Good day, and thank you for standing by. Welcome to the Q3 2021 NCS Multistage Earnings Conference Call.[Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Ryan Hummer. Thank you. Please go ahead.

Thank you, Gail, and thank you for joining the NCS Multistage Third Quarter 2021 Conference Call. Our call today will be led by our CEO, Robert Nipper; and I will also provide comments. We would like to caution listeners that some of the statements made on this call could be forward-looking in nature. And to the extent that our remarks today contain information other than historical information, please note that we are relying on federal safe harbor protections. Such forward-looking statements may include comments regarding our future expectations for financial results and business operations and are subject to known and unknown risks and uncertainties, including the impact of the COVID-19 pandemic on the global economy, oil demand and our company. I would like to refer you to our press release issued last night along with other public filings made with the SEC that outline those risks. In today's call, we refer to adjusted EBITDA, free cash flow and net working capital, which are non-GAAP financial measures. We use these measures because they allow us to compare performance consistently over various periods without regard to costs associated with our current capital structure and in a manner that we believe better reflects our operating performance. Our press release and the updated investor presentation posted yesterday, which are both available on our website, ncsmultistage.com, provide reconciliations of these non-GAAP financial measures to the most comparable GAAP financial measure. I will now turn the call over to Robert.

Thank you, Ryan, and welcome to our investors, analysts and employees joining our third quarter 2021 earnings conference call. Our performance in the third quarter was generally consistent at a consolidated level with the guidance we provided in early August, with some variations by region. I'll briefly discuss our results and outlook for each of the U.S., Canada and International markets. Starting with the U.S. Our revenue of $8 million in the third quarter of 2021 fell short of our guidance range provided on the last earnings call with reduced product sales at Repeat Precision and in our fracturing systems product line, partially offset by improving performance within our well construction and tracer diagnostics product lines. Historically, we have noted a correlation between oil prices and tracer diagnostics activity on a slightly lagged basis. That correlation appears to be holding as our job volumes increased in the latter part of the third quarter and have maintained so far at those higher levels early in the fourth quarter. Our well construction business, which is more aligned with drilling and completion activity, also improved sequentially. We expect future increases in wells drilled to outpace increases in wells completed as our customers in the U.S. have substantially reduced their inventory of drilled but uncompleted wells. The well construction business has also benefited from a portfolio extension within our AirLock casing buoyancy product line providing customers with additional options while retaining the unmatched reliability history that we've established as the innovator of cost-effective casing buoyancy solutions. We currently expect to deliver modest sequential growth in the U.S. in the fourth quarter, which assumes normal holiday-related field activity declines in the last couple of weeks of the year. Our Canadian revenue of $22.1 million in the third quarter represented a sequential growth of 140% as…

Thank you, Robert. As reported in yesterday's earnings release, our third quarter revenues were $32.4 million, 99% higher than the prior year's third quarter. On a sequential basis, revenue for the third quarter was 51% higher than revenue during the second quarter with an increase of 140% in Canada, which was supported by seasonal activity increases, offset by a decrease of 13% in the U.S. and 25% in international markets. Gross profit, defined as total revenue less total cost of sales, excluding depreciation and amortization expense, was $14.8 million in the third quarter or 46% of revenue as compared to $6.1 million or 37% of revenue in the prior year's third quarter. Gross profit for the third quarter of 2021 included approximately $0.8 million in employee retention credit benefits net of associated bonus-related accruals. For a sequential comparison, gross profit was $7.5 million or 35% of revenue in the second quarter of 2021. Our gross margin of 46% during the third quarter of 2021 is our highest quarterly gross margin percentage since the fourth quarter of 2019. This demonstrates the operational leverage in our business as revenues increase, due in part to structural cost reductions that we've made over the course of the last 18 months. Our SG&A costs were $11 million during the third quarter, which was $1.5 million lower as compared to the $12.5 million from the third quarter of last year. Our third quarter SG&A was also $0.8 million lower sequentially as compared to the second quarter. I'll remind you that our reported SG&A includes share-based compensation and certain nonrecurring expenses, including litigation costs. In the third quarter, our nonrecurring litigation expenses totaled $0.9 million and noncash share-based compensation expense totaled $1 million. Our SG&A expense in the third quarter of 2021 also included approximately $1.1 million…

Thank you, Ryan. Based on our year-to-date results and the guidance for the fourth quarter that Ryan mentioned, our updated full year guidance for 2021 is as follows: We currently expect full year revenue of $115 million to $118 million and full year adjusted EBITDA of $8 million to $10 million, consistent with the calculations in our earnings release. This range does not include any net benefit from the employee retention credit, which we characterize as nonrecurring. Our expected gross capital expenditures for 2021 is $1 million or less, and we expect that we will be free cash flow positive in 2021. Within this guidance, we expect our activity levels in the fourth quarter in the U.S. and Canada to be consistent with activity levels in the third quarter, and activity increases in October and November, offset by the typical holiday slowdown in the last 2 weeks of the year. We anticipate that we will remain active in international markets throughout the fourth quarter, especially in our North Sea operations, with increased activity in the Middle East and Argentina as well. Before we open up the call to Q&A, I'll close with a couple of brief comments. We are well positioned to return to sequential growth in our U.S. operations with recent momentum in our well construction and tracer diagnostics product lines, complemented by expected improvement at Repeat Precision. We maintain a strong position in the Canadian market, where the industry has recovered faster than the U.S. and continues to track 2019 levels. International activity for NCS is expected to increase in the fourth quarter with higher activity in multiple geographies and across multiple product lines. Our team at NCS continues to do a tremendous job operationally, and I'm proud to say that we have continued our track record of 0 recordable incidents from 2020 into 2021, with no reportable incidents thus far this year. We continue to invest in technology to enhance our current products and services and bring new innovations to our customers and secure and protect our intellectual property. I'm encouraged by the recovery in global oil demand and the success of OPEC+ in managing supply. We believe there is a possibility for a multiyear cyclical industry recovery. We have the infrastructure in place to support revenue growth in each of our markets, providing leverage to grow future earnings in our business. And our strong balance sheet, net working capital position and borrowing base are strategic assets for NCS and support working capital requirements associated with organic growth. And with that, we'll welcome any questions.

[Operator Instructions] Your first question comes from the line of John Daniel.

I just have one question for you on the -- you made a comment about starting field trials in 2 countries in the Middle East. Can you just do a quick tutorial, like once you start field trials, like what's the time to prove our products? When do you see -- when do you expect to see orders? Just walk us through that process.

Yes. So that's a great question. In the Middle East, it depends really on where one is. So as an example, with Saudi Aramco, it took us probably 2.5 years from start to finish to be able to get what's called catalog so that we could actually start selling products to them. Each product that we field trial or that we get accepted or catalog with Saudi Aramco does require going through a particular process. But there are some other countries in the Middle East and elsewhere around the world where that's not that long of a process. So you could be from field trials, you can move immediately into generating revenue. So with the field trials that we have, we have a bit of a mix. And the timing on starting to see revenue as a result of these field trials should be within the next -- conservatively within the next 12 months.

Your next question comes from the line of Aditya Ahluwa (sic) [ Aditya Ahluwalia ].

This is Aditya from ARROWHEAD. So I just wanted to congratulate you on a good quarter. And I just had some -- I was just wondering if you could give some color on your revenue profile by geography. So obviously, you've achieved stellar revenue growth in Canada. So I was just wondering, would you put this on a onetime bounce back because of the COVID period? Or because you've got some projects in a gush? Or do you think that these revenue levels are more sustainable? I know you are expecting something around the same lines in Q4. But maybe if you could just expand it to the next 4 quarters, how would it look? And then I also have a follow-up question on the U.S., if you could answer that as well.

Yes, sure. Adi, I'll take that. So I think with what we see in Canada, certainly, while the market has bounced back faster than in the U.S., yes, I think what we're seeing is continued strong indications from our customers for a very active winter drilling season through the fourth quarter and into the first quarter of next year. And at this point, budgets are still being developed, but we would certainly expect there to be activity growth -- more than double-digit activity growth in Canada in 2022 as compared to 2021. And with where we sit within our various product lines with the market share that we have in fracturing systems, we would certainly expect to participate in that and then be able to potentially grow faster than the market within the other product lines as we continue to execute on our cross-selling strategies to enhance the market share that we have across tracer diagnostics, well construction and also pulling through some additional work for Repeat Precision in the plug and perf market in Canada over the course of 2022 as well.

Excellent. And then on the U.S., I was just wondering, are you a little disappointed? Or are you a little concerned with your performance? I know that Robert mentioned that you're expecting recovery over the coming few quarters. But how do you see things improving? When, for example, do you expect things to return to normal, to stabilize? And are you at all worried with what you're seeing?

No. I wouldn't say that we're worried about it, but I'm certainly disappointed in the performance that we've had the last couple of quarters in the U.S. While we've continued to grow in the U.S. market, we haven't grown at the rate that we had hoped we would. For a couple of things that I mentioned, one, fracturing services; and the other being some product sales at Repeat Precision. At Repeat Precision, we had, had a product launch earlier in the year of a product. We had a lot of runs on it. And then we found that there was an issue with the design. We had to pull that product off the market. We have redeveloped or have -- we've addressed those issues that we learned. We're back into the market now with the improved product. Our success rate is actually higher than the previous product that we had out there. And we do expect to continue to grow the Repeat Precision business again in the U.S. market. And we expect to, again, beginning in the first quarter, continue to have sequential growth in the U.S. market.

[Operator Instructions] There are no further questions at this time.

Thank you, operator. On behalf of our management team and our Board, we'd like to thank everyone on the call today, including our shareholders and research analysts, and especially our employees. I truly appreciate the tireless effort of our employees and the sacrifices that have been made by everyone at NCS to support the company and each other. I'm excited to return to growth after managing through the downturn. Our team continues to provide excellent service to our customers and is developing new products and services that will enable our customers to be more successful. We are taking on the demanding and technically challenging work and delivering results to our customers. Our people have done a tremendous job in managing the many challenges that come with the continued impacts of COVID-19. We are only as good as our people, and I believe we have the best team in the industry. We appreciate everyone's interest in NCS Multistage, and we look forward to talking again on our next quarterly earnings call. Thank you, operator. That concludes our call.

This does conclude today's conference call. Thank you for participating. You may now disconnect.