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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion and analysis of our financial condition and results of operations as of, and for, the periods presented. You should read the following discussion and analysis of our financial condition and results of operations together with the sections entitled Item 1A. “Risk Factors,”“—Cautionary Note Regarding Forward-Looking Statements,” and our consolidated financial statements and related notes thereto included elsewhere in this Form 10-K. This section and other parts of the Form 10-K contain forward-looking statements regarding the industry outlook, estimates and assumptions concerning events and financial and industry trends that may affect our future results of operations or financial condition and other non-historical statements. These forward-looking statements are subject to numerous risks and uncertainties, including but not limited to the risks and uncertainties described in “—Cautionary Note Regarding Forward-Looking Statements” and Item1A. “Risk Factors.” Our actual results may differ materially from those contained in or implied by these forward-looking statements.

Overview and Outlook

We are a leading provider of highly engineered products and support services that facilitate the optimization of oil and natural gas well construction, well completions and field development strategies. We provide our products and services primarily to E&P companies for use in onshore and offshore wells, predominantly wells that have been drilled with horizontal laterals in both unconventional and conventional oil and natural gas formations. Our products and services are utilized in oil and natural gas basins throughout North America and in selected international markets, including the North Sea, the Middle East, Argentina and China. We provided our products and services to over 200 customers in 2024, including leading large independent oil and natural gas companies and major oil companies.

Our primary offering is our fracturing systems products and services, which enable efficient pinpoint stimulation: the process of individually stimulating each entry point into a formation targeted by an oil or natural gas well. Our fracturing systems products and services can be used in both cemented and open-hole wellbores and enable our customers to precisely place stimulation treatments in a more controlled and repeatable manner as compared with traditional completion techniques. Our fracturing systems products and services are utilized in conjunction with third-party providers of pressure pumping, coiled tubing and other services. As an extension of fracturing systems, we offer enhanced recovery systems, which enable our customers to inject water, other fluids, or gases in a controlled manner with the objective of increasing the number of hydrocarbons produced from their assets.

We own a 50% interest in Repeat Precision, which sells composite and dissolvable frac plugs, setting tools, perforating guns and related products. We provide tracer diagnostics services for well completion and reservoir characterization that utilize downhole chemical and radioactive tracers. We sell products for well construction, including casing buoyancy systems, liner hanger systems and toe initiation sleeves. We operate in one reportable segment that has been identified based on how our chief operating decision maker manages our business.

Our products and services are primarily sold to North American E&P companies and our ability to generate revenues from our products and services depends upon oil and natural gas drilling and completion activity in North America. Oil and natural gas drilling and completion activity is directly influenced by oil and natural gas prices.

For 2025, industry forecasts and announced capital budgets from E&P companies indicate varying regional trends in drilling and completion activity. In Canada, we anticipate activity levels to remain stable or increase marginally compared to 2024. The U.S. market is expected to experience a modest decline in activity, driven by conservative oil production growth targets and ongoing consolidation within the E&P sector. While overall industry spending in international markets may be relatively flat, certain markets that NCS participates in, including the North Sea, the Middle East and Argentina, could experience increases in activity and spending.

Oil and natural gas prices were volatile in 2023, a trend that continued into 2024. This volatility has been driven by multiple factors, including multiple geopolitical incidents from the ongoing war between Russia and Ukraine and conflicts in the Middle East involving Israel and Hamas, Hezbollah and Iran (the “Middle East Conflicts”). Any further escalation of the Middle East Conflicts could intensify commodity price volatility. In addition, oil prices have been affected by a deceleration in global oil demand growth, particularly from China. To mitigate the impact of uncertain economic conditions on the oil market, certain producing countries continue to extend voluntary oil output cuts while maintaining spare capacity, enabling rapid production adjustments as market conditions warrant. See further discussion below on oil and natural gas pricing.

Our products and services face significant competitive pressures across all offerings, which has and may continue to have a negative impact on market share and operating margins for certain product lines. This competitive pressure constrains our ability to raise prices necessary to offset rising costs, particularly during periods of higher cost inflation, including from tariffs. While inflationary cost pressures moderated since the latter half of 2023, the anticipated implementation of new tariffs in 2025 could lead to additional costs that we may not be able to recover through price increases.

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Over the past few years, we have experienced modest supply chain disruptions and higher prices for certain raw materials, including steel and chemicals, as well as purchased components and outsourced services. While these cost pressures continued through 2023, we observed moderate price stabilization in 2024, notably in steel prices which declined in correlation with decreased U.S. rig activity.

In addition, due to the U.S. administration’s announced potential tariffs against Mexico, Canada, and China, and these countries’ retaliatory measures, we may experience negative impacts on our input costs. Steel prices, a key component in our fracturing systems and well construction products, could increase. Similarly, chemical prices, used in our tracer diagnostic business, could rise. Additionally, our supply chain faces tariff exposure as Repeat Precision manufactures its composite and dissolvable frac plugs and certain NCS fracturing system components in Mexico. Also, we assemble products in the United States and Canada, for which cross-border movement of components, raw materials, parts, and finished products between these jurisdictions may become subject to tariffs. In addition, tariffs affecting the sale of our customers' oil and gas products may reduce their activity levels, which could negatively impact our business.

We also experienced tight labor conditions that led to labor cost inflation, which impacted both our cost of sales and selling, general and administrative (“SG&A”) expenses and resulted in higher salaries, hourly pay rates and benefit costs. This labor cost inflation, while still elevated, began to decrease during the latter part of 2023.

To counter inflationary pressures on the economy, central banks, including the U.S. Federal Reserve, increased reference interest rates several times between March 2022 and July 2023, actions typically expected to increase borrowing costs and restrain economic activity. Starting in September 2024, the U.S. Federal Reserve decreased the benchmark interest rate a few times amid favorable inflation and job data, and may cut rates further in 2025.

Market Conditions

Oil and Natural Gas Drilling and Completion Activity

Oil and natural gas prices remain volatile, with WTI crude oil pricing decreasing to an average of $76.63/BBL during 2024 compared to an average of $77.58/BBL during 2023. This decrease reflects a rise in supply from non-OPEC+ members combined with a softer macroeconomic environment, which lowers demand growth. Since 2022 and continuing into 2024, to address the uncertain outlook for the global economy and, specifically the oil markets, and to reduce the potential of an oil and gas inventory build, members of OPEC+ agreed to several collective voluntary oil production reductions beginning in November 2022. The voluntary production cuts have been extended and are expected to be phased out starting in April 2025 through the end of 2026.

Natural gas pricing continues to be volatile and decreased in 2024 to an average level of $2.19 per MMBtu compared to an average level of $2.53 per MMBtu during 2023. Realized natural gas prices for U.S. producers in West Texas and for Canadian E&P customers are typically at a discount to U.S. Henry Hub pricing. The natural gas price declines in 2024 are due to a mild winter earlier in the year and the continued high surplus levels of natural gas in storage, negatively impacting drilling and completion activity in certain regions, particularly in the United States.

Sustained significant declines in commodity prices, or sustained periods when the local pricing received in regional markets is below benchmark pricing, known in the industry as high differentials, would be expected to lead North American E&P companies to reduce drilling and completion activity, which could negatively impact our business.

Listed and depicted below are recent crude oil and natural gas pricing trends, as provided by the Energy Information Administration (“EIA”) of the U.S. Department of Energy:

Average Price

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Listed and depicted below are the average number of operating onshore rigs in the United States and in Canada per quarter since the first quarter of 2023, as provided by Baker Hughes. The quarterly changes, particularly for the second quarter Canadian land rig count, are partially attributable to seasonality of activity in that market:

Average Drilling Rig Count

Quarter Ended U.S. Land Canada Land North America Land

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Over the past several years, North American E&P companies have been able to reduce their cost structures and have also utilized technologies, including ours, to increase efficiency and improve well performance. The average U.S. land rig count and completion activity has decreased from the highs reached during the fourth quarter of 2022. In the fourth quarter of 2024, the average U.S. land rig count was 571, a decline of 5% compared to the fourth quarter of 2023, but relatively stable compared to the third quarter of 2024. The average land rig count in Canada for the fourth quarter of 2024 was higher by 8% compared to the same period in 2023. We currently expect U.S. rig counts and completion activity for 2025 to be slightly lower than the comparable data for 2024, but we expect the Canadian activity level to remain stable or slightly higher than the activity level for the prior year.

A substantial portion of our business is subject to seasonality, which results in quarterly variability. In Canada, we typically experience higher activity levels in the first quarter of each year, as our customers take advantage of the winter freeze to gain access to remote drilling and production areas. In the past, our revenue in Canada has declined during the second quarter due to warming weather conditions that result in thawing, softer ground, difficulty accessing well sites and road bans that curtail drilling and completion activity. Access to well sites typically improves throughout the third and fourth quarters in Canada, leading to activity levels that are higher than in the second quarter, but usually lower than activity in the first quarter. Canadian completions activity can be impacted by wildfires that are usually experienced in the spring and summer seasons, but weather and wildfire conditions in 2024 were favorable compared to 2023. Our business activity can also be affected by customer spending patterns. In some years, customers in both the United States and Canada may exhaust their capital budgets before year-end or reduce their activities during the winter holidays in late December, resulting in lower drilling and completion activity during the fourth quarter. As a result, while the impact was less pronounced at the end of 2024 compared to recent years, we typically experience reduced customer activity during the end of the year.

How We Generate Revenues

We derive our revenues from the sale of our fracturing systems and enhanced recovery systems products and the provision of related services, casing buoyancy systems, liner hanger systems and toe initiation sleeves products and from sales of our tracer diagnostics services in addition to the sale of composite and dissolvable frac plugs, setting tools, perforating guns and related products through Repeat Precision.

Product sales represented 70% and 71% of our revenues for the years ended December 31, 2024 and 2023, respectively. Most of our sales are on a just-in-time basis, as specified in individual purchase orders, with a fixed price for our products. We occasionally supply our customers with large orders that may be filled on negotiated terms. Services represented 30% and 29% of our revenues for the years ended December 31, 2024 and 2023, respectively. Services include tool charges and associated personnel services related to fracturing systems and tracer diagnostics services. Our services are provided at agreed upon rates to customers for the provision of our downhole frac isolation assembly, which may include our personnel, and for the provision of tracer diagnostics services.

During periods of low drilling and well completion activity or as may be needed to compete in certain markets, we may, in some instances, lower the prices of our products and services. Our revenues are also impacted by well complexity, since wells with more stages typically result in longer jobs, which may increase revenue attributable to the use of more sliding sleeves or increase composite frac plug sales and increase the volume of services we provide.

The percentages of our revenues derived from sales in Canada and denominated in Canadian dollars were approximately 63% and 69% for the years ended December 31, 2024 and 2023, respectively. Our Canadian contracts are typically invoiced in Canadian dollars; therefore, the effects of foreign currency fluctuations impact our revenues and are regularly monitored. Strengthening of the U.S. dollar, our reporting currency, relative to the Canadian dollar, would result in lower reported revenues, partially offset by lower reported cost of sales and SG&A expenses.

Although most of our sales are to North American E&P companies, we also have sales to customers outside of North America, and we expect sales to international customers to increase over time. These international sales are made through local NCS entities or to our local operating partners typically on a free on board or free carrier basis with a point of sale in the United States. Some of the locations in which we have operating partners or sales representatives include the Middle East and China. Our operating partners and representatives do not have authority to contractually bind NCS but market our products in their respective territories as part of their product or services offering.

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Costs of Conducting our Business

Our cost of sales is comprised of expenses relating to the manufacture of our products in addition to the costs of our support services. Manufacturing cost of sales includes payments made to our suppliers for raw materials and payments made to machine shops for the manufacture of product components and finished assemblies and costs related to our employees that perform quality control analysis, assemble and test our products. In addition, Repeat Precision operates a manufacturing facility with supporting personnel in Mexico, which has allowed us to reduce our costs for certain product categories. We review forecasted activity levels in our business and either directly procure or support our vendors in procuring the required raw materials with sufficient lead time to meet our business requirements. We obtain certain chemicals utilized in our tracer diagnostics services business from suppliers in China, which are subject to tariffs that increase our costs. There is a possibility that these tariffs could be increased substantially under the new U.S. administration, which could also enact new tariffs in Mexico where Repeat Precision manufactures their composite and dissolvable frac plugs and certain components for NCS’ fracturing systems. Also, as a majority of our sliding sleeves and other components sold in Canada are assembled in the United States, retaliatory tariffs implemented by Canada on goods entering from the United States could increase our product costs in Canada. Prices for certain raw materials, including steel and chemicals and for purchased components and outsourced services, have increased in recent years due to inflation, exacerbated by the impacts resulting from Russia’s continuing invasion of Ukraine although steel pricing has since declined from recent highs. Cost of sales for support services includes compensation and benefit-related expenses for employees who provide direct revenue generating services to customers in addition to the costs incurred by these employees for travel and subsistence while on site. Cost of sales includes other variable manufacturing costs, such as shrinkage, obsolescence, revaluation and scrap related to our existing inventory and costs related to the chemicals used and laboratory analysis associated with our tracer diagnostics services.

Our SG&A expenses are comprised of compensation expense, which includes compensation and benefit-related expenses for our employees who are not directly involved in revenue generating activities, including those involved in our research and development activities, as well as our general operating costs. These general operating costs include, but are not limited to: rent and occupancy for our facilities, information technology infrastructure services, software licensing, advertising and marketing, third party research and development, risk insurance and professional service fees for audit, legal and other consulting services. Our SG&A expenses also include litigation expenses, severance expenses and expected credit losses.

In an effort to streamline operations and gain efficiencies, in 2023 we implemented several cost reduction initiatives, including consolidation of our tracer diagnostics operations, consolidation of Repeat’s manufacturing footprint in Mexico, restructuring of certain U.S. and international operations, and the elimination of various support positions. As a result of these efforts, we realized annualized cost savings of approximately $4.0 million in 2024. See “Note 9. Accrued Expenses” to the accompanying consolidated financial statements for further discussion.

The percentage of our operating costs denominated in Canadian dollars (including cost of sales and SG&A expenses but excluding depreciation and amortization expense) approximated 26% and 28%, for the years ended December 31, 2024 and 2023, respectively.

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Results of Operations

The following tables summarize our results of operations, gross margins and revenues by geographic area for the years ended December 31, 2024 and 2023.

Year Ended December 31, Variance

Revenues

Cost of sales

Other income (expense)

Provision for litigation, net of recoveries — (1,802 ) 1,802 100.0 %

Foreign currency exchange (loss) gain (2,963 ) 462 (3,425 ) NM

Net income attributable to non-controlling interest 1,545 42 1,503 NM

(1) NM — Percentage not meaningful

Year Ended December 31, Variance

Gross Margin and Gross Margin Percentage:

Product sales gross margin 36.0 % 34.4 %

Services gross margin 48.7 % 44.8 %

Total gross margin 39.9 % 37.5 %

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Year Ended December 31, Variance

Revenues by Geographic Area:

United States

Canada

Other Countries

Total

Year Ended December 31, 2024 compared to Year Ended December 31, 2023

Revenues

Revenues were $162.6 million for the year ended December 31, 2024 compared to $142.5 million for the year ended December 31, 2023. Revenue growth was driven by increases in international and Canadian product sales and services revenues in addition to higher U.S. product sales. The gains were partially offset by lower U.S. services revenues. The significant increase in international revenues was driven by North Sea frac systems and Middle East tracer diagnostics work, while the Canadian results were higher due to more resilient activity levels than originally expected, particularly through the second half of the year. The overall increase in the United States was driven by higher frac plug and perforating gun sales by our joint venture, Repeat Precision, despite a reduction in industry rig count. Product sales for the year ended December 31, 2024 were $113.1 million compared to $100.4 million for the year ended December 31, 2023. Services revenue was $49.5 million for the year ended December 31, 2024 compared to $42.0 million for the year ended December 31, 2023.

Cost of sales

Cost of sales was $97.8 million, or 60.1% of revenues, for the year ended December 31, 2024 as compared to $89.1 million, or 62.5% of revenues, for the year ended December 31, 2023. The decrease in the cost of sales as a percentage of revenues was primarily due to an increase in higher-margin international work in the Middle East and the North Sea and the benefits realized from operational restructurings enacted in 2023. Cost of product sales was $72.4 million or 64.0% of product sales revenue, and cost of services was $25.4 million or 51.3% of services revenue for the year ended December 31, 2024. For the year ended December 31, 2023, cost of product sales was $65.9 million or 65.6% of product sales revenue, and cost of services was $23.2 million or 55.2% of services revenue.

Selling, general and administrative expenses

Selling, general and administrative expenses were $57.8 million for the year ended December 31, 2024 compared to $56.5 million for the year ended December 31, 2023. This increase in expense reflects the $4.5 million increase in relative annual incentive bonus accruals year-over-year. The increase in expense was partially offset by the cost-savings associated with restructuring efforts during 2023, as well as lower research and development expenses and professional fees of $0.5 million and $0.3 million, respectively.

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Depreciation

Depreciation totaled $4.6 million for the year ended December 31, 2024 compared to $3.9 million for the year ended December 31, 2023. The increase is primarily associated with assets placed in service during the year ended December 31, 2024, primarily light vehicles and trucks under finance leases through our leasing program with a fleet management company.

Provision for litigation, net of recoveries

The provision for litigation, net of recoveries totaled $1.8 million for the year ended December 31, 2023. In October 2023, in accordance with a Federal Court of Canada order, we paid $1.8 million for the cost award in the patent infringement case, which remains subject to appeal. See “Note 11. Commitments and Contingencies” to the accompanying consolidated financial statements for further discussion.

Other income, net

Other income, net was $7.3 million for the year ended December 31, 2024 compared to $4.1 million for the year ended December 31, 2023. The increase in other income was primarily attributable to royalty income from licensees and an increase in the benefit associated with our technical services and assistance agreement with our local partner in Oman. The increase in other income was partially offset by items that did not recur in 2024, including a $0.6 million benefit from the recovery of unpaid invoices associated with the matter in Wyoming in 2023 and a benefit associated with the reversal of a contingent legal fee which was not realized, partially offset by the write-off of a constructed asset totaling $0.7 million.

Foreigncurrencyexchangegain (loss)

Foreign currency exchange loss was $3.0 million for the year ended December 31, 2024 compared to a gain of $0.5 million for the year ended December 31, 2023. The change was due to the movement in the foreign currency exchange rates, primarily due to the strengthening of the U.S. dollar relative to the Canadian dollar.

Income tax expense (benefit)

Income tax expense was $0.1 million for the year ended December 31, 2024 compared to a tax benefit of $0.2 million for the year ended December 31, 2023. Our effective tax rate (“ETR”) from continuing operations was 1.4% and 6.9% for the years ended December 31, 2024 and 2023, respectively. The income tax expense for these periods primarily relates to results generated by our United States, Canada, and certain other foreign businesses, and the income tax provision for each year excludes the effects of losses within the United States, Canada, or other jurisdictions from which we cannot currently benefit. In addition, for each of the periods, the income tax provision includes the effects of changes in valuation allowances established against our previously recognized deferred tax assets, including against net operating loss carryforwards, in the United States, Canada, or other jurisdictions. Therefore, significant variations exist in the customary relationship between income tax expense and pretax accounting income for the years ended December 31, 2024 and 2023. See further discussion of establishment of the deferred tax valuation allowance at “Note 2. Summary of Significant Accounting Policies, Income Taxes” to the accompanying consolidated financial statements.

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Liquidity and Capital Resources

Our primary sources of liquidity are our existing cash and cash equivalents, cash flows from operations and potential borrowings under our ABL Facility and the Repeat Precision Promissory Note. As of December 31, 2024, we had cash and cash equivalents of $25.9 million, and total outstanding indebtedness of $8.1 million related to finance lease obligations, of which $2.1 million is due within 12 months. Our ABL Facility consists of an asset-based revolving credit facility in an aggregate principal amount of $35.0 million. Total borrowings are limited to a borrowing base calculated on the sum of cash in a specified pledged account, eligible accounts receivable and eligible inventory, provided it does not include credit for the assets of Repeat Precision. At December 31, 2024, our available borrowing base under the ABL Facility was $20.1 million, with no outstanding borrowings. The amount available to be drawn under the ABL Facility may decline from current levels due to reductions in our borrowing base or a springing financial covenant if our business were to be adversely impacted by a decline in market conditions. We were in compliance with our debt covenants at December 31, 2024.

In addition, the Repeat Precision Promissory Note with Security State Bank & Trust, Fredericksburg has total aggregate borrowing capacity of $2.5 million, lowered from an aggregate borrowing capacity of $4.3 million upon renewal in May 2024, as discussed at “Note 10. Debt, Repeat Precision Promissory Note” to our consolidated financial statements. As of December 31, 2024, Repeat Precision has no outstanding indebtedness under the promissory note.

We believe that our cash on hand, cash flows from operations and potential borrowings under our ABL Facility and the Repeat Precision Promissory Note will be sufficient to fund our capital expenditure and liquidity requirements for the next twelve months and after. Our principal liquidity needs have been, and are expected to continue to be, capital expenditures, working capital, debt service and potential mergers and acquisitions.

We plan to incur approximately $1.5 million to $2.0 million in capital expenditures during 2025, which includes (i) upgrades to our Repeat Precision manufacturing facilities, (ii) upgrades to our tracer diagnostics deployment, sampling and laboratory equipment and (iii) upgrades to our manufacturing and field service equipment to support North American fracturing systems and well construction businesses. Our capital expenditures, including the purchase and development of software and technology, for the years ended December 31, 2024 and 2023 were $1.4 million and $2.2 million, respectively.

To the extent we require additional liquidity to fund our capital requirements, including our finance lease obligations, or repay existing indebtedness, we would expect to obtain it through the incurrence of additional indebtedness, the proceeds of equity issuances, or a combination thereof. Our liquidity and ability to meet our obligations and fund capital requirements also depend on our future financial performance including the ability to manage costs, which is subject to general economic, financial and other factors that are beyond our control. Accordingly, we cannot provide assurance that our business will generate sufficient cash flow from operations or that funds will be available from additional indebtedness, the capital markets or otherwise to meet our liquidity needs. If we decide to pursue one or more significant acquisitions, we may incur additional debt or sell equity to finance such acquisitions, which could result in incremental expenses or dilution.

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Cash Flows

The following table provides a summary of cash flows from operating, investing and financing activities for the periods presented (in thousands):

Year Ended December 31,

Net cash provided by operating activities $ 12,725 $ 4,774

Net cash provided by (used in) investing activities 479 (1,683 )

Net cash used in financing activities (4,269 ) (2,441 )

Effect of exchange rate changes on cash and cash equivalents 225 (164 )

Net change in cash and cash equivalents $ 9,160 $ 486

Operating Activities

Net cash provided by operating activities was $12.7 million compared to $4.8 million for the years ended December 31, 2024 and 2023, respectively. Our net income was $11.2 million higher in 2024 compared to 2023. This improved performance reflects an increase in revenue for the year of 2024 compared to the same period in 2023. The increase in sales impacts the timing of trade receivable billings and collections, our inventory levels, and payments for materials and components. These results for the year of 2024 compared to the relative period of 2023 reflects an increase in trade receivables of $13.0 million (a use of cash due in part to an increase in sales activity in 2024, particularly international activity, for which receivables can take longer to collect), an increase in prepaid expense and other assets of $3.7 million (use of cash), a lower inventory build (cash impact of $3.0 million), an increase in payables of $3.9 million (source of cash) and an increase in accrued expenses of $5.5 million (source of cash), partially attributable to higher incentive accruals that correspond to improved operating performance and are expected to be paid in the first quarter of 2025.

Investing Activities

Net cash provided by (used in) investing activities was $0.5 million and $(1.7) million for the years ended December 31, 2024 and 2023, respectively. The sources of cash include proceeds from the liquidation of a $1.3 million company-owned life insurance policy (“COLI”) in 2024 (used to fund distributions to participants in a terminated non-qualified deferred compensation plan, which is an operating outflow in 2024), and proceeds from the sale of property and equipment in both periods, offset by funds invested in property and equipment and software and technology, which totaled $1.4 million and $2.2 million for the respective years.

Financing Activities

Net cash used in financing activities for the years ended December 31, 2024 and 2023 was $4.3 million and $2.4 million, respectively. Our primary uses of funds during the years ended December 31, 2024 and 2023 were principal payments of $2.0 million and $1.6 million, respectively, related to our finance leases, payments of $0.3 million for 2024 and 2023 for treasury shares withheld to settle withholding tax requirements for equity-settled share-based compensation, and distributions of $2.1 million and $0.5 million, respectively, to Repeat Precision’s other joint venture partner. Net borrowings and repayments under the Repeat Promissory Note had no relative impact on cash flows from financing activities for the years ended December 31, 2024 and 2023.

Material Cash Requirements

Our material cash requirements include the following contractual and other obligations.

Financing Arrangements

Our ABL Facility consists of a revolving credit facility in an aggregate principal amount of $35.0 million. Total borrowings available to us under the ABL Facility may be limited subject to a borrowing base calculated on the sum of cash in a specified pledged account, eligible accounts receivables and eligible inventory, provided it does not include the assets of Repeat Precision. At December 31, 2024, our available borrowing base under the ABL Facility was $20.1 million and we had no outstanding indebtedness under the ABL Facility.

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Repeat Precision also has an outstanding promissory note with an aggregate borrowing capacity of up to $2.5 million as of December 31, 2024, subject to a borrowing base. As of December 31, 2024, Repeat Precision had no outstanding indebtedness under the promissory note.

See “Note 10. Debt” to our consolidated financial statements for additional details regarding our credit agreement and the promissory note.

Leases

We have operating and finance leases for facilities, vehicles, equipment, and software. As of December 31, 2024, we had lease payment obligations, including interest payments for finance leases of $17.1 million, with $4.6 million payable within 12 months. See “Note 2. Summary of Significant Accounting Policies” and “Note 15. Leases” to our consolidated financial statements for additional information on lease obligations and maturities.

Purchase Obligations

Our purchase obligations totaled $6.7 million as of December 31, 2024, and primarily represented commitments to purchase goods or services to be utilized in the normal course of business, of which $2.0 million is accrued on the accompanying consolidated balance sheet, and $4.7 million did not meet the criteria to accrue, as the products or services were not received or incurred as of this date, but are expected to meet this criteria within the next 12 months.

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations is derived from the review of our consolidated financial statements prepared in accordance with GAAP, which includes our interpretation of accounting guidance and application through accounting policies. See “Note 2. Summary of Significant Accounting Policies.” The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. Our actual results may differ from these estimates. The accounting estimates that we believe to be the most critical to an understanding of our financial condition and results of operations and that require the most complex and subjective management judgments are discussed below.

Allowance for Credit Losses

We maintain an allowance for credit losses related to estimated losses that may result from the inability of our customers to make required payments. We evaluate collectability of customer accounts based upon credit approval practices, industry and customer historical experience as well as the current and projected financial condition of the specific customer. Amounts deemed to be uncollectible are applied against the allowance for credit losses. Our business has seasonality, and the balance of our outstanding receivables fluctuates during the fiscal year based upon activity levels, sales volume, and general industry conditions. We periodically record a provision for credit losses or recoveries. For the years ended December 31, 2024 and 2023, we recorded a provision for credit losses of less than $0.1 million and $0.2 million, respectively. Further, to the extent deemed necessary by management, and depending on the circumstances, we may issue customer credits or concessions which reduce our revenues, but do not impact our expected credit losses. The nature of these concessions may be to maintain a customer relationship. Historically, these concessions have not been significant to our financial condition or results of operations. A 10% change in the level of concessions incurred within a fiscal year would not be deemed significant to our results of operations.

Inventories

Inventories of raw material, work in progress and finished goods are maintained and valued at the lower of cost or estimated net realizable value, with cost determined at standard costs which approximates the first-in, first-out or average cost basis. Periodically, we evaluate our inventory to determine items that may be obsolete, slow-moving or in excess based upon historical sales experience and projected sales forecasts. Our estimates involve subjectivity and an evaluation of customer preferences over time which may impact our ability to recover the cost of inventory and generate a profitable return. Although we believe our estimates to be reasonable, we cannot assure that our reserves will be adequate to cover potential losses, or that we will have recoveries, if there are significant changes in market preferences or technological advancements by our competitors that render a portion of our current inventory as obsolete. We have incurred charges to cost of sales related to obsolescence of $1.1 million and $1.2 million for the years ended December 31, 2024 and 2023, respectively. An increase of obsolescence expense by 10%, or $0.1 million, would not be deemed material to our financial statements.

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Impairments

We evaluate our property and equipment and identifiable intangible assets for impairment whenever changes in circumstances indicate that the carrying amount of an asset group may not be recoverable or if there are potential indicators of impairment. We also perform an annual impairment analysis of goodwill as of December 31, or whenever there is a triggering event that indicates an impairment loss may have been incurred. Estimating future net cash flows requires us to make judgments regarding long-term forecasts of future revenues and costs related to the assets subject to review. These forecasts are uncertain in that they require assumptions about our revenue growth, operating margins, capital expenditures, future market conditions and technological developments. In addition, if we are required to determine the fair value of our reporting units to test goodwill for impairment, we must apply estimates, assumptions, and judgment regarding revenue growth, operating margins, capital expenditures, future market conditions, weighted average costs of capital and terminal growth rate, and we must evaluate the metrics of a deemed set of comparable companies and market earnings multiples. Actual results may not align with these assumptions, and our expectations regarding future net cash flows may change such that a material impairment could result. Historically, we have recorded impairments associated with property and equipment, identifiable intangible assets and goodwill. For the year ended December 31, 2024, we recognized an impairment charge of less than $0.1 million related to an indefinite-lived intangible asset that was no longer deemed to provide a future benefit. See “Note 8. Goodwill and Identifiable Intangibles” to our consolidated financial statements for additional details. We believe that the estimates and assumptions used in our impairment assessments are reasonable. However, if market conditions change dramatically, the impact on our forecasts and projections may be significant which could result in future impairments for our reportable units with long-term assets including goodwill.

Income Taxes

We are taxed as a corporation as defined under the Internal Revenue Code. The liability method is used in accounting for deferred income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when these differences are expected to reverse. The realizability of deferred tax assets is evaluated annually and a valuation allowance is provided if it is more likely than not that the deferred tax assets will not give rise to future benefits. We recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained, based upon technical merits, upon examination by the taxing authorities. If the income tax position is expected to meet the more likely than not criteria, the benefit recorded in the consolidated financial statements equals the largest amount that is greater than 50% likely to be realized upon its ultimate settlement. A valuation allowance to reduce deferred tax assets is established when it is more likely than not that some portion or all the deferred tax assets will not be realized.

We have incurred operating losses in certain tax jurisdictions during each of the years ended December 31, 2024 and 2023. We have recorded valuation allowances to reduce our deferred tax assets as of December 31, 2024 and 2023, based upon our overall assessment of the likelihood of the realization of those deferred tax assets when considering the positive and negative evidence available, including forecasts of future taxable income in the jurisdictions in which these deferred tax assets are recorded. Our financial statements could be materially affected if: (i) our actual results differ significantly from our forecast estimates; (ii) there are future changes in enacted tax laws with retroactive application; or (iii) tax authorities do not agree with our application of the tax law to our circumstances and the matter is not ultimately resolved in our favor. Furthermore, the determination of the more likely than not criteria and the weighting of positive and negative evidence in evaluating this criteria is subjective and can fluctuate from period to period based on actual performance relative to long-term forecasting and other factors.

Litigation

In the ordinary course of business, from time to time, we have various claims, lawsuits and administrative proceedings that are pending or threatened with respect to commercial, intellectual property and employee matters. We accrue for contingencies where the occurrence of a material loss is probable and can be reasonably estimated, based on our estimate of the expected liability. Our assessment of the likely outcome of litigation matters is based on our judgment of several factors, including experience with similar matters, prior history, precedents, relevant financial information and other evidence and facts specific to the matter. Although the outcome of any legal proceeding cannot be predicted with any certainty, if a settlement is deemed to be probable and estimable, management would consider relevant facts and circumstances to determine the potential range of loss exposure or gain on settlement, if any. Future settlements which result in loss or awards could be material to our financial statements and cannot be predicted with certainty. See “Note 11. Commitments and Contingencies” of our consolidated financial statements for further information regarding our legal proceedings.

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Recently Issued Accounting Pronouncements

See “Note 2. Summary of Significant Accounting Policies” to our consolidated financial statements for discussion of the accounting pronouncement we recently adopted and the accounting pronouncements recently issued by the Financial Accounting Standards Board (“FASB”).

Smaller Reporting Company Status

We are a “smaller reporting company” as defined by Section 12b-2 of the Exchange Act, meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public float of less than $250 million. As a smaller reporting company, we may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies that do not qualify for the classification, including among other things, providing only two years of audited financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Our financial position is exposed to a variety of risks, including commodity price risk, foreign currency exchange rate risk, interest rate risk and credit risk.

Commodity Price Risk

The market for our products and services is indirectly exposed to fluctuations in the prices of crude oil and natural gas to the extent such fluctuations impact drilling and completion activity levels and thus impact the activity levels of our customers in the E&P industry. Additionally, because we do not sell our products under long-term contracts, we believe we are particularly exposed to short-term fluctuations in the prices of crude oil and natural gas. We do not currently intend to hedge our indirect exposure to commodity price risk.

Foreign Currency Exchange Rate Risk

A substantial amount of our revenues is derived in Canada and, accordingly, our competitiveness and financial results are subject to foreign currency fluctuations where revenues and costs are denominated in Canadian dollars rather than USD. During the years ended December 31, 2024 and 2023, approximately 63% and 69%, respectively, of our revenues were attributable to our operations in Canada. We also derive revenue from several jurisdictions outside of North America, including countries that occasionally experience periods of significant inflation, which occurred in Argentina in 2024 and 2023. We do not currently intend to hedge our future exposure to the Argentine Peso or other foreign currencies.

Interest Rate Risk

We were primarily exposed to interest rate risk through our ABL Facility. At December 31, 2024, we had no outstanding indebtedness under our ABL Facility. Borrowings under the ABL Facility may be made in U.S. dollars with interest calculated using either the “ABR”, the “Adjusted Daily Simple SOFR” or the “Adjusted Term SOFR Rate”, and in Canadian dollars with interest calculated using the “Canadian Prime Rate” or the “Adjusted Term CORRA Rate” (each as defined in the amended and restated Credit Agreement). Borrowings bear interest plus a margin that varies depending on our leverage ratio as follows: (i) for ABR based loans, between 1.40% and 2.40%, and (ii) for Adjusted Daily Simple SOFR, Adjusted Term SOFR Rate, Canadian Prime Rate, and Adjusted Term CORRA Rate, between 2.40% and 3.40%. We must also pay a commitment fee calculated at 0.25% to 0.50% per annum, based on unused commitments. The applicable interest rate at December 31, 2024 was 6.9%.

We are also subject to interest rate risk through our Repeat Precision Promissory Note. At December 31, 2024, we had no outstanding indebtedness under the Repeat Precision Promissory Note. Borrowings under the Repeat Precision Promissory Note are made in U.S. dollars with interest calculated using the prime rate plus a 1.0% margin over the index. The applicable interest rate at December 31, 2024 was 8.5%.

Credit Risk

Our customers are E&P companies and other oilfield services companies. This concentration of counterparties operating in a single industry may increase our overall exposure to credit risk, in that the counterparties may be similarly affected by changes in economic, regulatory or other conditions. We manage credit risk by analyzing the counterparties’ financial condition prior to accepting new customers and prior to adjusting existing credit limits.

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Item 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

Page

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets as of December 31, 2024 and 2023 62

Notes to Consolidated Financial Statements 67

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Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

NCS Multistage Holdings, Inc.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of NCS Multistage Holdings, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive loss, changes in shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

Basis for opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical audit matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2021.

Houston, Texas

March 10, 2025

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NCS MULTISTAGE HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

December 31, December 31,

Assets

Current assets

Prepaid expenses and other current assets 2,063 1,862

Insurance receivable — 15,000

Noncurrent assets

Identifiable intangibles, net 3,690 4,407

Deposits and other assets 712 937

Deferred income taxes, net 424 66

Liabilities and Stockholders’ Equity

Current liabilities

Accrual for legal contingencies — 15,000

Current maturities of long-term debt 2,141 1,812

Noncurrent liabilities

Long-term debt, less current maturities 6,001 6,344

Operating lease liabilities, long-term 4,891 3,775

Other long-term liabilities 206 213

Deferred income taxes, net 186 249

Commitments and contingencies (Note 11)

Stockholders’ equity

Accumulated other comprehensive loss (87,604 ) (85,752 )

Total liabilities and stockholders' equity $ 152,812 $ 152,032

The accompanying notes are an integral part of these consolidated financial statements.

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NCS MULTISTAGE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

Year Ended December 31,

Revenues

Cost of sales

Selling, general and administrative expenses 57,820 56,518

Income (loss) from operations 4,325 (5,531 )

Other income (expense)

Interest expense, net (414 ) (586 )

Provision for litigation, net of recoveries — (1,802 )

Foreign currency exchange (loss) gain (2,963 ) 462

Income (loss) before income tax 8,254 (3,343 )

Income tax expense (benefit) 116 (232 )

Net income attributable to non-controlling interest 1,545 42

Earnings (loss) per common share

Weighted average common shares outstanding

The accompanying notes are an integral part of these consolidated financial statements.

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NCS MULTISTAGE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

Year Ended December 31,

Foreign currency translation adjustments, net of tax of $0 (1,852 ) (135 )

Comprehensive income (loss) 6,286 (3,246 )

Comprehensive income attributable to non-controlling interest 1,545 42

The accompanying notes are an integral part of these consolidated financial statements.

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NCS MULTISTAGE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands, except share data)

Shares Amount Shares Amount Capital Loss Deficit Shares Amount Interest Equity

Share-based compensation — — — — 4,164 — — — — — 4,164

Net (loss) income — — — — — — (3,153 ) — — 42 (3,111 )

Distribution to noncontrolling interest — — — — — — — — — (500 ) (500 )

Vesting of restricted stock — — 47,987 1 (1 ) — — — — — —

Currency translation adjustment — — — — — (135 ) — — — — (135 )

Share-based compensation — — — — 2,747 — — — — — 2,747

Distribution to noncontrolling interest — — — — — — — — — (2,050 ) (2,050 )

Vesting of restricted stock — — 81,183 1 (1 ) — — — — — —

Currency translation adjustment — — — — — (1,852 ) — — — — (1,852 )

The accompanying notes are an integral part of these consolidated financial statements.

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NCS MULTISTAGE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Year Ended December 31,

Cash flows from operating activities

Depreciation and amortization 5,316 4,616

Amortization of deferred loan cost 208 204

Provision for inventory obsolescence 1,136 1,235

Deferred income tax (benefit) expense (380 ) 152

(Gain) loss on sale of property and equipment (506 ) 258

Provision for credit losses 41 162

Net foreign currency unrealized loss (gain) 2,365 (485 )

Proceeds from note receivable 61 546

Changes in operating assets and liabilities:

Prepaid expenses and other assets (1,087 ) 2,563

Income taxes receivable/payable 34 (209 )

Net cash provided by operating activities 12,725 4,774

Cash flows from investing activities

Purchases of property and equipment (1,309 ) (1,882 )

Purchase and development of software and technology (70 ) (310 )

Proceeds from sales of property and equipment 592 509

Proceeds from company-owned life insurance policy 1,266 —

Net cash provided by (used in) investing activities 479 (1,683 )

Cash flows from financing activities

Payments on finance leases (1,952 ) (1,598 )

Payments of line of credit borrowings (3,062 ) (11,758 )

Treasury shares withheld (267 ) (287 )

Distribution to non-controlling interest (2,050 ) (500 )

Net cash used in financing activities (4,269 ) (2,441 )

Effect of exchange rate changes on cash and cash equivalents 225 (164 )

Net change in cash and cash equivalents 9,160 486

Cash and cash equivalents beginning of period 16,720 16,234

Cash and cash equivalents end of period $ 25,880 $ 16,720

Supplemental cash flow information

Cash paid for income taxes (net of refunds) 431 (144 )

Noncash investing and financing activities

Assets obtained in exchange for new finance lease liabilities 2,263 1,972

Assets obtained in exchange for new operating lease liabilities 3,056 1,780

The accompanying notes are an integral part of these consolidated financial statements.

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NCS MULTISTAGE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Basis of Presentation

Organization

NCS Multistage Holdings, Inc., a Delaware corporation, through its wholly owned subsidiaries and subsidiaries for which it has a controlling voting interest (collectively referred to as the “Company,” “NCS,” “we,” “our” and “us”), is primarily engaged in providing engineered products and support services for oil and natural gas well construction, well completions and field development strategies. We offer our products and services primarily to exploration and production companies for use both in onshore and offshore wells. We operate through service facilities principally located in Houston and Odessa, Texas; Tulsa and Oklahoma City, Oklahoma; Calgary, Red Deer, Grande Prairie and Estevan, Canada; Neuquén, Argentina and Stavanger, Norway.

Basis of Presentation

Our accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). All intercompany accounts and transactions have been eliminated in consolidation. We consolidate Repeat Precision, LLC and its subsidiary (“Repeat Precision”), a 50% owned entity, operating in the United States and Mexico, due to NCS holding a controlling voting interest. The other party’s ownership is presented separately as a non-controlling interest. Certain prior period balances have been reclassified to align with the current period presentation. These reclassifications had no impact on our previously reported net loss. As a smaller reporting company (“SRC”), we have availed ourselves to certain reduced reporting requirements permitted by the Securities and Exchange Commission (“SEC”), including, among other things, presenting only two years of audited financial statements.

Note 2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and to disclose contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include but are not limited to estimated losses on accounts receivables, estimated realizable value on excess and obsolete inventories, estimates related to fair value of reporting units for purposes of assessing possible goodwill impairment, expected future cash flows from long lived assets to facilitate impairment testing, share based compensation, estimates related to legal contingencies, amounts of deferred taxes and income tax contingencies. Actual results could materially differ from those estimates.

Foreign Currency

Our reporting currency, and our functional currency in the United States, is the United States dollar (“USD”). The financial position and results of operations of our significant foreign subsidiaries are generally measured using the local currency as the functional currency. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 830,Foreign Currency Matters, revenues and expenses of our significant foreign subsidiaries have been translated into USD at average exchange rates prevailing during the period. Assets and liabilities have been translated at the exchange rates on the balance sheet date. The resulting translation gain and loss adjustments have been recorded directly as a separate component of other comprehensive loss in the accompanying consolidated statements of comprehensive income (loss), and changes in stockholders’ equity.

Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are recorded as foreign currency exchange (losses) or gains as incurred in the consolidated statements of operations.

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NCS MULTISTAGE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition

We derive our revenues primarily from highly engineered products and support services. Revenues are based upon a purchase order, contract or other persuasive evidence of an arrangement with the customer that includes a fixed or determinable price, provided that collectability is reasonably assured, but such arrangements do not generally include right of return or other similar provisions or other significant post-delivery obligations. Sales and value added taxes that we collect concurrent with revenue-producing activities are excluded from revenue. We recognize revenue through the following steps: (i) identify the contract, (ii) identify the performance obligations, (iii) determine the transaction price, (iv) allocate the transaction price and (v) satisfy the performance obligation.

On occasion, we issue credits to our customers that are related specifically to the performance of our products or the services we provide, with such credits reducing the amount of revenue for the completed sales. These credits are infrequent, situation specific and recorded when the amount is realizable and estimable.

The payment terms and conditions in our customer contracts vary. We do not have contracts that contain a financing component and generally do not accept non-cash consideration from customers.

NCS has elected to recognize shipping and handling costs when control of the product transfers to the customer. These costs, net of any customer paid freight, are included in cost of sales in our consolidated statements of operations.

Product Sales Revenues

For product sale arrangements that are standard inventory products or modified inventory products with an alternative use, revenue is recognized at a point in time when control transfers. Control generally transfers upon shipment or delivery, and delivery is based on the customer instructions. Customers may also request bill and hold arrangements in writing. Once we have completed the bill and hold order, the products are segregated from the rest of inventory in the warehouse. The transaction price for product sales having a performance obligation is the price per unit times the unit quantity ordered and shipped to the customer or consumed at the well site.

Services Revenues

For service arrangements that do not have a contract provision with a right to a payment for services up to the date of termination, revenue is recognized when the job has been completed, which usually includes a customer signature or acknowledgement and when there are no additional services or future obligations required by us. The transaction price is determined by the contract unit day rate times the cumulative number of days of service provided upon the completion of the service and upon customer acceptance.

For service arrangements that do have a contract provision with a right to payment for services up to the date of termination, revenue is recognized over time using a unit rate (labor and materials) output method that corresponds to the value we would receive upon termination of the contract as of the end of the reporting period. The transaction price for the period end is determined by the contract unit rate times the cumulative number of units earned up to the reporting period less any revenue recognized in prior periods.

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NCS MULTISTAGE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash and Cash Equivalents

We consider all highly liquid instruments purchased with an original maturity date of three months or less to be cash equivalents. These items are carried at cost, which approximates fair value.

In accordance with ASC 230,Statements of Cash Flow, cash flows from our significant foreign subsidiaries are calculated based on our functional currency. As a result, amounts related to changes in assets and liabilities reported in the consolidated statements of cash flows will not necessarily agree to changes in the corresponding balances on the consolidated balance sheets.

Concentration of Credit Risk

Financial instruments that potentially subject us to credit risk are cash and cash equivalents and trade accounts receivable. Cash balances are maintained in financial institutions which, at times, exceed federally insured limits. We monitor the financial condition of the financial institutions in which the accounts are maintained and have not experienced any losses in such accounts.

Substantially all of our sales are to customers whose activities are directly or indirectly related to the oil and gas industry. We generally extend short-term credit to these customers and, therefore, collectability of receivables is affected by market conditions in the oil and gas industry. We perform ongoing credit evaluations as to the financial condition of our customers with respect to trade accounts receivables. Generally, no collateral is required as a condition of sale.

No single customer individually accounted for 10% or more of our consolidated revenue during 2024 or 2023, or comprised 10% or more of our trade accounts receivable balance as of December 31, 2024 and 2023.

Accounts Receivable, Trade and Allowance for Credit Losses

Trade accounts receivable are recorded at their invoiced amounts and do not bear interest. We maintain an allowance for credit losses related to estimated losses that may result from the inability of our customers to make required payments. Earnings are charged with a provision for credit losses based on a current review of the collectability of customer accounts by management. Such provisions are based upon several factors including, but not limited to credit approval practices, industry and customer historical experience as well as the current and projected financial condition of the specific customer. Accounts deemed uncollectible are applied against the allowance for credit losses. The following table presents the changes in the allowance for credit losses for the years ended December 31, 2024 and 2023 (in thousands):

Allowance for credit losses at December 31, 2022 $ —

Charges and additions during 2023 165

Adjustments and recoveries —

Allowance for credit losses at December 31, 2023 $ 165

Charges and additions during 2024 79

Adjustments and recoveries (220 )

Allowance for credit losses at December 31, 2024 $ 24

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NCS MULTISTAGE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Inventories

Inventories consist primarily of raw material, product components, assembled products, certain components used to internally construct our frac isolation assemblies, and chemicals used in our tracer diagnostics services in raw materials or finished goods. Inventories are stated at the lower of cost or estimated net realizable value. Cost is determined at standard costs approximating the first-in, first-out or average cost basis. We continuously evaluate inventories, based on an analysis of inventory levels, historical sales experience and future sales forecasts, to determine obsolete, slow-moving and excess inventory. We utilize an excess and obsolete reserve to adjust such inventory to its estimated recoverable value, with an offset to cost of sales in the current period.

Impairments

We evaluate our property and equipment and identifiable intangible assets for impairment whenever changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Should the review indicate that the carrying value is not fully recoverable, the amount of the impairment loss is determined by comparing the carrying value to the estimated fair value. We assess recoverability based on undiscounted future net cash flows. Estimating future net cash flows requires us to make judgments regarding long-term forecasts of future revenues and costs related to the assets subject to review. These forecasts are uncertain in that they require assumptions about our revenue growth, operating margins, capital expenditures, future market conditions and technological developments. If changes in these assumptions occur, our expectations regarding future net cash flows may change such that a material impairment could result. There was no impairment of property and equipment and identifiable definite-lived intangible assets during the years ended December 31, 2024 and 2023. For the year ended December 31, 2024, we recognized an impairment charge of less than $0.1 million related to our indefinite-lived intangible asset. See “Note 7. Property and Equipment” and “Note 8. Goodwill and Identifiable Intangibles” included herewith for further information.

An assessment of potential goodwill impairment indicators is performed annually or whenever there is a triggering event that indicates an impairment loss may have been incurred. If required, we typically perform an annual impairment test for goodwill using an assessment date in the fourth quarter of the fiscal year. Under GAAP, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of one or more of our reporting units exceeds the related carrying amount. If, after assessing the totality of events or circumstances, we determine it is more likely than not that the fair value of a reporting unit exceeds the related carrying amount, there is no need to perform any further testing. However, if we conclude otherwise, then we are required to perform a quantitative impairment test by calculating the fair value of the reporting unit and comparing this value with the carrying value of the reporting unit. Alternatively, we could bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test. The fair value of the reporting unit is determined using a combination of a market multiple and a discounted cash flow approach. Determining the fair value of a reporting unit requires the use of estimates, assumptions and judgment. The principal estimates and assumptions that we use include revenue growth, operating margins, capital expenditures, future market conditions, weighted average costs of capital, a terminal growth rate, the set of comparable companies utilized, and the earnings metrics and multiples utilized. We believe that the estimates and assumptions used in our impairment assessments are reasonable. If the fair value of the reporting unit is less than the carrying amount, an impairment charge is recorded in the amount of the difference. No impairment charge associated with goodwill was recorded for the years ended December 31, 2024 and 2023. For additional information, see “Note 8. Goodwill and Identifiable Intangibles.”

Property and Equipment

Property and equipment are stated at historical cost adjusted for impairment, less accumulated depreciation. Equipment held under finance leases is stated at fair value which is typically the present value of the future minimum lease payments at the inception of the lease, less accumulated depreciation. Expenditures for property and equipment, including betterments that substantially increase the useful lives of the existing assets, are capitalized and then depreciated utilizing the straight-line method over the estimated useful lives of these assets. Any costs associated with constructed assets are capitalized as incurred, but do not begin to depreciate until placed into service. We typically do not capitalize interest associated with constructed assets unless the construction period extends for more than twelve months. Routine expenditures for repairs and maintenance are expensed as incurred. Depreciation is calculated over the estimated useful lives of the related assets using the straight-line method. Leasehold improvements and property under finance leases are amortized over the shorter of the remaining lease term or useful life of the related asset. Depreciation expense includes amortization of assets under finance leases. The cost and related accumulated depreciation of assets retired or otherwise disposed of are eliminated from the accounts, and any resulting gains or losses are recognized in the year of disposal as a component of other income, net, which, for the year ended December 31, 2023, included a loss of $0.7 million associated with the write-off of a constructed asset which was deemed to have no further service potential in December 2023.

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NCS MULTISTAGE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Depreciation on property and equipment, including assets held under finance leases, is calculated using the straight-line method over the following useful service lives or lease term (which includes reasonably assured renewal periods):

Years

Buildings 30

Building equipment and leasehold improvements 1 - 15

Machinery and equipment and service equipment 5 - 12

Computers and software 3 - 5

Furniture and fixtures 3 - 5

Vehicles 2 - 4

Right of use assets - finance leases (Lease term) 2 - 10

Business Combinations, Goodwill and Identifiable Intangible Assets

Business combinations are accounted for under the acquisition method of accounting in accordance with ASC 805,Business Combinations. Under the acquisition method of accounting, the total consideration transferred in connection with the acquisition is allocated to the tangible and intangible assets acquired, liabilities assumed, and any non-controlling interest in the acquiree based on their fair values. Goodwill acquired in connection with business combinations represents the excess of consideration transferred over the net tangible and identifiable intangible assets acquired. Certain assumptions and estimates are employed in evaluating the fair value of assets acquired and liabilities assumed. These estimates may be affected by factors such as changing market conditions, technological advances in the oil and natural gas industry or changes in regulations governing that industry. The most significant assumptions requiring judgment involve identifying and estimating the fair value of intangible assets and the associated useful lives for establishing amortization periods. To finalize purchase accounting for significant acquisitions, we utilize the services of independent valuation specialists to assist in the determination of the fair value of acquired intangible assets.

Costs incurred related to an acquisition or business combination, other than those associated with the issuance of debt or equity securities, are expensed as incurred. Any contingent consideration payable is recognized at fair value at the acquisition date. Liability-classified contingent consideration is remeasured each reporting period with changes in fair value recognized in earnings until the contingent consideration is settled.

All identifiable definite-lived intangibles are amortized on a straight-line basis over the estimated useful life or term of related agreements. Certain costs incurred in the development of internal-use software applications are capitalized, while costs incurred outside of the software application development stage are expensed as incurred. The amounts capitalized are included in intangible assets, categorized as internally developed software, and are amortized on a straight-line basis over the estimated useful life of the software when ready for the intended use. These assets are tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.

Leases

We determine if a contract contains a lease at the inception of an arrangement. If so, we record a right of use (“ROU”) asset representing the right to use an underlying asset for the lease term and a lease liability representing an obligation to make lease payments arising from the lease on the consolidated balance sheet.

We have operating and finance leases for facilities, vehicles, equipment, and software. Some leases include one or more options to renew, with renewal terms that can extend the lease term from five to ten years with exercise of lease renewal options being at the sole discretion of NCS as lessee. Some leases may include an option to terminate the contract with notice. ROU assets and lease liabilities recorded pursuant to a lease agreement with a term exceeding 12 months are recognized at the lease commencement date based on the present value of lease payments over the lease term. For lease agreements where we cannot readily determine the implicit interest rate, we use our incremental borrowing rate to calculate the present value of lease payments at the commencement date. This rate is based on our secured asset-based revolving credit facility (“ABL Facility”) interest rate, which is adjusted monthly. Lease expense for operating leases is recognized on a straight-line basis over the lease term.

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NCS MULTISTAGE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our lease agreements are from a lessee perspective and do not contain (i) any leases with variable lease payments (e.g., payments that depend on a percentage of sales of a lessee or payments that increase based upon an index such as a consumer price index), (ii) residual value guarantees probable of being paid, except leased fleet vehicles, or (iii) material restrictive covenants. Lease agreements with lease and non-lease components are generally accounted for separately when practical. For leases where the lease and non-lease component are comingled and the non-lease component is determined to be insignificant when compared to the lease component, the lease and non-lease components are treated as a single lease component for all asset classes.

As of December 31, 2024, we have no significant leases where we are the lessor, and we have no significant operating or finance lease commitments that have not yet commenced which create significant rights or obligations for NCS. For additional information, see “Note 10. Debt” and “Note 15. Leases.”

Income Taxes

We are taxed as a corporation as defined under the Internal Revenue Code. The liability method is used in accounting for deferred income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when these differences are expected to reverse. The realizability of deferred tax assets is evaluated annually and a valuation allowance is provided if it is more likely than not that the deferred tax assets will not give rise to future benefits. We follow guidance in ASC 740,Income Taxes, for uncertainty in income taxes by prescribing the minimum recognition threshold an income tax position is required to meet before being recognized in the consolidated financial statements. Each income tax position is assessed using a two-step process. A determination is first made as to whether it is more likely than not that the income tax position will be sustained, based upon technical merits, upon examination by the taxing authorities. If the income tax position is expected to meet the more likely than not criteria, the benefit recorded in the consolidated financial statements equals the largest amount that is greater than 50% likely to be realized upon its ultimate settlement. A valuation allowance to reduce deferred tax assets is established when it is more likely than not that some portion or all the deferred tax assets will not be realized. We recognize accrued interest and penalties related to uncertain tax positions in other income, net on the consolidated statements of operations.

Share-Based Compensation

We account for our stock-based compensation awards in accordance with ASC 718,Compensation—Stock Compensation. To measure the grant-date fair value of share-based compensation, we use the market price of our common stock for equity-classified restricted stock units (“RSUs”) and equivalent stock units, or cash-settled, liability-classified RSUs (“ESUs”), the Black-Scholes model for options and a Monte Carlo simulation for the performance stock unit awards (“PSUs”). We measure all share-based compensation awards at fair value on the grant date and recognize the compensation expense in the financial statements over the requisite period and record forfeitures as they occur. As the ESUs will be settled in cash, we record a liability, which is remeasured each reporting period at fair value based upon the closing stock price of our common stock until the awards are settled.

Fair Value

The carrying amounts for financial instruments classified as current assets and current liabilities approximate fair value due to the short maturity of such instruments. The book values of other financial instruments approximates fair value because interest rates charged are comparable to other financial instruments with similar terms and maturities and the rates vary in accordance with a market index consistent with ASC 820,Fair Value Measurements.

For the financial assets and liabilities disclosed at fair value, fair value is determined as the exit price, or the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The established fair value hierarchy divides fair value measurement into three broad levels:

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The financial assets and liabilities presented at fair value for disclosure purposes are categorized in one of the above three levels based on the lowest level input that is significant to the fair value measurement in its entirety. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment.

Severance and Other Termination Benefits

In the event the employee is involuntarily terminated, we accrue one-time severance costs pursuant to an approved workforce reduction plan at the communication date, when affected employees have been notified of the potential severance and sufficient information has been provided for the employees to calculate severance benefits. During 2023, we recorded $1.4 million of severance expenses associated with one-time severance costs. A liability of $0.4 million remained as of December 31, 2023, which was paid during 2024. We did not incur any significant severance or termination benefits related to workforce reductions during the year ended December 31, 2024. See “Note 9. Accrued Expenses” included herewith for further information.

Earnings Per Share

Basic earnings (loss) per share is calculated by dividing net income (loss) attributable to NCS Multistage Holdings, Inc. by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) attributable to NCS Multistage Holdings, Inc. by the weighted-average number of common shares outstanding during the period, taking into effect, if any, shares that would be issuable upon the exercise of outstanding stock options and unvested RSUs and PSUs calculated using the treasury stock method, a method that determines how many incremental shares would result if all dilutive shares were exercised at the reporting date, less the number of shares that could be purchased at cost using the assumed proceeds from the exercise.

Research and Development

Research and development costs are incurred both through the utilization of our employees to create and develop new ideas and products as well as through engaging third parties to perform development activities under our coordination and management. We incurred approximately $2.0 million and $2.5 million in research and development costs for the years ended December 31, 2024 and 2023, respectively. These costs are recorded in selling, general and administrative (“SG&A”) expenses on the consolidated statements of operations. Occasionally a customer may contract us to provide research and development of a product, for which we are compensated. When the project is completed and accepted by the customer, we recognize the revenue and record the corresponding research and development costs as cost of goods sold. Alternatively, outside parties may agree to fund certain research and development activities for which we retain the rights to intellectual property. Proceeds we receive under these arrangements are treated as a reduction of research and development costs included in SG&A expense. We received such reimbursable amounts of $0.3 million and $2.6 million during the years ended December 31, 2024 and 2023, respectively.

Recent Accounting Pronouncements

Pronouncement Adopted in 2024

In November 2023, the FASB issued ASU No.2023-07,Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU improves reportable segment disclosure requirements on an annual and interim basis and includes requirements for entities with a single reportable segment. The improvements include disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), the title and position of the CODM and an explanation of how the CODM uses the reported measure of segment profit or loss in assessing performance and allocating resources, as well as other disclosure requirements. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and should be applied retrospectively. We adopted ASU No.2023-07 on December 31, 2024 and included all required disclosures within our Annual Report on Form 10-K (this “Form 10-K”). See “Note 3. Segment and Geographic Information.”

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Pronouncement Not Yet Effective

In November 2024, the FASB issued ASU No.2024-03,Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU requires additional disclosure of certain costs and expenses within the notes to the financial statements. The new standard is effective for fiscal years beginning after December 15, 2026 and interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. We are currently evaluating the impact of the adoption of this guidance.

In December 2023, the FASB issued ASU No.2023-09,Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU improves income tax disclosures including a requirement for specific categories in the effective tax rate reconciliation, additional information for reconciling items that meet a quantitative threshold, certain disclosures pertaining to income taxes paid (net of refunds received) and amendments to other disclosure requirements. The new standard is effective for fiscal years beginning after December 15, 2024 and should be applied prospectively although retrospective application is permitted. Early adoption is permitted. We are currently evaluating the impact of the adoption of this guidance.

Note 3. Segment and Geographic Information

We sell the following complementary products and services largely to exploration and production customers: fracturing systems and enhanced recovery systems products and the provision of related services, casing buoyancy systems, liner hanger systems and toe initiation sleeves products as well as sales of our tracer diagnostics services. In addition, we sell composite and dissolvable frac plugs, setting tools, perforating guns and related products through Repeat Precision, our 50% owned entity. Our complementary products and services are typically used by our customers to facilitate the construction and stimulation of horizontal wellbores and to provide diagnostic information that customers can utilize to improve upon their completion techniques in subsequent wells.

We have one reportable segment as we manage our activities on a consolidated basis applying qualitative factors including the nature of the products and services, the nature and commonality of production processes, a shared customer base primarily in North America, the scope of geographic operations and a common industry and regulatory environment. Our CODM is the Chief Executive Officer.

NCS evaluates performance on a consolidated basis by reviewing key income statement items such as revenue, gross margin, and net income, as well as other specific balance sheet and cash flow items. We compare certain key financial figures to financial guidance and evaluate our share price performance and estimated trading multiple relative to selected peers. Although we utilize a non-GAAP measure of Adjusted EBITDA to evaluate our ability to generate cash and as an alternate measure of profitability, our primary cash flow measure is the GAAP measure of cash flow from operating activities and our primary profitability measure is the GAAP measure of net income (loss). The accounting policies of our one reportable segment are the same as those described in the summary of significant accounting policies.

The CODM assesses the segment’s performance by evaluating the measures noted above and decides how to allocate resources (including capital expenditures, financial resources and employees) through an integrated annual budget and more frequent forecasting processes, with the annual budget subject to approval by our Board of Directors (“Board”). The CODM allocates resources in a manner that he believes will maximize value for the consolidated corporate entity and its stockholders. The CODM considers variances from actual to budget, our most recent estimate and the prior year on a monthly basis when making decisions about the allocation of operating and capital resources. The CODM also regularly reviews consolidated cash flow, as well as the non-GAAP measure of free cash flow (cash flow from operations less capital expenditures) and periodically analyzes our market share. The CODM’s assessment of business performance is consistent with the presentation on our consolidated financial statements in addition to his review of significant SG&A expense categories.

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The following table summarizes significant SG&A expenses that are not separately presented on our consolidated statements of operations (in thousands):

Year Ended December 31,

The following table summarizes revenue by geographic area attributed based on the current billing address of the customer (in thousands):

Year Ended December 31,

United States

Canada

Other Countries

Total

The following table summarizes long-lived assets (defined as property and equipment, net and operating lease assets) by geographic area (in thousands):

December 31, December 31,

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Note 4. Revenues

Disaggregation of Revenue

We sell our products and services primarily in North America and in selected international markets. See above “Note 3. Segment and Geographic Information” for our disaggregated revenue by geographic area.

Contract Balances

If the timing of the delivery of products and provision of services is different from the timing of the customer payments, we recognize either a contract asset (performance precedes contractual due date in connection with estimates of variable consideration) or a contract liability (customer payment precedes performance) on our consolidated balance sheet.

The following table presents the current contract liabilities for the periods indicated (in thousands):

Revenue recognized (23 )

Revenue recognized (515 )

We currently do not have any contract assets or non-current contract liabilities. Our contract liability as of December 31, 2024 and 2023 is included in other current liabilities on the applicable accompanying consolidated balance sheets. Our performance obligations for our product and services revenues are typically satisfied before the customer’s payment; however, prepayments may occasionally be required.

Contracts with Multiple Performance Obligations

Substantially all of our product and services revenues are considered a single performance obligation. Our tracer self-service product line, which constitutes a small percentage of our total revenue for the years ended December 31, 2024 and 2023, is comprised of two performance obligations: (i) the delivery of tracer materials to a customer well site and (ii) the creation of diagnostic reports ordered by customers when we do not perform an integrated service. For these contracts, we do not allocate the transaction price as the individual performance obligations are sold at standalone prices in the customer order. The transaction prices for our self-service product line are determined as (i) the price per unit times the quantity of tracer materials and (ii) prices charged for diagnostic reports ordered by and delivered to the customer.

Practical Expedients

We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within SG&A expenses on the consolidated statements of operations.

We do not disclose the value of unsatisfied performance obligations when the related contract has a duration of one year or less. We recognize revenue equal to what we have the right to invoice when that amount corresponds directly with the value to the customer of our performance to date.

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Note 5. Inventories, net

Inventories consist of the following as of December 31, 2024 and 2023 (in thousands):

December 31, December 31,

Note 6. Other Current Receivables

Other current receivables consist of the following as of December 31, 2024 and 2023 (in thousands):

December 31, December 31,

Current income tax receivables $ 1,743 $ 1,418

Total other current receivables $ 5,143 $ 4,042

Other receivables as of December 31, 2024 and 2023, included the following: (i) a receivable of $1.1 million associated with royalty agreements for amounts earned during the fourth quarter of 2024 which are deemed probable and estimable, with no corresponding receivable as of December 31, 2023, reflecting an increase in royalties earned with new license agreements entered into during 2024, as well as an established cadence for estimating the amount of such royalties and collecting from licensees; (ii) the liquidation of a $1.3 million company-owned life insurance policy (“COLI”) in 2024 to fund the settlement of liabilities associated with a non-qualified deferred compensation plan that was terminated in late 2023, whereby the remaining funds were distributed to plan participants in December 2024, reducing the COLI asset to zero, compared to an asset of $1.2 million as of December 31, 2023; and (iii) a receivable of $1.4 million and $0.9 million at December 31, 2024 and 2023, respectively, associated with a technical services and assistance agreement with our local partner in Oman, as further described below.

The technical services and assistance agreement constituted a collaborative arrangement between us and our Omani partner, whereby we provided chemical and radioactive tracers at stated contract prices with revenue recognized on the delivery of these materials when performance obligations were met, as well as technical support, training, literature and further technical assistance to our local partner, for which we shared equally the net profit or loss, excluding certain non-cash items arising out of the specified contractual arrangement, calculated at the end of each calendar year. A portion of this profit-sharing income is allocated to tracer diagnostics services based upon the ratio of the standalone fair value of the tracer chemicals and the profit-sharing elements of the contractual arrangement. For the years ended December 31, 2024 and 2023, we have recorded tracer diagnostics services revenue of $1.7 million and $1.4 million, respectively, and other income, net totaling $1.0 million and $0.8 million, respectively, in the consolidated statements of operations. The contract between our Omani partner and the state-owned oil and gas company of Oman expired in November 2024, effectively ending our collaborative arrangement regarding the profit-sharing component of this agreement. However, we expect to continue to sell tracer chemicals to our Omani partner in the future.

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Note 7. Property and Equipment

Property and equipment by major asset class consist of the following as of December 31, 2024 and 2023 (in thousands):

December 31, December 31,

Less: Accumulated depreciation and amortization (23,519 ) (21,912 )

Construction in progress 226 337

The following table presents the depreciation expense associated with the respective income statement line items for the years ended December 31, 2024 and 2023 (in thousands):

Year Ended December 31,

Cost of sales

Selling, general and administrative expenses 1,923 1,742

The table above includes depreciation expense associated with finance leases for buildings, equipment and software, as well as vehicles for our transportation fleet. See “Note 15. Leases.”

We evaluate our property and equipment for impairment whenever changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. We determined there were no triggering events that indicated potential impairment of our property and equipment for the years ended December 31, 2024 and 2023, respectively, and accordingly no impairment loss has been recorded.

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Note 8. Goodwill and Identifiable Intangibles

The carrying amount of goodwill is summarized as follows (in thousands):

December 31, December 31,

We perform an annual impairment analysis of goodwill as of December 31, or whenever there is a triggering event that indicates an impairment loss may have been incurred. If an impairment loss occurs, we separately disclose it in the consolidated statements of operations, as applicable. See “Note 2. Summary of Significant Accounting Policies, Impairments” for additional information.

As of December 31, 2024 and 2023, we elected to perform a qualitative assessment for Repeat Precision, our only reportable unit with goodwill, and determined it is more likely than not that the goodwill totaling $15.2 million has a fair value that exceeds its net carrying value. Therefore, no goodwill impairment has been recorded for the years ended December 31, 2024 and 2023, respectively.

Identifiable intangibles by major asset class consist of the following (in thousands):

Estimated

Useful Gross

Lives Carrying Accumulated Net

(Years) Amount Amortization Balance

Estimated

Useful Gross

Lives Carrying Accumulated Net

(Years) Amount Amortization Balance

Total amortizable intangible assets $ 8,058 $ (3,699 ) $ 4,359

Technology - not subject to amortization Indefinite 48 — 48

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We did not incur costs to renew or extend the term of acquired intangible assets during the years ended December 31, 2024 and 2023. Substantially all identifiable intangibles as of December 31, 2024 and 2023 are related to our Repeat Precision asset group.

Identifiable intangibles are tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. See “Note 2. Summary of Significant Accounting Policies, Impairments” for additional information. As of December 31, 2024, we determined that the carrying value of our indefinite-lived intangible asset was no longer recoverable and the associated fair value was zero. Therefore, we recorded an impairment charge of less than $0.1 million in the fourth quarter of 2024 to retire this indefinite-lived asset, which was recognized in amortization expense in our consolidated statements of operations. We evaluated potential triggering events and determined there were no triggering events that indicated potential impairment of our identifiable definite-lived intangibles. Therefore, we did not record any impairment charges related to our identifiable intangibles with definite lives for the years ended December 31, 2024 or 2023, respectively.

Total amortization expense, which is associated with SG&A expenses on the consolidated statements of operations, was $0.7 million for each of the years ended December 31, 2024 and 2023, respectively.

The total weighted average amortization period for intangible assets is 14 years and estimated future amortization expense by year is as follows (in thousands):

Note 9. Accrued Expenses

Accrued expenses consist of the following as of December 31, 2024 and 2023 (in thousands):

December 31, December 31,

Accrued payroll and bonus $ 7,601 $ 2,255

Property and franchise taxes accrual 251 251

Severance and other termination benefits — 436

Accrued other miscellaneous liabilities 499 760

Accrued payroll and bonus includes an annual incentive bonus accrual based on operating performance of $6.1 million and $0.9 million as of December 31, 2024 and 2023, respectively.

During 2023, we implemented certain restructuring efforts to streamline our operations, including headcount reductions and facility consolidations, subletting a portion of this space under operating leases to generate sublet income to reduce rent expense for these facilities. In connection with these restructuring efforts, we incurred severance and other charges of $1.9 million in 2023, a portion of which was associated with the acceleration of non-cash share-based compensation. Of this amount, we paid $1.1 million in 2023 and $0.4 million in 2024, with no remaining severance and other termination benefits accrual associated with these restructuring efforts.

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Note 10. Debt

Our long-term debt consists of the following as of December 31, 2024 and 2023 (in thousands):

December 31, December 31,

ABL Facility $ — $ —

Repeat Precision Promissory Note — —

The estimated fair value of total debt as of December 31, 2024 and 2023 was $7.2 million and $7.1 million, respectively. The fair value of the finance leases was estimated using Level 2 inputs by calculating the sum of the discounted future interest and principal payments at our incremental borrowing rate through the date of maturity.

Below is a description of our financing arrangements.

ABL Facility

In May 2022, we entered into an ABL Facility, where credit availability is subject to a borrowing base calculation. The ABL Facility is governed by the Credit Agreement dated as of May 3, 2022, by and between NCS Multistage Holdings, Inc. (“NCSH”), Pioneer Investment, Inc., NCS Multistage, LLC, NCS Multistage Inc., the other loan parties thereto, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent and as a lender under the facility provided therein (the “Credit Agreement”). In April 2024, we amended the Credit Agreement to modify the benchmark that may be used for loans in Canadian dollars in connection with the cessation of the CDOR Rate and transition to the CORRA Rate.

The ABL Facility is a revolving credit facility with an aggregate principal amount of $35.0 million, of which borrowing up to $10.0 million can be made in Canadian dollars and funding of $7.5 million can be available for letters of credit. Total borrowings available to the borrowers under the ABL Facility may be limited subject to a borrowing base calculated on the sum of cash in a specified pledged account, eligible accounts receivables and eligible inventory, provided such eligible balances cannot include the assets of Repeat Precision. Our available borrowing base under the ABL Facility as of December 31, 2024 was $20.1 million. The ABL Facility will mature in May 2027. As of December 31, 2024 and 2023, we had no outstanding indebtedness under the ABL Facility.

Borrowings under the ABL Facility may be made in U.S. dollars with interest calculated using either the “ABR”, the “Adjusted Daily Simple SOFR” or the “Adjusted Term SOFR Rate”, and in Canadian dollars with interest calculated using the “Canadian Prime Rate” or the “Adjusted Term CORRA Rate” (each as defined in the amended and restated Credit Agreement). Borrowings bear interest plus a margin that varies depending on our leverage ratio as follows: (i) for ABR based loans, between 1.40% and 2.40%, and (ii) for Adjusted Daily Simple SOFR, Adjusted Term SOFR Rate, Canadian Prime Rate, and Adjusted Term CORRA Rate, between 2.40% and 3.40%. We must also pay a commitment fee calculated at 0.25% to 0.50% per annum, based on unused commitments. The applicable interest rate at December 31, 2024 was 6.9%. We incurred interest expense related to the ABL Facility, including commitment fees, of $0.2 million for each of the years ended December 31, 2024 and 2023.

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The obligations of the borrowers under the ABL Facility are guaranteed by NCSH and each of our U.S. and Canadian subsidiaries (other than Repeat Precision), as well as each of our future direct and indirect subsidiaries organized under the laws of the United States or Canada (subject to certain exceptions), and are secured by substantially all of the assets of NCSH and its subsidiaries, in each case, subject to certain exceptions and permitted liens.

The Credit Agreement requires, as a condition to borrowing, that available cash on hand after borrowings does not exceed $10.0 million. The Credit Agreement also requires us to (i) maintain, for quarters during which liquidity is less than 20% of the aggregate revolving commitments, a fixed charge coverage ratio of at least 1.0 to 1.0 and (ii) to prepay advances to the extent that the outstanding loans and letter of credit amounts exceed the most recently calculated borrowing base. As of December 31, 2024, we were in compliance with these financial covenants. The Credit Agreement also contains customary affirmative and negative covenants, including, among other things, restrictions on the creation of liens, the incurrence of indebtedness, investments, dividends and other restricted payments, dispositions and transactions with affiliates.

The Credit Agreement includes customary events of default for facilities of this type (with customary materiality thresholds and grace periods, as applicable). If an event of default occurs, the lenders party to the Credit Agreement may elect (after the expiration of any applicable notice or grace periods) to declare all outstanding borrowings under such facility, together with accrued and unpaid interest and other amounts payable thereunder, to be immediately due and payable. The lenders party to the Credit Agreement also have the right upon an event of default thereunder to terminate any commitments to provide further borrowings, or to provide additional financing in excess of the borrowing base limit, or to proceed against the collateral securing the ABL Facility.

We capitalized direct costs of $1.0 million in connection with the Credit Agreement, and less than $0.1 million associated with the April 2024 amendment, each of which is being amortized over the remaining term of the ABL Facility using the straight-line method. Amortization of the deferred financing charges of $0.2 million for each of the years ended December 31, 2024 and 2023, was included in interest expense, net.

Repeat Precision Promissory Note

In February 2018, Repeat Precision entered into a promissory note with Security State Bank & Trust, Fredericksburg (the “Repeat Precision Promissory Note”). The Repeat Precision Promissory Note had been renewed several times. In May 2024, the Repeat Precision Promissory Note was renewed with an aggregate borrowing capacity of $2.5 million, lowered from an aggregate borrowing capacity of $4.3 million. The Repeat Precision Promissory Note is scheduled to mature in May 2025 and bears interest at a variable interest rate based on prime plus 1.00%. The applicable interest rate at December 31, 2024 was 8.5%. The Repeat Precision Promissory Note is collateralized by certain equipment, inventory and receivables of Repeat Precision. Total borrowings may be limited subject to a borrowing base calculation, which includes a portion of Repeat Precision’s eligible receivables, inventory and equipment. As of December 31, 2024 and 2023, there was no outstanding indebtedness under the promissory note. Repeat Precision’s indebtedness is guaranteed by Repeat Precision and its subsidiary and is not guaranteed by any other NCS entity.

Finance Leases

We lease assets under finance lease arrangements, including an office and laboratory in Tulsa, Oklahoma, facilities in Odessa, Texas, and certain operating equipment and software. We also maintain a vehicle leasing arrangement with a fleet management company where we lease light vehicles and trucks that meet the finance lease criteria. See “Note 15. Leases” for additional information.

Note 11. Commitments and Contingencies

Litigation

In the ordinary course of our business, from time to time, we have various claims, lawsuits and administrative proceedings that are pending or threatened with respect to commercial, intellectual property and employee matters.

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Canada Patent Matters

● In July 2018, we filed a patent infringement lawsuit seeking unspecified damages against Kobold Corporation, Kobold Completions Inc. and 2039974 Alberta Ltd. (“Kobold”) in the Federal Court of Canada (“Canada Court”), alleging that Kobold’s fracturing tools and methods infringe on several of our Canadian patents. In July 2019, Kobold filed a counterclaim seeking unspecified damages alleging that our fracturing tools and methods infringe on their patent. The patent infringement litigation against Kobold and their counterclaim was heard in early 2022.

In October 2023, the judge rendered a decision against us holding that our asserted patents are invalid and that we are infringing the Kobold asserted patent. The Canada Court ordered us to pay Kobold approximately $1.8 million in costs and disbursements, including taxes payable thereon, and granted an injunction prohibiting us from any further infringement of their patent. This amount was paid to Kobold in November 2023 and was included in provision for litigation, net of recoveries in the accompanying consolidated statement of operations for the year ended December 31, 2023.

We believe that applicable law supports strong grounds to appeal the decision by the Canada Court. We expect the appeal to be heard in early 2025, and a decision granted by late 2025. As we cannot predict with certainty the outcome of the appeal, we believe a loss is reasonably possible, but such a loss is not probable or reasonably estimable as of December 31, 2024. If we do not prevail in the appeal phase, the damages portion would then be decided by the Canada Court and we do not know what damages, if any, will be awarded to Kobold. We would expect any damages awarded to be more modest because of the relative ease and minimal cost in implementing changes to our product to comply with the injunction, with such changes resulting in no significant commercial impact to date. In July 2024, Kobold filed a motion with the Canada Court regarding whether the injunction allowed us to modify our product or, as Kobold contends, we needed to destroy or deliver the product to Kobold. If the Canada Court agrees with Kobold, it may impose a fine or other remedy against the Company.

● In April 2020, Kobold filed a separate patent infringement lawsuit seeking unspecified damages against us in the Canada Court, alleging that our fracturing tools infringe on their Canadian patents. In the summary judgment phase, we have successfully dismissed some of the asserted products. However, we were not able to dismiss all of the claims because there remained factual determinations that were not possible in a summary judgment proceeding for our other products. We believe we have strong arguments of invalidity and non-infringement in this matter. We expect the trial for this matter to be heard in late 2026.

Other Patent Matters

In connection with patent infringement claims regarding U.S. Patent No.10,465,445 (“the '445 Patent”), we received favorable jury verdicts against Nine Energy Services, Inc. (“Nine”) and TCO AS (“TCO”) in the Western District of Texas, Waco Division (“Waco District Court”). In January 2022, the jury awarded NCS approximately $0.5 million in damages against Nine, and in August 2022, the jury awarded NCS approximately $1.9 million in damages against TCO. At subsequent hearings in December 2022 and May 2024, respectively, the Waco District Court awarded supplemental damages, interest, and costs, and ordered both Nine and TCO to pay ongoing royalties for their sales of infringing casing flotation devices for the life of the '445 Patent. To date, Nine and TCO have secured over $6.0 million in total for the amounts owed in connection with the judgment. Both parties have appealed their respective decisions. Nine and TCO filed their respective opening appellate briefs in late 2024, and we have filed our responses in early 2025. We expect a resolution to these matters in 2026. As the decisions are subject to appeal, we have not recorded any potential gain contingencies associated with these matters in the accompanying condensed consolidated statements of operations.

Texas Matter

NCS was a defendant in a lawsuit in the District Court of Winkler County, Texas (the “Texas Matter”) that was settled in December 2023, whereby our insurance carrier agreed to pay the mutually-agreed settlement amounts to the plaintiff in settlement of all liabilities, resulting in no cash payments by NCS. The lawsuit was filed in September 2019 by plaintiffs Boyd & McWilliams Energy Group, Inc. et. al. claiming damage to their wells in 2018 resulting from an alleged product defect related to components provided by a third-party supplier. As of December 31, 2023, we recorded an insurance receivable for the agreed to but unpaid insurance recoveries of $15.0 million and maintained a corresponding provision for legal contingencies. The settlement was fully paid by the insurance carrier in January 2024.

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Wyoming Matter

NCS was a defendant in a lawsuit in a state district court in Wyoming, which settled in August 2023 (the “Wyoming Matter”). The claim related to an alleged service issue by our personnel during completion operations. The parties agreed to a settlement, which was paid on NCS’s behalf under a policy of insurance, and NCS received $0.6 million as reimbursement of unpaid invoices from the plaintiff, which we recorded as other income, net in the accompanying consolidated statement of operations for the year ended December 31, 2023.

In accordance with GAAP, we accrue for contingencies where the occurrence of a material loss is probable and can be reasonably estimated. Our legal contingencies may increase or decrease, on a matter-by-matter basis, to account for future developments. Although the outcome of any legal proceeding cannot be predicted with any certainty, our assessment of the likely outcome of litigation matters is based on our judgment of a number of factors, including experience with similar matters, past history, precedents, relevant financial information and other evidence and facts specific to each matter.

Note 12. Stockholders’ Equity

Authorized and Outstanding Shares

As of December 31, 2024 and 2023, we had 11,250,000 shares of common stock authorized to be issued. As of December 31, 2024 and 2023, 2,507,430 and 2,443,744 shares of common stock were outstanding, respectively. As of December 31, 2024 and 2023, the number of our authorized shares of preferred stock included 10,000,000 shares, with none outstanding.

Voting

The holders of common stock are entitled to one vote for each share of common stock held.

Dividends

The holders of common stock are entitled to receive dividends as declared from time-to-time by our Board, to the extent permitted under the ABL Facility. No dividends were declared during the years ended December 31, 2024 and 2023.

Note 13. Share-Based Compensation

Equity Incentive Plan

We maintain an equity incentive plan for the benefit of our employees, directors and other service providers, the 2017 Equity Incentive Plan (the “2017 Plan”). Our previous equity incentive plan, the 2012 Equity Incentive Plan (the “2012 Plan”), terminated on December 20, 2022, provided that any outstanding awards remain outstanding in accordance with the terms of the applicable award agreement.

The 2017 Plan provides for awards of stock options, stock appreciation rights, restricted stock awards, RSUs, stock awards and performance awards. Awards under the 2017 Plan may be granted to any employee, non-employee director, consultant or other personal service provider of NCS. The 2017 Plan is administered by a plan administrator, which is the Compensation, Nominating and Governance Committee or such other committee of the Board or the Board as a whole, in each case as determined by the Board. The maximum aggregate number of shares available to be issued under the 2017 Plan is 626,626 shares. As of December 31, 2024, the total number of shares available for future issuance under the 2017 Plan is 185,281 shares.

Restricted Stock Units

We account for RSUs granted to employees at fair value, which we measure as the closing price of our common stock on the date of grant, and we recognize the compensation expense in the financial statements over the requisite service period. The RSUs granted to our employees generally vest over a period of three equal annual installments beginning on or around the anniversary of the date of grant. The RSUs granted to the members of our Board generally vest on the one-year anniversary of the grant date and either settle at vesting or, if the director has elected to defer the RSUs, within thirty days following the earlier of the termination of the director’s service for any reason or a change of control.

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NCS MULTISTAGE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes RSU activity during the year ended December 31, 2024:

Number of Awards Weighted Average Grant Date Fair Value

The total value of RSUs that vested and were released was $1.3million and $1.1 million during the years ended December 31, 2024 and 2023. For 2024 and 2023, the income tax benefit recognized for RSUs was $0.2 million for each year. As of December 31, 2024, there was $0.7 million of total unrecognized compensation cost related to RSUs, which we expect to recognize over a weighted average period of one year, and there are 45,366 vested RSUs that have not been released.

Equivalent Stock Unit Awards

When ESUs are granted to employees, they are valued at fair value, which we measure at the closing price of our common stock on the date of grant. Since ESUs are settled in cash, we record a liability which is remeasured each reporting period at fair value based upon the closing price of our common stock until the awards are settled. The ESUs generally vest and settle over a period of three equal annual installments beginning on or around the anniversary of the date of grant. The cash settled for any ESU will not exceed the maximum payout established by our Compensation, Nominating and Governance Committee of the Board.

The following table summarizes ESU activity during the year ended December 31, 2024:

Number of Awards Weighted Average Grant Date Fair Value

During the years ended December 31, 2024 and 2023, we paid $1.0 million and $1.7 million, respectively, upon settlement of the ESUs. As of December 31, 2024, the total liability for ESUs was $2.4 million.

Performance Stock Unit Awards

PSUs are granted to certain executives and provide for the recipients to receive a grant of shares of common stock based upon the achievement of certain performance goals over a specified period established by the Compensation, Nominating, and Governance Committee. The number of PSUs ultimately issued is dependent upon our total shareholder return relative to our performance peer group (“relative TSR”) over a three-year performance period. Each PSU associated with the March 2024 award will settle for between zero and 1.25 shares of our common stock in the first quarter of 2027. The threshold performance level (25th percentile relative TSR) earns 50% of the target PSUs, the mid-point performance level (50th percentile relative TSR) earns 100% of the target PSUs and the maximum performance level (75th percentile relative TSR) or greater earns 125% of the target PSUs. For the PSUs granted in March 2023 and November 2022, each PSU will settle for between zero and two shares of our common stock. the threshold performance level (25th percentile relative TSR) starts to earn PSUs, the mid-point performance level (50th percentile relative TSR) earns 100% of the target PSUs and the maximum performance level (90th percentile relative TSR) or greater earns 200% of the target PSUs.

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NCS MULTISTAGE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The outstanding PSUs grant date fair values were measured using a Monte Carlo simulation with the following assumptions and the resulting weighted-average grant date fair value per share:

Risk-free interest rate 4.3 % 4.6 % 4.4 %

Expected dividends — % — % — %

NCSM US Equity

NCSM · 10-K · period ended 2024-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

NCSM US Equity☆

NCSM · 10-K · period ended 2024-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

NCSM US Equity