NCS Multistage Holdings, Inc. (NCSM) Q3 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call revealed strong financial performance, with significant revenue and EBITDA growth, particularly in the U.S. market. The successful integration of ResMetrix and promising opportunities in the Middle East and North Sea further enhance prospects. Despite some concerns about Canadian rig counts, the company plans to defend margins and grow market share. Shareholder returns are supported by a positive net cash position. The Q&A session provided additional confidence in strategic execution and market expansion, justifying a positive outlook for stock price movement.

Key Financial Performance

Third-quarter revenue $46.5 million, a 6% year-over-year improvement. Reasons for change include contributions from ResMetrix acquisition and increased fracturing system sales domestically and in the North Sea.

U.S. revenue Increased by 26% sequentially and 54% year-over-year. Excluding ResMetrix, U.S. revenue improved by 37% year-over-year due to robust contributions from fracturing services, fracturing systems, and tracer diagnostics product lines.

Revenue for the first 9 months of 2025 $133 million, a 13% or over $15 million increase year-over-year. Reasons include higher revenue from U.S., Canada, and international markets.

Adjusted EBITDA for the first 9 months of 2025 $17.5 million, an increase of $3.4 million or 24% year-over-year. Reasons include strategic plan execution and organic growth initiatives.

Free cash flow for the first 9 months of 2025 $6.8 million, an improvement of $6.5 million year-over-year. Reasons include better working capital management and contributions from ResMetrix.

Canadian revenue for the first 9 months of 2025 Increased by 9% year-over-year despite a 6% decline in the average rig count, indicating value addition to customers.

Adjusted gross profit for the third quarter $19.4 million, with an adjusted gross margin of 42%, consistent with the prior year.

Selling, general, and administrative costs for the third quarter $14.8 million, up $700,000 year-over-year due to increased expenses associated with cash-settled stock awards.

Net income for the third quarter $3.8 million or diluted earnings per share of $1.37, compared to $4.1 million or diluted earnings per share of $1.60 in the prior year. Reasons include increased expenses related to stock awards.

Adjusted EBITDA for the third quarter $7 million, exceeding the midpoint of guidance range, including contributions from ResMetrix.

Cash on hand as of September 30, 2025 $25.3 million, with total debt of $7.4 million, resulting in a positive net cash position.

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Operating Highlights

ResMetrix Integration: Progress in integrating ResMetrix, acquired in late July 2025, into NCS operations. Early successes include operational coordination, cost savings, and improved service offerings.

New Product Development: Showcasing Luminate multi-day composite sampling units in Q4 2025 to improve tracer diagnostics. Manufacturing ATRS AICV sliding sleeves and proprietary packers for a 3-well installation to optimize production in mature wells.

Revenue Growth: Revenue increased by 13% year-over-year for the first 9 months of 2025, with growth in U.S., Canada, and international markets. U.S. revenue grew 54% year-over-year in Q3 2025.

International Expansion: Continued success in the North Sea and agreements to grow business in the Middle East. Supporting customer projects in 8 countries globally.

Operational Efficiencies: Generated $6.8 million in free cash flow in the first 9 months of 2025, an improvement of $6.5 million year-over-year. Identified cost savings through ResMetrix integration, including insurance and fleet management.

Financial Performance: Adjusted EBITDA of $17.5 million for the first 9 months of 2025, a 24% increase year-over-year. Cash balance exceeded $25 million as of September 30, 2025.

Core Strategies: Focus on building market positions, capitalizing on high-margin growth opportunities, and commercializing innovative solutions. Examples include expanding tracer diagnostics and fracturing systems into new markets and regions.

Legal Update: Canadian Federal Court of Appeal overturned a prior judgment against NCS, remanding the case for reconsideration and reducing cost reimbursements.

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Risk or Challenges

Market and Industry Conditions: Challenging market conditions include a stagnating U.S. rig count, double-digit year-over-year activity declines in Canada, and delays in unconventional jobs in Saudi Arabia. These factors could adversely impact revenue and operational performance.

Oil Market Oversupply: Potential oversupply in the oil market due to increased OPEC+ oil supply poses risks to pricing and demand, which could negatively affect the company's financial performance.

Tariffs and Trade Uncertainties: Ongoing uncertainties related to tariffs and trade could disrupt supply chains and increase costs, impacting operational efficiency and profitability.

Canadian Revenue Decline: A 19% decline in Canadian revenue due to lower rig counts and general slowdown in activity levels could hinder overall revenue growth.

Stock-Based Compensation Costs: Increased expenses related to cash-settled stock awards, which are tied to the company's stock price, could pressure profitability.

Integration Risks: The integration of ResMetrix, while showing early successes, carries risks of potential delays or unforeseen challenges that could impact expected synergies and financial benefits.

Regulatory Hurdles: The need for independent third-party reviews for deepwater fracturing system solutions in the Gulf of America could delay project timelines and increase costs.

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Guidance & Outlook

Fourth Quarter 2025 Revenue: Expected total revenue in the range of $41 million to $45 million. Canadian revenue is projected at $23 million to $25 million, U.S. revenue (including ResMetrix) at $15 million to $16 million, and international revenue at $3 million to $4 million.

Fourth Quarter 2025 Adjusted Gross Margin: Expected to range from 40% to 42%.

Fourth Quarter 2025 Adjusted EBITDA: Projected to range from $5 million to $6.5 million.

2025 Full-Year Revenue: Expected to range from $174 million to $178 million, representing year-over-year growth of 8%, with 5% organic growth and 3% contributed by ResMetrix.

2025 Full-Year Adjusted EBITDA: Narrowed to a range of $22.5 million to $24 million, with a midpoint of $23.25 million.

2025 Free Cash Flow: Expected to range from $11 million to $13 million after distributions to noncontrolling interest and excluding cash paid for ResMetrix, reflecting an increase of $3 million at the midpoint.

Market and Industry Conditions: Cautious outlook due to stagnating U.S. rig count, double-digit year-over-year activity declines in Canada, delays in unconventional jobs in Saudi Arabia, potential oversupply in the oil market from OPEC+ production, and uncertainties related to tariffs and trade.

Deepwater Fracturing System Deployment: Development customer plans to deploy the deepwater fracturing system solution in the Gulf of America, with drilling expected to commence in the second half of 2026.

Luminate Multi-Day Composite Sampling Units: To be showcased during the fourth quarter of 2025 to support a tracer diagnostics project, aimed at improving sample quality and reducing well site visits.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:What does the opportunity set look like for ResMetrix in the Middle East going forward and in 2026?

A:ResMetrix has helped expand the tracer diagnostics footprint in the Middle East, particularly in Oman and Saudi Arabia, and brought long-term contracts in the Emirates and Kuwait. The integration broadens the portfolio and customer service in the region.

Q:Would you expect similar free cash flow next year assuming flattish growth in 2026?

A:In a flat environment, the company expects to convert 50%-60% of adjusted EBITDA to free cash flow, similar to the 60% guidance at the midpoint this year. This is calculated after distributions to noncontrolling interests.

Q:How much time is left to fully integrate ResMetrix, and are the $1 million to $2 million in synergies still achievable?

A:The integration is progressing as expected and should be completed by early next year. The company is confident in achieving $1.5 million in synergies at the midpoint, primarily from cost of sales efficiencies and some SG&A savings.

Q:What does the pipeline look like for the North Sea going into 2026, and will new products like Science La provide an advantage there?

A:The North Sea market is expected to be robust in 2026, with orders in hand for slotting sleeves. New products like the Ratek PropX system, initially deployed in the Gulf of America, could have medium- to long-term applicability in the North Sea.

Q:Are there any changes in customer strategies in Canada due to weak rig counts, and how will margins be defended?

A:The Canadian rig count has declined by about 15% year-over-year in Q3, but budgets suggest flat CapEx year-over-year. The company plans to grow market share in Canada and adapt its cost structure if necessary to defend margins.

Q:Was the pressure in Canada volume-driven or price-driven, and is there expected pricing pressure as market share grows?

A:The pressure was volume-driven, not price-driven. While pricing pressure is always a challenge, the company is confident in its value proposition and has a good pricing strategy in place.

Q:What is the competitive landscape for tracer diagnostics and the potential for recurring revenue in international markets?

A:Tracer diagnostics has recurring customer relationships but not a true backlog. The Middle East market is competitive, especially in Saudi Arabia, but the company relies on the value of its reports and insights to maintain a strong growth profile.

Q:Review of Unclear Management Responses

A:Management avoided providing a direct answer on the exact timeline for ResMetrix integration and the specific competitive dynamics in international markets, using general terms like 'methodical' and 'good growth profile' without detailed data or timelines.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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