NCS Multistage Holdings, Inc. (NCSM) Q1 2026 Earnings Call Transcript
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Overview
The earnings call presents a mixed outlook. While there is improvement in cash flow and a positive net cash position, the decline in EBITDA and pressure on gross margins are concerning. The guidance indicates potential recovery and expansion opportunities, particularly internationally, but uncertainties remain, especially in Canada. The Q&A reveals some positive sentiment towards future projects and market expansion, yet there are constraints and risks, such as hiring challenges and macroeconomic uncertainties. These mixed signals suggest a neutral stock price movement in the short term.
Key Financial Performance
Revenue $45.6 million for Q1 2026, a 9% decline year-over-year. The decline was due to lower activity and rig counts in Canada, as well as a decline in international service revenue.
U.S. Revenue Improved by over 100% year-over-year and by 6% compared to Q4 2025. The increase was broad-based, driven by Repeat Precision product sales and tracer diagnostic service revenue, including a $1.8 million contribution from ResMetrics.
Canada Revenue Declined by 38% year-over-year. The decline was attributed to challenging weather conditions, earlier-than-expected spring breakup, and reduced activity by customers.
International Revenue Increased by 13% year-over-year. The increase was driven by well construction product sales in the Middle East, delivering a 63% year-over-year increase in international product revenue.
Adjusted Gross Profit $18.2 million for Q1 2026, representing an adjusted gross margin of 40%, compared to 44% in Q1 2025. The decline reflects lower activity in Canada and reduced higher-margin international tracer diagnostic activity in the Middle East.
Selling, General and Administrative Costs (SG&A) $15.7 million for Q1 2026, down 3% year-over-year. The decrease was due to lower incentive bonus accruals and lower share-based compensation expense.
Net Loss $0.4 million for Q1 2026, compared to net income of $4.1 million in Q1 2025. The decline was driven by lower revenue and adjusted EBITDA.
Adjusted EBITDA $5.6 million for Q1 2026, representing an adjusted EBITDA margin of over 12%, compared to $8.2 million in Q1 2025. The decline was due to lower revenue and gross margin pressure.
Cash Flow from Operating Activities Positive $1.3 million for Q1 2026, an improvement from a use of cash of $1.6 million in Q1 2025.
Free Cash Flow $0.7 million for Q1 2026, an improvement from a negative free cash flow of $2.1 million in Q1 2025.
Cash and Total Debt $34.5 million in cash and $7.2 million in total debt as of March 31, 2026, resulting in a positive net cash position of over $27 million.
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Operating Highlights
StageSaver frac plug: Introduced last year, it helps customers maintain operations during unexpected well issues, reducing disruptions and enhancing completion methodologies like simulfrac and trimulfrac. Additional trials are underway.
PurpleReign dissolvable plug: Currently undergoing customer trials.
Convertible sleeves: Installed in a Permian well for enhanced oil recovery (EOR), allowing use during initial completion and later for controlled injection.
6-inch frac sleeve and service tool: Being developed for a Rockies project in 2027 to support restimulation of existing assets.
SmartProp tracer carrier: Used in Canada, it mimics frac sand properties to better indicate stage-level performance.
Rapid trace project: Completed in the North Sea, providing near real-time qualitative results for well testing.
U.S. market: Revenue improved by over 100% year-over-year. A large customer placed an order for a multi-well, multi-basin fracturing systems project in the Permian and Rockies. Repeat Precision converted field trials into recurring work.
Canada market: Revenue declined by 38% due to weather conditions and reduced rig counts. Deferred jobs are expected to resume post-spring breakup.
International market: Revenue increased by 13%. Additional orders expected in the North Sea and Middle East, with potential offset from reduced tracer diagnostics in Saudi Arabia. A second fracturing systems job was awarded in Oman.
ResMetrics integration: Final steps include relocating manufacturing and inventory to Tulsa, with operational synergies expected to accelerate in the second half of the year.
Manufacturing capacity expansion: Investing in additional machining assets at Repeat Precision to increase capacity by 25% and reduce overtime labor costs.
Offshore market focus: Established a cross-functional team to prioritize offshore opportunities, supported by a new hire with extensive global experience.
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Risk or Challenges
Revenue Shortfall: Revenue for the first quarter was $45.6 million, which was $5 million below the midpoint of prior guidance. This shortfall was primarily due to challenging weather conditions in Canada, an earlier-than-expected spring breakup, and deferred or reduced customer activity.
Canadian Market Challenges: The Canadian rig count reduced by approximately 7% year-over-year in the first quarter due to weather disruptions and deferred customer activities. This negatively impacted revenue and operational performance.
International Revenue Decline: International service revenue declined, with reduced higher-margin tracer diagnostic activity in the Middle East contributing to lower profitability.
Supply Chain Costs: Additional supply chain costs, including shipping and transportation, were incurred due to the ongoing conflict in the Middle East, impacting financial performance.
Operational Integration Risks: The integration of ResMetrics into NCS operations is ongoing, with potential risks related to operational synergies and cost savings not materializing as expected.
Capital Expenditure Increase: Planned capital expenditures for 2026 were increased to support manufacturing capacity expansion, which could strain cash flow if revenue growth does not meet expectations.
Customer Budget Sensitivity: Revenue expectations are based on current customer capital budgets, which could be impacted by changes in oil prices or other economic factors, leading to potential revenue volatility.
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Guidance & Outlook
Revenue Guidance for 2026: Full year revenue is expected to range between $186 million and $194 million, reflecting a $2 million increase to the low end and a $1 million increase to the midpoint of prior guidance.
Adjusted EBITDA Guidance for 2026: Maintained at $26 million to $29 million, with higher revenue offset by increased cash-settled share-based compensation expense and additional supply chain costs.
Capital Expenditures for 2026: Planned capital expenditures increased to $2.2 million to $2.8 million, with the additional investment aimed at expanding manufacturing capacity at Repeat Precision.
Free Cash Flow for 2026: Expected to range between $11 million and $15 million, reflecting a $1 million decrease at the midpoint due to higher capital expenditures and working capital impacts.
Second Quarter 2026 Revenue Guidance: Total revenue expected to range between $36 million and $39 million, with U.S. revenue at $18 million to $19 million, international revenue at $5 million to $6 million, and Canadian revenue at $13 million to $14 million.
Second Quarter 2026 Adjusted Gross Margin: Expected to range between 35.5% and 37.5%, representing a modest expansion compared to the second quarter of 2025.
Second Quarter 2026 Adjusted EBITDA: Expected to range between breakeven and $2 million.
Market Expectations for Canada: Lower rig count in Q1 2026 compared to Q1 2025 is expected to reverse after spring breakup, with modestly higher year-over-year activity in the second half of the year.
U.S. Market Developments: A large customer has placed an order for a multi-well, multi-basin fracturing systems project, with most revenue expected in Q4 2026. Repeat Precision has converted field trials into recurring work, supported by the operational performance of products like the StageSaver frac plug.
International Market Outlook: Consistent with prior expectations, with potential additional orders in the North Sea and higher frac plug sales to the Middle East. Growth in North Sea activity is expected in 2027, with multiyear projects and a tender for a shallow water project outside the North Sea.
Offshore Market Opportunities: Guidance excludes potential delivery of sliding sleeves for a deepwater opportunity in the Gulf of America, which could materialize in late 2026 or early 2027.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Can you break out the factors that contributed to the headwinds in Canada during the quarter?
A:The headwinds in Canada were due to three main factors: unfavorable weather conditions in March affecting completions activity in Southern Alberta and Saskatchewan, an earlier onset of spring breakup, and customer delays in activity projects. Additionally, some customers encountered drilling issues, such as tough formations or inability to reach depth, which delayed the installation of sleeves. These factors contributed to a miss in Q1 expectations, but most of the impact is expected to be recovered later in the year.
Q:What are the variables affecting the timeline for the deepwater technology project, and what does the backlog look like?
A:The timeline for the deepwater technology project depends on finalizing metallurgy, testing requirements, and customer and regulator coordination. Drilling is expected to start late this year, with sleeve delivery targeted for December, though there is potential for delays. The customer has identified two additional projects in the Gulf of America, and discussions with other companies are ongoing. The backlog includes opportunities to expand the customer base and apply the technology to other markets worldwide.
Q:Are operators changing their stance in response to the fast-changing macro environment?
A:Conversations with operators are increasing, with some inquiries about increasing rig counts and bringing completion crews back into the market. However, there is still a wait-and-see approach as customers finalize budgets and make commitments.
Q:What constraints could become obstacles to growth if activity accelerates faster than expected?
A:The main constraint would be hiring and training personnel to support increased activity, particularly in the U.S. and international markets. The company has sufficient manufacturing and supply chain capacity, and in Canada, it can flex field capacity using contractors.
Q:Would faster growth come from new projects or legacy products, and what would be the margin impact?
A:Faster growth would likely lead with legacy products, though new products like StageSaver are gaining traction. Growth in activity could accelerate the development of newer solutions. Margins would benefit from increased activity, with legacy products reacting more quickly to market changes.
Q:Have the top three Canadian accounts reconfirmed deferred work for the second half of the year?
A:The recovery assumptions are based on both customer confirmations and market-level expectations. The company has engaged with larger customers to confirm plans for the second half of the year, and the outlook assumes relatively flat year-over-year capital spending and rig counts.
Q:Are StageSaver and PurpleReign commanding a premium price over legacy plugs?
A:StageSaver primarily drives volume growth with no significant pricing differential from traditional plugs. PurpleReign, a dissolvable frac plug, commands a higher price due to elevated material costs but has similar contribution margins.
Q:What is the size and margin profile of the multi-well sliding sleeve project in the U.S.?
A:The project is expected to contribute 2-3% of annual revenue, approximately $4-5 million. Additional value-added services could increase revenue but at a lower contribution margin.
Q:Is cross-selling between NCS legacy tracer offerings and ResMetrics capabilities in the Middle East showing results?
A:Cross-selling opportunities are expanding, but there is still room for growth. The combined sales team is finding opportunities for legacy and newer products, such as SmartProp and Lumen8, which are gaining traction in the market.
Q:What is causing the Q2 EBITDA compression, and what is the breakeven revenue level?
A:The Q2 EBITDA compression is primarily due to fixed costs within cost of sales and lower gross profit margins from seasonal impacts in Canada. The breakeven revenue level is approximately $35 million, with benefits increasing as revenue ramps up.
Q:Review of Unclear Management Responses
A:Management avoided providing specific financial guidance for the margin impact of faster growth rates over multiple quarters, instead offering general commentary on potential benefits to both legacy and new products.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ABL Facility
Alberta Saskatchewan
Arabia North
EOR
Houston
International
Mr
NCS sleeve
Rockies project
SGA
SmartProp
StageSaver plug
activity cash
area sleeve
asset
completion
contribution ResMetrics
downhole
field
frac
head
highlight term
issue
laboratory
loss
margin midpoint
midpoint margin
order
outlook
period margin
phase
product sale
project North
project sleeve
remainder
reminder
sale Middle
sand
share compensation
shortfall
spring breakup
testing
volume
zipper
NCSM Transcript
NCS Multistage Holdings, Inc. (NCSM) Q1 2026 Earnings Call Transcript
Unknown4-30
The earnings call presents a mixed outlook. While there is improvement in cash flow and a positive net cash position, the decline in EBITDA and pressure on gross margins are concerning. The guidance indicates potential recovery and expansion opportunities, particularly internationally, but uncertainties remain, especially in Canada. The Q&A reveals some positive sentiment towards future projects and market expansion, yet there are constraints and risks, such as hiring challenges and macroeconomic uncertainties. These mixed signals suggest a neutral stock price movement in the short term.
NCS Multistage Holdings, Inc. (NCSM) Q4 2025 Earnings Call Transcript
Positive3-5
The earnings call indicates strong financial performance with a 13% revenue increase and improved EBITDA margins. Despite challenges, the company shows operational efficiency and a positive cash position. The Q&A section highlights promising market opportunities and successful integration of ResMetrics. The guidance remains optimistic, with growth in deepwater markets and enhanced recovery technologies. Overall, the sentiment is positive, likely leading to a stock price increase in the next two weeks.
NCS Multistage Holdings, Inc. (NCSM) Q3 2025 Earnings Call Transcript
Positive10-30
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.
NCS Multistage Holdings, Inc. (NCSM) Q2 2025 Earnings Call Transcript
Positive8-1
The earnings call reflects strong financial performance with revenue exceeding expectations and improved EBITDA. Q2 revenue was the highest since 2019, and net income turned positive. Despite a slight decline in margins, cost management improved. The Q&A highlighted growth opportunities, particularly in Canada and international markets, and management's cautious optimism. Although there was some lack of clarity in guidance tightening, the overall sentiment is positive, supported by new customer wins and strategic focus on synergies and international expansion.
NCSM Report
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