Key Takeaways

• Cash flow positive YTD
• International revenue growth of 246.0% y/y
• Adj. EBITDA margin expansion of 1,192bps y/y

DALLAS, TX - (NewMediaWire) - August 1, 2024 - NCS Multistage Holdings, Inc. (NASDAQ: NCSM): Stonegate Capital Partners updates their coverage on NCS Multistage Holdings, Inc. (NASDAQ: NCSM). 

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COMPANY UPDATES

-       Offset Growth: In 2Q24, the Company saw mixed results relative to the markets that it operates in. In Canada NCSM revenues decreased by 15.8% y/y, largely due to seasonal declines during the spring “break-up” and delays from customers deferring planned frac systems work due to weather conditions and E&P consolidation. However, this decline was mitigated by a 246.0% increase in international revenues, driven primarily by project expansion in the North Sea and Middle East as well as a 23.2% rise in U.S revenues. The Company continues to gain market share both internationally and in deep water rigs. The North Sea customer base is expected to expand further in FY24. Due to the growing services segment, we can expect NCSM to be well positioned for diversified growth across operations and geographies.

-       Quarterly Results: NCSM reported revenue, gross profit, and adj EBITDA of $29.7M, $12.0M, and $0.9M, respectively. This compares to our estimates of $28.5M, $10.7M, and $(1.0)M, respectively. EPS results grew significantly from 2Q23, with last year’s results impacted by litigation expenses. This was in part due to y/y revenue growth of 16.9% and y/y Adj. EBITDA margin expansion of 1,192bps. We expect NCSM to maintain reasonably strong margins due to cost optimization through FY24 and into FY25.

-       Robust Balance Sheet and Liquidity Position: NCMS ended 2Q24 with net working capital of $55.4 which is flat from $55.7M in 2Q23. The Company also closed the quarter with $18.6M in cash and $14.4M of undrawn revolver for liquidity position of $33.0M, a slight change from last quarter’s liquidity of $34.4M. This compares favorably to only $8.9M in debt.

-       International Expansion: NCSM is poised for outsized growth in international markets. We note that NCSM generated $5.8M of revenues from international markets in 2Q24, which is growth of 246% y/y and 168% q/q. The Company is guiding to y/y growth of 77% in 3Q24, at the midpoint. Given the traction NCSM is gaining in its services segment as well as in the North Sea we believe there is significant room for continued growth.

-       Cash Flows: For the first half, NCSM delivered $3.2M of FCF after distributions to non-controlling interests. This is compared to a FCF balance of $(2.0)M for the first half of 2023. We are impressed by the FCF results thus far, after the Company posted a negative FCF value in 1Q24. As of 2Q24, CapEx for FY24 is guided at $1.5M to $2.0M.

-       Updated Guidance: Currently, the Canadian market is expected to be flat y/y and the United Stats market is expected to decline 5% to 10% y/y, with Repeat Precision expected to help buoy this decline. It is expected that the international market will improve by 5% to 10% y/y. The Company is guiding to a revenue range of $152.0M to $160.0M. This is coupled with a $16.5M to $19.5M adjusted EBITDA guidance, an increase of $2.0M from last quarter. We have made modest adjustments to our model.

-       Valuation: We use both a DCF and EV/EBITDA comp analysis to guide our valuation. Our DCF analysis produces a valuation range of $22.95 to $28.34 with a mid-point of $25.29. Our EV/EBITDA valuation results in a range of $27.34 to $31.15 with a mid-point of $29.25.

About Stonegate

Stonegate Capital Partners is a leading capital markets advisory firm providing investor relations, equity research, and institutional investor outreach services for public companies. Our affiliate, Stonegate Capital Markets (member FINRA) provides a full spectrum of investment banking, equity research and capital raising for public and private companies.

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