in the Liquids Rich area in the Mottney Formation disclosed plans to increase the use of single-point entry completions in the area to achieve production performance and financial returns that exceed comparable plug-and-perf completions.
Speaker Change: As we've discussed before we have three core strategies that are supported by two guiding principles.
Speaker Change: Ill review, each including recent progress to demonstrate how we are enabling long term value creation for our stakeholders.
Speaker Change: The first core strategy is to build upon our leading market positions. This includes strengthening our comprehensive product portfolio in Canada, and extending our proven track record in fracturing systems technology globally.
Speaker Change: A notable success came in late 2024, when a customer operating in the liquids rich area in the Montney formation disclosed plans to increase the use of single point entry completions in the area to achieve production performance and financial returns that exceed comparable plug and perf completions.
Ryan Hummer: We're working collaboratively with this longstanding customer in pursuit of continued operational optimization to further enhance the capital efficiency of their development program, utilizing our differentiated fracturing systems offering. 2024 was also a critical year for NCS in advancing the use of our fracturing systems technology and wells using threaded pipe for deployment of our services. With this success, we've expanded our North Sea customer base and medium-term opportunity in that market, and we've also advanced our readiness for deepwater applications.
Speaker Change: We're working collaboratively with this long standing customer in pursuit of continued operational optimization to further enhance the capital efficiency of their development program utilizing our differentiated fracturing systems offering.
Speaker Change: 2024 was also a critical year for NCS in advancing the use of our fracturing systems technology and wells using threat at pipe for deployment of our service tools.
Speaker Change: With this success, we've expanded our north sea customer base and medium term opportunity in that market and we've also advanced our readiness for deep water applications.
Ryan Hummer: The second core strategy that I'll speak to is capitalizing on international and offshore opportunities. We've made investments over the last several years to position ourselves in strategic international markets that we believe represent long-term growth areas for NCS, including the North Sea, Argentina, and unconventional activity in the Middle East. Our results in 2024 speak for themselves, as we achieved our highest ever revenue outside of North America, doubling from 5% of our total revenue in the prior year to 10% in 2024. Our international growth also helped to support a 250 basis point improvement in our adjusted gross margin in 2024 as compared to 2023.
Speaker Change: The second core strategy that I'll speak to is capitalizing on international and offshore opportunities.
Speaker Change: We've made investments over the last several years to position ourselves in strategic international markets that we believe represent long term growth areas for NCS.
Speaker Change: The North sea, Argentina in unconventional activity in the middle East.
Speaker Change: Our results in 2024 speak for themselves as we achieved our highest ever revenue outside of North America doubling from 5% of our total revenue in the prior year to 10% in 2024.
Speaker Change: Our international growth also helped to support a 250 basis point improvement in our adjusted gross margin in 2024 as compared to 2023.
Ryan Hummer: Our final core strategy is to commercialize innovative solutions to complex customer challenges. This is a very successful and exciting year for us, with several significant achievements. We commercialized crack systems and well construction products for the SAGD market in Canada. We enhanced the performance capabilities of our airlock casing buoyancy. which serve to accelerate our receipt of a commercial purchase agreement with a key customer in the Middle East. And at Repeat Precision, we've introduced high-value technologies, including our Dissolvable Fract Plug and our new Stage Saver Composite Plug, with features that mitigate issues that our customers can encounter during simulfract operations, the use of which continues to expand in North America.
Speaker Change: Our final core strategy is to commercialize innovative solutions to complex customer challenges.
Speaker Change: This was a very successful and exciting year for us with several significant achievements.
Speaker Change: We commercialized crack systems in well construction products for the Sag D market in Canada.
Speaker Change: We enhanced the performance capabilities of our airlock casing buoyancy system, which serve to accelerate our receipt of a commercial purchase agreement with a key customer in the middle East.
Speaker Change: And at repeat precision, we've introduced high value technologies, including our Dissolvable Frac plugs and our new stage Sabre composite plug with features that mitigate issues that our customers can encountered during simulcast operations the use of which continues to expand and in North America.
Ryan Hummer: I'll now speak to the two guiding principles that underpin our long-term strategy. The first is to maximize financial flexibility. Our business model continues to be validated as we bolstered our net cash position at year-end to nearly $18 million with an undrawn revolver. During 2024, we generated approximately $12 million in free cash flow and $10 million in free cash flow after distributions to our non-controlling interests. The $12 million in free cash flow was 54% of our adjusted EBITDA, reflecting material conversion, especially considering our 14% year-over-year revenue. The $10 million dollars in free cash flow after distributions in 2024 represents approximately 15% of our market capitalization on March 7th, which was approximately $67 million.
Speaker Change: I will now speak to the two guiding principles that underpin our long term strategy.
Speaker Change: The first is to maximize financial flexibility.
Speaker Change: Our business model continues to be validated as we bolstered our net cash position at year end to nearly $18 million with an undrawn revolver.
During 2024, we generated approximately $12 million in free cash flow and $10 million in free cash flow after distributions to noncontrolling interest.
Speaker Change: The $12 million in free cash flow was 54% of our adjusted EBITDA reflected material conversion, especially considering our 14% year over year revenue growth.
Speaker Change: The $10 million in free cash flow after distributions in 2024 represents approximately 15% of our market capitalization on March seven which was approximately $67 million.
Ryan Hummer: Our second guiding principle is to upload the promise. Our company values are embedded in the promise, which represents the commitments we make as a company to our employees, customers, vendors, and other stakeholders related to how we conduct business. And it also speaks to our focus in the areas of technology, quality, health, safety, and the environment. This is a continuous process at NCS, and during 2024, we took several actions reflecting our commitment to our state. We enhanced our internal employee recognition programs, added a quality certification for a key facility. adopted a new product development workflow, and we improved our already impressive safety.
Speaker Change: Our second guiding principle is to upload the promise.
Speaker Change: Our company values are embedded in the promise, which represents the commitments, we make as a company to our employees customers vendors and other stakeholders related to how we conduct business and it also speaks to our focus in the areas of technology quality health safety and the environment.
Speaker Change: This is a continuous process at NCS and during 2024, we took several actions, reflecting our commitment to our stakeholders.
Speaker Change: We enhanced our internal employee recognition programs added a quality certification for our key facility.
Speaker Change: Adopted a new product development workflow and we improved our already impressive safety record.
Ryan Hummer: Our goals for 2025 are straightforward and are aligned with our long-term strategy. In 2025, we aim to grow revenue in excess of the underlying market activity in each of our primary markets, including the Canada, the U.S. and international. We aim to obtain field trials for new technology introductions and to drive further commercial success for our new product and service offerings and in recently entered markets. We'll continuously improve our employee engagement and ensure workplace safety. We'll work to improve our processes and collaboration so we can be more efficient and effective. And we will also continue to generate free cash.
Speaker Change: Our goals for 2025 are straightforward and are aligned with our long term strategy.
Speaker Change: In 2025, we aim to grow revenue in excess of the underlying market activity in each of our primary markets, including Canada, The U S and internationally.
Speaker Change: We aim to obtain field trials for new technology introductions and to drive further commercial success for our new product and service offerings and in recently entered markets.
Speaker Change: We will continuously improve our employee engagement and ensure workplace safety.
Speaker Change: Work to improve our processes and collaboration so we can be more efficient and that backed up and.
Speaker Change: And we will also continue to generate free cash flow.
Michael Morrison: Mike will now review our results for the fourth quarter and our guidance for the first quarter of 2025. Thank you, Ryan. As reported in yesterday's earnings release, our fourth quarter revenues were $45.0 million, a 20% increase compared to the fourth quarter of last year. All regions contributed to our year-over-year increase, with International up by 280%, Canada up by 20%, and the U.S. up by 18%. Our fourth quarter revenues were the highest of the year and sequentially increased by 2%, with modest increases in Canada and international, partially offset by a slight decline in the U.S. In Canada, we did not experience the normal customer holiday slowdown in activity, which is a positive indicator for early 2025.
Speaker Change: Mike will now review our results for the fourth quarter and our guidance for the first quarter of 2025.
Mike Martin: Thank you Ryan as reported in yesterday's earnings release, our fourth quarter revenues were 45.0, million% to 20% increase compared to the fourth quarter of last year, all regions contributed to our year over year increase with international up by 280%.
Mike Martin: Up by 20% and the U S up by 18%.
Mike Martin: Our fourth quarter revenues were the highest of the year and sequentially increased by 2% with modest increases in Canada and international partially offset by a slight decline in the U S.
Mike Martin: In Canada, we did not experience the normal customer holiday slowdown in activity, which is a positive build to cater for early 2025, our adjusted gross profit defined as total revenues less total cost of sales, excluding depreciation and amortization expense was $19 4 million in the fourth quarter, representing an adjusted gross.
Michael Morrison: Our adjusted gross profit, defined as total revenues less total cost of sales, excluding depreciation and amortization expense, was $19.4 million in the fourth quarter, representing an adjusted gross margin of 43%, up compared to our adjusted gross margin of 37% for the same period in 2023. This improvement was due in part to an increase in higher margin international revenue. Our revenues for the full year of 2024 were $162.6 million, an improvement at over $20 million, or 14%, compared to 2023. All regions contributed to this revenue growth, with international reaching an all-time high of $16.5 million. Our adjusted gross margin for 2024 improved to 41% compared to 39% last year.
Mike Martin: Margin of 43% up compared to our adjusted gross margin of 37% for the same period in 2023.
Mike Martin: This improvement was due in part to an increase in higher margin international revenues.
Mike Martin: Our revenues for the full year of 2024, or $162 6 million, an improvement at over $20 million or 14% compared to 2023, all regions contributed to this revenue growth with international reaching an all time high of $16 5 million.
Mike Martin: Our adjusted gross margin for 2024 improved to 41% compared to 39% last year.
Michael Morrison: Our selling, general, and administrative costs were $15.0 million for the fourth quarter, up $1.8 million compared to the same period last year due to increased incentive bonus accruals resulting from our improved performance, as well as increased share-based compensation expense associated with our cash settled awards, which we recognize expense as our stock price changes. For the full year of 2024, our SG&A costs were $57.8 million, an increase of $1.3 million compared to last year. For the full year 2024, the increase in incentive bonus accruals and share-based compensation was partially offset by the favorable impact of cost-savings initiatives implemented in 2023.
Mike Martin: Our selling general and administrative costs were 15.0 million for the fourth quarter up $1 8 million compared to the same period last year due to increased incentive bonus accruals, resulting from our improved performance as well as increased share based compensation expense associated with our cash settled awards, which we recognized.
Mike Martin: <unk> expense as our stock price changes.
Mike Martin: For the full year of 2024, our SG&A cost were $57 8 million, an increase of $1 3 million compared to last year for the full year 2024, the increase in incentive bonus accruals and share based compensation was partially offset by the favorable impact of cost savings initiatives implemented in 2023.
Michael Morrison: Other income of $2.4 million for the quarter improved compared to the same period in the prior year, driven primarily by an increase in royalty income from licenses of our intellectual property. In the fourth quarter of 2024, we changed our process for recognizing royalty income. Previously, we recognized royalty income in the period the cash was received, effectively on a one-quarter lag. Given the increase in royalty income, we began to accrue for these royalties when earned, rather than when received. As a result of this change, our fourth-quarter royalty income is elevated compared to both historical periods and future expectations.
Mike Martin: Other income of $2 4 million for the quarter improved compared to the same period in the prior year driven primarily by an increase in royalty income from licenses of our intellectual property in the fourth quarter of 2024, we changed our process for recognizing royalty income.
Mike Martin: Previously we recognized royalty income in the period. The cash was received effectively on a one quarter lag given the increase in royalty income we began to accrue for these royalties when earned rather than when we received as a result of this change our fourth quarter royalty income is elevated compared to both historical periods and future expectations.
Michael Morrison: Beginning with the first quarter, 2025, we expect our royalty income to normalize to approximately $1 million per quarter. Our net income for the fourth quarter was $3.5 million, or diluted earnings per share of $1.32, an improvement to last year's fourth quarter after adjusting for the non-cash benefit of a legal settlement one year ago. Our net income for the full year of 2024 was $6.6 million, or diluted earnings per share of $2.55, an improvement over the net loss of $3.2 million in 2023. adjusted EBITDA for the fourth quarter was $8.2 million, an increase compared to $2.5 million for the same period in 2023.
Mike Martin: Beginning with the first quarter 2025, we expect our royalty income to normalize to approximately $1 million per quarter.
Mike Martin: Our net income for the fourth quarter was $3 5 million or diluted earnings per share of $1 32, an improvement to last year's fourth quarter. After adjusting for the non cash benefit of a legal settlement one year ago.
Our net income for the full year of 2024 was $6 6 million or diluted earnings per share of $2 55 sites an improvement over the net loss of $3 2 million in 2023.
Mike Martin: Adjusted EBITDA for the fourth quarter was $8 2 million, an increase compared to $2 5 million for the same period in 2023 for the full year of 2024, our adjusted EBITDA was $22 3 million a significant improvement over the $11 9 million reported in 2023.
Michael Morrison: For the full year of 2024, our adjusted EBITDA was $22.3 million, a significant improvement over the $11.9 million reported in 2023.
Michael Morrison: Now turning to the ballot sheet. On December 31st, we had $25.9 million in cash and total debt of $8.1 million, which consisted entirely of finance lease obligations, resulting in a positive net cash position of $17.7 million. The borrowing base under our underwrought ABL facility was $20.1 million, resulting in total liquidity of approximately $46 million, including cash and availability under our revolving credit facility.
Mike Martin: Now turning to the balance sheet.
Mike Martin: On December 31, we had $25 9 million in cash and total debt of $8 1 million, which consisted entirely of finance lease obligations, resulting in a positive net cash position of $17 7 million.
Mike Martin: The borrowing base under our Undrawn ABL facility was $20 1 million, resulting in total liquidity of approximately $46 million, including cash and availability under our revolving credit facility.
Michael Morrison: Turning now to a few points of guidance for the first quarter. Currently expect first quarter total revenue in the range of $42 to $46 million, the midpoint being consistent with the first quarter of 2024. We expect U.S. revenue in the range of $8 million to $9 million, international revenue of $2 million to $3 million, and Canadian revenue of $32 million to $34 million. We expect our adjusted gross margin to be between 39% and 42%, a modest improvement at the midpoint compared to the first quarter of 2024. We expect our adjusted EBITDA to be between $4.5 and $6.5 million and our first quarter depreciation and amortization expense to be approximately $1.3 to $1.4 million.
Mike Martin: Turning now to a few points of guidance for the first quarter.
Mike Martin: Currently expect first quarter total revenue in the range of $42 million to $46 million, the midpoint being consistent with the first quarter of 2024.
Mike Martin: We expect U S revenue in the range of $8 million to $9 million international revenue of $2 million to $3 million and Canadian revenue of $32 million to $34 million.
Mike Martin: We expect our adjusted gross margin to be between 39, and 42% a modest improvement at the midpoint compared to the first quarter of 2024.
Mike Martin: We expect our adjusted EBITDA to be between four five and $6 5 million in our first quarter depreciation and amortization expense to be approximately one three to $1 4 million.
Ryan Hummer: With that, I'll hand it back over to Ryan to provide our full year 2025 guidance and for closing remarks. All right. Thank you, Mike. Our full year guidance for 2025 is as follows. Our current expectation for overall customer activity for 2025 as compared to 2024 is flat to down in the United States, a slight increase in both Canada and in our core international markets, which include Argentina, the North Sea, and unconventional development in the Middle East. We currently expect full-year revenue to range from $165 to $175 million and our full-year adjusted EBITDA to be in a range of $20 to $23 million.
Ryan Hummer: With that I'll hand, it back over to Ryan to provide our full year 2025 guidance and for closing remarks.
Mike Martin: Okay.
Ryan Hummer: Alright, Thank you Mike.
Ryan Hummer: Our full year guidance for 2025 is as follows.
Ryan Hummer: Our current expectation for overall customer activity for 2025 as compared to 2024 is flat to down in the United States.
Ryan Hummer: Increase in both Canada and in our core international markets, which include Argentina, the North Sea and unconventional development in the Middle East.
Ryan Hummer: We currently expect full year revenue to range from $165 million to $175 million.
Ryan Hummer: Our full year adjusted EBITDA to be in the range of $20 million to $23 million.
Ryan Hummer: We expect balanced revenue growth with contributions from Canada, the U.S. and our international market. I'll note that the year-over-year revenue growth and adjusted EBITDA are both negatively impacted by the strengthening of the U.S. dollar relative to the Canadian dollar, which accelerated in the fourth quarter of 2021. By way of example, in 2024, each dollar of revenue generated in Canada translated to 73 cents in U.S. dollars. We currently expect this conversion rate to move 4% lower for 2025 to 70. The net impact to NCS of these FX movements is reflected in our 2025 guidance and would be a reduction of approximately $4 million in revenue and $2.5 to $3 million in adjusted revenue.
Ryan Hummer: We expect balanced revenue growth with contributions from Canada, The U S and our international markets.
Ryan Hummer: I'll note that the year over year revenue growth and adjusted EBITDA are both negatively impacted by the strengthening of the U S dollar relative to the Canadian dollar, which accelerated in the fourth quarter of 2024.
Ryan Hummer: By way of example in 2020 for each dollar of revenue generated in Canada translated to <unk> 73 in U S dollars.
Ryan Hummer: We currently expect this conversion rate to move 4% lower for 2025 to 70.
Ryan Hummer: The net impact to NCS of these FX movements as reflected in our 2025 guidance and would be a reduction of approximately $4 million in revenue and $2 $5 million to $3 million and adjusted EBITDA.
Ryan Hummer: Our financial guidance does not incorporate any meaningful impacts from threatened or enacted trade actions, including the imposition of new retaliatory tariffs involving the U.S., Canada, and Mexico. We are currently monitoring the evolving landscape as it relates to these potential actions and are actively engaged in planning to partially mitigate the impact of these actions, if enacted. We've already implemented plans to partially mitigate the increased tariffs imposed by the U.S. on China and believe we will be able to at least partially pass through increases in raw material costs related to steel tariffs as our customers will see a larger and leading impact on their purchases of casing and other tubulars for their wells.
Ryan Hummer: Our financial guidance does not incorporate any meaningful impacts from threatened or enacted trade actions, including the imposition of newer retaliatory tariffs involving the U S, Canada and Mexico.
Ryan Hummer: We are currently monitoring the evolving landscape as it relates to these potential actions and are actively engaged in planning to partially mitigate the impact of these actions if enacted.
We've already implemented plans to partially mitigate the increased tariffs imposed by the U S on China and believe we'll be able to at least partially pass through increases in raw material costs related to steel tariffs as our customers will see a larger and leading impact on their purchases of casing and other tubular for their wells.
Ryan Hummer: As Mike discussed earlier, also impacting our adjusted EBITDA guidance is an overall forecasted year-over-year reduction in other income. Turning to capital expenditures, we expect gross capital expenditures for the year to be between $1.5 and $2 million, and we expect our free cash flow after distributions to our joint venture partner of $7 to $10 million, further strengthening our robust balance sheet and positioning us to pursue strategic investment opportunities.
Ryan Hummer: As Mike discussed earlier also impacting our adjusted EBITDA guidance as an overall forecasted year over year reduction in other income.
Speaker Change: Turning to capital expenditures, we expect gross capital expenditures for the year to be between one five and $2 million and we expect our free cash flow after distributions to our joint venture partner of $7 million to $10 million further strengthening our robust balance sheet and positioning us to pursue strategic investment opportunities.
Ryan Hummer: Due to the seasonality of our business, and consistent with prior years, we would also anticipate that the achievement of our annual Adjusted EBITDA guidance range will be weighted towards the second half of the year, and that our free cash flow will be weighted to the end of Before turning to Q&A, I'll close with a couple of brief comments. I'm very proud of what the team at NCS accomplished in 2020. We grew our revenue, adjusted EBITDA, and pre-cash flow in a challenging market environment, delivering the benefits that we expect as we execute on our strategic plan.
Speaker Change: Due to the seasonality of our business and consistent with prior years. We would also anticipate that the achievement of our annual adjusted EBITDA guidance range will be weighted towards the second half of the year and that our free cash flow will be weighted to the end of the year.
Speaker Change: Before turning to Q&A I'll close with a couple of brief comments.
Speaker Change: I'm very proud of what the team at NCI has accomplished in 2024, we grew our revenue adjusted EBITDA and free cash flow in a challenging market environment delivering the benefits that we expect as we execute on our strategic plan.
Ryan Hummer: We expect to continue to benefit from multi-year investments made to position ourselves for growth in international markets and our efforts to position our product and service portfolio to ensure customer success and position NCS for growth in new market segments. We have the people and infrastructure in place to support further revenue growth and we maintain our focus on controlling operating expenses, positioning us to benefit from the resulting operating leverage. And finally, we entered 2025 with a strong balance sheet and liquidity position, ending 2024 with a cash balance of nearly $26 million. We expect to add to that cash balance by generating positive free cash flow again in 2025, further enhancing our financial and strategic flexibility.
Speaker Change: We expect to continue to benefit from multi year investments made to position ourselves for growth in international markets and our efforts to position our product and service portfolio to ensure customer success and position NCS for growth in new market segments.
Speaker Change: We have the people and infrastructure in place to support further revenue growth and we maintained our focus on controlling operating expenses positioning us to benefit from the resulting operating leverage.
Speaker Change: And finally, we entered 2025 with a strong balance sheet and liquidity position ending 2024 with a cash balance of nearly $26 million.
Speaker Change: We expect to add to that cash balance by generating positive free cash flow again in 2025 further enhancing our financial and strategic flexibility.
Operator: With that, we'll welcome any questions. Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. We ask that you please limit yourself to one question and one follow-up. One moment for our first question.
Speaker Change: With that we welcome any questions.
Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced until that you're asking a question. Please press star. One again, we ask that you. Please limit yourself to one question and one follow up one moment for your first question.
Dave Storms: Our first question is going to come from the line of Dave Storms with Stonegate. Your line is open. Please go ahead. Good morning, Dave. Just wanted to kind of start. to try to get a sense of the key to this. up in Canada. I know you mentioned Canada kind of had a and maybe any others.
Speaker Change: Our first question is going to come from the line of Dave storms with Stonegate. Your line is open. Please go ahead.
Speaker Change: She is taking my good morning des.
Speaker Change: Just wanted to kind of start to see if there was a.
Speaker Change: Just trying to get a sense of the cadence for the year is there any early indication on the spring breakup in Canada.
Speaker Change: You mentioned, Canada kind of pattern.
Speaker Change: Salt life.
Speaker Change: Our robust holiday season them was as expected do you think maybe that might be a bit of a pull forward.
Speaker Change: And revenues into Q4 of last year.
Speaker Change: And maybe any other seasonal variance that we should be aware of guidance 2025.
Ryan Hummer: Yeah, thanks, Dave. Maybe I'll speak big picture first in that, you know, we would expect the impacts of seasonality in 2025 to mimic for the most part what you saw in 2024. Then, moving specifically into Canada, I think it's right that Mike mentioned that we got off to kind of a strong start in that first week of January, maybe stronger than we would in other years. We're in the environment right now where we are heading into breakup. Some of the activity in Saskatchewan and southern Alberta is already tailing off. You've got road bans going into place.
Speaker Change: Yeah, Thanks, Dave maybe I'll speak Big picture first and that we would expect the impac.
Speaker Change: The impact of seasonality in 2025 to mimic for the most part what you saw in 2024.
Speaker Change: Hi.
Speaker Change: Moving specifically into Canada.
Speaker Change: Right.
Mike Martin: Mike mentioned that we got off to a kind of a strong start in that first week of January maybe stronger than we would in other years.
Mike Martin: Where we are in the environment right now, where we are heading into breakup some of the activity in Saskatchewan in Southern Alberta has already tailing off you've got road bans going into place.
Ryan Hummer: However, the rate count in some of the more northern areas is holding in there for the time being. So, at this point, I'd say we'll expect pretty typical seasonality with respect to the Canadian operations. I will point out that 2024 ended up being a very favorable year from a weather condition standpoint. We came into the year concerned about the potential for drought conditions and water shortages, which did not materialize as we moved through the second quarter. Operating conditions were pretty favorable throughout the year. So, we'll just have to see how spring breakup plays out. It's different every year, and it's just not predictable.
Mike Martin: However, the rig count and some of the more northern areas is holding in there for the time being.
Mike Martin: So at this point I'd say, we'll expect pretty pretty typical seasonality with respect to the Canadian operations.
Mike Martin: I will point out that.
Mike Martin: 2024 ended up being a very favorable year from a weather condition standpoint, we came into the year concerned about the potential for drought conditions and water shortages, which did not materialize as we move through the second quarter operating conditions were pretty favorable throughout the year.
Mike Martin: So we'll just have to see how spring breakup plays out it's different every year and it's just not predictable typically we do see activity start to move lower.
Dave Storms: Typically, we do see activities start to move lower here in the last two, three weeks of March and start to pick up again in June. But we've got to just deal with what Mother Nature delivers on that front. Understood. That's very helpful. holiday of March... It sounds like that was mostly due to the... really kind of leading the charge there.
Mike Martin: Here in the last two three weeks of March and start to pick up again in June but we've got just what mother nature delivers on that front.
Speaker Change: Understood. That's very helpful. And then just one for me.
Speaker Change: Consolidated margin seem to really expand year over year. It sounds like that was mostly.
Speaker Change: Due to the increase in Mexico with international.
Speaker Change: Really kind of leading the charge there is there anything else, we should maybe be aware of here.
Ryan Hummer: Anything else we should maybe be aware of here that might be driving? Yeah, so with respect to the growth in 2024, I think there are really three components to it. The international expansion was certainly the largest. The second was just, you know, kind of overall operating leverage. So we did grow revenue 14%. And while we have a supply chain that's highly variable on the cost of sale side, we do have some fixed costs on the cost of sale side of the ledger that we can leverage as we grow. And then the third component, we did take some cost reduction actions kind of throughout 2023, but really in the last two quarters of 2023.
Speaker Change: That might be driving margin expansion.
Speaker Change: Yes, so with respect to the growth in 2024, I think there are really three components to it the international expansion was certainly the largest.
Speaker Change: The second was just kind of overall operating leverage so we did grow revenue, 14% and while we have a supply chain.
Speaker Change: That's highly variable on the cost of sales side, we do have some some fixed fixed.
Speaker Change: Fixed costs on the cost of sales side of the ledger that we can leverage as we grow and then the third component we did take some cost reduction actions.
Speaker Change: Throughout 2023, but really in the last two quarters of 2023. So we had some year over year kind of full year benefit of those which we recognized in 2024, so all of those together.
Ryan Hummer: So we had some year over year kind of full year benefit of those which we recognized in 2024. So you pull all of those together. And that contributed to that 250 basis point increase. So as we look to 2025, you know, we do expect to continue to grow at the top line, you know, and however, the VFX impact in Canada has a bit more weight. So right now, we're forecasting gross margin to be relatively flat year over year, where we do expect to see some continued benefits through just, you know, general operating leverage of the business as we grow offset by, you know, some margin compression driven by the VFX environment.
Speaker Change: And that contributed to that 250 basis point increase.
Speaker Change: So as we look to 2025, we do expect to continue to grow the top line.
Speaker Change: However, the FX impact in Canada.
Speaker Change: <unk> has a bit bit more weight. So right now we're forecasting gross margin to be relatively flat year over year.
Speaker Change: Where we do expect to see some continued benefits through just general operating leverage of the business as we grow offset by margin compression driven by the FX environment.
Dave Storms: Understood. That's very helpful. Thank you. Alright, thanks Dave.
Speaker Change: Understood. That's very helpful. Thank you and good luck in Q1.
Operator: Thank you and one moment for our next question. And our next question comes from the line of John Daniel with Daniel Energy Partners. Your line is open. Please go ahead. Good morning. Thank you for including me.
Speaker Change: Alright, thanks, guys. Thank.
Speaker Change: Thank you and one moment for our next question.
Speaker Change: And our next question comes from the line of John Daniel with Daniel Energy Partners. Your line is open. Please go ahead.
John Daniel: Good morning, Thank you for including me.
John Daniel: Ryan, as you continue to build cash, I'm just curious, are there any little small tech type related businesses that would be good? plug-ins to your business and are you actively looking at anything along those lines? Yeah, John, great, great question. So the short answer is yes, right? Because I think some of the same attributes You know, as far as the benefits of organic revenue growth for NCS would also apply on the M&A front. You know, again, with our business model, we've got really good operating leverage to organic revenue growth. But it also positions us, we operate in multiple product lines and in multiple geographies.
Ryan Hummer: Ryan as you are.
Ryan Hummer: <unk> continued to build cash I'm, just curious are there any little small tech type related businesses that would be good.
Ryan Hummer: Plug ins today to your business and are you actively looking at anything along those lines.
John Daniel: Yes, John Great Great question.
Ryan Hummer: So.
Ryan Hummer: The short answer is yes right.
Ryan Hummer: Because I think some of the same attributes.
Ryan Hummer: As far as the benefits of organic revenue growth for NCS would also apply on the M&A front.
Ryan Hummer: Again with our with our business model, we've got really good operating leverage to organic revenue.
Ryan Hummer: Revenue growth, but it also positions us we operate in multiple product lines and in multiple geographies. So it opens up a lot of potential good opportunities on the M&A front, where we might be able to bring in.
Ryan Hummer: So it opens up a lot of potential good opportunities on the M&A front, where we might be able to bring in a business that, as you said, may have a technology that started to have some traction in the US, but we can work with that management team to take it and grow it into Canada and other international markets. So we are actively looking at M&A opportunities. You know, what I'd say is we'll certainly look at ones where the kind of the strategic fit and the, you know, the operational logic of that would be very, very clear.
Ryan Hummer: A business that as you said, we have a technology that started to have some traction in the U S. But we can work with that management team to take it and grow it into Canada and other international markets. So we are actively looking at M&A opportunities.
Ryan Hummer: What I'd say is we'll certainly look at ones, where the kind of the strategic fit and the.
Ryan Hummer: The operational logic of that would be very very clear.
Ryan Hummer: And where we would expect to generate some synergies in the combination such that, you know, you pay a reasonable price for the business and have a view towards post synergies, having it be a very attractive transaction. Right.
Ryan Hummer: And where we would expect to generate some synergies in the combination such that you pay a reasonable price for the business.
Ryan Hummer: And have a view towards post synergies, having it be a very attractive transaction.
John Daniel: OK, got it.
Ryan Hummer: And then the final one for me is just on the R&D front. Is there anything that you guys are working on today that could come to market later this year, early next year, that gives you some excitement? to elaborate on what might be in the pipeline. So the answer is actually, obviously, yes, there's some stuff we're working on that's exciting to us. I'd say for most of that, we're either just finishing up some of the, you know, engineering work to where we're going to be building the prototypes and take it out. So I don't want to get too far ahead of myself.
Ryan Hummer: Right, Okay got it and then.
Ryan Hummer: Final one for me is just on the R&D front is there anything.
Ryan Hummer: That you guys are working on today that could come to market. Later this year early next year that.
It gives us some excitement.
Ryan Hummer: The celebrities on what might be in the pipeline.
Ryan Hummer: So.
Ryan Hummer: The answer is absolutely.
Ryan Hummer: Obviously, yes, there is some stuff we're working on.
Ryan Hummer: That's exciting to us I would say for most of that were.
Ryan Hummer:
Ryan Hummer: Either just finishing up some of the engineering work to where we're going to be building prototypes and take it out so I don't want to get too far ahead of myself those products to make it through field trial, we need to see if weather is there any adjustments we need to make but you go back to kind of the prepared remarks that we made and.
Ryan Hummer: Those those products need to make it through field trial. We need to see if whether there are any adjustments we need to make. But you go back to kind of the prepared remarks that we made and we are looking to kind of open up some new market segments for NCS. There are technologies that are fully developed, you know, internally by NCS. And we've got some areas where we're kind of partnering with other companies to incorporate their technology inside NCS technology that. could could drive some growth for us right once if they find the home in the market that we think they Got it.
Ryan Hummer: We are looking to kind of open up some new market segments for NCS.
Ryan Hummer: There are technologies that are fully developed.
Ryan Hummer: <unk> Bye NCS and we've got some areas, where we're kind of partnering.
Ryan Hummer: With other companies to incorporate their technology inside NCS technology that.
Ryan Hummer: Could could drive some growth for us right once if they find the home in the market that we think they will.
John Daniel: Okay. Thanks for including me. All right. Appreciate it, John.
Ryan Hummer: Got it okay, thanks for including me.
John Daniel: Alright, I appreciate it John thank.
Ryan Hummer: And I would like to hand the conference back over to Ryan Hummer, CEO, for closing remarks. All right, thanks, Michelle. 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.
John Daniel: Thank you and I would like to hand, the conference back over to Ryan Hummer CEO for closing remarks.
Ryan Hummer: Alright, Thanks Michelle.
Ryan Hummer: 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.
Ryan Hummer: I 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.
Ryan Hummer: 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.
Ryan Hummer: We are taking on demanding and technically challenging work, and we're delivering results. We appreciate everyone's interest in NCS Multistage, and we look forward to speaking again on our next quarterly earnings call. Thank you.
Ryan Hummer: We are taking on demanding and technically challenging work and we're delivering results we.
Ryan Hummer: We appreciate everyone's interest in NCS multistage, and we look forward to speaking again on our next quarterly earnings call. Thank you.
Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone have a great day.
Ryan Hummer: This concludes today's conference call. Thank you for participating and you may now disconnect everyone have a great day.
Ryan Hummer: [music].
Ryan Hummer: Okay.
Operator: Thanks for watching!
Ryan Hummer: Okay.
Ryan Hummer: [music].
Ryan Hummer: Sure.
Ryan Hummer: Okay.
Ryan Hummer: [music].