Good day and welcome to the NCS Multistage Fourth Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. After today’s presentation there will be an opportunity to ask questions. Please note today’s event is being recorded. I would now like to turn the conference over to Mike Morrison, Chief Financial Officer. Please go ahead, sir.

Thank you, Rocco, and thank you for joining NCS Multistage's fourth quarter and full year 2022 conference call. Our call today will be led by 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 comments regarding our future expectations for financial results and business operations. These statements, including our financial guidance, are subject to many risks and uncertainties that could cause our actual results to differ materially from any expectations expressed herein, including the impacts of inflation, central bank actions to combat inflation, and Russia’s ongoing invasion of Ukraine on the global economy, oil and natural gas demand, and our company. 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 also include non-GAAP financial measures, including adjusted net income, 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 fourth quarter and full year 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 joining our fourth quarter and full year 2022 earnings conference call. I will review our performance and accomplishments during 2022, how our actions during the year have positioned us to capitalize on the growth opportunities ahead, and our strategic objectives for 2023. 2022 represented a year of meaningful growth for our industry and for NCS, as demand for oil and natural gas continued to rebound from the lows reached during the pandemic. We believe that we are still in the early stages of this multi-year recovery, with a moderating rate of industry activity growth in North America, paired with robust opportunities for further growth in international markets as national oil companies execute expansions of their productive capacity. Against this backdrop, we were able to increase our revenue to $155.6 million in 2022, an increase of 31% as compared to 2021, primarily driven by the strength of our performance in Canada and the U.S. which experienced year-over-year revenue growth of 38% and 32%, respectively. We made significant progress in each of our key products and service lines in 2022, adding to our portfolio of technologies that support our customers while expanding our addressable market. Beginning with fracturing systems, we have successfully grown our customer base in the North Sea. We first started working with our current anchor customer in the North Sea in 2017. During 2022, a second customer purchased sliding sleeves from us, with completion activity to begin in 2023. Also in early 2023, we were awarded a trial well with a third customer in the North Sea as we continue to build on our success, helping customers in the region execute highly efficient completions that enhance the economics of their operations. We've also combined our enhanced recovery product line into fracturing systems, highlighting the potential opportunities for our sliding sleeves to support customer operations throughout the producing life of the well, through controlled fracturing, solids control, and preferential production in addition to enhanced recovery operations that support water, gas, and CO2 injection. Within well construction, we challenged our sales and operations teams in Canada to grow this product line, and they've responded. We grew our liner hanger business in Canada by more than 200% in 2022 as compared to 2021 and expect further growth next year. With this growth, we are expanding our operations footprint and will be moving into a new facility during the second quarter of 2023. For 2023, a key focus for the well construction product line is to further develop our casing buoyancy offering to meet customer-specific applications in North America and international markets. Our Tracer Diagnostics product line produced strong results in all core geographies in 2022 with year-over-year revenue growth of over 40% on a global basis, which included growth of more than 30% in each of the U.S. and Canada and growth of over 60% outside of North America. We expect to continue to expand our Tracer Diagnostics business in international markets in 2023 and to convert first wells and trials with customers into repeatable work in the future. We're investing in all aspects of the Tracer Diagnostics product line, advancing our R&D efforts to introduce new service offerings, to reduce chemical usage, and also to further optimize our injection and sampling equipment to provide better and more actionable results to our customers. Our Repeat Precision, the existing portfolio of frac plugs and setting tools continues to perform very well, exhibiting high reliability. Repeat is supported by the efforts of the NCS team in Canada, where we continue to grow our customer base and gain new trial opportunities. We've officially commercialized our Purple Fire factory assembled modular perforating gun system in late 2022 following extensive field trials. We have since grown our customer base with an initial focus on the Permian Basin. As a reminder, the Purple Fire provides us with the opportunity to participate in a larger addressable market and is fully compatible with our factory assembled Purple Seal Express system, which combines a disposable setting tool and a composite frac-plug or bridge-plug. This combined offering, which we call the Purple Fire Express, is an ideal system for efficient plug and perf operations. I want to touch briefly on our margin performance in 2022 and how we're responding to the inflationary pressures over the last few years. For the full year in 2022, our gross margin percentage was 39%, slightly below our 41% gross margin in 2021. The lower margin reflects significant cost increases, especially related to oilfield tubulars such as casing, which are utilized in the production of our products, as well as other cost items such as elastomers, chemicals, and transportation. These cost increases were partially offset by higher volumes and by pricing increases achieved with our customers from which we began to benefit in late 2022. Moving into 2023, we're implementing additional price increases across our business. As with 2022, we expect the full benefit from these price increases to be realized in the second half of the year. We remain very focused on managing our costs, especially our SG&A expenses which fell from 41% of revenue in 2021 to 37% of revenue in 2022. We expect our SG&A expense to rise in 2023 as compared to 2022 levels reflecting annual cost of living increases for 2023, the investments that we're making to attract and retain the great people we need to support our growth expectations, and a more normalized annual bonus program. Our spend on IP related litigation matters which falls within SG&A is expected to begin to moderate in 2023 as compared to 2022 where we had two patent infringement trials in the U.S. related to our airlock casing buoyancy system, where the jury awarded us damages against the accused infringing parties and a patent trial in Canada where we are still awaiting results. We have one more patent infringement trial related to a different product line scheduled for the end of the first quarter of 2023 and certain post-trial matters for other cases. Putting this together, we believe our total SG&A expense could increase by 10% to 12% in 2023 relative to 2022 levels, but that SG&A as a percentage of revenue will continue to decline supporting EBITDA margin expansion. We're very proud of NCS's track record of free cash flow generation over time and through cycles. We invested heavily in working capital in 2022 to facilitate our growth, leading to negative free cash flow of $2.1 million. We expect to generate positive free cash flow in 2023 as the cash generated from operations is expected to fund both working capital increases supporting further revenue growth and strategic capital investments we will make in our business. I want to reiterate NCS's long-term strategy and to briefly discuss our corporate goals for 2023. The vision for NCS is to be globally recognized as a trusted partner and bold innovator, enabling our customers' resource development strategies through technology-driven solutions and reliable expertise. Aligned with this vision are three core strategies that we are following over the next five years to drive growth and increased profitability in the business. The first core strategy is to build upon our leading market positions. This is most evident in our fracturing systems product line where we continue to take our technology into new market segments, to leverage leading positions in certain geographies like Canada to sell additional products and services, and where we are continually working to expand the functionality of our completion systems to provide value to our customers throughout the producing life of their wells. The second core strategy is to capitalize on our growing set of international and offshore opportunities. We've been investing time and effort to position NCS to participate in meaningful growth in select international markets. We believe this hard work will begin to pay off in 2023 and thereafter, particularly as we capitalize on our growing customer base in the North Sea and expand our opportunities in the Middle East. The third core strategy is to commercialize innovative solutions to complex customer problems. Through this core strategy, we are utilizing our strong customer connections from the field to the office, using the voice of the customer to feed our new product development process and refine the technology vision for each product line. We are also leveraging our position as a global leader in fracturing systems to work directly with our customers to develop new technology in a collaborative manner whereby we retain the rights to this new technology with the ability to market the products to a global customer base. These core strategies are supported by our guiding principles of upholding the NCS promise, which embodies our values and outlines how we treat our key stakeholders as well as our other guiding principle of maximizing financial flexibility, supported by our capital-light business model. Our goals for 2023 are fully aligned with our long-term strategy at the corporate, regional, and product line levels, which has been a significant undertaking over the last few months. Broadly speaking, our goals in 2023 are built around enabling our outstanding people, empowering our future through a commitment to innovation centered on the voice of our customers, and growing profitably from our strong existing base. I'll now ask Mike to discuss our financial results in more detail.

Thank you, Ryan. As reported in yesterday's earnings release, our fourth quarter revenues were $40.2 million, 11% higher than the prior year's fourth quarter. Our U.S. and Canada revenues increased by 34% and 15% respectively, which were partially offset by a decline in our international business from which sales can be lumpy. As expected, on a sequential basis, our fourth quarter revenues were down 18% compared to the third quarter, due in part to seasonality and customer budget exhaustion, primarily in Canada. For the full year 2022, our revenues were $155.6 million, an increase of 31% compared to 2021. Gross profit defined as total revenues less cost of sales excluding depreciation and amortization expense was $16.1 million in the fourth quarter. Our gross profit percentage was 40% compared to 44% from the same period one year ago and 42% sequentially. Selling, general and administrative costs were $13.1 million for the fourth quarter, which was approximately $300,000 lower than the same period in 2021, primarily due to lower professional fees related to litigation matters, which was partially offset by an increase in our payroll expense associated with salary increases from earlier in 2022. For the fourth quarter, we reported net income of $2.0 million or $0.81 per diluted share, which was an improvement of $0.13 per diluted share compared to the same period in 2021. Our adjusted net income was $1.6 million or $0.64 per diluted share, an improvement of $0.16 per diluted share to the fourth quarter last year. Adjusted EBITDA for the fourth quarter was $6.4 million, consistent with the same period in 2021 and a decline of $2 million sequentially. Compared to the fourth quarter guidance provided on our last earnings call, we were approximately $2 million below our revenue range, but in the range of our expected gross profit percentage and adjusted EBITDA. While revenues fell short of our expectations, we saw an improvement in the mix of revenues and had lower SG&A cost than anticipated. Turning now to cash flow items in the balance sheet. Cash flow from operations and free cash flow for the fourth quarter were $7.6 million and $7.4 million respectively. Our free cash flow for the full year of 2022 was a negative $2.1 million, which was primarily the result of an increase in working capital of $7.2 million, which totaled $55.2 million into the year. On December 31st, we had $16.2 million in cash and total debt of $7.9 million, resulting in a positive net cash of $8.3 million. As of December 31st, the borrowing base under our undrawn ABL facility was $18.6 million. Turning now to a few points of guidance for the first quarter of 2023. We currently expect first quarter total revenue of $43 million to $47 million, an improvement over both the first and fourth quarters of 2022. We expect U.S. revenue of $12 million to $13 million, Canada of $30 million to $32 million, and international revenue of $1 million to $2 million. We expect our gross margin percentage to be between 38% and 41%, which is similar to the gross margins we experienced in the first and fourth quarters of 2022. We expect our adjusted EBITDA to be between $4 million to $5 million. We expect our first quarter depreciation and amortization expense to be approximately $1 million.

I'll hand it over to Ryan to provide our full year 2023 guidance and for closing remarks. Thanks, Mike. Our full year guidance for 2023 is as follows. We currently expect full year revenue to be between $175 million and $190 million and full year adjusted EBITDA to be between $20 million and $25 million with adjusted EBITDA consistent with the reconciliations in our earnings release. We expect our gross capital expenditures for 2023 to be between $4 million and $5 million. As stated before, we expect net working capital to be a use of cash in 2023 supporting our anticipated growth, but do expect that we will generate positive free cash flow during the year. In addition, at an adjusted EBITDA level of $20 million to $25 million, we would expect to generate positive net income for the year. Underpinning our revenue growth expectations is anticipated year-over-year average annual industry growth of up to 10% in both Canada and the U.S., though activity in the U.S. is expected to be below the levels reached in the fourth quarter of 2022. Furthermore, we expect international industry activity to grow by at least 10% in 2023. We expect our revenue growth to exceed that of the underlying industry activity by achieving market share increases in selected product and service lines, our growth in international markets, and continued adoption of newly introduced technologies across our product and service lines. We also expect the full impact of the price increases that we achieve with our customers to offset cost inflation will provide a positive impact, especially in the second half of the year. 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 to the second half of the year. Before we open up the call to Q&A, I'll close with a couple of brief comments. We had strong performance in 2022, growing total annual revenue by 31% and improving our adjusted EBITDA margin from 8% in 2021 to 10% in 2022. We have the infrastructure in place to support revenue growth in each of our geographic markets, providing leverage to grow future earnings. As demonstrated by our guidance for 2023, achieving the midpoint of our guidance range would grow our annual revenue by over 15% and further increase our adjusted EBITDA margin to 12%. At the midpoint of the guidance range, we would grow revenue by approximately $27 million and adjusted EBITDA by $7 million, reflecting incremental adjusted EBITDA margins of approximately 25%. We continue to successfully introduce new technologies that meet the needs of our customers, adding to our portfolio, and expanding our addressable market. And finally, we enter 2023 with a strong balance sheet and liquidity position, ending 2022 with a cash balance of over $16 million. In addition, we expect to add to that cash balance by generating positive free cash flow during the year, providing us with financial and strategic flexibility. With that, we would welcome any questions from the audience.

Thank you. And today's first question comes from Bill Austin at Daniel Energy Partners. Please go ahead.

Hey, guys. Good quarter and a nice finish to the year.

Thanks, Bill.

I wanted to briefly discuss working capital. I know you mentioned it increased a little last year, and you touched on it at the end, but can you elaborate on how you see that developing throughout the year and how it contributes to generating free cash flow for 2023?

Sure, I'll take that at the start and then Mike can supplement. One of the things that was actually an accomplishment for us during 2022 was we did get a lot more efficient with our working capital. So while net working capital did increase by just over $7 million between the end of 2021 and the end of 2022, our net working capital as a percentage of our trailing 12 months revenue came down from about 45% to 35%. That really gets us back to the ratio of net working capital as a percentage of sales that we had in 2018 and 2019 prior to the downturn. I think there was even more accomplishment in there given the fact that we've seen cost inflation in our inventory base. So we've been really doing a great job in managing absolute inventory levels, but the cost of inventory has been increasing at the same time. For 2022, we had good underlying earnings in the business, but we grew revenue by 30%. So the cash that went into building net working capital slightly overcame the cash generated from just normal business operations, leading us to slightly negative free cash flow for the year. But as we turn to 2023, the underlying earnings in the business are higher and the level of growth, the rate of growth, while still good at more than 15% is moderating a bit, which will allow us to convert that sort of operating cash flow before working capital build into true free cash flow for the business this year.

Great, thanks. And then just one I'm switching just a little bit on that, just on the profile. The modular propane gun system. I know you mentioned a little bit in your comments how is traction going on that and when do you start really seeing kind of good generation of revenue from that system in 2023?

Yeah. Thanks, Bill. It's a great question. So we were really through in the field trial process for most of 2022. When we brought the Purple Fire out, we had an anchor customer and for us, that channel to market is a little bit different. Most of our products and services we sell directly to the E&P company. With Perforating Guns, you are selling through the wireline company. So our channel to market is through another service provider. Although we certainly do market for kind of pull-through marketing to the E&P customer bases as well. But we worked with one wireline company who certainly saw the advantages of our system to get through the field trial process. There were a lot of learnings there. As we got into late in the third quarter of 2022, we were very comfortable with where that product was and started to take that out and sell Purple Fires through other wireline customers. That was kind of the journey we've gone through. It's still a relatively small contributor to the overall revenue profile right now. We would anticipate that that starts to pick up a bit more through the second and third quarter and hit more of a steady state in the second half of the year. The process that we go through with the Purple Fire in some ways, and this is getting a little bit into the weeds, but there's a process called a tow prep for some plug and perf wells where we can introduce that system with the wireline company in a very low-risk basis, get them comfortable with the system, and then they can start taking that out to regular stage work with customers. So as we grow the customer base, it starts with relatively low stage count trials and then we grow that into full stage work and take it from there. And again, because we're building and assembling the Purple Fire systems in the Permian Basin, we're starting out taking that product to the Permian so we can provide very responsive field service to both the E&P customer but also our wireline customers through that trial process as it gets adopted.

Great. That's all for me.

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to the management team for any final remarks.

Alright, thanks, Rocco. On behalf of our management team and our Board, we'd like to thank everyone on the call today, including our shareholders and research analysts, and especially our employees. I truly appreciate the tremendous work and dedication demonstrated by our team here at NCS and Repeat Precision. We're only as good as our people, and I'm fortunate to be able to work with the best team in the industry. Just yesterday, our COO and I visited with our supply chain and manufacturing team in South Houston to celebrate that team's accomplishment of achieving over 2000 days of working safe with no recordable incidents in manufacturing over that time. Our team continues to provide excellent service to our customers and is commercializing new products and services that will enable our customers to be more successful. We're taking on demanding and technically challenging work and we are delivering results. We believe that we're still in the early stages of a multi-year cycle of improved prospects for our industry, and I'm excited by how NCS is positioned to participate in that growth and to deliver benefits to our employees, customers, shareholders, and other stakeholders. We appreciate everyone's interest in NCS Multistage and we look forward to talking again on the next quarterly earnings call. Thank you.

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.