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United States securities and exchange commission logo
December 22, 2023
Mike Morrison
Chief Financial Officer
NCS Multistage Holdings, Inc.
19350 State Highway 249
Suite 600
Houston, TX 77070
Re: NCS Multistage
Holdings, Inc.
Form 10-K for the
Fiscal Year ended December 31, 2022
Supplemental
response filed December 15, 2023
File No. 001-38071
Dear Mike Morrison:
We have reviewed your December 15, 2023 response to our comment
letter and have the
following comments.
Please respond to this letter within ten business days by
providing the requested
information or advise us as soon as possible when you will respond. If
you do not believe a
comment applies to your facts and circumstances, please tell us why in
your response.
After reviewing your response to this letter, we may have
additional comments. Unless
we note otherwise, any references to prior comments are to comments in
our December 1, 2023
letter.
Form 10-K for the Fiscal Year ended December 31, 2022
Management's Discussion and Analysis
Results of Operations, page 41
1. We understand from your
response to prior comment one that you regard the change in
revenue for 2022
compared to 2021 that is attributable to differences in prices received in
exchange for products
and services during 2022 compared to 2021 as not material, and
that you would prefer
to not disclose the volumes of products and services sold in each
period, due to
complexity in establishing correlation with revenues, citing the "number of
product lines and
variables in the product and geographic mix."
With regard to your
view on materiality, you state that "...price was not a material factor
impacting the increase
in revenues for NCS during Fiscal 2022, nor did changes in price
Mike Morrison
FirstName LastNameMike Morrison
NCS Multistage Holdings, Inc.
Comapany22,
December NameNCS
2023 Multistage Holdings, Inc.
December
Page 2 22, 2023 Page 2
FirstName LastName
represent a material offset to the volume driven increase in revenue,"
although certain
disclosures indicate you had reduced prices, and your explanation
regarding a time lag in
realizing the effects of price changes states that 2022 "...was more
impacted by the price
declines for Fiscal 2021" than price increases that would follow more
recent decisions,
where the effects would be more prevalent in subsequent periods.
Please submit the computations that you performed in formulating your
present
disclosures attributing the increase in revenues to increased volumes,
and concluding that
price differences during 2022 compared to 2021 did not have a material
effect on
revenues. Please describe your methodology and the inputs sufficiently
to understand
how you have managed the complexity mentioned in your response in
establishing
support for your disclosures and your views on materiality.
2. We note that you provide a discussion and analysis of cost of sales
including
its percentage of total revenues, and the subcategories of cost of
product sales and cost of
services and their percentages of the corresponding revenues, as well
as comparative
percentages for the prior year.
However, your various references to the cost measures utilized in the
underlying
computations do not use the line item captions that clarify you have
excluded depreciation
and amortization that would be attributable to the various cost
measures under GAAP, as
appear in your financial presentation on page 52.
Please revise your disclosures to clarify that you are discussing
incomplete cost measures,
due to the exclusion of depreciation and amortization, and to provide
equally prominent
disclosure of the comparable percentage metrics based on the complete
GAAP measures.
We suggest using a tabulation to facilitate these comparisons.
How We Evaluate our Results of Operations, page 42
3. We note that you identify revenues and four non-GAAP measures used by
your
management, including Adjusted EBITDA, a variation of Adjusted EBITDA,
Free Cash
Flow, and a variation of Free Cash Flow, as "significant factors in
assessing [y]our results
of operations and profitability."
You also state that Adjusted EBITDA and Adjusted EBITDA Less
Share-Based
Compensation "...are key metrics that management uses to assess the
period-to-period
performance of our core business operations" and that your measure of
Free Cash Flow is
used "to evaluate the cash generated by our operations and results of
operations."
However, given that you have not mentioned any of these non-GAAP
measures in
your discussion and analysis, it appears that you should revise your
disclosures to clarify
the role and utility of these measures and to explain how they have
enhanced or increased
your understanding of the results of operations and profitability,
relative to the most
directly comparable GAAP measures that are identified in your
reconciliations.
Mike Morrison
FirstName LastNameMike Morrison
NCS Multistage Holdings, Inc.
Comapany22,
December NameNCS
2023 Multistage Holdings, Inc.
December
Page 3 22, 2023 Page 3
FirstName LastName
Please also clarify the extent to which the disclosures you are
providing under this
heading are substantively complete in identifying the significant
factors and key metrics
that are used by management to assess and evaluate performance; and if
other measures
are also important these should be identified to provide adequate
context.
4. On a related point, tell us why you identify gross profit in the
financial reviews provided
in your quarterly and annual earnings releases, and in various
investor presentations
posted on your website, but do not identify this as a relevant measure
in the disclosures
accompanying your periodic financial reports.
With regard to your presentations of gross profit, given that you
exclude depreciation and
amortization from the cost of product sales and the cost of services
that are net against
revenues in calculating the measure, it appears that you are
presenting a non-GAAP
measure utilizing terminology that is generally associated with a GAAP
measure.
If you continue to present this non-GAAP margin measure in earnings
releases and
investor presentations, you will need to comply with 244.100 of
Regulation G, to include
using a different label for your margin measure, providing disclosure
that conveys its
character as a non-GAAP measure, identifying the GAAP measure of gross
margin as the
most directly comparable GAAP measure, and providing a reconciliation
from GAAP
gross margin to your non-GAAP margin measure for each period.
Alternatively, you would need to correct your computation of gross
profit to reflect all
costs that are attributable to the measure to comply with GAAP. Tell
us your intentions
relative to this requirement and submit any revisions that you propose
in connection with
future disclosures of your non-GAAP margin measures.
Adjusted EBITDA and Adjusted EBITDA Less Share-Based Compensation, page 43
5. We note your response to prior comment three explaining that the
professional service
costs excluded from your non-GAAP measure are limited to costs of
legal proceedings
associated with the assertion of, or defense of intellectual property
and related matters,
while also stating that you do not consider such costs to reflect
"ordinary course operating
expenses" that are part of your revenue generating activities. You
further clarify that you
have not described the excluded amounts as non-recurring, infrequent
or unusual,
although you disclose that these are "not reflective of ongoing
operating performance."
The guidance in the answer to Question 100.01 of our non-GAAP
Compliance and
Disclosure Interpretations (C&DI's), pertains to the exclusion of
normal, recurring, cash
operating expenses that are necessary to operate the business, and is
not limited to costs
that would be part of your revenue generating activities or
attributable to cost of sales.
Given the frequency with which you incur these costs, it appears that
you have an ongoing
need to defend your intellectual property rights. You have disclosures
on pages 8 and 18,
Mike Morrison
NCS Multistage Holdings, Inc.
December 22, 2023
Page 4
stating that such rights are "important in enabling us to compete in
the market to supply
our customers with our products and services" and clarifying that you
have "...in the past,
are presently, and may in the future, become involved in legal
proceedings to protect and
enforce our intellectual property rights." Based on these disclosures
it appears that
incurring professional fees in order to maintain your intellectual
property rights would
be considered necessary to operate your business.
You indicate in your response that you would consider providing
additional disclosure in
future filings "related to the limitations" of your non-GAAP measure,
and to further
clarify the nature of the excluded costs. However, we believe more
certain revisions
would be necessary to address the concerns in the C&DI referenced
above, to either
discontinue the exclusion of such costs in computing the measure or
possibly to discuss
and analyze the excluded professional fees along with your disclosure
of the non-GAAP
measure, if this would adequately serve to avoid misleading
inferences, i.e. to clarify the
utility and necessity of the costs in supporting your ongoing
operations, and to emphasize
the limitations of your non-GAAP measure in assessing operating
performance.
Please submit the revisions that you propose to address these
concerns.
Please contact Mark Wojciechowski at 202-551-3759 or Karl Hiller at
202-551-3686 if
you have questions regarding comments on the financial statements and related
matters.
FirstName LastNameMike Morrison Sincerely,
Comapany NameNCS Multistage Holdings, Inc.
Division of
Corporation Finance
December 22, 2023 Page 4 Office of Energy
& Transportation
FirstName LastName