NCS Multistage Holdings, Inc. (NASDAQ: NCSM) (the “Company,” “NCS,”
“we” or “us”), a leading provider of highly engineered products and
support services that facilitate the optimization of oil and
natural gas well completions and field development strategies,
today announced its results for the quarter ended
September 30, 2020.
Financial Review
Total revenues were $16.3 million for the quarter ended
September 30, 2020, which was a decrease of 73% compared to
the third quarter of 2019. This decrease reflected reductions in
product sales and services volumes in North America as well as
lower pricing for certain products and services, including
composite plugs and tracer diagnostics and lower product sales in
international markets. The decrease in both activity and pricing
resulting from the decline in market conditions, primarily related
to the Coronavirus disease 2019 (“COVID-19”) pandemic, had a
negative impact on our revenues during the three months ended
September 30, 2020 as drilling rig and completion activity in the
U.S. declined sequentially throughout 2020 before stabilizing at
low levels at the end of the third quarter and did not experience a
material seasonal increase in Canada in the third quarter of 2020.
Total revenues increased by 87% as compared to the second
quarter of 2020 with increases of 103% in the United States,
146% in Canada and 25% outside of North America.
Gross profit, which we define as total revenues less total cost
of sales exclusive of depreciation and amortization, was $6.1
million, or 37% of total revenues, in the third quarter of 2020,
compared to $28.6 million, or 47% of total revenues, in the third
quarter of 2019. Cost of sales as a percentage of total revenues
increased due to the significant reduction in revenue, leading to
under-utilization of manufacturing capacity and field service
personnel, as well as a reduction in pricing for certain products
and services.
Selling, general and administrative (“SG&A”) expenses
totaled $12.5 million in the third quarter of 2020, a decrease of
$8.0 million as compared to the third quarter of the prior year.
This overall decrease in expense reflects declines in compensation
and benefits, share-based compensation, travel and entertainment,
professional fees and research and development expenses.
Net loss was $(5.9) million, or $(0.12) per diluted share, for
the quarter ended September 30, 2020, which included a net
impact of $0.8 million (after tax effect of $1.2 million, or $0.02
per diluted share) related to realized and unrealized foreign
currency losses and the write-off of deferred loan costs as well as
a benefit related to a reduction in foreign tax expense. As with
the first and second quarters of 2020, income tax was impacted by
the Coronavirus Aid, Relief, and Economic Security Act (“CARES
Act”) and income tax valuation allowances recorded to reduce the
carrying value of deferred tax assets. Adjusted net loss, which
excludes these items, was $(4.6) million, or $(0.10) per diluted
share, for the quarter ended September 30, 2020. This compares
to a net income of $3.6 million, or $0.08 per diluted share,
in the third quarter of 2019, which included a net impact of $0.1
million (after tax effect of $(6.8) million, or $(0.15) per diluted
share) related to realized and unrealized foreign currency gains
and losses as well as the tax impact of the income tax valuation
allowance recorded to reduce the carrying value of our U.S.
deferred tax asset and the tax effect of a non-deductible goodwill
impairment recorded in the second quarter of 2019. Adjusted net
loss, which excludes these items, was $(3.2) million, or $(0.07)
per diluted share, for the quarter ended September 30,
2019.
Adjusted EBITDA was $(2.1) million for the quarter ended
September 30, 2020, a decrease of $(15.7) million as compared
to the third quarter of 2019 and an increase of $5.8 million as
compared to the second quarter of 2020.
Capital Expenditures and Liquidity
The Company incurred capital expenditures of $1.2 million, net,
for the nine months ended September 30, 2020 and $4.4 million,
net, for the nine months ended September 30, 2019.
As of September 30, 2020, the Company had $8.6 million in
cash and $6.0 million in total debt, with our senior secured credit
facility remaining undrawn. The borrowing base under the senior
secured credit facility as of September 30, 2020 was $4.2 million.
The Company’s net working capital, which we define as our current
assets, excluding cash and cash equivalents, minus our current
liabilities, excluding current maturities of long-term debt, was
$53.0 million at September 30, 2020.
Settlement Agreement
In October 2020, Repeat Precision, LLC (“Repeat Precision”)
entered into a settlement with Diamondback Industries, Inc
(“Diamondback”) and Derrek Drury (“Drury”), which will be
effectuated through a Chapter 11 plan of reorganization that was
filed by Diamondback and is currently set for confirmation on
November 12, 2020. The agreement terminates if the bankruptcy court
does not approve the plan by December 31, 2020. In connection with
Repeat Precision releasing Diamondback and Drury from the monetary
damages in the judgment awarded in the litigation between the
parties and certain other claims, Repeat Precision expects to
receive: (i) an upfront cash payment of approximately $15.5
million, (ii) the transfer of U.S. Patent No. 9,810,035 from
Diamondback to Repeat Precision, (iii) payments for future sales of
a certain setting tool sold by Diamondback or its successor as
restitution, until $5 million has been paid in total, and (iv) a
note from Drury payable in two years in the principal amount of up
to $5 million secured by certain properties and other collateral.
Repeat Precision and another claimant in the Diamondback bankruptcy
have also agreed to provide mutual releases of all claims in
exchange for consideration to be received by Repeat Precision,
which is also conditioned on the effectiveness of the Chapter 11
plan. There are no assurances that the terms of any settlement will
become effective, including uncertainty as to whether a Chapter 11
plan will be approved by the bankruptcy court, or that the Company
will receive any portion of the settlement consideration.
Potential Reverse Stock Split and Authorized Share
Reduction
On October 27, 2020, funds affiliated with Advent International
Corporation, who beneficially hold 29,568,536 shares of the
Company’s common stock as of such date, or approximately 62.6% of
its shares of common stock, had executed and delivered to the Board
of Directors a written consent approving a proposal to effect a
reverse stock split of the Company’s issued and outstanding common
stock, with a ratio of 1-for-20 (the “reverse stock split”) and to
reduce the number of authorized shares of common stock by the same
ratio as the reverse stock split. On October 27, 2020, the
Company’s Board of Directors approved the above reverse stock split
and authorized share reduction. The effective date for the reverse
stock split is anticipated to be on or about December 1, 2020. The
Company expects its common stock to begin trading on the NASDAQ
Global Select Market on a split-adjusted basis when the market
opens on December 1, 2020. The Company’s Board of Directors
reserves its right to elect not to proceed and abandon the reverse
stock split if it determines, in its sole discretion, that this
reverse stock split is no longer in the best interests of the
Company’s stockholders.
Review and Outlook
NCS’s Chief Executive Officer, Robert Nipper commented, “NCS’s
performance in the third quarter demonstrated the resilience of our
team, the strength of our business model and technology and the
effectiveness of the cost reduction and liquidity enhancement
measures we have implemented over the last several months.
We had sequential revenue growth in each of the U.S., Canada and
International markets. Our sequential revenue growth of over 100%
in the U.S. reflected a significant increase in activity at both
Repeat Precision and Tracer Diagnostics, our most
completions-oriented product lines. Revenue in Canada increased by
146% sequentially, primarily driven by a seasonal rebound in
activity, though the increase from trough activity levels occurred
later than in typical years.
Our gross margin increased to 37% in the third quarter from 27%
in the second quarter as we benefitted from better fixed cost
absorption that resulted in an incremental margin of nearly 50%.
This improvement was supported by actions we have taken to
rationalize our field service footprint and to drive additional
efficiencies in our supply chain.
The impact of our cost reduction initiatives was further
demonstrated in the quarter as well. Our SG&A of $12.5 million
was $3.0 million lower than the second quarter and $8.0 million
lower than last year’s third quarter, a reduction of 39%. We remain
on track to reduce our SG&A in 2020 by over $25 million as
compared to 2019.
We have continued to be successful in controlling our capital
expenditures. We currently expect our gross capital expenditures
for the year to be between $2.0 and $2.5 million, but importantly,
we’ve been able to offset much of the capital spending through
vehicle sales, which have totaled $1.0 million thus far this
year.
This has allowed us to maintain a strong balance sheet, with net
cash of $2.6 million and an undrawn revolving credit facility at
September 30, 2020. In addition, we had net working capital at the
end of the third quarter of $53.0 million.
We have made significant investments in technology over the
years and have a robust intellectual property portfolio. We are
pleased that Repeat Precision has reached a settlement with
Diamondback Industries and Derrek Drury, which we hope will bring
closure to a matter that has consumed significant time and
financial resources over the last two years. In addition, we have
completed several patent license agreements related to our AirLock
casing buoyancy technology, demonstrating the value of our
proprietary technology and providing NCS with an additional revenue
stream.
NCS is committed to a continued NASDAQ listing, and our Board
has recently approved a reverse stock split which we believe will
allow us to regain compliance with NASDAQ minimum bid requirements
later this year.
As we look forward to the fourth quarter, we currently
anticipate that in the U.S. we will continue to see modest
improvements in the horizontal rig count through the fourth quarter
and that the average level of completions activity in the fourth
quarter will also increase modestly as compared to the third
quarter, with normal holiday-related reductions in activity in
December. In Canada, the land rig count is currently 85, a
meaningful improvement over the average land rig count of 46 during
the third quarter. We expect the average Canadian rig count to stay
well above average third-quarter levels throughout the fourth
quarter. We currently expect that international activity will fall
slightly during the fourth quarter, with significant regional
variations driven by market conditions and by COVID-19.
As always, I want to take this opportunity to express gratitude
to the incredible people we have at NCS and at Repeat Precision. I
truly appreciate the enormous effort that our people are putting in
and the sacrifices that have been made by everyone at NCS to
support the Company and each other through this challenging market
environment.”
Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA Less
Share-Based Compensation, Adjusted Net (Loss) Income, Adjusted Net
(Loss) Earnings per Diluted Share, Free Cash Flow and net working
capital are non-GAAP financial measures. For an explanation of
these measures and a reconciliation, refer to “Non-GAAP Financial
Measures” below.
Conference Call
The Company will host a conference call to discuss its third
quarter 2020 results on Thursday, November 5, 2020 at 7:30 a.m.
Central Time (8:30 a.m. Eastern Time). To join the conference
call from within the United States, participants may dial (844)
400-1696. To join the conference call from outside of the United
States, participants may dial (703) 736-7385. The conference access
code is 1837259. Participants are encouraged to log in to the
webcast or dial in to the conference call approximately ten minutes
prior to the start time. To listen via live webcast, please visit
the Investors section of the Company’s website,
http://www.ncsmultistage.com.
An audio replay of the conference call will be available shortly
after the conclusion of the call and will remain available for
approximately seven days. It can be accessed by dialing (855)
859-2056 within the United States or (404) 537-3406 outside of the
United States. The conference call replay access code is 1837259.
The replay will also be available in the Investors section of the
Company’s website shortly after the conclusion of the call and will
remain available for approximately seven days.
About NCS Multistage Holdings, Inc.
NCS Multistage Holdings, Inc. is a leading provider of highly
engineered products and support services that facilitate the
optimization of oil and natural gas well completions and field
development strategies. NCS provides products and services to
exploration and production companies for use in horizontal wells in
unconventional oil and natural gas formations throughout North
America and in selected international markets, including Argentina,
China, Russia, the Middle East and the North Sea. NCS’s common
stock is traded on the NASDAQ Global Select Market (“NASDAQ”) under
the symbol “NCSM.” Additional information is available on the
website, www.ncsmultistage.com.
Forward Looking Statements
This press release contains forward-looking statements within
the meaning of the “safe harbor” provisions of the Private
Securities Litigation Reform Act of 1995. Forward-looking
statements can be identified by words such as “anticipates,”
“intends,” “plans,” “seeks,” “believes,” “estimates,” “expects” and
similar references to future periods, or by the inclusion of
forecasts or projections. Examples of forward-looking statements
include, but are not limited to, statements we make regarding the
outlook for our future business and financial performance.
Forward-looking statements are based on our current expectations
and assumptions regarding our business, the economy and other
future conditions. Because forward-looking statements relate to the
future, by their nature, they are subject to inherent
uncertainties, risks and changes in circumstances that are
difficult to predict. As a result, our actual results may differ
materially from those contemplated by the forward-looking
statements. Important factors that could cause our actual results
to differ materially from those in the forward-looking statements
include regional, national or global political, economic, business,
competitive, market and regulatory conditions and the following:
declines in the level of oil and natural gas exploration and
production activity within Canada and the United States; oil and
natural gas price fluctuations; the risks and uncertainties
relating to public health crises, including the COVID-19 pandemic
and its continuing impact on market conditions and our business,
financial condition, results of operations, cash flows and stock
price; the reduction in our senior secured credit facility
borrowing base or our inability to comply with the covenants in our
debt agreements depending on the duration of the decline in market
conditions primarily related to the COVID-19 pandemic and our
ability to negotiate with our lenders; risks and uncertainties
relating to cost reduction efforts or savings we may realize from
such cost reduction efforts; risks and uncertainties related to the
potential delisting of our common stock from NASDAQ; loss of
significant customers; inability to successfully implement our
strategy of increasing sales of products and services into the
United States; significant competition for our products and
services that results in pricing pressures, reduced sales, or
reduced market share; competitive pressure resulting from a
significant decline in industry activity; our inability to
accurately predict customer demand, which may result in us holding
excess or obsolete inventory; impairment in the carrying value of
long-lived assets and goodwill; our inability to successfully
develop and implement new technologies, products and services; our
inability to protect and maintain critical intellectual property
assets; currency exchange rate fluctuations; losses and liabilities
from uninsured or underinsured business activities; the financial
health of our customers including their ability to pay for products
or services provided; our inability to obtain sufficient liquidity
on reasonable terms, or at all; our failure to identify and
consummate potential acquisitions; our inability to integrate or
realize the expected benefits from acquisitions; impact of severe
weather conditions; restrictions on the availability of our
customers to obtain water essential to the drilling and hydraulic
fracturing processes; our inability to meet regulatory requirements
for use of certain chemicals by our tracer diagnostics business;
change in trade policy, including the impact of additional tariffs;
changes in legislation or regulation governing the oil and natural
gas industry, including restrictions on emissions of greenhouse
gases; failure to comply with or changes to federal, state and
local and non-U.S. laws and other regulations, including
anti-corruption and environmental regulations, the CARES Act and
the U.S. Tax Cuts and Jobs Act of 2017; loss of our information and
computer systems; system interruptions or failures, including
cyber-security breaches, identity theft or other disruptions that
could compromise our information; our failure to establish and
maintain effective internal control over financial reporting; our
success in attracting and retaining qualified employees and key
personnel; and our inability to satisfy technical requirements and
other specifications under contracts and contract tenders and other
factors discussed or referenced in our filings made from time to
time with the Securities and Exchange Commission. Any
forward-looking statement made by us in this press release speaks
only as of the date on which we make it. Factors or events that
could cause our actual results to differ may emerge from time to
time, and it is not possible for us to predict all of them. We
undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information,
future developments or otherwise, except as may be required by
law.
Contact
Ryan HummerChief Financial Officer(281)
453-2222IR@ncsmultistage.com
NCS MULTISTAGE HOLDINGS,
INC.CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS(In thousands, except per share
data)(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
September 30, |
|
September 30, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Revenues |
|
|
|
|
|
|
|
|
|
|
|
Product sales |
$ |
11,660 |
|
|
$ |
43,756 |
|
|
$ |
55,948 |
|
|
$ |
110,933 |
|
Services |
|
4,652 |
|
|
|
17,017 |
|
|
|
23,646 |
|
|
|
42,458 |
|
Total revenues |
|
16,312 |
|
|
|
60,773 |
|
|
|
79,594 |
|
|
|
153,391 |
|
Cost of
sales |
|
|
|
|
|
|
|
|
|
|
|
Cost of product sales,
exclusive of depreciation and amortization expense shown below |
|
7,874 |
|
|
|
23,796 |
|
|
|
35,191 |
|
|
|
57,032 |
|
Cost of services, exclusive of
depreciation and amortization expense shown below |
|
2,334 |
|
|
|
8,413 |
|
|
|
12,024 |
|
|
|
25,021 |
|
Total cost of sales, exclusive of depreciation and
amortization expense shown below |
|
10,208 |
|
|
|
32,209 |
|
|
|
47,215 |
|
|
|
82,053 |
|
Selling, general and
administrative expenses |
|
12,474 |
|
|
|
20,441 |
|
|
|
48,782 |
|
|
|
66,360 |
|
Depreciation |
|
1,000 |
|
|
|
1,461 |
|
|
|
3,446 |
|
|
|
4,382 |
|
Amortization |
|
103 |
|
|
|
1,153 |
|
|
|
1,340 |
|
|
|
3,451 |
|
Change in fair value of
contingent consideration |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
37 |
|
Impairment |
|
— |
|
|
|
— |
|
|
|
50,194 |
|
|
|
7,919 |
|
(Loss) income from operations |
|
(7,473 |
) |
|
|
5,509 |
|
|
|
(71,383 |
) |
|
|
(10,811 |
) |
Other income
(expense) |
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
(876 |
) |
|
|
(424 |
) |
|
|
(1,622 |
) |
|
|
(1,497 |
) |
Other income, net |
|
414 |
|
|
|
259 |
|
|
|
580 |
|
|
|
349 |
|
Foreign currency exchange
loss, net |
|
(260 |
) |
|
|
(131 |
) |
|
|
(467 |
) |
|
|
(678 |
) |
Total other expense |
|
(722 |
) |
|
|
(296 |
) |
|
|
(1,509 |
) |
|
|
(1,826 |
) |
(Loss) income before income tax |
|
(8,195 |
) |
|
|
5,213 |
|
|
|
(72,892 |
) |
|
|
(12,637 |
) |
Income tax (benefit) expense |
|
(3,058 |
) |
|
|
(1,396 |
) |
|
|
(9,956 |
) |
|
|
10,200 |
|
Net (loss) income |
|
(5,137 |
) |
|
|
6,609 |
|
|
|
(62,936 |
) |
|
|
(22,837 |
) |
Net income attributable to
non-controlling interest |
|
726 |
|
|
|
2,988 |
|
|
|
3,233 |
|
|
|
7,809 |
|
Net (loss) income
attributable to NCS Multistage Holdings,
Inc. |
$ |
(5,863 |
) |
|
$ |
3,621 |
|
|
$ |
(66,169 |
) |
|
$ |
(30,646 |
) |
(Loss) earnings per
common share |
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per common share attributable to NCS
Multistage Holdings, Inc. |
$ |
(0.12 |
) |
|
$ |
0.08 |
|
|
$ |
(1.40 |
) |
|
$ |
(0.66 |
) |
Diluted (loss) earnings per common share attributable to NCS
Multistage Holdings, Inc. |
$ |
(0.12 |
) |
|
$ |
0.08 |
|
|
$ |
(1.40 |
) |
|
$ |
(0.66 |
) |
Weighted average
common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
47,351 |
|
|
|
46,892 |
|
|
|
47,240 |
|
|
|
46,552 |
|
Diluted |
|
47,351 |
|
|
|
46,921 |
|
|
|
47,240 |
|
|
|
46,552 |
|
|
NCS MULTISTAGE HOLDINGS,
INC.CONDENSED CONSOLIDATED BALANCE
SHEETS*(In thousands, except
share data)(Unaudited)
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
2020 |
|
2019 |
Assets |
|
|
|
|
|
Current assets |
|
|
|
|
|
Cash and cash equivalents |
$ |
8,635 |
|
|
$ |
11,243 |
|
Accounts receivable—trade, net |
|
14,130 |
|
|
|
41,960 |
|
Inventories, net |
|
36,586 |
|
|
|
39,921 |
|
Prepaid expenses and other current assets |
|
3,251 |
|
|
|
2,444 |
|
Other current receivables |
|
10,425 |
|
|
|
5,028 |
|
Total current assets |
|
73,027 |
|
|
|
100,596 |
|
Noncurrent assets |
|
|
|
|
|
Property and equipment, net |
|
24,511 |
|
|
|
32,974 |
|
Goodwill |
|
15,222 |
|
|
|
15,222 |
|
Identifiable intangibles, net |
|
2,689 |
|
|
|
45,248 |
|
Operating lease assets |
|
5,634 |
|
|
|
5,071 |
|
Deposits and other assets |
|
3,497 |
|
|
|
3,460 |
|
Deferred income taxes, net |
|
65 |
|
|
|
6 |
|
Total noncurrent assets |
|
51,618 |
|
|
|
101,981 |
|
Total assets |
$ |
124,645 |
|
|
$ |
202,577 |
|
Liabilities and
Stockholders’ Equity |
|
|
|
|
|
Current liabilities |
|
|
|
|
|
Accounts payable—trade |
$ |
3,149 |
|
|
$ |
8,549 |
|
Accrued expenses |
|
3,594 |
|
|
|
3,451 |
|
Income taxes payable |
|
365 |
|
|
|
1,883 |
|
Operating lease liabilities |
|
1,918 |
|
|
|
2,052 |
|
Current maturities of long-term debt |
|
1,446 |
|
|
|
1,481 |
|
Other current liabilities |
|
2,349 |
|
|
|
2,364 |
|
Total current liabilities |
|
12,821 |
|
|
|
19,780 |
|
Noncurrent liabilities |
|
|
|
|
|
Long-term debt, less current maturities |
|
4,537 |
|
|
|
11,436 |
|
Operating lease liabilities, long-term |
|
4,364 |
|
|
|
3,487 |
|
Other long-term liabilities |
|
1,965 |
|
|
|
1,373 |
|
Deferred income taxes, net |
|
880 |
|
|
|
2,956 |
|
Total noncurrent liabilities |
|
11,746 |
|
|
|
19,252 |
|
Total liabilities |
|
24,567 |
|
|
|
39,032 |
|
Commitments and
contingencies |
|
|
|
|
|
Stockholders’ equity |
|
|
|
|
|
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no
shares issued and outstanding at September 30, 2020 and
December 31, 2019 |
|
— |
|
|
|
— |
|
Common stock, $0.01 par value, 225,000,000 shares authorized,
47,439,214 shares issued and 47,197,895 shares outstanding at
September 30, 2020 and 46,905,782 shares issued and 46,813,117
shares outstanding at December 31, 2019 |
|
474 |
|
|
|
469 |
|
Additional paid-in capital |
|
430,902 |
|
|
|
424,633 |
|
Accumulated other comprehensive loss |
|
(83,659 |
) |
|
|
(80,811 |
) |
Retained deficit |
|
(265,198 |
) |
|
|
(199,029 |
) |
Treasury stock, at cost; 241,319 shares at September 30, 2020
and 92,665 shares at December 31, 2019 |
|
(809 |
) |
|
|
(652 |
) |
Total stockholders’ equity |
|
81,710 |
|
|
|
144,610 |
|
Non-controlling interest |
|
18,368 |
|
|
|
18,935 |
|
Total equity |
|
100,078 |
|
|
|
163,545 |
|
Total liabilities and stockholders' equity |
$ |
124,645 |
|
|
$ |
202,577 |
|
_____________________* Preliminary
NCS MULTISTAGE HOLDINGS,
INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS(In
thousands)(Unaudited)
|
|
|
|
|
|
|
Nine Months Ended |
|
September 30, |
|
2020 |
|
|
2019 |
|
|
|
|
Cash flows from
operating activities |
|
|
Net loss |
$ |
(62,936 |
) |
|
$ |
(22,837 |
) |
Adjustments to reconcile net
loss to net cash provided by operating activities: |
|
|
|
|
|
Depreciation and amortization |
|
4,786 |
|
|
|
7,833 |
|
Impairment |
|
50,194 |
|
|
|
7,919 |
|
Amortization of deferred loan cost |
|
226 |
|
|
|
236 |
|
Write-off of deferred loan costs |
|
606 |
|
|
|
— |
|
Share-based compensation |
|
6,477 |
|
|
|
9,380 |
|
Provision for inventory obsolescence |
|
1,198 |
|
|
|
417 |
|
Deferred income tax (benefit) expense |
|
(2,069 |
) |
|
|
9,281 |
|
Gain on sale of property and equipment |
|
(514 |
) |
|
|
(300 |
) |
Change in fair value of contingent consideration |
|
— |
|
|
|
37 |
|
Provision for doubtful accounts |
|
895 |
|
|
|
1,715 |
|
Payment of contingent consideration |
|
— |
|
|
|
(3,042 |
) |
Proceeds from note receivable |
|
300 |
|
|
|
— |
|
Changes in operating assets
and liabilities: |
|
|
|
|
|
Accounts receivable—trade |
|
25,814 |
|
|
|
(9,552 |
) |
Inventories, net |
|
1,386 |
|
|
|
(8,218 |
) |
Prepaid expenses and other assets |
|
(2,754 |
) |
|
|
723 |
|
Accounts payable—trade |
|
(4,555 |
) |
|
|
12,272 |
|
Accrued expenses |
|
131 |
|
|
|
(915 |
) |
Other liabilities |
|
1,421 |
|
|
|
(805 |
) |
Income taxes receivable/payable |
|
(6,098 |
) |
|
|
671 |
|
Net cash provided by operating activities |
|
14,508 |
|
|
|
4,815 |
|
Cash flows from
investing activities |
|
|
|
|
|
Purchases of property and
equipment |
|
(1,882 |
) |
|
|
(4,990 |
) |
Purchase and development of
software and technology |
|
— |
|
|
|
(251 |
) |
Proceeds from sales of
property and equipment |
|
704 |
|
|
|
816 |
|
Net cash used in investing activities |
|
(1,178 |
) |
|
|
(4,425 |
) |
Cash flows from
financing activities |
|
|
|
|
|
Equipment note borrowings |
|
— |
|
|
|
835 |
|
Payments on equipment note and
finance leases |
|
(1,268 |
) |
|
|
(4,552 |
) |
Line of credit borrowings |
|
5,000 |
|
|
|
— |
|
Payments on revolver |
|
(15,000 |
) |
|
|
(7,000 |
) |
Payment of contingent
consideration |
|
— |
|
|
|
(6,958 |
) |
Treasury shares withheld |
|
(157 |
) |
|
|
(330 |
) |
Distribution to noncontrolling
interest |
|
(3,800 |
) |
|
|
(3,400 |
) |
Proceeds from the issuance of
ESPP shares |
|
— |
|
|
|
1,025 |
|
Payment of deferred loan cost
related to senior secured credit facility |
|
(482 |
) |
|
|
(871 |
) |
Net cash used in financing activities |
|
(15,707 |
) |
|
|
(21,251 |
) |
Effect of exchange rate
changes on cash and cash equivalents |
|
(231 |
) |
|
|
248 |
|
Net change in cash and cash equivalents |
|
(2,608 |
) |
|
|
(20,613 |
) |
Cash and cash equivalents
beginning of period |
|
11,243 |
|
|
|
25,131 |
|
Cash and cash equivalents end
of period |
$ |
8,635 |
|
|
$ |
4,518 |
|
Noncash investing and
financing activities |
|
|
|
|
|
Leased assets obtained in
exchange for new finance lease liabilities |
$ |
5,102 |
|
|
$ |
1,371 |
|
Leased assets obtained in
exchange for new operating lease liabilities |
$ |
2,573 |
|
|
$ |
336 |
|
Return of vehicles under
finance lease |
$ |
(722 |
) |
|
$ |
— |
|
|
|
|
|
|
|
|
|
NCS MULTISTAGE HOLDINGS,
INC.RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL
INFORMATION(In thousands, except
per share data)
(Unaudited)
Non-GAAP Financial Measures
EBITDA is defined as net (loss) income before interest expense,
net, income tax expense and depreciation and amortization. Adjusted
EBITDA is defined as EBITDA adjusted to exclude certain items which
we believe are not reflective of ongoing operating performance or
which, in the case of an impairment and share-based compensation,
are non-cash in nature. Adjusted EBITDA margin represents Adjusted
EBITDA as a percentage of total revenues. Adjusted EBITDA Less
Share-Based Compensation is defined as Adjusted EBITDA minus
share-based compensation expense. Adjusted Net (Loss) Income is
defined as net (loss) income attributable to NCS Multistage
Holdings, Inc. adjusted to exclude certain items which we believe
are not reflective of ongoing performance. Adjusted Net (Loss)
Earnings per Diluted Share is defined as Adjusted Net (Loss) Income
divided by our diluted weighted average common shares outstanding
during the relevant period. Free cash flow is defined as net cash
provided by (used in) operating activities less purchases of
property and equipment (inclusive of the purchase and development
of software and technology) plus proceeds from sales of property
and equipment, as presented in our consolidated statement of cash
flows. Net working capital is defined as total current assets,
excluding cash and cash equivalents, minus total current
liabilities, excluding current maturities of long-term debt.
Net working capital excludes cash and cash equivalents and current
maturities of long-term debt to evaluate the investment in working
capital required to support our business. We believe that
Adjusted EBITDA, Adjusted Net (Loss) Income and Adjusted Net (Loss)
Earnings per Diluted Share are important measures that exclude
costs that management believes do not reflect our ongoing operating
performance and, in the case of Adjusted EBITDA, certain costs
associated with our capital structure. We believe that Adjusted
EBITDA Less Share-Based Compensation presents our financial
performance in a manner that is comparable to the presentation
provided by many of our peers. We believe free cash flow is useful
because it provides information to investors regarding the cash
that was available in the period that was in excess of our needs to
fund our capital expenditures and other investment needs. We
believe that net working capital is useful in analyzing the cash
flow and working capital needs of the Company, including
determining the efficiencies of our operations and our ability to
readily convert assets into cash. Accordingly, Adjusted EBITDA,
Adjusted EBITDA margin, Adjusted EBITDA Less Share-Based
Compensation, Adjusted Net (Loss) Income, Adjusted Net (Loss)
Earnings per Diluted Share, Free Cash Flow and net working capital
are key metrics that management uses to assess the period-to-period
performance of our core business operations. We believe that
presenting Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA
Less Share-Based Compensation, Adjusted Net (Loss) Income, Adjusted
Net (Loss) Earnings per Diluted Share and Free Cash Flow enables
investors to assess our performance from period to period using the
same metrics utilized by management and that Adjusted EBITDA,
Adjusted EBITDA margin, Adjusted EBITDA Less Share-Based
Compensation, Adjusted Net (Loss) Income and Adjusted Net (Loss)
Earnings per Diluted Share enable investors to evaluate our
performance relative to other companies that are not subject to
such factors.
EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA
Less Share-Based Compensation, Adjusted Net (Loss) Income, Adjusted
Net (Loss) Earnings per Diluted Share, Free Cash Flow and net
working capital (our “non-GAAP financial measures”) are not defined
under generally accepted accounting principles (“GAAP”), are not
measures of net income, income from operations, cash provided by
operating activities, working capital or any other performance
measure derived in accordance with GAAP, and are subject to
important limitations. Our non-GAAP financial measures may not be
comparable to similarly titled measures of other companies in our
industry and are not measures of performance calculated in
accordance with GAAP. Our non-GAAP financial measures have
important limitations as analytical tools and you should not
consider them in isolation or as substitutes for analysis of our
financial performance as reported under GAAP and they should not be
considered as alternatives to net income (loss), cash provided by
operating activities, working capital or any other performance
measures derived in accordance with GAAP as measures of operating
performance or as alternatives to cash flow from operating
activities as measures of our liquidity.
The tables below set forth reconciliations of our non-GAAP
financial measures to the most directly comparable measure of
financial performance calculated under GAAP:
NET WORKING CAPITAL*
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
2020 |
|
2019 |
Working capital |
$ |
60,206 |
|
|
$ |
80,816 |
|
Cash and cash equivalents |
|
(8,635 |
) |
|
|
(11,243 |
) |
Current maturities of long
term debt |
|
1,446 |
|
|
|
1,481 |
|
Net working capital |
$ |
53,017 |
|
|
$ |
71,054 |
|
_____________________* Preliminary
NCS MULTISTAGE HOLDINGS,
INC.RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL
INFORMATION(In thousands, except
per share data)
(Unaudited)
ADJUSTED NET
LOSS AND ADJUSTED NET
LOSS PER DILUTED SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
September 30, 2020 |
|
September 30, 2019 |
|
September 30, 2020 |
|
September 30, 2019 |
|
Effect onNet Loss |
|
Impact on Diluted Loss Per Share |
|
Effect onNet Income (Loss) |
|
Impact on Diluted Earnings (Loss) Per Share |
|
Effect onNet Loss |
|
Impact on Diluted Loss Per Share |
|
Effect onNet Loss |
|
Impact on Diluted Loss Per Share |
Net (loss) income attributable to NCS Multistage Holdings,
Inc. |
$ |
(5,863 |
) |
|
$ |
(0.12 |
) |
|
$ |
3,621 |
|
|
$ |
0.08 |
|
|
$ |
(66,169 |
) |
|
$ |
(1.40 |
) |
|
$ |
(30,646 |
) |
|
$ |
(0.66 |
) |
Adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment (a) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
50,194 |
|
|
|
1.07 |
|
|
|
7,919 |
|
|
|
0.17 |
|
Realized and unrealized losses (b) |
|
216 |
|
|
|
— |
|
|
|
124 |
|
|
|
— |
|
|
|
427 |
|
|
|
0.01 |
|
|
|
667 |
|
|
|
0.01 |
|
Write-off of deferred loan costs (c) |
|
606 |
|
|
|
0.01 |
|
|
|
— |
|
|
|
— |
|
|
|
606 |
|
|
|
0.01 |
|
|
|
— |
|
|
|
— |
|
Change in fair value of contingent consideration (d) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
37 |
|
|
|
— |
|
Income tax impact from adjustments (e) |
|
394 |
|
|
|
0.01 |
|
|
|
(6,973 |
) |
|
|
(0.15 |
) |
|
|
616 |
|
|
|
0.01 |
|
|
|
11,757 |
|
|
|
0.26 |
|
Adjusted net loss
attributable to NCS Multistage Holdings,
Inc. |
$ |
(4,647 |
) |
|
$ |
(0.10 |
) |
|
$ |
(3,228 |
) |
|
$ |
(0.07 |
) |
|
$ |
(14,326 |
) |
|
$ |
(0.30 |
) |
|
$ |
(10,266 |
) |
|
$ |
(0.22 |
) |
_____________________(a) Represents non-cash
impairment charges for property and equipment and intangible assets
during 2020 and a non-cash impairment charge for goodwill in 2019
as the fair values were lower than the carrying
values.(b) Represents realized and unrealized
foreign currency translation losses primarily due to movement in
the foreign currency exchange rates between the
periods.(c) Represents deferred loan costs of $0.6
million that were expensed during the third quarter of 2020 due to
the amendment to our senior secured credit facility in August 2020.
The reduction in deferred loan costs were commensurate with the
reduction in potential capacity.(d) Represents the
difference between the December 31, 2018 liability balance and the
$10.0 million cash payment for the Repeat Precision earn-out
consideration, which was paid to our joint venture partner on
January 31, 2019. (e) Represents the income tax
adjustments including a reduction in foreign income tax, valuation
allowance recorded to reduce the carrying value of both our U.S.
and Canadian deferred tax assets in 2020 and the impact of income
tax adjustments including the valuation allowance recorded to
reduce the carrying value of our U.S. deferred tax asset and the
tax effect of a non-deductible goodwill impairment in 2019.
NCS MULTISTAGE HOLDINGS,
INC.RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL
INFORMATION(In thousands)
(Unaudited)
ADJUSTED
EBITDA, ADJUSTED EBITDA
MARGIN, AND ADJUSTED EBITDA LESS SHARE-BASED
COMPENSATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
September 30, |
|
September 30, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Net (loss) income |
$ |
(5,137 |
) |
|
$ |
6,609 |
|
|
$ |
(62,936 |
) |
|
$ |
(22,837 |
) |
Income tax (benefit)
expense |
|
(3,058 |
) |
|
|
(1,396 |
) |
|
|
(9,956 |
) |
|
|
10,200 |
|
Interest expense, net |
|
876 |
|
|
|
424 |
|
|
|
1,622 |
|
|
|
1,497 |
|
Depreciation |
|
1,000 |
|
|
|
1,461 |
|
|
|
3,446 |
|
|
|
4,382 |
|
Amortization |
|
103 |
|
|
|
1,153 |
|
|
|
1,340 |
|
|
|
3,451 |
|
EBITDA |
|
(6,216 |
) |
|
|
8,251 |
|
|
|
(66,484 |
) |
|
|
(3,307 |
) |
Impairment (a) |
|
— |
|
|
|
— |
|
|
|
50,194 |
|
|
|
7,919 |
|
Share-based compensation
(b) |
|
1,602 |
|
|
|
2,872 |
|
|
|
6,274 |
|
|
|
9,154 |
|
Professional fees (c) |
|
1,249 |
|
|
|
1,363 |
|
|
|
2,211 |
|
|
|
3,740 |
|
Foreign currency exchange loss
(d) |
|
260 |
|
|
|
131 |
|
|
|
467 |
|
|
|
678 |
|
Change in fair value of
contingent consideration (e) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
37 |
|
Severance and other
termination benefits (f) |
|
844 |
|
|
|
721 |
|
|
|
5,618 |
|
|
|
721 |
|
Other (g) |
|
151 |
|
|
|
278 |
|
|
|
927 |
|
|
|
923 |
|
Adjusted EBITDA |
$ |
(2,110 |
) |
|
$ |
13,616 |
|
|
$ |
(793 |
) |
|
$ |
19,865 |
|
Adjusted EBITDA Margin |
|
(13 |
)% |
|
|
22 |
% |
|
|
(1 |
)% |
|
|
13 |
% |
Adjusted EBITDA Less Share-Based Compensation |
$ |
(3,712 |
) |
|
$ |
10,744 |
|
|
$ |
(7,067 |
) |
|
$ |
10,711 |
|
_____________________(a) Represents non-cash
impairment charges for property and equipment and intangible assets
during 2020 and a non-cash impairment charge for goodwill in 2019
as the fair values were lower than the carrying
values.(b) Represents non-cash compensation
charges related to share-based compensation granted to our
officers, employees and directors.(c) Represents
non-capitalizable costs of professional services incurred in
connection with legal proceedings and the evaluation of potential
acquisitions. During the second quarter of 2020, we received $1.1
million of proceeds from our directors and officers liability
insurance related to the reimbursement of legal expenses that we
incurred to defend a director and officer in the Diamondback
litigation.(d) Represents realized and unrealized
foreign currency translation gains and losses primarily due to
movement in the foreign currency exchange rates between the
periods.(e) Represents the difference between the
December 31, 2018 liability balance and the $10.0 million cash
payment for the Repeat Precision earn-out consideration, which was
paid to our joint venture partner on January 31, 2019.
(f) Reflects charges incurred in connection with
the reductions in workforce implemented in 2020 and
2019.(g) Represents the impact of a research and
development subsidy that is included in income tax expense
(benefit) in accordance with GAAP along with other charges and
credits.
FREE CASH FLOW
|
|
|
|
|
|
|
Nine Months Ended |
|
September 30, |
|
2020 |
|
2019 |
Net cash provided by operating activities |
$ |
14,508 |
|
|
$ |
4,815 |
|
Purchases of property and
equipment |
|
(1,882 |
) |
|
|
(4,990 |
) |
Purchase and development of
software and technology |
|
- |
|
|
|
(251 |
) |
Proceeds from sales of
property and equipment |
|
704 |
|
|
|
816 |
|
Free cash flow |
$ |
13,330 |
|
|
$ |
390 |
|
|
NCS MULTISTAGE HOLDINGS,
INC.REVENUES BY
GEOGRAPHIC AREA(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
September 30, |
|
September 30, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
United
States |
|
|
|
|
|
|
|
|
|
|
|
Product sales |
$ |
8,192 |
|
$ |
21,639 |
|
$ |
29,319 |
|
$ |
62,272 |
Services |
|
1,143 |
|
|
6,915 |
|
|
5,588 |
|
|
18,370 |
Total United States |
|
9,335 |
|
|
28,554 |
|
|
34,907 |
|
|
80,642 |
Canada |
|
|
|
|
|
|
|
|
|
|
|
Product sales |
|
2,762 |
|
|
18,531 |
|
|
24,740 |
|
|
43,953 |
Services |
|
931 |
|
|
7,590 |
|
|
9,819 |
|
|
18,670 |
Total Canada |
|
3,693 |
|
|
26,121 |
|
|
34,559 |
|
|
62,623 |
Other
Countries |
|
|
|
|
|
|
|
|
|
|
|
Product sales |
|
706 |
|
|
3,586 |
|
|
1,889 |
|
|
4,708 |
Services |
|
2,578 |
|
|
2,512 |
|
|
8,239 |
|
|
5,418 |
Total Other Countries |
|
3,284 |
|
|
6,098 |
|
|
10,128 |
|
|
10,126 |
Total |
|
|
|
|
|
|
|
|
|
|
|
Product sales |
|
11,660 |
|
|
43,756 |
|
|
55,948 |
|
|
110,933 |
Services |
|
4,652 |
|
|
17,017 |
|
|
23,646 |
|
|
42,458 |
Total revenues |
$ |
16,312 |
|
$ |
60,773 |
|
$ |
79,594 |
|
$ |
153,391 |
NCS Multistage (NASDAQ:NCSM)
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NCS Multistage (NASDAQ:NCSM)
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