NCS Multistage Holdings, Inc. Stock

Ladies and gentlemen, thank you for standing by. Welcome to the NCS Multistage First Quarter 2026 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to hand the call over to Corbin Woodhull of Hayden IR. Corbin, you can begin.

Thank you, Latif. I would like to welcome everyone to the conference call and thank NCS Multistage management for hosting today's call. With us on the call today are Mr. Ryan Hummer, the CEO of NCS Multistage and Mr. Mike Morrison, the CFO. I would like 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 other expectations 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: EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted EBITDA less share-based compensation, adjusted gross profit, adjusted gross margin, free cash flow, free cash flow less distributions to noncontrolling interest and net working capital. These non-GAAP measures and reconciliations to our most comparable GAAP financial measures are provided in our first quarter earnings release, which can be found on our website at www.ncsmultistage.com.

With that, I will now turn the call over to Ryan Hummer.

Thank you, Corbin, and welcome to our investors, analysts and employees who are joining our first quarter 2026 earnings call. I'll begin by discussing our results for the first quarter and our outlook for the remainder of the year. I'll then briefly review some recent commercial and operational highlights aligned with our strategy and long-term growth objectives. Mike will follow with additional detail on the first quarter and our guidance for the second quarter.

Revenue for the first quarter of $45.6 million was slightly more than $5 million below the midpoint of our prior guidance. The shortfall was concentrated in Canada with the balance from international. In Canada, we experienced both challenging weather conditions in March in Southern Alberta and Saskatchewan as well as an earlier-than-expected onset of spring breakup, which contributed to a year-over-year first quarter Canadian rig count reduction of approximately 7%. In addition, certain of our customers experienced drilling issues or deferred their planned activity from Q1 until later in the year, while other customers reduced activity on recently acquired assets as they evaluate

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than we had anticipated under a new completions contract that was awarded last year.

A high point for the quarter for us was our U.S. revenue, which improved by over 100% year-over-year and by 6% as compared to the fourth quarter of 2025. Despite the revenue shortfall, we met the midpoint of our adjusted gross margin guidance and reduced our SG&A, even with the inclusion of additional operating expenses related to ResMetrics. As we look forward to the remainder of the year, we're modestly increasing the midpoint of our revenue guidance for full year 2026 and maintaining our adjusted EBITDA guidance despite the challenges encountered late in the first quarter.

Starting with Canada. Our expectations for full year capital spending by our customers remains unchanged. Accordingly, we expect the lower rig count in the first quarter of 2026 compared to the first quarter of 2025 to reverse after spring breakup, with modestly higher year-over-year activity in the second half of the year, including jobs that were deferred from Q1 by our customers, as mentioned previously. Importantly, this view of activity is based on current customer capital budgets and does not reflect any budget or activity adjustments that could result from higher oil prices ensuing from the current conflict in the Middle East.

In the U.S., we've had 2 positive developments that improve our outlook. First, a large customer has placed an order for a multi-well, multi-basin fracturing systems project in the Permian and the Rockies after a successful initial 2-well project last year. We expect to deliver the sliding sleeves for this project later this year with most of the revenue to come in the fourth quarter. Completions for these wells are expected to take place in 2027.

Second, Repeat Precision has successfully converted field trials that were underway during the first quarter into recurring work with several customers. This increase in activity started in late February and has since continued. Repeat Precision was awarded this work based on the operational performance of our products, validated in many cases by third-party diagnostics resulting from head-to-head comparisons with one or more competing products.

Another key differentiator supporting growth at Repeat Precision is the StageSaver frac plug introduced last year. As a reminder, StageSaver is a product that helps customers keep operations running smoothly when unexpected problems happen in the well. It reduces disruptions from screenouts and other downhole issues, which helps customers get more value from their advanced completion methodologies like simulfrac and trimulfrac. Additional customer trials are underway for the StageSaver plug and also Repeat Precision's PurpleReign dissolvable plug.

To support recent and potential future growth, we are investing in additional machining assets at Repeat Precision to increase capacity by approximately 25% and to reduce labor costs for overtime hours that we are currently using to support the increased volumes. Our guidance for 2026 currently excludes the potential delivery of sliding sleeves for our first deepwater opportunity in the Gulf of America. We continue to work with our customer and the regulators to advance this opportunity, which could materialize in late 2026 or in early 2027.

Our international outlook for this year remains consistent with our prior call. We could see additional orders in the North Sea and higher volumes of frac plug sales to the Middle East, which may be offset slightly by lower tracer diagnostics activity in Saudi Arabia. Looking forward, we expect continued growth in North Sea activity in 2027 as 2 of our customers begin multiyear projects in fields that will be utilizing our technology. We've also submitted a tender for a 3-well project, which if awarded, would represent our first shallow water project outside of the North Sea and we continue to validate the applicability of our Ratek frac sleeve family in multiple geographies.

I'll now spend just a few minutes reviewing some recent commercial and operational highlights that are aligned with our long-term strategy. During the first quarter, a customer in the Mid-Con region completed the first zipper frac of wells in the U.S. with NCS sleeves. While zipper and simulfrac completions using NCS sleeves occurs frequently in Canada, this is a great example of a U.S. customer pairing the downhole performance of our fracturing systems technology with efficient surface methods. This reduces costs and improves financial returns, and the customer plans to continue with zipper fracs in this area going forward.

We installed several convertible sleeves in a well that the customer intends to use for enhanced oil recovery or EOR in the Permian area. These sleeves can be used during the initial completion and early production phase of the well with the option to later ship them for controlled injection as part of the overall EOR project. We're developing a 6-inch frac sleeve and service tool to support a customer project in the Rockies for 2027. For this project, our sleeves will be run in several new wells at a depth below an existing well pad and used to restimulate the existing asset. Regulatory approval for this application was supported by the unique attributes of our technology and the reliability of our Shift-Frac-Close operations.

We've also been awarded a second fracturing systems job in Oman scheduled for later this year. This follows the successful operations and strong production results from our initial well in the region last year. In tracer diagnostics, we provided our SmartProp solution initially developed by ResMetrics to a customer in Canada. This SmartProp tracer carrier has properties that are very similar to frac sand, transporting like sand into the formation to provide a better indicator of stage level performance.

Continuing in tracer diagnostics, we recently completed our first rapid trace project in the North Sea. This on-site testing solution provides qualitative results in nearly real time, eliminating the need to ship samples to our laboratories. The customer validated production from the lateral after the completion during the well testing phase, informing their decisions and helping them to release expensive day rate assets from location earlier than they otherwise would have.

And last, the final ResMetrics integration steps are underway. We relocated our manufacturing and laboratory assets from ResMetrics facility in Houston to our facility in Tulsa. And over the next few weeks, we'll move the remaining Houston tracer inventory into our districts, fully consolidating field operations. Our NCS and ResMetrics team has done a fantastic job throughout the integration process. We're starting to benefit from operational synergies, which we expect to accelerate in the second half of the year. And our team in Canada, in particular, is leaning into the new service capabilities and combined offerings to capture revenue synergy potential.

Mike will now review our results for the first quarter in more detail and provide our guidance for the second quarter of 2026.

Thanks, Ryan. As reported in yesterday's earnings release, our first quarter revenues were $45.6 million, a 9% decline compared to the first quarter of last year and below our guidance range. The decrease in revenue for the quarter was driven by lower activity and rig counts in Canada as well as a decline in international service revenue.

From a geographic standpoint, the U.S. led with revenue that more than doubled year-over-year. International increased by 13% and Canada declined by 38% -- the increase in the U.S. was broad-based, driven by Repeat Precision product sales and tracer diagnostic service revenue, including a $1.8 million contribution from ResMetrics, a business we acquired in July 2025. International benefited from well construction product sales in the Middle East, delivering a 63% year-over-year increase in international product revenue.

Our adjusted gross profit, defined as total revenue less total cost of sales, excluding depreciation and amortization expense, was $18.2 million for the first quarter, representing an adjusted gross margin of 40% compared to adjusted gross margin of 44% for the same period in 2025. Adjusted gross margin was at the midpoint of our guidance. However, the year-over-year decline reflects a revenue contraction for the quarter attributable to lower activity in Canada and reduced higher-margin international tracer diagnostic activity in the Middle East. The favorable contribution from ResMetrics served to partially offset the gross margin pressure.

Selling, general and administrative costs were $15.7 million for the first quarter, down 3% compared to the same period last year, reflecting lower incentive bonus accruals recorded in 2026 as well as lower share-based compensation expense associated with our cash-settled awards. ResMetrics contributed $0.7 million of SG&A in the quarter. Normalizing for these items, the rest of our SG&A was lower by $0.4 million year-over-year, further validating our financial discipline.

Other income of $1.9 million increased from $0.9 million in the first quarter of 2025, driven primarily by royalty income from licenses associated with our intellectual property as well as stronger scrap sales. Our net loss for the quarter was $0.4 million or a loss per share of $0.14 compared to net income of $4.1 million or diluted earnings per share of $1.51 in the year ago period. Adjusted EBITDA was $5.6 million or an adjusted EBITDA margin of over 12%, short of the low end of our quarterly guidance range and a decline from the $8.2 million in the prior year.

Turning to our cash flow and balance sheet. Our cash flow from operating activities was a positive $1.3 million, and our free cash flow was $0.7 million, both improvements to the use of cash from operating activities of $1.6 million and a negative free cash flow of $2.1 million in the same period in 2025. As of March 31, 2026, we had $34.5 million in cash and total debt of $7.2 million, which consisted entirely of finance lease obligations, resulting in a positive net cash position over $27 million. The borrowing base availability under our undrawn ABL Facility was $18.5 million, resulting in total liquidity of $53 million.

Turning now to a few points of guidance for the second quarter of 2026. We currently expect second quarter total revenue in the range of $36 million to $39 million, implying an increase of 3% at the midpoint compared to the second quarter of 2025. We expect U.S. revenue from $18 million to $19 million, international revenue from $5 million to $6 million and Canadian revenue from $13 million to $14 million.

Adjusted gross margin is expected to be between 35.5% and 37.5%, with the midpoint of the range representing a modest expansion compared to the second quarter of 2025. Adjusted EBITDA is expected to be between breakeven and $2 million and our second quarter depreciation and amortization expense is expected to be approximately $1.6 million.

With that, I'll hand it back over to Ryan, who will provide our updated full year 2026 guidance and closing remarks.

Thank you, Mike. So I covered our market expectations, including the various product lines and geographies earlier. And accordingly, our full year guidance for 2026 is as follows. We currently expect full year revenue in the range of $186 million to $194 million. This reflects a $2 million increase to the low end of the range and a $1 million increase to the midpoint of our prior guidance. We're maintaining our full year adjusted EBITDA guidance range at $26 million to $29 million, with the benefit of the higher revenue offset by an expected increase in our cash-settled share-based compensation expense.

We're also incurring additional supply chain costs, including shipping and transportation, resulting from the current conflict in the Middle East. We are increasing our planned capital expenditures for 2026 to $2.2 million to $2.8 million, an increase of $0.8 million at the midpoint. The increased capital investment is dedicated to expanding manufacturing capacity at Repeat Precision in support of growing sales volumes.

We expect free cash flow after distributions to our joint venture partner of $11 million to $15 million. This is $1 million lower at the midpoint, reflecting the higher capital expenditures, potential working capital impacts related to revenue timing for the year and a higher mix of earnings derived from Repeat Precision this year.

Consistent with prior years, we anticipate that the achievement of our annual adjusted EBITDA will be weighted to the second half of the year and that our free cash flow will be weighted towards the end of the year. As I mentioned earlier, our guidance at this time does not incorporate any expectation of increased customer activity that could result from improved customer cash flows associated with higher oil and liquids prices.

I believe NCS is very well positioned if we do enter a market that supports higher oil prices over the medium to long term, both through our presence in North America as a source of shorter-cycle production and in international markets where we support highly capital-efficient resource development in growing markets. We've demonstrated our ability to deliver organic revenue growth at high incremental contribution margins, leveraging our relatively fixed SG&A and expect that we could continue to do so if a new structural demand cycle emerges as many are suggesting.

Before Q&A, I'll close with a few comments. I'm proud of what the team at NCS accomplished during the quarter. While we fell short on our revenue expectation this quarter, we converted several opportunities that we expect to materialize as revenue later this year and into the future. Our business model continues to be proven as we generated free cash flow during the first quarter, a quarter when we've historically experienced a use of cash. We maintain a strong balance sheet and liquidity position with total liquidity of $53 million, including availability under our revolver.

We continue to deliver impactful new technology to our customers as exemplified by our StageSaver composite frac plug and the dual-barrel frac sleeve for enhanced oil recovery. We are approaching the final stages of the ResMetrics operational integration and are on track to realize the expected cost synergies, and we're capitalizing on incremental revenue synergy opportunities.

Finally, we're taking actions to better position NCS to capitalize on the growth opportunities that we've been targeting in global offshore markets. We're establishing an internal cross-functional team, including business development, technical services, product line, engineering and operations to identify and prioritize commercial and product development opportunities and to assist customers in planning for and delivering successful operations. This team is supported by a recent hire that we've made, bringing on board an individual with extensive global experience in stimulation design and execution, both offshore and onshore during his time at a super major. We believe that this enhanced focus will better position NCS to capitalize on our strong and growing track record in offshore completions.

With that, we welcome any questions.

[Operator Instructions] Our first question comes from the line of Dave Storms of Stonegate.

Just wanted to start maybe with Canada. Obviously, there was a lot of things that were maybe headwinds in the quarter for you between the weather issues, spring breakup, customer delays. Would you be able to maybe break out a little bit more there about how much of a factor each of those variables were? I'm just trying to get a sense for what the risks could be going forward. Obviously, you kept your revenue guide still very strong. So that's encouraging, but just trying to figure out what the risks are there.

Yes. So I'll take them kind of one by one. Really kind of 3 things that kind of cropped up primarily in March with respect to Canada. The first was the weather that we had alluded to. Conditions got unfavorable in March for completions activity in Southern Alberta and Saskatchewan. And then we had a little bit earlier onset of spring breakup as the thaw line kind of progressed north faster than is typical. And I'd say that was probably half of the driver of kind of the miss in Canada relative to the Q1 expectations.

And then beyond that, we had some customers who deferred their activity projects they had expected to kick off in February and March, and they deferred that. And if you think about it, the expectation coming into this year, budgets were set with $60 or $65 oil. There was an expectation that the market would potentially improve in the latter half of the year. So it makes sense that some of those customers might defer their planning. And with spring breakup hitting in the middle of the year, our Canadian customers have the ability to do that. So I think they were just kind of looking at what was in front of them and potential improving market later in the year and just decided to shift their capital a little bit further back.

And then the last piece, which is smaller but is impactful is we mentioned that customers had some drilling issues. They either encountered tough formations or weren't able to get to depth, and we don't sell our sleeves until they get installed in the customers' wells. So a couple of wells for us where we had expected those sleeves to get installed and either they came up short or they had to drill a new lateral. So kind of the accumulation of all of those led up to kind of the miss in Q1. And I'd say most of that we'll be able to recover later in the year. Again, that's on kind of a basis of customers continuing with their initial budgets. I think there's potential upside from there if the markets start to react to the higher oil price environment.

Understood. That's great commentary. Maybe just wanted to talk to some of the new tech. You mentioned that the deepwater stuff could either come in '26 or '27. Maybe just walk us through some of the variables there. Is this just a matter of getting the tech right? Is there still qualification that needs to be done? Is this a customer timing thing at this point? I guess what would bring that into '26 versus '27? And then maybe additionally, what does the backlog for additional projects look like in deepwater, assuming this all goes well?

Yes. So for the initial well, right, the asset has been identified. We're working together with the customer and the regulator, as we've said, for that project. And that's being targeted. Drilling for that well is expected to start kind of late this year. We are targeting delivery of sleeves for that project in December. But obviously, with projects like that, there's an opportunity for it to slip a little bit. So we're just being a little bit cautious and not putting a large project into the guidance in December that if it slips by a week or 2, could fall into next year.

So there is ongoing work there as far as finalizing the metallurgy that goes into the sleeves and some testing requirements and whatnot, but we do feel like we're on track. That customer has identified 2 other projects in the Gulf of America where we think that technology would have some application as you move into kind of thinking about later 2027, 2028. And then as with most projects in the offshore environment, there -- you have the operator for that well and then other companies who have smaller percentages of that project.

And we've been talking to several customers about this deepwater solution. So we do think that we'll be able to grow that customer base over time. But again, this is a kind of long cycle from a customer acquisition standpoint, proving out the technology, making sure it's fit for the application in each customer and each well's environment.

So we feel good about how that will play out over the course of the next couple of years. We think we're on track for this first well. That customer has plans for additional opportunities, but then it's from there expanding that customer base and moving into other markets worldwide.

That's great. Maybe one more for me before I jump back in the queue. Just on the macro, you guys both have a lot of conversations with operators in the industry. Obviously, the macro environment is fast changing. Are you seeing any operators changing their philosophy or their stance? Or is everyone still in a bit of a wait-and-see mode as the commodity prices change?

Yes. Those conversations are certainly starting to pick up. We are having those conversations, and I think that's been articulated also through some of the drilling contractors have reported recently, whether it be Patterson or Nabors talking about customer inquiries for increasing the rig count. You've seen some commentary from Halliburton and Liberty and Patterson talking about the ability to bring some completion crews back into the market.

There's not as many excess rigs as it used to be. There's not as much excess frac capacity as there used to be, but those conversations are certainly taking place. They're taking place both in the U.S. and in Canada. But don't want to lean into that too much just yet. We'll wait for the customers to come up with their budgets and actually contract those rigs and move it from conversations about picking up activity to commitments to do so.

Our next question comes from the line of John Daniel of Daniel Energy Partners.

Just to call it a 2-part question for you. Let's assume we're positively surprised and the activity accelerations occur a bit faster and more assertively than conventional wisdom. In such a scenario, Ryan, what constraints, if any, do you think could become obstacles to growth? And what could you do right now to start getting ahead of it?

Yes, John, thanks for the question. For us, really, there's very little, right? And a lot of that comes from the way we've set up the business model. We are -- as I mentioned earlier, we're investing to increase the capacity at Repeat Precision. Those machining assets are coming online in the course of the next month or 2. So we'll be able to pick up capacity there and I think be able to handle growth should it pick up on the frac plug side.

If it comes to fruition right across tracer diagnostics, across our frac systems business, from a supply chain standpoint, we're in really good shape across both of those. We've got an outsourced manufacturing model. We're not limited really with respect to any sort of roofline or equipment constraints. What we really need to do is start hiring some people to support that.

In Canada, we use a contractor model. So we have some employees, but we can also flex our field capacity with contractors, and it's really good work for them. So if we have activity, I think no issues getting those contractors on board to support it. In the U.S., most of our activities in international is supported by employees. So to support a pickup in activity in the U.S. and international, we would need to start hiring folks and getting them out there and trained and on jobs.

We maintain kind of a roster of folks who either previously worked at NCS or that have come to us in the past as we've had open positions. So we lean into that and try to build up that workforce as quickly as possible. But it's really more a people constraint than it is a manufacturing or supply chain constraint.

Okay. And sticking with a sort of a glass-half-full outlook here from my perspective, at least, is if we have that -- you guys went through a number of new projects that you're working on. As you think about the growth in the business, would you expect the faster growth rate to come from those new projects, products, if you will, or like, legacy products? And then -- and I'm not looking for specific financial guidance here, although it's going to sound like it, but like just speak to what happens in terms of margin impact over multiple quarters if the thing -- if we take off here.

Yes. It's a good question. Look, I think if the industry does inflect, I think in some ways, it leads with kind of our historical products. Now I'll say there's a little bit of nuance to that in that for Repeat, StageSaver, I think, has moved on to where it was introduced last year, and it's now probably half of the volume on the plug side. So that new product is really kind of at the leading edge and displacing our traditional composite plug.

I think the increase in activity would be across our legacy products and projects, but it could lead to a little bit more rapid development and advancement of the opportunities across the newer products and solutions that we've been bringing to market. I think it helps on all fronts, but you react really -- you react more quickly of what you already know, right, from an operator standpoint. So I think it benefits both, but I think it's an uptick again, kind of traditional products, but does maybe accelerate the time line to introduce the newer solutions.

[Operator Instructions] Our next question comes from the line of Gowshi Sri of Singular Research.

Can you hear me?

We can.

On the Canada, can you -- the accounts, the top 3 accounts, the specific customers, have they since reconfirmed the deferred work for H2? Or is the Canadian recovery assumptions more of a market level expectation?

It's a little bit of both, right? So our -- I think as we talked about a little bit, we had an M&A combination of 2 of our larger customers last year that was announced about this time and that closed, I think it was maybe late in the second quarter last year. And when you do have some of that consolidation on the upstream side, a lot of times, their pro forma activity will be reduced a bit. So we're seeing the year-over-year impacts of that really across more of the first and second half -- or sorry, first and second quarters of this year. We had already really kind of experienced the impact in the second half starting last year.

Now with that customer, in particular, they use us in their operating areas where they use frac sleeves, so our fracturing system product line, but they also use us for precision products where they run plug-and-perf completions. So we've got a good sense for -- as their program moves forward. The projects where they're going to be using sleeves and the projects where they're going to be using plugs and how that plays into the revenue for the second half of the year.

With respect to the rest of the customer base, yes, again, for our largest customers, our sales and business development team and also our COO have been in front of customers recently kind of confirming their plans for the second half of the year. So it's a bit of a customer-by-customer buildup for our larger customers together with a general sense for the market.

And just to look at the outlook, the H2 outlook, is that achievable at the current lower rig count levels? Or is that -- are you assuming the rig count in the Canada to level back to Q1 '25 levels?

Right. So for Canada, our expectation is unchanged with respect to the market. And that expectation is that the market as a whole, capital spending across our customer base is relatively flat year-over-year, and therefore, rig count would be relatively flat year-over-year across the year. So with that, with the rig count having been lower in the first quarter on a year-over-year basis, we do expect rig count will be a little bit higher in the second half on a year-over-year basis. But again, it doesn't include any change in our expectations for what the full year rig count would be.

Okay. Got you. On the Repeat Precision pricing, are the StageSaver and the PurpleReign, are they commanding a premium price over some of your legacy plugs? Or is this more still of a volume growth story?

For StageSaver, it's primarily volume growth. There's not much of a pricing differential between the StageSaver and our traditional PurpleSeal composite plugs. The PurpleReign is a different product entirely in that it's a dissolvable frac plug, and that does come at a higher price point in the market in part because the materials cost that goes into that is a bit more elevated. But I'd say just from a kind of profitability standpoint, they command relatively similar contribution margins.

Got you. On the multi-well customer in the U.S., with the sliding sleeves, are you able to give us a size of that project in terms of revenue terms? Is that a low single-digit or double-digit million-dollar opportunity and kind of the margin profile of that opportunity?

Sure. For that one and how it kind of plays into our guidance for the year, I'd say that the expectation is that, that could end up being somewhere in the order of 2% to 3% of our annual revenue. So think about it as a $4 million to $5 million project. And I'm thinking about it that way, primarily with respect to sort of the, call it, the standard costs of the sleeves. There is a potential that they would have us provide some additional value-added services related to those sleeves, which would increase revenue but come in at a lower contribution margin.

Got you. Okay. On the international side, is the cross-selling between the NCS legacy tracer offering and now the ResMetrics capabilities in the Middle East starting to show up in customer conversations? Or is that synergy still ahead of us?

Yes. I think there's definitely still some opportunity ahead, right? The alignment of the sales teams was one of the first things that we did, obviously, in the integration process. But the sales teams that came with the ResMetrics acquisition were a little bit less familiar with some of the things that we had that were unique on the NCS side and vice versa. So I think as the sales teams get more exposure to being able to offer that full service suite, you are seeing opportunities continue to expand.

And we talked about a few of them, talked about the SmartProp offering, which was a legacy ResMetrics product, which has some good traction in the market, talked about the rapid trace onsite, which is really more for applications like we talked about in the North Sea or Alaska or maybe even some remote areas in the Middle East where you want that quick qualitative result and don't want -- don't need to take the time to send a sample back to a lab.

The other one that we didn't talk about on this call is something called Lumen8, and that's what we call a composite multi-day sampler. We've had deployments on that. It's been proven to be very robust in the field and have good customer interest to take that out to location on new projects going forward. That was a legacy NCS development that, again, sort of that combined sales team is finding opportunities for.

So I think we're still relatively early innings in being able to fully capitalize on the full service suite and then to capitalize on the relatively newer product introductions that each of us had coming into the combination.

Got you. And I'll make this my last one. On the EBITDA guidance for Q2, you've talked consistently about relatively fixed SG&A base as a key to operating leverage. So is the Q2 operating compression purely a gross margin issue from a lower revenue mix? At what revenue level does NCS kind of breakeven? Or is that some of the cost due to higher supply chain costs due to what's happening in -- on a macro level?

Right. So as far as the EBITDA guidance then, yes, most of what you're seeing there is with respect to the fixed cost component that exists within cost of sales and the lower gross profit margin that Mike had articulated in Q2 and which we've experienced historically. Obviously, so bringing ResMetrics, which is a new -- a more U.S.-oriented business in from last year helps with that. It eliminates some of the seasonality. The pickup in the Repeat Precision business helps to address that a bit.

But we're always going to have, so long as our Canadian business represents the majority of our work or a very large component of our work, you're going to see some seasonal impacts in Q2. As far as where does that kind of breakeven profitability sit, I think within the guidance, the lower end of the EBITDA range was breakeven. So call it, $35 million of revenue might get you to plus or minus breakeven at the EBITDA standpoint, and then you experience the benefits from there as you ramp up, you get a little bit better gross margin percentage flowing through and you're holding those operating costs flat.

I would now like to turn the conference back to Ryan Hummer for closing remarks. Sir?

All right. Thank you. So on behalf of our management team and our Board, we'd like to thank everyone for joining 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, Repeat Precision and ResMetrics and the passion and effort that our people bring to their work.

Our team continues to provide excellent service to our customers, commercializing new products and services that will enable our customers to be more successful. We're taking on demanding and technically challenging work and delivering results. We appreciate everyone's interest in NCS Multistage, and we look forward to speaking again on our next quarterly earnings call.

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

Good day, and thank you for standing by. Welcome to the Fourth Quarter and Full Year 2025 NCS Multistage Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. I would now like to hand it over to your speaker today, Corbin Woodhull, Hayden Investor Relations. Please go ahead.

Thank you, Victor. I would like to welcome everyone to the conference call and thank NCS Multistage management for hosting today's call. With us on the call today are Mr. Ryan Hummer, CEO of NCS Multistage; and Mr. Mike Morrison, the CFO.

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 other expectations 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: EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted EBITDA less share-based compensation, adjusted gross profit, adjusted gross margin, free cash flow, free cash flow less distributions to noncontrolling interest, net working capital, return on invested capital, net operating profit after tax and average invested capital. These non-GAAP measures and reconciliations to the most comparable GAAP financial measures are provided in our fourth quarter earnings release, which can be found on our website at ncsmultistage.com.

I will now turn the call over to Ryan Hummer.

Thank you, Corbin, and welcome to our investors, analysts and employees who are joining our fourth quarter and full year 2025 earnings conference call. I'll begin my discussion with the financial highlights for 2025, and we'll review certain commercial and operational accomplishments from 2025 and early 2026 that are aligned with NCS' vision and core business strategies. I'll also discuss the integration of ResMetrics and outline our strategic objectives for the year. Mike will follow covering the financial results for the quarter and our near-term guidance.

2025 was a very important and successful year for NCS. Strong performance in the fourth quarter capped a year in which we exceeded the high end of our guidance range for the quarter and full year for revenue, adjusted EBITDA and free cash flow. Year-over-year, we grew revenue by 13% compared to 2024 and 10% excluding the contribution from ResMetrics, which we acquired at the end of July 2025. We achieved revenue growth in each of the U.S., Canada and international markets despite the challenging industry environment. Adjusted EBITDA increased by 20% year-over-year, outpacing our revenue growth and reaching $26.7 million with an adjusted EBITDA margin of 15%. Free cash flow after distributions to noncontrolling interest totaled $18.9 million and represents over 70% adjusted EBITDA to free cash flow conversion, which highlights the impact of our asset-light model. We strengthened our balance sheet while completing the strategic acquisition of ResMetrics, enhancing our global position in the tracer diagnostics space. ResMetrics is a highly complementary addition to our business that I'll discuss further in a moment.

So starting with our strategy. Our vision at NCS is to advance more efficient, intelligent and sustainable energy development by enabling unmatched well performance. In practice, we deploy this vision in pursuit of the approximately $10 billion global completions market through a cohesive product and service offering that's designed to enable our customers to reliably maximize the value of their unconventional assets.

Supplies across diverse markets in the more mature markets in North America, in emerging high-growth unconventional developments in Argentina and the Middle East and in more conventional geographies like the North Sea and Alaska, where we are successfully deploying unconventional technologies and techniques, collaborating with our customers to open new markets for our products and services in technically demanding environments, including innovative solutions for heavy oil, utilizing steam-assisted gravity drainage, or SAGD, for deepwater offshore markets and for enhanced geothermal systems. We also continue to partner with our customers to pursue further adoption of our products and services during the production phase of the well.

As we've discussed before, we have 3 core strategies that are supported by 2 guiding principles. I'll review each, including recent progress to demonstrate how we're creating long-term value for our stakeholders. The first core strategy is to build upon our leading market positions. This includes our market share and relationships in Canada, our extensive global track record in fracturing systems and our expertise in tracer diagnostics, which has been strengthened through our combination with ResMetrics. This strategy is evident when we partner with our customers to introduce our solutions in new markets, often based on our extensive track record and the partnership that we've built with our customers over time. An example includes the first use of our fracturing systems technology for stimulation in a SAGD project in Canada in 2025, which also utilized our tracer diagnostic services to corroborate production results.

Another example is the first expected installation of our Ratek Proppex sliding sleeve system with integrated screen technology that we expect to deliver to our customer later this year for use in the deepwater Gulf of America. A second core strategy is to capitalize on high-margin growth opportunities worldwide. Over the years, I've highlighted the growth of our customer base in the North Sea, which continues to expand. We've received orders from 2 new customers already this year, each operating in the Dutch sector of the North Sea. We completed our first well in the Middle East, utilizing our fracturing systems technology in 2025 and expect further applications in that market in 2026. And we've made the first sales of repeat precision frac plugs in the Middle East in 2025 with continued sales to 2 customers in the region so far and continuing during 2026.

Our final core strategy is to commercialize innovative solutions to complex customer challenges. This proved to be an effective and exciting year for us with several significant achievements. In Canada, we recently installed our first Terrus AICV system, which has an integrated autonomous inflow control valve to improve the production profile of more mature wells, reducing produced water volumes while allowing for potential increases in oil rates. We look forward to additional installations of this system during 2026. Customer adoption of our StageSaver solution at Repeat Precision has been a meaningful contributor to growth with new customers added during 2025 and early 2026, reflecting the value that our customers place on the contingency mitigation offered by the product, paired with the proven performance of our PurpleSeal frac plugs. We're capitalizing on our investments in new tracer diagnostic solutions, including our rapid trace, on-site tracer detection solution, our Lume8 multi-day composite samplers and expanded use of ResMetrics SmartProp particulate tracer into Canada and other geographies.

I'll now speak to the 2 guiding principles that underpin our long-term strategy. First, we seek to maximize financial flexibility. Our business model reflects this strength with a net cash position at year-end of approximately $29 million and an undrawn revolver. During 2025, we generated approximately $22 million in free cash flow, $19 million of which is free cash flow after distributions to our noncontrolling interest. This free cash flow after distributions constitutes over 70% of our adjusted EBITDA for the year, reflecting meaningful conversion, especially considering our 13% year-over-year revenue growth. Our second guiding principle is to uphold the promise. Our company values are embedded in the promise, which represents the commitments that we make as a company to our employees, customers, vendors and other stakeholders related to how we conduct business. It also speaks to our focus in the areas of technology, quality, health, safety and the environment.

Now I'll provide a brief update on the integration of ResMetrics. This combination immediately strengthened our tracer diagnostics platform, increased our exposure to new markets in the Middle East and aligned well with NCS' culture and our capital-light business model. I'm pleased to say that we are operating under the ResMetrics commercial brand in the U.S., having integrated our sales and business development team. We've also upgraded our laboratory information management systems to incorporate certain ResMetrics processes, allowing us to uniformly plan and execute jobs for our customers. Operational and manufacturing integration will soon follow with manufacturing and U.S. lab operations to be centralized in Tulsa by midyear. We have a clear line of sight to achieve the cost savings that we identified with this transaction, and we're progressing to deliver on revenue synergy opportunities, which we originally characterized as upside potential from the combination.

I'll close this section by reviewing our goals for the year, which are straightforward and are aligned with our long-term strategy. In 2026, we aim to grow revenue in excess of underlying market activity in the U.S. and internationally with an objective to grow total revenue relative to 2025, inclusive of the full year contribution from ResMetrics. We're targeting the conversion of more than 50% of our adjusted EBITDA to free cash flow. We expect to advance commercial adoption of our recent and new technology introductions, drive further commercial success for our product and service offerings and also continue to penetrate the newest markets that we've entered. We're working to continuously improve our employee engagement and to ensure workplace safety, and we expect to advance initiatives currently underway to participate in higher temperature and production markets to drive better data-enabled decision-making and to expand our gross margin by implementing strategic actions to drive our efficiencies and optimize the cost and performance of our products and services.

Mike will now provide more detail for our results for the fourth quarter of 2025 and our guidance for the first quarter of 2026.

Thank you, Ryan. As reported in yesterday's earnings release, our fourth quarter revenues were $50.6 million, a 13% increase compared to the fourth quarter of last year and comfortably above the high end of our guidance range. Growth for the quarter was driven by healthy double-digit percentage improvements in both product and services revenue. From a geographic standpoint, the U.S. led with a 69% year-over-year increase with international up 5% and Canada down 7%. The increase in the U.S. was due to the improved NCS fracturing system sales, higher plug revenue from Repeat Precision and a $2.9 million contribution from ResMetrics, a business we acquired on July 31, 2025. The decline in Canada for the quarter reflected moderately lower activity levels due to a general market headwind.

Our fourth quarter revenues were the highest of the year and sequentially increased by 9%, with increases in Canada and the U.S., partially offset by a decline for international. Our adjusted gross profit, defined as total revenues less total cost of sales, excluding depreciation and amortization expense, was $21.2 million in the fourth quarter, representing an adjusted gross margin of 42% compared to adjusted gross margin of 43% for the same period in 2024. Despite the favorable contribution from ResMetrics, the slight decline in adjusted gross margin was attributable to the mix of international tracer diagnostic jobs and fracturing system service activity positively offset by an expansion in gross margin for our product sales. Selling, general and administrative costs were $14.2 million for the fourth quarter, down 5% compared to the same period last year, reflecting the timing of incentive bonus accruals recorded in the fourth quarter last year as well as lower professional fees and share-based compensation expense associated with our cash settled awards, which we recognize expense as our stock price changes.

During the quarter, ResMetrics contributed $600,000 to our SG&A. The provision for litigation, net of recoveries was a benefit of $900,000 and resulted from an October 2025 ruling by the Federal Court of Appeal of Canada, which remanded a prior judgment against NCS in a patent dispute to the trial court and reduced the cost award. Accordingly, $900,000 of the cost award was returned to NCS in November 2025. Other income of $1.1 million declined from $2.4 million for the fourth quarter of 2024, driven primarily by timing of royalty income from licenses associated with our intellectual property with 2025 activity aligning with our expected normalized rate of approximately $1 million per quarter.

Net income for the fourth quarter was $15.0 million or diluted earnings per share of $5.34, which included a positive impact of $9.8 million related to the release of our deferred tax valuation allowance. This reversal demonstrates confidence in our continued profitability and our ability to fully utilize our deferred tax assets in the future. Adjusted EBITDA was $9.2 million or an adjusted EBITDA margin of over 18%, which exceeds the high end of our quarterly guidance range and is above the $8.2 million for the fourth quarter last year.

Now turning to our full year 2025 results. Our revenues were $183.6 million, an improvement of over $21 million or 13% compared to 2024, exceeding the 5% midpoint of our initial guidance range for the full year. Excluding the revenue contribution of ResMetrics, which totaled $5.2 million for the 5 months following the acquisition and was slightly above our expectations, revenue for the year increased by 10%. All regions delivered an increase in total revenue for the year. Our adjusted gross margin for fiscal 2025 was stable at 41%, a slight decline of approximately 40 basis points compared to last year. For 2025, our SG&A expense was $58.8 million, an increase of $1.0 million compared to last year. ResMetrics contributed $1.1 million of SG&A in 2025, while increased share-based compensation expense also drove higher SG&A expenses. However, these increases in SG&A were partially offset by lower professional service fees, R&D expenses and other SG&A reductions.

Other income declined to $4.8 million from $7.3 million in 2024, primarily driven by the timing of royalty income recognition as we previously discussed. Also, the prior year benefited from a technical service agreement with our local partner in Oman, that ended in November 2024. Net income for 2025 improved to $23.7 million or diluted earnings per share of $8.65, which includes a net positive impact of $11.5 million related to the release of our U.S. and Canadian deferred tax valuation allowances as previously discussed. In the prior year, net income was $6.6 million or diluted earnings per share of $2.55. Adjusted EBITDA was $26.7 million, up 20% compared to $22.3 million in 2024, with an adjusted EBITDA margin expanding to 14.5%, up from 13.7%.

Turning to the balance sheet. On December 31, we had $36.7 million in cash and total debt of $7.6 million, which consisted entirely of finance lease obligations, resulting in a net positive cash position of $29.1 million. The borrowing base availability under our undrawn ABL facility was $24.4 million, resulting in total liquidity of approximately $61 million.

Turning now to a few points of guidance for the first quarter of 2026. We currently expect first quarter total revenue in the range of $49 million to $53 million, implying an increase of 2% at the midpoint compared to the first quarter of 2025. We expect U.S. revenue to range from $19.5 million to $20.5 million, international revenue from $3 million to $4 million and Canadian revenue from $26.5 million to $28.5 million. Adjusted gross margin is expected to be between 39% and 41%, a modest decline compared to the first quarter of 2025. Adjusted EBITDA is expected to be between $6.5 million and $8.5 million, and our first quarter depreciation and amortization expense is expected to be approximately $1.6 million.

With that, I'll hand it back over to Ryan, who will provide our full year 2026 guidance and closing remarks.

Thank you, Mike. We expect the market environment to be challenging again in 2026. Based on our current outlook, we expect flat to lower overall customer activity in North America for 2026 compared to 2025 and for customer activity to increase in the primary international markets that we serve, though the improvements are likely to be weighted towards the back half of the year, especially in the Middle East.

Accordingly, our full year guidance for 2026 is as follows. We currently expect full year revenue to range from $184 million to $194 million and for full year adjusted EBITDA to be between $26 million and $29 million. We expect our revenue growth to come primarily from the U.S. and international markets, where we're well positioned to outperform underlying market trends through continued market share gains, particularly at Repeat Precision and also through new product adoption and continued international expansion. We currently expect Canadian revenue to be lower year-over-year as we face some headwinds from a lower total rig count, especially in Q1 and from specific customer consolidation that's likely to result in reduced pro forma activity levels. Our financial guidance does not incorporate any meaningful additional impacts from the currently volatile trade environment, including the potential imposition of new or retaliatory tariffs involving the U.S., Canada and Mexico.

The guidance also does not reflect the potential impact of the current conflict in the Middle East, either on operations in the region or potentially resulting from a sustained increase in commodity prices. We expect our gross capital expenditures for 2026 to be between $1.5 million and $2 million. In addition, we paid $1.25 million of contingent consideration associated with ResMetrics acquisition in January of 2026, which will be reflected in cash flow from investing activities. We expect our free cash flow after distributions to our JV partner of $12 million to $16 million, further strengthening our robust balance sheet and positioning us to pursue strategic investment opportunities. Due to the seasonality of our business and consistent with prior years, we would anticipate that the achievement of our annual adjusted EBITDA guidance range will be weighted towards the second half of the year with free cash flow weighted towards the end of the year.

Before Q&A, I'll close with a few comments. I'm very proud of what the team at NCS accomplished in 2025. We grew revenue, adjusted EBITDA and free cash flow in a challenging market environment, delivering the benefits that we expect as we executed our strategic plan. We have the infrastructure in place to support revenue growth. Over time, we would expect our incremental adjusted EBITDA margins to be 25% to 35%. We are benefiting from the successful introduction of new solutions that meet the needs of our customers, adding to our portfolio and expanding our addressable market. We're operating as a unified tracer diagnostics business with ResMetrics. We've completed the work required to realize most of the anticipated synergies of this combination with more benefit to come as we consolidate our U.S. lab and manufacturing footprint and increasingly focus on revenue synergy opportunities.

We maintain a strong balance sheet and liquidity position with total liquidity, including availability under our revolver of over $61 million. We are efficiently converting our adjusted EBITDA to free cash flow with free cash flow after distributions to noncontrolling interest totaling $19 million in 2025, which constituted over 70% of adjusted EBITDA. We expect our free cash flow after distributions to noncontrolling interest to exceed 50% of adjusted EBITDA again for 2026. As of yesterday, the midpoint of our free cash flow guidance for 2026 would represent a free cash flow yield of approximately 13% to our market capitalization.

Finally, we uploaded our new investor presentation yesterday, which touches on a few of the items I discussed earlier in the call. Our efforts to open new addressable markets, the progress we're making on the areas of emphasis from our corporate strategy and the actions that we're taking across our product lines to improve profitability. We also added a new slide highlighting our return on invested capital, which illustrates the significant improvement in our business over the past few years.

While we continue to be focused on core metrics, including revenue and EBITDA growth, margin improvement and free cash flow, I think it's important to keep in mind that we're competing for investment capital, not only with our industry peers, but with the broader market as well. And return on invested capital is an important indicator of the company's ability to create value for its shareholders over time. I'm proud of the progress we've made, achieving after-tax returns of over 11% in 2025, reflecting our disciplined capital allocation and the operating leverage inherent in our business as we grow. Over time, our objective is to continue to improve our returns with a medium-term objective of 15%, which we believe to be highly competitive across industries.

With that, we welcome any questions from the audience.

[Operator Instructions] Our first question will come from the line of Dave Storms from Stonegate.

Just wanted to get started with the puts and takes on guidance. I know there's now a couple of quarters in a row where you guys have telegraphed that a lot of your revenues this year are going to be weighted towards the back half. Is there potential for some of that to get moved up? Or is a lot of maybe some of the Middle East stuff still in qualification phases that is pretty locked into Q3, Q4?

Yes, Dave, I think you'll see that profile continue, right? Part of it has to do just with the seasonality of our business and our weighting to the Canadian market, where while Q1 is generally relatively strong, we see spring breakup in the second quarter and then more normalized activity in the second half of the year. Certainly, the acquisition of ResMetrics, which is more U.S. and international focused, will help to mitigate that a bit as well as some of the market share gains that we've made with frac plugs in Canada, which tend to go to work, that's more year-round. But I think we'll continue to see that seasonality. And I think as we look to certain specific opportunities for NCS that are not just kind of market-driven. We do see a lot of the projects for 2026 developing such that we'll see that pattern again with the majority of the earnings and the cash flow coming in the back half of the year.

Understood. That's very helpful. And then I know you mentioned in your prepared remarks, you spent a little bit of time talking about some of the cross-selling that you've been able to do, specifically in Canada. Is it too early to talk about some cross-selling potential in the Middle East with the ResMetrics transaction? Or should we still wait on that until later in the year?

Yes. So with ResMetrics internationally, we started to see some benefits. It's really more within North America, however. For example, I mentioned a product, a type of particulate tracer that ResMetrics has called SmartProp that was developed and utilized initially with their customers in the U.S. And we've now deployed that and have utilized it with some customers in Canada who really appreciate that technology. We are seeing -- what I'd say is kind of as we look to international markets, we're really looking at the combination of some of the new technologies that we have across that tracer diagnostics platform.

One of those that's really optical internationally is something called rapid trace, and that's an on-site tracer detection capability for us. And that really brings value in remote markets where it might be hard to collect a sample and ship it to a lab and wait for that time to see results, but also where the decision that you make as you see that tracer result can enable a customer to take an asset off location and save significant dollars. So that's one of the things I think will help us in multiple international markets. The international work that ResMetrics has is really under long-term contracts. We mentioned they have work in the Emirates and in Kuwait. So those contracts, because they are multiyear, we can certainly work to expand scope. We can also work to bring some of the best practices that we identify across the organization. But as far as kind of revenue cross-selling, that will take a little bit more to develop outside of North America.

[Operator Instructions] We have a follow-up from Dave Storms from Stonegate.

Appreciate that. I did also want to ask maybe about what you're seeing in the North Sea. I know it tends to be pretty project by project. Maybe just any updates on the pipeline there as you continue to expand deepwater and some other unique capabilities.

Yes. Thanks, Dave. Obviously, North Sea has been a great success story for us over the last several years, especially with our fracturing systems technology. I believe last year in 2025, we worked with, I believe it was 7 customers across the North Sea, either having sold sleeves or completions work out on the platforms. I mentioned earlier in the comments that we have orders in place to add 2 customers to that roster that are operating in the Dutch sector of the North Sea. So we're now working with customers, right, in Norway, in the U.K., in the Netherlands.

So yes, I think just the breadth of the customer base that we've developed speaks to kind of the product market fit that we have in that region and the results that customers are seeing utilizing that technology. And I think in the prior call, we might have mentioned a workshop that we held in Norway, where we had great customer engagement and feedback for operators that were operating not just in Norway, but across the entire region. So we feel really, really good about the work that we have in the North Sea. So as far as kind of how that might develop and play forward and applying that technology into other markets.

One of our North Sea customers is a project partner in the deepwater Gulf of America well that we expect to participate in later this year. So you have some connectivity there. There's also a customer that we have in the North Sea that we're talking to about other project opportunities in shallow water markets outside of the North Sea. So I'd expect that to continue to develop over the course of the next year or 2, but we certainly are looking to build on that success in shallow water offshore markets, taking that outside of the North Sea and then leveraging and moving into mid and deeper waters over time as well with our technology.

If I could just ask one follow-up on that. You mentioned the drilling that you're expecting later this year in the Gulf of America. It's kind of a new market opportunity for you. How would you characterize maybe in the medium to long term, some of your other new market opportunities that you might go after?

Yes. No, thanks for the question, Dave. And I think one of the things that came through in the prepared comments is the work that we've been doing to open up new addressable markets for our technology. So certainly, the deepwater is one, and that's a long sales cycle and product development cycle to get to it. So we feel really encouraged to be able to deploy that technology for the first time, hopefully, this year. And we believe that will open up additional opportunities with that customer, but then also opportunities for other customers that are targeting the same type of reserves going forward.

The other areas where we have development initiatives in place, one is higher temperature more broadly. That does play into some deepwater markets offshore in traditional oil and gas. It also plays into the thermal oil developments in Canada. I mentioned SAGD, and it also plays into enhanced geothermal systems where customers are looking to leverage technology developed by the oil and gas industry, horizontal drilling, hydraulic fracturing to access the heat in situ deep underground to provide baseload power that can be used to power data centers and other things. So I think the SAGD or the heavy oil market in Canada is one that we feel will open up some opportunities for us over the medium term. I think geothermal is one as well. Those are all relatively early days. They'll take time to scale, but good examples of what we're looking to do to participate in those markets.

The other one is that historically, we focused primarily on supporting our customers during their completions. And within our fracturing systems portfolio, we do have an enhanced recovery suite of technology. Historically, that has been around what we would call injection control, so helping customers be more precise in the way when they inject fluid, typically water, but in a waterflood or secondary recovery regime, when they're doing that with a horizontal injector to being able to compartmentalize the well to create efficient sweeps and optimize the value of those waterfloods. We do have a development underway, which is called Terrus AICV. I mentioned that earlier, which is more of a production control solution, which should help our customers to reduce the water cut that they're seeing in their wells and handling produced water is an expense for our customers.

So with the deployment of the solution, we can help them reduce their production operating costs. But then also through kind of preferentially producing through the specialized valve, preferentially producing the oil relative to the water, you may be able to see an oil production uplift as well. So if we can help our customers both improve their revenue profile and reduce their cost profile on existing assets, that's something that we think will have good application for our customers in the industry over time.

And then again, sort of speaking to one of your earlier questions on the ResMetrics integration and how that plays into some of this enhanced recovery and production space. Historically, we've been a little bit limited in our ability to pursue deploying tracers in waterflood projects. But with some of the new lab and chemical deployment techniques that we have been able to utilize from that ResMetrics brought to the table. That's opened up new opportunities for us in the production space on the waterflood. And our Canadian team, in particular, has been very successful this year going out and participating in projects that we probably weren't as competitive in before without those capabilities.

[Operator Instructions] And I'm not showing any further questions in the queue. I would now like to turn it back over to Ryan Hummer for -- CEO, for closing remarks.

Thank you, Victor. 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 depth and breadth of the expertise of our people at NCS, at Repeat Precision and the folks that have joined us from ResMetrics and the passion and the effort that our people bring to their work. Our team continues to provide excellent service to our customers, commercializing new products and services that will enable our customers to be more successful. We're taking on demanding and technically challenging work and delivering results. We appreciate everyone's interest in NCS Multistage, and we look forward to speaking again on our next quarterly earnings call.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

Good day, and thank you for standing by. Welcome to the NCS Multistage Q3 2025 Earnings Conference Call.

[Operator Instructions]

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mike Morrison, CFO. Please go ahead.

Thank you, Stephen, and thank you for joining the NCS Multistage Third Quarter 2025 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: EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted EBITDA less share-based compensation, adjusted gross profit, adjusted gross margin, free cash flow, and free cash flow less distributions to noncontrolling interest and net working capital.

These non-GAAP measures and reconciliations to the most comparable GAAP financial measures are provided in our third quarter earnings release, which can be found on our website, ncsmultistage.com. I will now turn the call over to Ryan.

Thank you, Mike, and welcome to our investors, analysts, and employees who are joining our third quarter 2025 earnings conference call.

Mike will discuss our quarterly financial results in more detail a bit later. I want to touch on a few highlights for the quarter and year-to-date, including our progress in integrating ResMetrix, the tracer diagnostics business that we acquired in late July 2025.

NCS continues to perform well despite challenging market conditions. Our third-quarter revenue of $46.5 million exceeded the midpoint of our guided range, including the expected contribution from ResMetrix that was provided on our last earnings call.

Revenue in the U.S. increased by 26% sequentially and 54% when compared to the same quarter last year. Importantly, excluding the contribution from ResMetrix, our U.S. revenue improved by 37% compared to the same quarter last year, with robust contributions from our fracturing services, fracturing systems, and tracer diagnostics product lines.

Our revenue for the first 9 months of 2025 was $133 million, which is 13% or over $15 million higher than during the first 9 months of 2024, with higher revenue year-over-year from each of the U.S., Canada, and international markets.

Our adjusted EBITDA of $17.5 million for the first 9 months of 2025 represents an increase of $3.4 million or 24% year-over-year.

Importantly, we've generated $6.8 million in free cash flow after distributions to noncontrolling interest during the first 9 months of 2025, an improvement of $6.5 million compared to the same period of the prior year, and contributing to our cash balance, which exceeded $25 million as of September 30, 2025.

We're growing in large part due to the continued progress in delivering on our strategic plan, which informs our organic growth initiatives and our new product development investments within a framework that maximizes financial flexibility and produces free cash flow.

Our senior leadership team recently reaffirmed the core strategies we are implementing to create value for our stakeholders. Slide 14 of our investor presentation helps to illustrate our strategy with examples of our progress.

The first core strategy is to build upon our leading market positions. These leading market positions include our unmatched expertise in our fracturing systems product line, our market share in Canadian completions, and the breadth and global presence of our tracer diagnostic service offerings, especially now that it includes ResMetrix.

In Canada, our revenue has increased 9% for the first 9 months of the year compared to last year, despite a 6% decline in the average rig count, which we believe indicates the value that we bring to our customers.

In addition, we've been able to grow our tracer diagnostics revenue year-over-year organically and through the ResMetrix acquisition, supporting customer projects in 8 countries around the globe.

Our leadership in fracturing systems has led to exciting developments, including our successful 7-inch sliding sleeve offering and initiatives to expand our participation in higher temperature environments and to expand our offshore success into deeper waters.

The second core strategy is to capitalize on high-margin growth opportunities worldwide. We continue to build on the success that we achieved in 2024, a year in which international revenue reached 10% of total revenue, an important milestone for NCS.

The North Sea continues to be a success story for NCS internationally with our extensive track record and growing customer base. We've enjoyed strong collaboration with our customers, supporting technical papers and presentations, and hosting a workshop for current and potential customers in Stavanger.

This workshop allows us to hear the voice of customers and to continuously improve by identifying efficiencies, which may expand the addressable market for our technology in the region.

We've modified the scope of this strategy because we wanted to highlight certain markets in North America, such as Alaska and heavy oil, where we can provide differentiated solutions for our customers.

We're excited about opportunities in these markets for current and future applications of our fracturing systems, enhanced recovery, and tracer diagnostics product lines.

The third core strategy for NCS is to commercialize innovative solutions to complex customer challenges. We have internal objectives this year tied to field trials for new products and for successfully entering new markets in new regions.

A few notable technology and market development highlights include that we'll be showcasing our Luminate multi-day composite sampling units at a customer location during the fourth quarter of 2025 to support a tracer diagnostics project.

These units will improve sample quality and significantly reduce the number of visits required to the well sites during the sampling program. We are also manufacturing ATRS AICV sliding sleeves and proprietary packers for an upcoming 3-well customer installation.

These systems are designed to help our customers optimize production in more mature wells, creating an opportunity to increase oil production while reducing water cut.

Our development customer has identified a candidate well in the Gulf of America to deploy our deepwater fracturing system solution, with drilling expected to commence in the second half of 2026.

We're working with the customer to advance the independent third-party review required by the regulator for this well. From a market development standpoint, Repeat Precision now has agreements in place to grow its business in the Middle East, as NCS has previously done with its well construction and tracer diagnostics product lines.

Turning now to our recent acquisition of ResMetrix. We've been very pleased with the operational and financial performance of ResMetrix since the acquisition, as well as the progress made in integrating NCS' tracer diagnostics operations with the ResMetrix service offerings.

Both the NCS and ResMetrix sales and operations teams began coordinating efforts soon after the announcement. I'll note a few of these early successes. ResMetrix utilized its portfolio of tracers tested for thermal stability on a well with NCS sliding Alaska sleeves in Canada.

NCS's Canadian operations team supported the chemical importation and field deployment on the job. Tracer data will provide critical insight when paired with the production data from the well.

NCS's lab in Tulsa can now run water tracer samples from ResMetrix jobs, helping to reduce the sample backlog and improve turnaround time for our customers.

ResMetrix has sourced certain liquid water tracers from NCS's existing inventory, deferring the need to place orders from an overseas supplier in the current uncertain trade environment, including evolving tariff percentages.

We've identified other cost savings by integrating ResMetrix into the existing NCS insurance policies and also our vehicle fleet management programs.

So as I mentioned last quarter, we are taking a methodical approach to integration with several key milestones anticipated as we approach the new year.

These early wins highlight the constructive and collaborative approach that the NCS and ResMetrix teams are taking to identify and implement best practices that support our people and our customers.

I'm confident that our team will continue to deliver on the expected benefits of this strategic transaction. Before I turn it over to Mike, I want to provide an update on an ongoing legal matter in Canada.

I'm pleased to announce that last week, the Federal Court of Appeal in Canada overturned a prior judgment against NCS, setting aside a finding of infringement against NCS and confirming that an award of cost reimbursements that were previously paid by NCS to the counterparty was excessive.

The matter has been remanded back to the trial court for reconsideration, which will review the validity of the counterparty's patent in consideration of the appellate court's findings.

Mike will now review our results for the third quarter and provide our guidance for the fourth quarter.

Thank you, Ryan. As reported in yesterday's earnings release, our third quarter revenues were $46.5 million, a 6% year-over-year improvement and above the midpoint of our guidance range, which includes the contribution of ResMetrix since the date of acquisition on July 31, 2025.

Excluding ResMetrix, our revenues were slightly up for the quarter, with U.S. and international revenues increasing by 37% and 38%, respectively, with increased fracturing system sales domestically and in the North Sea and wellbore construction sales in the Middle East.

These revenue increases were partially offset by a 19% decline in Canada, reflecting a general slowdown in activity levels and lower rig counts.

Sequentially, our quarterly revenues increased 28% with a 32% increase in Canada, reflecting normal seasonality associated with the second quarter spring breakup.

Our U.S. revenues increased 26% and our international revenues increased 16%. Our adjusted gross profit, defined as total revenues less total cost of sales, excluding depreciation and amortization expense, was $19.4 million for the third quarter or an adjusted gross margin of 42%, consistent with 1 year ago.

Selling, general, and administrative costs were $14.8 million for the third quarter, up $700,000 compared to the same period last year, due to an increase in expense associated with cash-settled stock awards that are remeasured at the balance sheet date based on the price of our common stock.

Other income was $1.2 million for the third quarter and related primarily to royalty income from licensing our intellectual property. Net income for the third quarter was $3.8 million or diluted earnings per share of $1.37 compared to $4.1 million or diluted earnings per share of $1.60 for the third quarter last year.

Our adjusted EBITDA of $7 million for the quarter exceeded the midpoint of our guidance range and included the contribution of ResMetrix. Now turning to the balance sheet and an overview of our cash position and cash flows.

As of September 30, NCS was in a positive net cash position with cash on hand at $25.3 million and total debt of $7.4 million, consisting entirely of finance lease obligations.

The borrowing base availability under our undrawn ABL facility was $19.4 million, and our total liquidity was $44.7 million, including cash on hand and this borrowing base availability.

For the first 9 months of 2025, cash from operations improved by approximately $7 million, and free cash flow, less distributions to noncontrolling interest, improved by over $6 million each compared to the same period in 2024.

Now turning to a few points of guidance for the fourth quarter. We currently expect fourth quarter total revenue in the range of $41 million to $45 million.

We expect Canadian revenue in the range of $23 million to $25 million, U.S. revenue, including RSMetris, of $15 million to $16 million, and international revenue of $3 million to $4 million.

We expect our adjusted gross margin to range from 40% to 42% and our adjusted EBITDA to range from $5 million to $6.5 million. Our fourth quarter depreciation and amortization expense is projected to be approximately $1.6 million.

With that, I'll hand it back to Ryan to discuss our 2025 full-year guidance and for closing remarks.

Thank you, Mike. So as we've discussed, NCS performed well during the first 9 months of 2025.

We remain a bit cautious as we move into the fourth quarter, as market and industry conditions continue to be challenging with a stagnating U.S. rig count, double-digit year-over-year activity declines in Canada, and continued delays in the timing of unconventional jobs in Saudi Arabia.

There's also potential for an oversupplied oil market due to increased OPEC+ oil supply and ongoing uncertainties related to tariffs and trade. But given that backdrop and the comments Mike just provided, our expectation for annual revenue for NCS for 2025 is $174 million to $178 million, which represents year-over-year growth of 8%.

Of this, 5% would be organic, and 3% would be contributed from ResMetrix. We're narrowing our pro forma combined adjusted EBITDA range to $22.5 million to $24 million with a midpoint of $23.25 million.

While the midpoint of this range is slightly below our guidance from last quarter, it includes nearly $1 million in additional expenses related to our cash-settled stock awards for Q3 and Q4, as Mike described earlier.

We're increasing our expectation for free cash flow after distributions to our noncontrolling interest and excluding the cash paid for ResMetrix to $11 million to $13 million this year, further strengthening our robust balance sheet.

This represents an increase of $3 million at the midpoint and reflects our expectation of more favorable working capital balances and additional free cash flow contributed by ResMetrix.

Before we open the call up for questions, I'll close with a couple of brief comments. We continue to deliver on our core strategies through organic growth and technological development designed to generate value for our stakeholders.

We have the infrastructure in place to support revenue growth in each of our geographic markets, providing leverage to grow future earnings. We're benefiting from the successful introduction of new solutions that meet the needs of our customers, adding to our portfolio and also expanding our addressable market.

We've identified synergies through the ResMetrix integration, and we expect to identify more benefits as we work towards full integration by early next year.

We maintain a strong balance sheet and a strong liquidity position with total liquidity, including availability under our revolver of approximately $45 million.

We are efficiently converting our adjusted EBITDA to free cash flow, with midpoint free cash flow after distributions to noncontrolling interest of $12 million this year.

As of yesterday, this would represent a free cash flow yield of 11% to our market capitalization. And with that, Stephen, we'd welcome any questions.

[Operator Instructions]

Our first question comes from the line of Colby Sasso of Daniel Energy Partners.

It sounds like your integration of ResMetrix is going really well. And the rationale behind the deal was to expand the tracer diagnostics footprint in the Middle East.

What does the opportunity set look like going forward and in 2026?

Yes. Thanks, Colby. Thanks for joining. Appreciate the question. So yes, look, I think what ResMetrix brought to us in the Middle East was certainly one part of the rationale for the deal.

Just by way of background, we've had existing operations on the NCS side, tracer diagnostic operations in the Middle East for several years, but it really started to scale that up over the course of 2024 and 2025, primarily in Oman and Saudi Arabia. And what ResMetrix brought was some long-term contracts to participate in a couple of additional markets, including in the Emirates and in Kuwait.

So it really helped to broaden our portfolio in the region and the way that we serve customers over there. So we continue to participate in that work, but I think there are a number of other compelling benefits to the ResMetrix acquisition beyond just that Middle East presence, but that was certainly something that was attractive to us as part of the evaluation of that transaction.

Then, just as a second follow-up question, free cash flow has been up handily year-over-year. And if we assume flattish growth in '26, would you expect similar free cash flow next year? And what does that profile look like?

Yes, it's a really good question. And I think the way we frame things up typically is thinking through how we convert our adjusted EBITDA to free cash flow. And the way you framed it is actually a good way to frame it.

So in a flat environment, where we're not really investing in working capital or drawing down working capital, we think we can typically convert something on the order of 50% to 60% of our adjusted EBITDA to free cash flow. And that's really about what you're seeing this year with that 60% free cash flow guidance at the midpoint.

And I will note that when we're talking about free cash flow in that context, we're talking about it after the distributions to our noncontrolling interest. So it's really the free cash flow; the equity is the way to think about that.

Our next question comes from the line of Dave Storms from Stonegate.

Just wanted to circle back to ResMetris here for a minute. It was mentioned that maybe the integration is a little ahead of schedule. Could you spend a little more time talking about how much time is left to fully integrate?

And maybe if you think it was mentioned last quarter, the $1 million to $2 million in synergies could be implied if you think that's still a potential?

Yes. So maybe 2 things there. One is, I think, the integration is progressing along the timeline that we had expected as far as really doing the work to align processes, arrive at best practices, and be in a position to implement those.

Because I think, as we discussed, we were head-to-head competitors in the market doing the same thing, but doing everything a little bit differently from the way that we source chemicals, the way we deploy them in the field, the way we take samples, the way we prep them in the lab, and deliver reports to customers.

So with that, we will continue to be methodical, but believe that by early next year, we will have really aligned all of those practices and be in a position to go out to the customer and to the market in an integrated way.

What we've seen, however, is though, we're not waiting for that official integration to take place to find ways to work together and deliver some of those wins. And some of that's coming in ahead of schedule.

So with respect to the overall kind of synergy opportunity for the deal, I think we're still confident that if you think about ResMetrix being about $10 million of annual revenue, the NCS tracer business ex-ResMetrix having been in the high teens.

So you're talking about a $25 million to $30 million revenue base. Being able to get about 5 percentage points of benefit across that translates to, call it, $1.5 million of synergies at the midpoint, a mix of some on the SG&A side.

But really, most of it is on the cost of sales side, and being able to more efficiently deploy the chemical portfolios should yield really good savings for us and savings that contribute not only to earnings, but also help to bolster that free cash flow profile of the company.

Then I wanted to ask a follow-up question about the North Sea. I know it tends to be more project by project. Do you have any updates on maybe what that pipeline looks like going into 2026?

And then additionally, you mentioned some new products like the Science La that you're going to be putting, maybe, into the Gulf of America as a test.

Will those new products give you any advantage in the North Sea as well?

Sure. I'll try to take those one at a time. So yes, the North Sea continues to be a really good market for us.

I think when we spoke last quarter, we had talked about the number of customers that we would have worked for in 2025. And the North Sea tends to be a bit more seasonal from an operations standpoint when vessels can get out there to service the work, as you approach the winter time, the seas get higher, and the operational window closes a bit.

But we do have a number of orders in hand from customers in the North Sea for slotting sleeves that will be installed for next year and are expected to be used in projects next year.

So I would expect our activity in the North Sea next year to be at least as robust as it was here in 2025, just based on what we're able to see at this point.

The project for the Gulf of America, we've talked about that before. It was a relatively long development project where we had some sponsorship from a customer, and that customer is the one who identified the target well for us.

And that involves what we call our Ratek PropX system for deepwater applications. It's a sliding sleeve that has integrated into it the ability to put the sleeve in a screen position after the frac.

So the first deployment will certainly be in the Gulf of America, but that should have application in other deepwater markets worldwide. What I will say, though, is that those types of developments, especially as you move to deepwater, tend to be longer sales cycles, longer lead times.

And while this particular system was developed with a single customer in mind, we think it has applicability for other customers, but other customers will want to do their own testing and potentially see some slight modifications before it gets deployed elsewhere.

So we're bullish about it long term. And actually, the deepwater North Sea is a market that could be applicable to. So it could help to give us a little bit more opportunity in the North Sea in that medium- to long-term time frame.

[Operator Instructions]

Our next question comes from the line of Gowshi Sri of Singular Research.

Given the weakness in the Canadian rigs, are you seeing any changes in customer strategies that would alter your margin math for next year? Or if you could give us some color on what kind of levers you'll be pulling to defend those margins.

Sure. Yes. I think we're right now in budget season within our customer base. There are some customers who have put out preliminary budgets for next year, but many still haven't at this point.

But just to maybe take a step back, the Canadian rig count was relatively flat to maybe even a little bit up year-over-year through the first half of the year. But as we came out of the breakup in the third quarter, I think we were down, call it, 15%-ish on a year-over-year basis, and that's continued here into the fourth quarter.

So there certainly has been a pullback in activity in the Canadian market. Some of that had to do with local gas pricing. The AECO gas market was at very low levels for the late summer and early fall.

We think there's a chance that it reverses itself. It's already recovered, but it reverses itself a bit more durably, especially as LNG Canada comes on and keeps taking more gas.

So right now, the budgets that we've seen announced from customers speak to more or less flat year-over-year CapEx, not material reductions. If we do start seeing reductions in capital activity in Canada, we'll certainly look to take some actions in response to that.

But the other thing I'd say is that we've historically had really good success in continuing to grow our market share in Canada over time. And we've been really successful in a couple of markets up there in growing our presence, including parts of the Montney that are really focused more on light oil and condensate.

And we're continuing to grow our share with products even outside of our fracturing systems business, growing our share with plug and perf through repeat precision products in Canada, and bringing on additional well construction opportunities.

So, big picture, I think we can continue to take share and grow revenue in a way that would outpace the market in Canada. But as it is the biggest revenue component of our business, if there are changes in that market, we'll definitely adapt to them. And if we need to, we'll adapt our cost structure as well.

And in this quarter, was the pressure mainly volume-driven? Or was there some component of price? Do you expect any pressure on that end as you try to gain market share?

It's really been volume at this point. Customers will always work with service companies to try to reduce prices.

It's an ongoing game of cat and mouse. But I think what I'd say is we're comfortable and confident in the value that we deliver to our customers and enable them to achieve some pretty interesting production results.

So yes, pricing pressure is always a challenge, whether it comes from customers or whether it comes from competitors, but we've got a good pricing strategy in place.

And again, we're really leaning into the value that we provide to our customers and not trying to chase after work based on price.

And on the tracer diagnostics and ResMetrics contribution, I think you've indicated that most of it is predominantly lumpy, but there is a recurring revenue base that is growing.

As we look towards these international markets, can you give us some color on the competitive space that is and how much upside there is to the recurring revenue base?

Yes. I mean, we certainly have recurring customer relationships and projects with customers. We don't have what you would call a backlog that really gets established through those.

There is a little bit of an exception with some of the longer-term contracts that ResMetrix brought to the table in the Emirates and with Kuwait, where it's multiyear.

But even with those, it tends to be project by project that gets called off from those frameworks. So I'd say, look, big picture international continues to be a strong opportunity for continued growth at NCS for tracer diagnostics and for our other product lines.

I think we have a pretty good line of sight and communication with our customers to understand their activity and expect to continue to work with them over the course of those ongoing programs.

But I think to call it true recurring revenue, and that would be under a backlog or something like that, is maybe a little bit of a mischaracterization. But again, with the relationships and the history that we have, what we've established through the value of the reports that we provide to our customers, we expect a good growth profile internationally as a result.

In the competitive environment in these markets, what does that look like?

It's different market by market because there's a process to get qualified in most cases. In the Middle East, in particular, it's the national oil company.

So Saudi is the biggest market and probably the most competitive as a result. The other markets are very attractive. So you'll see competition when tenders come up. You're always going to see that.

But I think, as we've discussed with the tracer diagnostics business in the past, compared to some of the other product lines that we are in, there are a handful of global competitors in tracer diagnostics, whereas in fracturing systems or for well construction, there tend to be more competitors.

So it tends to be pretty well behaved from a competitive standpoint. And again, really, we rely on the value we provide, and that value is manifested in the reports and the insights that we deliver to our customers.

I'm showing no further questions at this time. I would now like to turn it back to Ryan Hammer, CEO, for closing remarks.

On behalf of our management team and our Board, we'd like to thank everyone for joining the call today, including our shareholders, analysts, and especially our employees.

I truly appreciate the tremendous work and dedication demonstrated by our team as we implement our long-term strategies. Our exceptional people continually demonstrate why I believe we have the best team in the industry.

Team continues to provide excellent service to our customers while developing new products and services that will enable our customers and NCS to be even more successful.

We appreciate everyone's interest in NCS Multistage and look forward to talking again on our next quarterly earnings call.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.