Welcome to the First Quarter 2022 NCS Multistage Earnings Conference Call. My name is Sylvia, and I'll be the operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, the conference is being recorded. I will now turn the call over to Ryan Hummer. Mr. Hummer, you may begin.

All right. Thank you, Sylvia, and thank you for joining the NCS Multistage first quarter 2022 conference call. Our call today will be led by our CEO, Robert Nipper, and I will also provide comments. I want to remind listeners that some of today's comments include forward-looking statements such as comments regarding our future expectations for financial results and business operations. These statements are subject to many risks and uncertainties that could cause our actual results to differ materially from any expectation expressed herein, including the impact of the COVID-19 pandemic and Russia's ongoing invasion of Ukraine on the global economy, oil demand and our company. Please refer to our latest Securities and Exchange Commission filings for risk factors and cautions regarding forward-looking statements. Our comments today also include non-GAAP financial measures, including adjusted EBITDA, free cash flow and net working capital. The underlying details and reconciliations of non-GAAP to the most comparable GAAP financial measures are included in our first quarter earnings release, which can be found on our website, ncsmultistage.com. I'll now turn the call over to Robert.

Thanks, Ryan. I want to welcome all of our investors, analysts and employees joining our first quarter 2022 earnings conference call this morning. Our performance in the first quarter was largely in line with the guidance that we provided in early March. I'll briefly discuss our results and outlook for each of the U.S., Canada and international markets. Starting with the U.S., our revenue of $9.1 million in the first quarter was at the low end of our guidance of $9 million to $10 million as completions activity started slowly in January before improving during the remainder of the quarter. As a result, we expect to return to sequential revenue growth in the U.S. in the second quarter. We continue to be encouraged by field trial progress for our new modular Purple Fire perforating gun system and expect revenue for that product line to grow throughout the year. We are incorporating knowledge gained from the field trials into the product design. One of the things that we're most excited about with the Purple Fire introduction is that it gives us the ability to provide our customers with an integrated, high-quality downhole tool string for our plug-and-perf completion, which includes the composite plug, the disposable setting tool, power charge, and the modular perforating gun system. We expect trials for this system, the Purple Fire Express, during the second quarter. Our Canadian revenue of $28.5 million in the first quarter met the high end of our guidance range of $26.5 million to $28.5 million as customers pushed to complete as much work as possible for the onset of the spring breakup. I'm very pleased with the success of our Canadian sales and operations team in growing our well construction business with the first quarter's results reflecting strong activity across our proprietary liner hanger, toe sleeve, and AirLock casing buoyancy systems offerings. We expect that our Canadian business will exhibit typical seasonality with a period of low activity through May before recovering in June. We're encouraged by discussions with our customers about both the timing and scope of their expected activity after spring breakup, weather permitting. Activity in the third quarter of 2022 in Canada could be as robust as in the first quarter, reflecting the strong economics available to our customers. International operations were slow for us in the first quarter with revenue of $1.5 million at the low range of our guidance of $1.5 million to $2.5 million. Our international activity has begun to recover in the second quarter, and we believe that it will continue to increase as we move into the second half of the year. We continue to be impacted by supply chain and labor cost increases, including expenses and employee wages, steel, fuel and fiberglass costs, as well as extended lead times for purchases and higher third-party service and transportation charges. We've implemented price increases and surcharges and expect to initiate future price increases as our input costs continue to rise. We're working with our largest customers to secure volume commitments that allow us to better plan purchases and partially mitigate these cost increases. From a timing standpoint, we have incurred cost increases in early 2022 before we receive the full benefit from our pricing actions, which has pressured our gross margins during the first half of 2022 until we realize the full benefit of the price increases in the second half of the year. We maintained a strong balance sheet with approximately $7.6 million in net cash and an undrawn revolver as of March 31 of this year. We recently entered a new larger credit facility that Ryan will discuss later. Our net capital expenditures for the quarter were only about $100,000, highlighting both the capital-light nature of our business and our continued financial discipline. Our entire team at NCS has done a tremendous job, and I am so proud to say that we have extended our track record of zero recordable incidents, which began in 2020 through 2022, with no reportable incidents thus far this year. Now I'll ask Ryan to discuss our financial results in more detail.

Thank you, Robert. As reported in yesterday's earnings release, our first quarter revenues were $39.1 million, 37% higher than the prior year's first quarter. Sequentially, our revenue in the first quarter was 8% higher than our revenue in the fourth quarter of last year, with a seasonally driven 32% increase in Canada, offset by reductions of 10% and 67% in the U.S. and international markets, respectively. Gross profit, defined as total revenue less total cost of sales, excluding depreciation and amortization expense was $14.9 million in the first quarter or 38% of revenue compared to $10.2 million or 36% of revenue in the prior year's first quarter. For a sequential comparison, our gross profit was $15.9 million or 44% of revenue in the fourth quarter of last year. Our gross margin percentage decreased primarily due to the mix of our geographic revenue contributions, as well as cost increases associated with our supply chain, which has impacted us in advance of our ability to benefit from price increases. Our selling, general, and administrative costs were $16 million in the first quarter, which was $3.2 million higher than the first quarter of last year, primarily driven by increased compensation expense for salary and benefit restorations and salary increases. Our reported SG&A includes share-based compensation and certain non-recurring expenses, including certain litigation costs. In the first quarter, our non-recurring litigation expense totaled $2.1 million and our non-cash share-based compensation expense was $0.8 million. Our adjusted EBITDA for the first quarter was $2.3 million, which compares to $100,000 in the prior year's first quarter, an improvement of $2.2 million. During the first quarter, our depreciation and amortization expense was $1.1 million, and our net loss attributable to our non-controlling interest in Repeat Precision was $0.2 million. Now turning to cash flow items on the balance sheet. Our cash flow from operations for the first quarter was negative $6 million, and our net capital expenditures for the first quarter were approximately $100,000, resulting in free cash flow for the quarter of negative $6.2 million. This negative free cash flow was primarily related to an increase in working capital. As of March 31, 2022, we had $15.5 million in cash and total debt of $8 million with our credit facility undrawn. We also had net working capital as of March 31 of $55 million. In early May, we entered into a new $35 million asset-based loan facility, which we believe provides us with additional financial flexibility as compared to the prior $25 million facility, which was scheduled to mature in May 2023. The borrowing base under our new ABL on the date in which we entered into the facility was $19.7 million. Turning now to a few points of guidance for the second quarter. We currently expect our second quarter total revenue to be between $26 million and $29.5 million. Within this, we expect U.S. revenue of $11.5 million to $12.5 million; international revenue of $3 million to $4.5 million, recovering from the lower levels in the first quarter, and we expect our Canadian revenue to be between $11.5 million and $12.5 million, reflecting the seasonal impact of spring breakup. We expect our gross margin in the second quarter to be between 35% and 40%, with the impact of sequential growth in the U.S. and international markets offset by fixed cost under absorption in Canada during the quarter. We expect our reported SG&A to be between $14.5 million and $15.5 million for the second quarter, including approximately $0.8 million in non-cash share-based compensation and $1.3 million in litigation expenses. And we also expect our second quarter G&A expense to be approximately $1.1 million.

Thanks again, Ryan. We are maintaining our full-year guidance for 2022. We currently expect full-year revenue of $145 million to $160 million and full-year adjusted EBITDA of $13 million to $18 million, consistent with the calculations in our earnings release. We expect gross capital expenditures for 2022 of $2 million to $3 million. While we will strive to be free cash flow positive in 2022, that will be a challenge given our growth expectations as we anticipate net working capital to be a use of cash in 2022. Underpinning our revenue growth expectations is anticipated industry activity growth of 10% to 20% in Canada. We expect wells drilled in the U.S. to increase by at least 20% in 2022 and wells completed in the U.S. to increase by at least 10% as compared to 2021. Finally, we expect international industry activity to grow by at least 10% in 2022. We expect our revenue growth to exceed the growth in the underlying industry activity through market share increases in selected product and service lines, growth in international markets, and through the continued adoption of newly introduced technologies like our Purple Fire perforating gun system. We also expect that the full impact of price increases achieved with our customers will have a more meaningful impact in the second half of the year. Since our price increases have lagged the impact of increased cost of sales and personnel costs, we expect that the achievement of our annual adjusted EBITDA guidance range will be weighted toward the second half of the year. Our guidance is based on current market conditions, and the further escalation of hostilities by Russia and Ukraine or changes to sanctions against Russia implemented by various global governments that impact Russia's oil and gas sector could cause meaningful changes to market conditions, including increasing inflationary pressures and adding further stress to certain components of the global supply chain. Before we open up the call for Q&A, I'll close with a couple of brief comments. We continue to build on our strong performance as we execute on our growth initiatives. We have the infrastructure in place to support revenue growth in each of our geographic markets, providing leverage to grow future earnings. We continue to successfully introduce new technologies that meet the needs of our customers, adding to our portfolio and expanding our addressable market. We are diligently managing through the supply chain challenges that we and others in our industry are facing. Our team at NCS continues to do a tremendous job operationally, and I'm proud to say that we had zero recordable incidents in each of 2020 and 2021, and no recordable incidents so far this year. And we maintain a very strong balance sheet and liquidity position, providing us with the strategic flexibility that we'll need. And with that, Sylvia, we'll take questions if there are any in the queue.

Thank you. We will now begin the question-and-answer session. And the first question comes from John Daniel from Daniel Energy Partners.

Good morning, gentlemen. Thank you for taking my question. I guess, the first question, you mentioned the volume commitments sort of to help manage the business given inflationary cost pressures, et cetera. I'm just curious, as you talk to customers about volume commitments, how far out are they willing to look at this point?

Well, most of the conversations that we're having now are in our Canadian business. When we talk about trying to get forward-looking volume commitments. And as you probably are aware, with the seasonality in the Canadian business, those volume commitments generally will start after breakup and then run through the winter drilling season. And so it's more of trying to get a better understanding of what their plans are for the rest of the year instead of working just off the phone calls that we get saying we need to see you out there in two weeks.

Right. Okay. But I'm guessing the conversations are encouraging. Is that fair to say?

Yes, they are. I would say in the Canadian market, our customers seem to be more receptive to the price increases than in the U.S. market. But in both markets, our customers are aware of what's going on. They may not be talking about the full extent of what the impacts are, but they see it when they buy casing or a joint.

Okay. And you mentioned you're going to start the trials in Q2 for the Purple Fire Express, if I heard correctly. I don't know if you can - you probably don't want to quantify this, but I'm just curious if everything went perfectly. How would that play out over the course of '22 and into '23 in terms of perhaps revenue uplift, margin expansion? Just any color on that, and you can dance around that for competitive reasons, I get it, but just any color would be appreciated.

Yeah. What I would say about that, John, is that we think that it will have a meaningful impact on our business, assuming everything goes well. We've already been running perforating guns. The Purple Fire Express is just packaging the guns with the rest of the product offering that we have at Repeat Precision. And so we've been running guns and trial phases for approximately 5 months now, 4 to 5 months, and we're north of 10,000 guns right now. So we have a pretty good sense of where we are with the perforating gun system and what kind of volumes we can expect to grow that market. So we're encouraged, and we think it can be somewhat meaningful if everything goes well.

Perfect. That’s all I got, guys. Thank you for including me.

Thanks, John.

I appreciate it, John. Thanks.

And we have no further questions at this time. I will now turn the call over to Mr. Robert Nipper for closing remarks.

Thanks, Sylvia. On behalf of our management team and our Board, we'd like to thank everyone on the call today, including our shareholders and the research analysts who cover NCS, and especially our employees. I'll talk about this every quarter, but I really appreciate the tremendous work and dedication demonstrated by our team here at NCS and Repeat Precision. We've been through a tough couple of years. Now we see some light at the end of the tunnel, and we are positioned to take advantage of that. But we're only as good as the people that we have, and I believe that we have the best team in the industry. We continue to operate safely with zero reportable incidents this year. Our team continues to provide excellent service to our customers and is developing new products and services that will enable our customers to be more successful. We see the potential for a multiyear cycle of improved growth prospects for our industry, and I'm excited by how NCS is positioned to participate in that growth and deliver benefits to our employees, customers, shareholders, and other stakeholders. We really appreciate everyone's interest in NCS Multistage, and we look forward to talking again on our next quarterly call. That concludes our call today.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.