NCS Multistage Holdings, Inc. Announces Second Quarter 2020 Results
Second Quarter Results
- Total revenues of
$8.7 million , a 78% year-over-year decrease - Net loss of
$(8.8) million and loss per diluted share of$(0.19) - Adjusted EBITDA of
$(7.9) million $31.3 million in cash on hand and$21.4 million of total debt as ofJune 30, 2020 - Net cash provided by operating activities and free cash flow of
$20.1 million and$19.5 million , respectively, for the six months endedJune 30, 2020
Financial Review
Total revenues were
Gross profit, which we define as total revenues less total cost of sales exclusive of depreciation and amortization, was
Selling, general and administrative (“SG&A”) expenses totaled
Net loss was
Adjusted EBITDA was
Capital Expenditures and Liquidity
The Company incurred capital expenditures of
As of
On
The Amendment (i) eliminated financial covenants requiring compliance with maximum leverage, minimum interest coverage and minimum asset coverage tests, (ii) added new financial covenants requiring compliance with minimum liquidity and, in certain circumstances of reduced liquidity, minimum fixed charge coverage tests during any reduced liquidity period and (iii) added new covenants, including a weekly sweep of available cash over a specified threshold, more stringent limits on capital expenditures and enhanced financial reporting requirements.
Cost Reduction and Liquidity Enhancement Initiatives
In response to the current market conditions and reduction in demand for our products and services, including as a result of the COVID-19 pandemic, NCS has undertaken, and the Board of Directors is monitoring and evaluating, multiple initiatives to reduce our cost structure, limit capital expenditures and enhance our liquidity and access to capital, including:
- Reductions in force which have reduced our headcount in the
U.S. andCanada by approximately 190 people, the implementation of furloughs for certain employees in field operations and engineering roles and reductions to salaries and hourly rates for substantially all remaining employees, including reductions in salaries for executives averaging 20%. These actions are expected to result in approximately$20 million in annualized cost savings, with approximately 70% of that amount associated with SG&A expenses; - A reduction in bonus accruals for 2020 and the decision to not pay out 2019 bonuses;
- An elimination of the employer matching contributions for NCS’s
U.S. 401 (k) plan and its Registered Retirement Savings Plan inCanada ; - A moratorium on non-essential travel for all employees;
- Negotiation of new rates, work rules and payment schedules with vendors;
- Strategies to reduce third-party spend, including information technology, financial services and third-party research and development;
- Deferral of
U.S. employer payroll taxes, as permitted under the CARES Act; - Application for, and receipt of, benefits under the
Canada Emergency Wage Subsidy (“CEWS”) program; - Accelerating the filing of our 2019 U.S. federal tax return to utilize net operating loss carryback provisions from the CARES Act in order to obtain a cash tax refund during the second half of 2020;
- Reducing planned capital expenditures for the year and selling excess vehicles;
- Relocating our
U.S. assembly operations to better align with our supply chain partners, reduce overhead and improve fixed cost absorption; - Borrowing an additional
$5.0 million under our senior secured credit facility inMarch 2020 to fund severance costs associated with the reductions in force while maintaining operational liquidity; - In
April 2020 , Repeat Precision entered into a new promissory note providing up to$5.0 million in additional borrowing capacity; and - Amending our revolving credit facility to modify certain covenants and to establish a borrowing base related to our accounts receivable, which we believe provides us with enhanced financial flexibility.
In connection with the reductions in workforce described above, we recorded severance charges of approximately
NCS continues to evaluate market conditions and will continue to take necessary actions to further reduce our cost base and try to enhance liquidity should there be a further reduction in the demand for our products and services.
Review and Outlook
NCS’s Chief Executive Officer,
We were faced with very challenging market conditions in the second quarter, including a significant reduction in completion activity and a land rig count in
NCS had several highlights during the quarter. We had a high level of service activity in the
While customer activity remains at low absolute levels, we have seen improvements in completions activity in the
Even with this improving outlook, we will continue to evaluate market conditions and will take further action as necessary to attempt to further enhance our financial position to allow us to benefit from further improvements in industry activity.”
Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA Less Share-Based Compensation, Adjusted Net (Loss) Income, Adjusted Net (Loss) Earnings per Diluted Share, Free Cash Flow and net working capital are non-GAAP financial measures. For an explanation of these measures and a reconciliation, refer to “Non-GAAP Financial Measures” below.
Conference Call
The Company will host a conference call to discuss its second quarter 2020 results on
An audio replay of the conference call will be available shortly after the conclusion of the call and will remain available for approximately seven days. It can be accessed by dialing (855) 859-2056 within
About
Forward Looking Statements
This press release contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods, or by the inclusion of forecasts or projections. Examples of forward-looking statements include, but are not limited to, statements we make regarding the outlook for our future business and financial performance. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Important factors that could cause our actual results to differ materially from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market and regulatory conditions and the following: declines in the level of oil and natural gas exploration and production activity within
Contact
Chief Financial Officer
(281) 453-2222
IR@ncsmultistage.com
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Revenues | ||||||||||||||||
| Product sales | $ | 4,858 | $ | 29,945 | $ | 44,288 | $ | 67,177 | ||||||||
| Services | 3,874 | 9,823 | 18,994 | 25,441 | ||||||||||||
| Total revenues | 8,732 | 39,768 | 63,282 | 92,618 | ||||||||||||
| Cost of sales | ||||||||||||||||
| Cost of product sales, exclusive of depreciation and amortization expense shown below |
3,869 | 16,490 | 27,317 | 33,236 | ||||||||||||
| Cost of services, exclusive of depreciation and amortization expense shown below |
2,524 | 6,591 | 9,690 | 16,608 | ||||||||||||
| Total cost of sales, exclusive of depreciation and amortization expense shown below |
6,393 | 23,081 | 37,007 | 49,844 | ||||||||||||
| Selling, general and administrative expenses | 15,473 | 22,893 | 36,308 | 45,919 | ||||||||||||
| Depreciation | 994 | 1,495 | 2,446 | 2,921 | ||||||||||||
| Amortization | 104 | 1,137 | 1,237 | 2,298 | ||||||||||||
| Change in fair value of contingent consideration | — | — | — | 37 | ||||||||||||
| Impairment | — | 7,919 | 50,194 | 7,919 | ||||||||||||
| Loss from operations | (14,232 | ) | (16,757 | ) | (63,910 | ) | (16,320 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense, net | (424 | ) | (556 | ) | (746 | ) | (1,073 | ) | ||||||||
| Other income, net | 8 | 17 | 166 | 90 | ||||||||||||
| Foreign currency exchange loss, net | (217 | ) | (250 | ) | (207 | ) | (547 | ) | ||||||||
| Total other expense | (633 | ) | (789 | ) | (787 | ) | (1,530 | ) | ||||||||
| Loss before income tax | (14,865 | ) | (17,546 | ) | (64,697 | ) | (17,850 | ) | ||||||||
| Income tax (benefit) expense | (5,973 | ) | 2,022 | (6,898 | ) | 11,596 | ||||||||||
| Net loss | (8,892 | ) | (19,568 | ) | (57,799 | ) | (29,446 | ) | ||||||||
| Net (loss) income attributable to non-controlling interest | (135 | ) | 2,733 | 2,507 | 4,821 | |||||||||||
| Net loss attributable to NCS Multistage Holdings, Inc. |
$ | (8,757 | ) | $ | (22,301 | ) | $ | (60,306 | ) | $ | (34,267 | ) | ||||
| Loss per common share | ||||||||||||||||
| Basic loss per common share attributable to NCS Multistage Holdings, Inc. |
$ | (0.19 | ) | $ | (0.48 | ) | $ | (1.28 | ) | $ | (0.74 | ) | ||||
| Diluted loss per common share attributable to NCS Multistage Holdings, Inc. |
$ | (0.19 | ) | $ | (0.48 | ) | $ | (1.28 | ) | $ | (0.74 | ) | ||||
| Weighted average common shares outstanding | ||||||||||||||||
| Basic | 47,319 | 46,766 | 47,184 | 46,380 | ||||||||||||
| Diluted | 47,319 | 46,766 | 47,184 | 46,380 | ||||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS*
(In thousands, except share data)
(Unaudited)
| 2020 | 2019 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 31,259 | $ | 11,243 | ||||
| Accounts receivable—trade, net | 11,166 | 41,960 | ||||||
| Inventories, net | 38,631 | 39,921 | ||||||
| Prepaid expenses and other current assets | 3,349 | 2,444 | ||||||
| Other current receivables | 6,751 | 5,028 | ||||||
| Total current assets | 91,156 | 100,596 | ||||||
| Noncurrent assets | ||||||||
| Property and equipment, net | 24,498 | 32,974 | ||||||
| 15,222 | 15,222 | |||||||
| Identifiable intangibles, net | 2,745 | 45,248 | ||||||
| Operating lease assets | 6,294 | 5,071 | ||||||
| Deposits and other assets | 3,572 | 3,460 | ||||||
| Deferred income taxes, net | 68 | 6 | ||||||
| Total noncurrent assets | 52,399 | 101,981 | ||||||
| Total assets | $ | 143,555 | $ | 202,577 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable—trade | $ | 2,932 | $ | 8,549 | ||||
| Accrued expenses | 3,968 | 3,451 | ||||||
| Income taxes payable | 1,005 | 1,883 | ||||||
| Operating lease liabilities | 2,033 | 2,052 | ||||||
| Current maturities of long-term debt | 1,725 | 1,481 | ||||||
| Other current liabilities | 1,368 | 2,364 | ||||||
| Total current liabilities | 13,031 | 19,780 | ||||||
| Noncurrent liabilities | ||||||||
| Long-term debt, less current maturities | 19,678 | 11,436 | ||||||
| Operating lease liabilities, long-term | 4,855 | 3,487 | ||||||
| Other long-term liabilities | 1,684 | 1,373 | ||||||
| Deferred income taxes, net | 749 | 2,956 | ||||||
| Total noncurrent liabilities | 26,966 | 19,252 | ||||||
| Total liabilities | 39,997 | 39,032 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, |
||||||||
| |
— | — | ||||||
| Common stock, |
||||||||
| and 47,179,589 shares outstanding at |
||||||||
| and 46,813,117 shares outstanding at |
474 | 469 | ||||||
| Additional paid-in capital | 429,300 | 424,633 | ||||||
| Accumulated other comprehensive loss | (84,468 | ) | (80,811 | ) | ||||
| Retained deficit | (259,335 | ) | (199,029 | ) | ||||
| at |
(805 | ) | (652 | ) | ||||
| Total stockholders’ equity | 85,166 | 144,610 | ||||||
| Non-controlling interest | 18,392 | 18,935 | ||||||
| Total equity | 103,558 | 163,545 | ||||||
| Total liabilities and stockholders' equity | $ | 143,555 | $ | 202,577 | ||||
_____________________
* Preliminary
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Six Months Ended | ||||||||
| 2020 | 2019 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (57,799 | ) | $ | (29,446 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 3,683 | 5,219 | ||||||
| Impairment | 50,194 | 7,919 | ||||||
| Amortization of deferred loan cost | 149 | 161 | ||||||
| Share-based compensation | 4,737 | 6,526 | ||||||
| Provision for inventory obsolescence | 657 | (51 | ) | |||||
| Deferred income tax (benefit) expense | (2,140 | ) | 9,278 | |||||
| Gain on sale of property and equipment | (112 | ) | (19 | ) | ||||
| Change in fair value of contingent consideration | — | 37 | ||||||
| Provision for doubtful accounts | 622 | 1,462 | ||||||
| Payment of contingent consideration | — | (3,042 | ) | |||||
| Proceeds from note receivable | 299 | — | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable—trade | 28,819 | 6,664 | ||||||
| Inventories, net | (432 | ) | (4,629 | ) | ||||
| Prepaid expenses and other assets | (2,700 | ) | 243 | |||||
| Accounts payable—trade | (4,665 | ) | 5,344 | |||||
| Accrued expenses | 596 | (749 | ) | |||||
| Other liabilities | 1,065 | (1,165 | ) | |||||
| Income taxes receivable/payable | (2,825 | ) | 2,320 | |||||
| Net cash provided by operating activities | 20,148 | 6,072 | ||||||
| Cash flows from investing activities | ||||||||
| Purchases of property and equipment | (687 | ) | (4,080 | ) | ||||
| Purchase and development of software and technology | — | (297 | ) | |||||
| Proceeds from sales of property and equipment | 66 | 249 | ||||||
| Net cash used in investing activities | (621 | ) | (4,128 | ) | ||||
| Cash flows from financing activities | ||||||||
| Equipment note borrowings | — | 835 | ||||||
| Payments on equipment note and finance leases | (843 | ) | (4,130 | ) | ||||
| Line of credit borrowings | 5,000 | — | ||||||
| Payments on revolver | — | (4,000 | ) | |||||
| Payment of contingent consideration | — | (6,958 | ) | |||||
| (153 | ) | (309 | ) | |||||
| Distribution to noncontrolling interest | (3,050 | ) | (600 | ) | ||||
| Proceeds from the issuance of ESPP shares | — | 677 | ||||||
| Payment of deferred loan cost related to senior secured credit facility | — | (871 | ) | |||||
| Net cash provided by (used in) financing activities | 954 | (15,356 | ) | |||||
| Effect of exchange rate changes on cash and cash equivalents | (465 | ) | 456 | |||||
| Net change in cash and cash equivalents | 20,016 | (12,956 | ) | |||||
| Cash and cash equivalents beginning of period | 11,243 | 25,131 | ||||||
| Cash and cash equivalents end of period | $ | 31,259 | $ | 12,175 | ||||
| Noncash investing and financing activities | ||||||||
| Leased assets obtained in exchange for new finance lease liabilities | $ | 4,560 | $ | 1,141 | ||||
| Leased assets obtained in exchange for new operating lease liabilities | $ | 2,573 | $ | 377 | ||||
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION
(In thousands, except per share data)
(Unaudited)
Non-GAAP Financial Measures
EBITDA is defined as net (loss) income before interest expense, net, income tax expense and depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted to exclude certain items which we believe are not reflective of ongoing operating performance or which, in the case of an impairment and share-based compensation, are non-cash in nature. Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of total revenues. Adjusted EBITDA Less Share-Based Compensation is defined as Adjusted EBITDA minus share-based compensation expense. Adjusted Net (Loss) Income is defined as net (loss) income attributable to
EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA Less Share-Based Compensation, Adjusted Net (Loss) Income, Adjusted Net (Loss) Earnings per Diluted Share, Free Cash Flow and net working capital (our “non-GAAP financial measures”) are not defined under generally accepted accounting principles (“GAAP”), are not measures of net income, income from operations, cash provided by operating activities, working capital or any other performance measure derived in accordance with GAAP, and are subject to important limitations. Our non-GAAP financial measures may not be comparable to similarly titled measures of other companies in our industry and are not measures of performance calculated in accordance with GAAP. Our non-GAAP financial measures have important limitations as analytical tools and you should not consider them in isolation or as substitutes for analysis of our financial performance as reported under GAAP and they should not be considered as alternatives to net income (loss), cash provided by operating activities, working capital or any other performance measures derived in accordance with GAAP as measures of operating performance or as alternatives to cash flow from operating activities as measures of our liquidity.
The tables below set forth reconciliations of our non-GAAP financial measures to the most directly comparable measure of financial performance calculated under GAAP:
NET WORKING CAPITAL*
| 2020 | 2019 | |||||||
| Working capital | $ | 78,125 | $ | 80,816 | ||||
| Cash and cash equivalents | (31,259 | ) | (11,243 | ) | ||||
| Current maturities of long term debt | 1,725 | 1,481 | ||||||
| Net working capital | $ | 48,591 | $ | 71,054 | ||||
_____________________
* Preliminary
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION
(In thousands, except per share data)
(Unaudited)
ADJUSTED NET LOSS AND ADJUSTED NET LOSS PER DILUTED SHARE
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
| Effect on Net Loss |
Impact on Diluted Loss Per Share | Effect on Net Loss |
Impact on Diluted Loss Per Share | Effect on Net Loss |
Impact on Diluted Loss Per Share | Effect on Net Loss |
Impact on Diluted Loss Per Share | |||||||||||||||||||||||||
| Net loss attributable to |
$ | (8,757 | ) | $ | (0.19 | ) | $ | (22,301 | ) | $ | (0.48 | ) | $ | (60,306 | ) | $ | (1.28 | ) | $ | (34,267 | ) | $ | (0.74 | ) | ||||||||
| Adjustments | ||||||||||||||||||||||||||||||||
| Impairment (a) | — | — | 7,919 | 0.17 | 50,194 | 1.06 | 7,919 | 0.17 | ||||||||||||||||||||||||
| Realized and unrealized losses (b) | 174 | — | 245 | 0.01 | 212 | 0.01 | 542 | 0.01 | ||||||||||||||||||||||||
| Change in fair value of contingent consideration (c) | — | — | — | — | — | — | 37 | — | ||||||||||||||||||||||||
| Income tax impact from adjustments (d) | (670 | ) | (0.01 | ) | 8,895 | 0.19 | 131 | — | 18,712 | 0.41 | ||||||||||||||||||||||
| Adjusted net loss attributable to |
$ | (9,253 | ) | $ | (0.20 | ) | $ | (5,242 | ) | $ | (0.11 | ) | $ | (9,769 | ) | $ | (0.21 | ) | $ | (7,057 | ) | $ | (0.15 | ) | ||||||||
_____________________
(a) Represents non-cash impairment charges for property and equipment and intangible assets during 2020 and a non-cash impairment charge for goodwill in 2019 as the fair values were lower than the carrying values.
(b) Represents realized and unrealized foreign currency translation losses primarily due to movement in the foreign currency exchange rates between the periods.
(c) Represents the difference between the
(d) Represents the income tax adjustments including a reduction in foreign income tax, valuation allowance recorded to reduce the carrying value of both our
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION
(In thousands)
(Unaudited)
ADJUSTED EBITDA, ADJUSTED EBITDA MARGIN, AND ADJUSTED EBITDA LESS SHARE-BASED COMPENSATION
| Three Months Ended | Six Months Ended | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Net loss | $ | (8,892 | ) | $ | (19,568 | ) | $ | (57,799 | ) | $ | (29,446 | ) | ||||
| Income tax (benefit) expense | (5,973 | ) | 2,022 | (6,898 | ) | 11,596 | ||||||||||
| Interest expense, net | 424 | 556 | 746 | 1,073 | ||||||||||||
| Depreciation | 994 | 1,495 | 2,446 | 2,921 | ||||||||||||
| Amortization | 104 | 1,137 | 1,237 | 2,298 | ||||||||||||
| EBITDA | (13,343 | ) | (14,358 | ) | (60,268 | ) | (11,558 | ) | ||||||||
| Impairment (a) | — | 7,919 | 50,194 | 7,919 | ||||||||||||
| Share-based compensation (b) | 1,722 | 3,314 | 4,672 | 6,282 | ||||||||||||
| Professional fees (c) | (426 | ) | 1,577 | 962 | 2,377 | |||||||||||
| Foreign currency exchange loss (d) | 217 | 250 | 207 | 547 | ||||||||||||
| Change in fair value of contingent consideration (e) | — | — | — | 37 | ||||||||||||
| Severance and other termination benefits (f) | 3,428 | — | 4,774 | — | ||||||||||||
| Other (g) | 481 | 268 | 776 | 645 | ||||||||||||
| Adjusted EBITDA | $ | (7,921 | ) | $ | (1,030 | ) | $ | 1,317 | $ | 6,249 | ||||||
| Adjusted EBITDA Margin | (91 | )% | (3 | %) | 2 | % | 7 | % | ||||||||
| Adjusted EBITDA Less Share-Based Compensation | $ | (9,643 | ) | $ | (4,344 | ) | $ | (3,355 | ) | $ | (33 | ) | ||||
_____________________
(a) Represents non-cash impairment charges for property and equipment and intangible assets during 2020 and a non-cash impairment charge for goodwill in 2019 as the fair values were lower than the carrying values.
(b) Represents non-cash compensation charges related to share-based compensation granted to our officers, employees and directors.
(c) Represents non-capitalizable costs of professional services incurred in connection with our financings, legal proceedings and the evaluation of potential acquisitions. During the second quarter of 2020, we received
(d) Represents realized and unrealized foreign currency translation gains and losses primarily due to movement in the foreign currency exchange rates between the periods.
(e) Represents the difference between the
(f) Reflects charges incurred in connection with the reductions in workforce implemented in 2020.
(g) Represents the impact of a research and development subsidy that is included in income tax expense (benefit) in accordance with GAAP along with other charges and credits.
FREE CASH FLOW
| Six Months Ended | ||||||||
| 2020 | 2019 | |||||||
| Net cash provided by operating activities | $ | 20,148 | $ | 6,072 | ||||
| Purchases of property and equipment | (687 | ) | (4,080 | ) | ||||
| Purchase and development of software and technology | - | (297 | ) | |||||
| Proceeds from sales of property and equipment | 66 | 249 | ||||||
| Free cash flow | $ | 19,527 | $ | 1,944 | ||||
REVENUES BY GEOGRAPHIC AREA
(In thousands)
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||
| Product sales | $ | 3,687 | $ | 21,069 | $ | 21,127 | $ | 40,633 | ||||
| Services | 917 | 5,674 | 4,445 | 11,455 | ||||||||
| Total |
4,604 | 26,743 | 25,572 | 52,088 | ||||||||
| Product sales | 1,171 | 8,801 | 21,978 | 25,422 | ||||||||
| Services | 329 | 2,705 | 8,888 | 11,080 | ||||||||
| Total |
1,500 | 11,506 | 30,866 | 36,502 | ||||||||
| Other Countries | ||||||||||||
| Product sales | - | 75 | 1,183 | 1,122 | ||||||||
| Services | 2,628 | 1,444 | 5,661 | 2,906 | ||||||||
| Total Other Countries | 2,628 | 1,519 | 6,844 | 4,028 | ||||||||
| Total | ||||||||||||
| Product sales | 4,858 | 29,945 | 44,288 | 67,177 | ||||||||
| Services | 3,874 | 9,823 | 18,994 | 25,441 | ||||||||
| Total revenues | $ | 8,732 | $ | 39,768 | $ | 63,282 | $ | 92,618 | ||||
Source: NCS Multistage Holdings, Inc.
