Ladies and gentlemen, thank you for standing by. Welcome to the Second Quarter 2024 NCS Multistage Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would like now to turn the conference over to Mike Morrison, Chief Financial Officer. Please go ahead.

Thank you Michelle, and thank you for joining the NCS Multistage second quarter 2024 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 our financial guidance and comments regarding our future expectations for financial results and business operations. These statements are subject to many risks and uncertainties that could cause our actual results to differ materially from any expectation expressed herein. 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 as well as the results of operations included in our earnings release contain the following non-GAAP financial measures: adjusted EBITDA, adjusted EBITDA margin, adjusted gross profit, adjusted gross margin, adjusted net loss, free cash flow less distributions to non-controlling interest and net working capital. The underlying details and reconciliations of these non-GAAP measures to the most comparable GAAP financial measures are provided in our second quarter earnings release, which can be found on our website ncsmultistage.com. I'll now turn the call over to Ryan.

All right. Thank you Mike and welcome to our investors, analysts and employees joining our second quarter 2024 earnings conference call. NCS has continued its strong start to 2024. Our second quarter revenue of $29.7 million, increased 17% compared to the prior year and was near the high end of our guided range provided on our last earnings call. This was led by our performance in the U.S. and in international markets. Our revenue for the first half of 2024 of $73.5 million, represents a 7% increase over last year. Our adjusted gross margin, which excludes depreciation and amortization expense was 40% and exceeded our guided range for the quarter supported by margin-accretive international revenues. Our SG&A expense of $14.8 million for the quarter was $0.3 million higher than the second quarter of 2023, reflecting higher incentive bonus accruals based on our favorable operating results substantially offset by cost saving measures implemented last year and other reduced expenditures. We benefited from an increase in other income, as compared to the second quarter of last year primarily due to royalty income from licensing of our intellectual property with a new licensee added during the second quarter. Our adjusted EBITDA of $0.9 million exceeded our guided range for the quarter of negative $2 million to breakeven, and represents a year-over-year improvement of over $3 million. Our adjusted EBITDA for the first half of 2024 of $7 million improved by $4.4 million, as compared to the first half of 2023. This improvement includes year-over-year contributions from increased revenue a higher adjusted gross margin percentage and increased other income as well as lower SG&A expenses as each part of our business has contributed to our more favorable results. Our balance sheet remains strong with our cash balance increasing to $18.6 million at June 30…

Thank you, Ryan. As reported in yesterday's earnings release, our second quarter revenues were $29.7 million, a 17% increase year-over-year with international revenues up almost 250%, US revenues up 26% while Canadian revenues were down 16%. The significant increase in our international revenues was driven by North Sea frac system sales and tracer work in the Middle East. Our US revenues were higher due to frac system sales despite the fact customer activity continues to be negatively impacted by lower natural gas prices. The decline in Canadian revenues was a result of certain customers deferring their planned frac systems work to the second half of the year due to wet weather conditions and E&P consolidation transactions. Sequentially, our revenues in the second quarter decreased 32% with Canada declining by over 60%, reflecting the normal seasonality decline in activity levels associated with spring breakup. Our international revenues increased by more than 160% and our US revenues increased 18%. Our adjusted gross profit, which excludes depreciation and amortization expense, was $12 million in the second quarter of 2024. Our adjusted gross margin was 40%, a significant improvement compared to the adjusted gross margin of 33% in the second quarter of last year. This improvement was largely contributed by higher-margin international revenues. Despite the sequential decline in second quarter revenues, our adjusted gross margin remained consistent with last quarter's adjusted gross margin. Other income of $2.2 million for the second quarter of 2024, improved by $700,000 compared to the same period in 2023, primarily due to increased royalty income from a new licensee, including a catch-up payment for prior use of our intellectual property. For the second quarter, we reported a net loss of $3.1 million or a loss per share of $1.21, an improvement over the net loss in the second quarter…

Thank you, Mike. We're making only slight adjustments to our full year guidance for 2024. We currently expect full year revenue of $152 million to $160 million. This guidance increases the low end of the revenue range by $2 million and maintains the top end of the range. As a reminder, we expect that our revenue growth will primarily result from increased sales of Repeat Precision's frac plug and perforating gun products in both the U.S. and Canada and from fracturing systems and tracer diagnostics work in international markets, particularly in the North Sea and Middle East. We're optimistic about Canadian activity as well. Their fundamental drivers supporting customer activity in Canada, including the TMX oil pipeline that entered service earlier this year and the LNG -- and Canada LNG facility, which is due to come online in 2025, which should drive an increase in activity to support higher natural gas production in advance of that facility's commissioning. In addition, the strong U.S. dollar relative to the Canadian dollar, should support an increase in Canadian activity, as our Canadian customers have operating expenses denominated in Canadian dollars, but sell oil and condensate at prices linked to the strong U.S. dollar. These positive fundamental factors are tempered a bit by the current wildfires in Western Canada. While there has not yet been any significant impact to our business from wildfires this summer, the possibility of future impact does exist. We've increased our adjusted EBITDA range to $16.5 million to $19.5 million, with a midpoint of $18 million. This is a $2 million increase to the midpoint of the range from last quarter, with increases to both the bottom and top end of the range. Due to the seasonality of our business and consistent with prior years, we expect to achieve our…

Thank you. [Operator Instructions] The first question comes from Dave Storms with Stonegate. Your line is now open.

Morning.

Good morning, Dave.

Hoping we could start with some of the puts and takes on 3Q guidance. Is that just as easy as if wildfires do become an issue, Canada ends up on the lower end? Is international -- does that tend to be more of a timing concern? Just any more color you could give us on what would put you on the lower -- higher end of 3Q guidance would be very helpful.

Yes. Thanks, Dave. I think you really captured it. The low end of the range does have a little bit of conservatism in the event that there's a shift in Canadian activity in response to wildfire activity. Again, we're not seeing that at this time. And you're right as far as international that activity can shift sometimes fall in or out of a quarter. But I think we feel pretty confident within that range and that the guidance range has accounted for some of those potential slippages. So feel good about the range, the low end yes, driven by a potential downside in Canadian activity that we don't see at this time however.

That's perfect. Thank you. And then just thinking about the international markets, what inning do you feel like NCSM is in? And this could be for services or products but are you -- do you still feel like you guys have given a lot of demos and working to get cataloged in most of your international markets? Or do you feel like you've kind of gone through that threshold and are now starting to focus on capturing market share?

Yes, it's an interesting question and you kind of have to look at it, market by market. So we've talked in the North Sea in particular, the last two years we've been really focused on expanding the customer base there, so we can have a steadier level of activity across the years as certain customers pick up activity and others ramp down. So I think we're more towards the call it middle innings there where we had a lot of good conversations with customers. We're having first wells with customers as a result, but we've had those conversations with a lot of the customer base there. I think there's good upside to come especially over the next couple of years. We're probably at an earlier stage with respect to the Middle East. That qualification process is longer and programmatic. I think we're certainly happy with the way that we've been able to penetrate the Middle East market with the tracer diagnostics business, but we do expect to be able to pull additional product lines into that market over time targeting the areas that the customers are expecting an uptick in activity. So, thinking through unconventional gas developments for operators in the Middle East and with certain customers that are out there with plans to increase their productive oil capacity. So, again bringing our technology in. We're relatively early but we're also focused on markets that are going to be growing within those various regions as well.

Understood. Thank you. And then just one more for me if I could. I know you mentioned that royalty income was -- contributed both from a new royalty agreement as well as a catch-up payment. Is there any way we could break that out a little bit just so we can hopefully think about a run rate for that line item?

Yes. I think Mike spoke to that. So we were certainly a bit ahead of what our traditional run rate had been in the second quarter. I think Mike gave guidance that royalty income or other income in general would be between $1 million and $1.3 million for the third quarter. I think that's probably a good run rate at least based on what we have within our portfolio from a licensee standpoint today. We'll certainly work to try to add to that. So there could be some upside but that's a pretty good run rate for the next several quarters until we have some additional information.

Understood. Good luck in Q2. Question and Answer

Absolutely. Thanks, Dave.

[Operator Instructions] And our next question comes from John Daniel with Daniel Energy Partners. Your line is open.

Hey, Ryan, good morning. Ryan in your prepared remarks you talked about one of the highlights in Canada being a well that had 275 sleeves and then one that's expected to have 300. I'm just curious if you happen to have sort of like average sleeves per well sort of Q1 and Q2? And how do you see this playing out over the balance of the next couple of years? And what could that potentially mean in terms of just incremental revenue if we were to start standardizing on the high 200s low 300s?

Sure. There's obviously a lot of variability across the operating base in Canada and the region. Yes, yes. What I will say now for the customers that are operating in the Montney specifically that tends to be a much higher intensity completion in Canada than areas like the Cardium and obviously some of the light oil plays in Southern Alberta and Saskatchewan you may see on average somewhere between 100 and 150 in the Montney. This particular operator is looking at tighter density slightly longer laterals. And obviously, they're seeing the economic results from that to justify kind of continued increases to completion intensity over time. So, were that type of design to be kind of promulgated across the customer base there could be some pretty meaningful increase in that number of sleeves per well or opportunity per well for us. We are seeing that a bit in some other markets, as well where customers are moving towards tighter density and seeing positive results from that. And as the initial operator that pursues that program, as the results come in you see other operators in the area look to it and start to emulate those designs as well. Q – John Daniel: Okay. So it's more a tighter density as opposed to just a longer lateral. Is that the driver then?

It's a little bit of both, right? So laterals are extending in Canada, just as they are here in the US. But yes, the this particular customer is at a tighter density than I'd say, most of the others in the region and they're continuing to see where they can kind of push to get that economic benefit. Q – John Daniel: Okay. Got it. And then I know you probably don't have a strong view on this, but I'm just curious if you could speak to discussions as it relates to international opportunities in 2025.

Yes. Yes, absolutely. I think as we turn the corner from 2024 to 2025, as we think about where we can probably have the most impactful increase on the international revenue side I'd say it's going to be more driven by the North Sea, next year. I think we can maintain and grow the opportunity set in the Middle East, which has been the biggest driver this year. And next year is where we'll get additional contributions from the North Sea to keep that momentum. Q – John Daniel: Got it. Okay. All right. Thanks for squeezing me.

I appreciate it. John.

I show no further questions in the queue. I would now like to turn the call back to Ryan Hummer for closing remarks.

Thank you, Michelle. On behalf of our management team and Board, we'd like to thank everyone on the call today including our shareholders, analysts and especially our employees. I truly appreciate the tremendous work and dedication demonstrated by our team here at NCS and Repeat Precision, as we implement our long-term strategy. You may have heard me use the phrase technically demanding several times on this call. We're engaged with our customers to enable them to succeed in challenging environments, onshore or offshore at ever-increasing depths, temperatures and pressures and increasingly outside of North America. It's only through the capabilities of our people, in a wide variety of roles across NCS, that we can confidently take on these challenges and I'm grateful to have such an amazing team aligned on achieving our objectives and those of our customers. We appreciate everyone's interest in NCS Multistage, and we look forward to talking again on our next quarterly earnings call.

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