NCS Multistage Holdings, Inc. Q2 FY2025 earnings call

• Core strategy 1: Building leading market positions in Canada, with revenue in Canada first half 2025 at $56M, 27% y-o-y growth, driven by fracturing systems and composite plugs, mitigating seasonality.
• Core strategy 2: Capitalizing on international/offshore opportunities, with international revenue reaching 10% of total in 2024, growing presence in North Sea (expecting to work with 7 North Sea customers in 2025 vs 2 in 2022) and Middle East (signed commercial purchase agreement, working on transitioning to chemical tracing).
• Core strategy 3: Commercializing innovative solutions, successfully ran first 7-inch sliding sleeve and service tool for remedial cementing, Repeat Precision's stage saver composite frac plug has strong uptake.
• Acquisition of ResMetrics: Complementary tracer diagnostics, ResMetrics has trailing 12-month revenue over $10M, EBITDA margin over 30%, expands product/service offering, broadens geographic presence in Middle East, and aims to create leading global tracer diagnostics business.

Second quarter revenue was $36.5 million, exceeding the guided range. First half of 2025 revenue was over $86 million, 18% higher than first half 2024. Canada revenue in first half 2025 was $56 million, increasing 27% y-o-y. U.S. revenue in first half 2025 saw growth in fracturing system sales and frac plug cells at Repeat Precision. International revenue in second quarter decreased 17% primarily due to timing of tracer diagnostic projects in Middle East but offset by North Sea fracturing system sales and Middle East well construction revenues. Adjusted gross profit for second quarter 2025 was $13 million, adjusted gross margin 36%. Adjusted EBITDA for second quarter 2025 was $2.2 million, an improvement from $0.9 million in second quarter 2024.

• Third quarter total revenue expected in range of $42 million to $46 million, with Canadian revenue $25M-$27M, U.S. revenue $12M-$13M, international revenue $5M-$6M. Adjusted gross margin expected 40%-42%, adjusted EBITDA $5.5M-$7.0M.
• Full-year 2025: Modestly increase annual revenue expectation to $168M-$176M (6% y-o-y growth midpoint), adjusted EBITDA range $21M-$24M, free cash flow $7M-$11M. ResMetrics expected to contribute $4M-$5M revenue and $1M-$1.5M adjusted EBITDA for last 5 months of 2025, bringing combined revenue guidance to $172M-$181M and combined adjusted EBITDA to $22M-$25.5M.

• Market and industry conditions, including potential oversupplied oil market due to OPEC+ supply increase and trade/tariff uncertainties.
• Rig count fluctuations, with Canada rig count lower than last year, affecting business performance.
• Payment delays in Middle East due to operating through local partners and waiting for tender awards for completion services.

Q: Just want to start with the ResMetrics acquisition a little bit more. You mentioned there's not a lot of overlap between ResMetrics customers and tracer diagnostic customers. I guess when we project this out a year or so, what kind of opportunities do you see for cross-selling going forward either domestically or internationally? How do you envision that playing out?

A: Yes, it's a great question, Dave. We serve distinct sets of customers, but ResMetrics fills gaps in our product line. We think there will be revenue synergy opportunities by bringing broader service offering to existing customers, continuing to take share in the market and building use cases for tracer diagnostics more broadly.

Q: And with this acquisition, you mentioned it did open up a couple of new geographies for you. I guess thinking about your international footprint, at the company-wide level, are there any regions that you're particularly excited to start targeting? Or is the market uncertainty kind of keeping you more focused on your core competencies, do you think in the near to medium term?

A: Yes. It's a combination of geographic and product specific opportunities. We're looking to continue momentum in North Sea and Middle East, and push into other offshore markets like Gulf of America leveraging operational success.

Q: First one is just on the acquisition. You talked about potential first synergies over time. And I think you highlighted the 30% EBITDA margins. Just -- where do you see the opportunity to get margins to in this business over, let's say, the next couple of years as you scale it?

A: Yes, great question, Josh. Over the next 6 months, we'll identify best practices between the 2 organizations. We think we can reduce cost of sales through using less chemical or being more strategic about chemical cost, with potential for $1M-$2M in operational synergies over the long run.

Q: My first question is, given your comments about kind of the traction you're having in Canada, given your outperformance, can you disaggregate on how much growth is coming from new customer wins versus the expanded activity with the existing core clients, especially in light of the overall Canadian U.S. rig count?

A: Yes. We're outpacing underlying activity level. In Canada, growth comes from new customer wins in Montney and expanded activity with existing clients due to longer laterals and tighter stage counts. Expect continued outperformance relative to market.

Q: On the margin side, were there any competitive price concessions, product mix, or input cost headwinds, most responsible? How much pricing power do you believe you can maintain if the softness continues into H2?

A: This is Mike. Margin decrease was more due to product and service mix. In Middle East, fewer high-margin tracer projects impacted margin. We see ability to maintain our position and pricing power.

Q: And on the integration with the new acquisition, how are the project level profitability payment terms trending for the recent Middle East, North Sea jobs? How do you see that sensitized? Are these margins potential, any execution risks or payment delays? Or how does the integration and the project level profitability will trend in the Middle East?

A: Yes. North Sea customers are quick paying, Middle East operates through local partners extending payables. We price working capital drag into projects, account for it in scoping and pricing, with no major execution risks but need to manage accordingly.