Prepared remarks
Ladies and gentlemen, thank you for standing by. Welcome to the NCS Multistage First Quarter 2026 Results Conference Call. 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. 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 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 those assets and are running fewer completions 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 two 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 two-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 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 Mexico. 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 two of our customers begin multiyear projects in fields that will be utilizing our technology. We've also submitted a tender for a three-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 shift 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 the ResMetrics facility in Houston to our facility in Tulsa. 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. 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 supermajor. 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.
Questions and answers
Just wanted to start maybe with Canada. Obviously, there were a lot of headwinds in the quarter for you between the weather issues, spring breakup, customer delays. Would you be able to break out a little bit more 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. I'll take them one by one. Three things 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. Then we had a slightly earlier onset of spring breakup as the thaw line progressed north faster than is typical. I'd say that was probably half of the driver of the miss in Canada relative to our Q1 expectations. Beyond that, we had some customers who deferred their activity — projects they had expected to kick off in February and March, and they deferred those. Coming into this year, budgets were set with $60 to $65 oil, and there was an expectation that the market could improve in the latter half of the year. So some customers chose to shift capital further back in anticipation of a better market later in the year and because spring breakup gives them the flexibility to do so.
The last piece, which is smaller but still impactful, is 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 where we had expected sleeves to be installed came up short or required drilling a new lateral. The accumulation of all of those factors led to the miss in Q1. I expect most of that will be recoverable later in the year, assuming customers continue with their initial budgets. There's upside if markets react to higher oil prices.
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 additionally, what does the backlog for additional projects look like in deepwater, assuming this all goes well?
For the initial well, the asset has been identified. We're working with the customer and the regulator for that project. Drilling for that well is expected to start late this year. We are targeting delivery of sleeves for that project in December. But with projects like that, there is an opportunity for it to slip a little, so we're being cautious and not assuming a large project in December that could slip into next year if delayed by a week or two. There is ongoing work finalizing the metallurgy for the sleeves and some testing requirements, but we feel we're on track. That customer has identified two other projects in the Gulf of Mexico where we think the technology could apply in later 2027 and 2028. As with most offshore projects, the operator has partners with smaller percentages, and we've been talking to several customers about this deepwater solution. We expect to grow the customer base over time, but this is a long-cycle effort from customer acquisition through proving the technology and adapting it to each well environment. We feel good about the next couple of years, think we're on track for this first well, and expect the customer to have plans for additional opportunities. From there, it's about 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?
Those conversations are certainly starting to pick up. We are seeing inquiries from operators and have seen commentary from drilling contractors and service companies about customer interest in increasing rig counts and bringing completion crews back into the market. There's not as much excess rig or frac capacity as in prior cycles, but the conversations are happening in both the U.S. and Canada. We won't lean too heavily into that yet; we'll wait for customers to set budgets and contract rigs before moving from inquiries to committed activity.
Just to call it a two-part question. Let's assume we're positively surprised and the activity acceleration occurs 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?
For us, there are very few constraints given our business model. We're investing to increase capacity at Repeat Precision; those machining assets will come online in the next month or two, which will support growth on the frac plug side. Across tracer diagnostics and our frac systems business, our supply chain is in good shape. We use an outsourced manufacturing model and are not constrained by equipment or roofline capacity. The primary constraint is people. In Canada, we use a contractor model for field operations, so we can flex field capacity with contractors and should be able to onboard them quickly. In the U.S. and internationally, most of our activity is supported by employees, so a pickup in activity would require hiring, training and deploying staff. We maintain a roster of former employees and candidates who have previously expressed interest, and we lean on that to ramp the workforce quickly. So it's more a people constraint than a manufacturing or supply chain issue.
Okay. And sticking with a sort of glass-half-full outlook, as you went through a number of new projects you're working on, as you think about growth in the business, would you expect faster growth to come from those new projects and products or from legacy products? And what happens to margin over multiple quarters if activity accelerates?
If the industry inflects, growth would initially come from our historical products, though there is nuance. For example, StageSaver, introduced last year, now accounts for a sizable portion of Repeat Precision volume and is displacing some traditional composite plugs. So a pickup in activity would benefit legacy products and also accelerate adoption of newer solutions. You typically react faster to products operators already know, so historical products may lead, but newer products like StageSaver could see quicker adoption as activity increases. Regarding margins, the model leverages relatively fixed SG&A, so once revenue ramps, you should see operating leverage and improving incremental margins flow through over multiple quarters.
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On Canada, for the top three accounts or the specific customers, have they since reconfirmed the deferred work for H2? Or is the Canadian recovery assumption more of a market-level expectation?
It's a bit of both. One of our larger customers completed an M&A combination last year, which has resulted in some pro forma activity reduction. We're seeing year-over-year impacts in the first and second quarters tied to that consolidation. For that customer, we have a good sense of their program, including which projects will use sleeves and which will use plugs, so we can forecast how that will play into second half revenue. For our other large customers, our sales and business development team and our COO have been in front of them recently to confirm their second half plans. So the recovery expectation is a mix of customer-by-customer confirmations for larger accounts and a general market-level view for the remainder of the customer base.
On the H2 outlook, is that achievable at the current lower rig count levels? Or are you assuming the Canadian rig count returns to Q1 2025 levels?
Our expectation for the market is unchanged: capital spending across our customer base is relatively flat year-over-year, and therefore rig count should be relatively flat across the year. Because rig count was lower year-over-year in Q1, we expect rig count to be a little higher in the second half of the year on a year-over-year basis, but we're not assuming a change to the full year's average rig count compared to our prior expectations.
On Repeat Precision pricing, do StageSaver and PurpleReign command a premium over legacy plugs? Or is this more about volume growth?
StageSaver is primarily a volume growth story; there's not much pricing differential between StageSaver and our traditional PurpleSeal composite plugs. PurpleReign, being a dissolvable frac plug, is a different product and comes at a higher price point in the market due to elevated materials costs. From a profitability standpoint, the contribution margins are relatively similar across these products.
On the multi-well customer in the U.S. with the sliding sleeves, can you give a sense of the project's size in revenue terms? Is this a low single-digit or double-digit million-dollar opportunity, and what's the margin profile?
For that project and how it factors into our guidance, we estimate it could be about 2% to 3% of our annual revenue — think roughly $4 million to $5 million. That estimate is primarily for the standard costs of the sleeves. There is potential the customer could ask us to provide additional value-added services related to the sleeves, which would increase revenue but likely come in at a lower contribution margin.
On the international side, is cross-selling between NCS legacy tracer offerings and ResMetrics capabilities in the Middle East starting to show up in customer conversations? Or is that synergy still ahead of us?
There's definitely opportunity ahead. Aligning the sales teams was an early integration step, but the ResMetrics sales teams were less familiar with some of NCS's offerings and vice versa. As the combined sales teams gain exposure to the full service suite, we're seeing opportunities expand. We highlighted SmartProp, a ResMetrics legacy product, which has traction in the market, and the rapid trace onsite solution, which is valuable in locations like the North Sea or Alaska where you want quick qualitative results without shipping samples. Another NCS product, Lumen8, a composite multi-day sampler, has been robust in the field and generated customer interest. We're relatively early in fully capitalizing on the combined service suite and newer product introductions from both companies.
On the EBITDA guidance for Q2, you've talked consistently about a relatively fixed SG&A base as a key to operating leverage. 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 also due to higher supply chain costs from macro conditions?
Most of the Q2 EBITDA compression reflects fixed cost components within cost of sales and the lower gross profit margin Mike discussed. Bringing ResMetrics in helps reduce seasonality and the Repeat Precision pickup addresses that somewhat, but seasonality persists when Canadian business is a large component of revenue. Within our guidance, the lower end of the EBITDA range is breakeven. Roughly speaking, about $35 million of revenue would get you to around breakeven on EBITDA, and incremental revenue above that should drive improving margins as gross profit flows through while holding operating costs relatively flat. 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.