Good day and thank you for standing by and welcome to the Q3 2023 NCS Multistage Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to introduce your host for today's call, Mike Morrison, CFO. Please go ahead.

Thank you, Justin, and thank you for joining the NCS Multistage Third Quarter 2023 Conference Call. Our call today will be led by our CEO, Ryan Hummer, and I will also provide comments. I want to remind listeners that some of today's comments include forward-looking statements such as comments regarding our future expectations for financial results and business operations. These statements, including our financial guidance and expectations are subject to many risks and uncertainties that could cause our actual results to differ materially from any expectations expressed herein, including our ongoing litigation matters, inflation, central bank actions to combat inflation, distressed the US regional banks, the Canadian wildfires as well as the impact of the conflict in Ukraine and the Middle East on the global economy, oil and natural gas demand and our company. Please refer to our most recent annual report on Form 10-K and our latest SEC filings for risk factors and cautions regarding forward-looking statements. Our comments today and in our earnings release also include non-GAAP financial measures including adjusted EBITDA, adjusted EBITDA margin, free cash flow and net working capital. The underlying details and reconciliations on non-GAAP measures to the most comparable GAAP financial measures are included in our third quarter earnings release which can be found on our website, ncsmultistage.com. I'll now turn the call over to Ryan.

Thank you, Mike, and welcome to our investors, analysts and employees joining our third quarter 2023 earnings conference call. Today's call will be structured a bit differently. I'll be framing my initial comments in alignment with the core strategies and guiding principles that embody our long-term corporate strategy and then Mike will review our financial performance later in the call. This was a very productive quarter for us in terms of advancing our strategy and positioning NCS to deliver value to our stakeholders, including our shareholders. As a reminder, the vision for NCS is to be globally recognized as a trusted partner and bold innovator, enabling our customers' resource development strategies through technology-driven solutions and reliable expertise. We have three core strategies that are supported by two guiding principles. I'll walk through each and discuss how certain accomplishments during the quarter will enable long-term value creation. The first core strategy is to build upon our leading market positions. Examples of this include the strength of the NCS business across our product lines in Canada and the track record that we've established for our fracturing systems product line worldwide. In Canada, early in the third quarter, we installed over 1,000 sliding sleeves on a four-well Montney pad with one of our customers. These wells were successfully completed in a highly efficient manner and have exhibited strong initial production rates according to third-party data. At the beginning of the fourth quarter, we had another significant achievement with the same customer placing over 23 million pounds of sand across a lateral that extends more than two miles. This well had 262 NCS sleeves installed and was completed in a single trip, further highlighting our operational efficiencies. This is only possible due to the quality of our sliding sleeves, the design of our robust…

Thank you, Ryan. As reported in yesterday's earnings release, our third quarter revenues were $38.3 million, a 22% decrease compared to last year's third quarter. Our Canada revenues decreased by 19%, US revenues were down 30% and international revenues decreased by 18%. Our Canadian revenues were impacted by a declining rig count during the quarter, resulting from commodity price volatility and the continuing effect of the Canadian wildfires. Our sales in the US continued to be affected by lower natural gas prices which has had a negative impact on customer activity levels. On a sequential basis, revenues in the third quarter increased by 51%, with Canada up almost 100%, International, up by 26% and the US down by 15%. The increase in Canada was primarily related to normal seasonality associated with the spring break-up in the second quarter, with crews getting back to work in the third quarter. Our gross profit, defined as total revenues less cost of sales, excluding depreciation and amortization expense was $15.7 million in the third quarter of 2023, representing a gross profit percentage of 41% to slightly below our gross profit percentage compared to one year ago. Despite a decline in revenues, we were able to maintain our gross profit percentage due to improved pricing of our products and services, which countered the effect of the decline in volumes and higher operational costs. Our revenues for the first nine months of 2023 were $107.2 million, a decline of 7% compared to the first nine months of 2022. However, our gross margin percentage improved to 40% up from 38% compared to the same period one year ago. Selling, general and administrative costs were $12.7 million in the third quarter, down by $2.7 million compared to the third quarter of last year. The decrease was primarily due…

All right. Thanks, Mike. So before Q&A, I'll close with a couple of brief comments. While the third quarter proved to be more challenging than expected commercially, we made significant progress during the quarter in alignment with our core strategies, especially on initiatives that we believe will enable us to execute on company-specific growth opportunities as our technology is commercialized and deployed in North American and international markets. Despite some challenging rig activity trends in 2023, we continue to believe that we are in a multiyear cycle of improved growth and earnings prospects for our industry globally. We appear to have reached the bottom of this recent correction with the rig count in the US holding steady over the last several weeks. We expect modest growth in rig activity in the US in the fourth quarter with the potential for further growth from that base in 2024. Reflecting recent crude price, crude oil price increases and the need to add natural gas supply for demand coming from LNG facilities expected to come online late next year and into 2025. Similarly, in Canada, we believe industry activity will be supported in 2024 and beyond as the TMX oil pipeline expansion is brought online and as natural gas production ramps into the commissioning of the Coastal GasLink pipeline and Canada LNG facility. Through our continuous improvement efforts, we're finding ways to be more efficient, which supports a gross margin percentage, moderates our SG&A spend and positions us for strong incremental profitability as we grow our revenues. Finally, I'll reiterate how much I appreciate the way that our people have once again proven how they can rise to the occasion in the face of uncertainty and challenges. And with that, we'll welcome any questions.

Thank you. [Operator Instructions] And one moment for our first question. And our first question comes from John Daniel from Daniel Energy Partners. Your line is now open.

Thank you. Hey, Ryan, good morning.

Hey, good morning, John.

So I'm going to ask a little bit of a rookie question here, but the thing that really intrigued me was your commentary on the product development for deepwater. Could you just take a step back and tell us sort of the evolution of how you got in deepwater sort of maybe. You might not want to quantify, but I'll try like what it represents today and what this the new technology could mean, call it, three to five years from now, if we find ourselves in the long duration cycle, which a lot of talking heads are processing right now.

Yes, John, so I'll talk to that at a pretty high level and try to respond to as much of that as I can. Certainly, with our technology, we started call it, several years ago moving into shallow water offshore. We had some work with Maersk, which is now -- those properties are now owned by Total several years ago developed a relationship with Aker BP in the Norwegian side of the North Sea and have continued to develop that portfolio. I think as part of that, certainly, we were able to garner some attention for the capabilities of our systems in those sorts of offshore environments, including some designs that we're looking at that will really take a frac sleeve from something to just place prop into the well or do our shift frac close technology to something that can be truly a life of well production solution including, if you will, solids control capabilities within that same sort of frac systems chassis. And we have one customer, an international oil company who had a vision for potentially taking our technology and using it. I'd say the initial application is targeted actually for - you've heard a few operators in the deep water Gulf of Mexico talking about the Paleogene now. So a target that's a little bit deeper than traditional target and where our system could potentially be used as the lower completion system, you know, given our single trip capability, what we're able to do with the service tool, which is able to actuate many more stages in a single run than typical offshore multi-zone single trip type systems that are out there. So that's kind of the opportunity that our customer is chasing. Now the challenge for us is we're moving from deploying our service tool off of either land or a fixed platform to a moving rig, right. So it's a pretty significant challenge and it's been a multi-year development. But obviously, we had the test earlier this year, which proved out the robustness of the sleeves and the service components that's migrating towards a land trial this year with the potential for sales next year. So I think it would be to the point where there could be a multi-well opportunity on an annual basis a few years down the road. And the other thing I'd say is that this customer, right, has other partners on those wells who are targeting some of the same applications, but anything in deepwater takes a little bit longer to develop and test and get out there. So we're excited about the technology development. I think it will be a really good opportunity for us, but I think we just need to be a little bit patient with it as well.

Fair enough. And assuming that does materialize over time, is it safe to assume that like a new technology like this, if adopted and has some scale with you is a margin-enhancing product relative to the core offering or no?

Yes, absolutely, John.

Okay. All right. That's all I got. Sounds very interesting. Thank you for including me.

Yeah, absolutely. Thanks.

And thank you. And one moment for our next question. And our next question comes from Dave Storms from Stonegate. Your line is open.

Good morning.

Good morning, Dave.

So just great to see EBITDA is remaining strong despite the little tick down in revenues here. It looks like you're kind of doing more with less. Can you kind of talk us through what's driving that and if any of the stuff that you've implemented to be able to maintain those strong margins are sticky going forward.

Yes. Absolutely, Dave. I'll start on this, and I'll let Mike chime in with anything that I miss. But I will say that, right, the team across the Board is dedicated to continuous improvement. In our second quarter, I think we noted some facility rationalizations that we had made, both with manufacturing in Mexico and then across our Tracer Diagnostics business. Those are certainly sticky. And then supply chain team that we have, part of a recent reorganization we had was putting our supply chain organization together with our technical services organization. And that started to bear fruit very quickly as well, where the combination of our supply chain is always thinking of ways to value engineer cost out of the way that we do business together with the tech services team who can interact with engineering and think about getting things rapidly prototyped and through field trial, I think, that's something where we're going to continue to chase ways to operate more efficiently and preserve and grow gross margin dollars. There are some other changes that we've made across the organization to try to structure things to run a little bit more efficiently and a little bit more lean that really impact the SG&A side and help us to preserve the ability to achieve an adjusted EBITDA. This year through the first nine months, that's consistent, a little bit better than last year despite the fact that revenue is off. So we're working with the current market environment where the US rig count troughed maybe a little bit later than we thought it would, where the Canadian activity didn't come out of breakup quite as strong as we had thought it would but we've been able to make sure that we continue to manage and measure costs in a way that we can preserve as much profitability as possible. And we do think that is sticky to use your phrase, so that when we do pivot back to revenue growth, that will help us with strong incremental margins and help to grow the average margin as we grow the top line.

Yes. This is Mike. Great question. Nothing more really further to add other than just SG&A, Ryan, to hit up on that, but just continuing to focus on not growing that, how do we leverage it and how do we strategically reduce that where it makes sense. So that's a long-term effort, and we're seeing those benefits.

That's incredibly helpful. One more, if I could. You continue to gain traction in the Middle East, you continue to get a foothold there. Can you kind of talk about the bidding environment there may be in comparison to the Canadian market where you're one of the top players already?

Sure, Dave. So for the Middle East, right, each country is a little bit different where we've been focused over the last few years. You'll have seen some of our commentary in our annual report, we've got a long-term contract in Oman for some Tracer Diagnostics work. We're looking to leverage that to be able to deploy some additional product lines beyond Tracers through that contract. But where we've really made headway in the last year or so is with Saudi Aramco. And that is a long process to get qualified in what you call catalog there. And typically, it involves -- you provide some equipment essentially for free in a free trial once the equipment works and proves out value proposition for the customer, then you're invited to be part of a cataloging process where the various asset owners in the region can utilize your equipment, you're effectively a qualified supplier and then in time, you may be selected to participate in multiyear tenders. And we're in that middle phase where we have multiple product lines that are cataloged and can be called off by the asset owners at Aramco, and that's for our Tracer Diagnostics business and for a couple of product lines within well construction. And we continue to work every day to kind of grow that relationship and become part of or have the opportunity to participate in some of the multi-well tenders where you really spec-ed in. But for now, we're happy with the progress we've made and the opportunity that we have, we can participate in revenue-generating projects right now and look to grow the business and look for those longer-term opportunities as they present themselves.

That's very helpful. Thank you for taking my questions and good luck in the fourth quarter.

All right. Thank you, Dave.

Thank you. [Operator Instructions] I am showing no further questions. I would now like to turn the call back over to Ryan Hummer for closing remarks.

All right. Thank you, Justin. Look, on behalf of our management team and our Board, we'd like to thank everyone who joined the call today, including our shareholders, analysts and especially our employees. I truly appreciate the depth and breadth of the expertise of our people at NCS and Repeat Precision and the passion and the effort that these people bring to their work. I look forward to talking to everyone, I guess, early next year.

And thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.