Good day and welcome to the NCS Multistage Fourth Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. After today’s presentation there will be an opportunity to ask questions. [Operator Instructions]. 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 fourth quarter and full year 2022 conference call. Our call today will be lead 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’s 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. Mike will follow and cover the financial results for the quarter. 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 multiyear 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…

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 billion, 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…

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. [Operator Instructions]. 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.

So I wanted to just touch a little bit on the -- just a little on working capital. I know you guys talked about it increased last year a little bit, and I know you touched on a little bit there at the end, but just kind of how you see that going throughout the year and then how that kind of generates -- how as 2023 kind of plays out, how that helps you guys generate your free cash flow or more positive 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%. And that really gets us back to the ratio kind of net working capital as a percentage of sales that we had in 2018 and 2019 prior to the downturn. And 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. So 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 modulator 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 are very comfortable with where that product was and started to take that out and sell Purple Fires through other wireline customers. So 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 kind of 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.