SecProbe.io

United States securities and exchange commission logo
December 22, 2023
Mike Morrison
Chief Financial Officer
NCS Multistage Holdings, Inc.
19350 State Highway 249
Suite 600
Houston, TX 77070
Re:NCS Multistage Holdings, Inc.
Form 10-K for the Fiscal Year ended December 31, 2022
Supplemental response filed December 15, 2023
File No. 001-38071
Dear Mike Morrison:
            We have reviewed your December 15, 2023 response to our comment letter and have the
following comments.
            Please respond to this letter within ten business days by providing the requested
information or advise us as soon as possible when you will respond. If you do not believe a
comment applies to your facts and circumstances, please tell us why in your response.
            After reviewing your response to this letter, we may have additional comments. Unless
we note otherwise, any references to prior comments are to comments in our December 1, 2023
letter.
Form 10-K for the Fiscal Year ended December 31, 2022
Management's Discussion and Analysis
Results of Operations, page 41
1.We understand from your response to prior comment one that you regard the change in
revenue for 2022 compared to 2021 that is attributable to differences in prices received in
exchange for products and services during 2022 compared to 2021 as not material, and
that you would prefer to not disclose the volumes of products and services sold in each
period, due to complexity in establishing correlation with revenues, citing the "number of
product lines and variables in the product and geographic mix."

With regard to your view on materiality, you state that "...price was not a material factor
impacting the increase in revenues for NCS during Fiscal 2022, nor did changes in price

 FirstName LastNameMike Morrison
 Comapany NameNCS Multistage Holdings, Inc.
 December 22, 2023 Page 2
 FirstName LastNameMike Morrison
NCS Multistage Holdings, Inc.
December 22, 2023
Page 2
represent a material offset to the volume driven increase in revenue," although certain
disclosures indicate you had reduced prices, and your explanation regarding a time lag in
realizing the effects of price changes states that 2022 "...was more impacted by the price
declines for Fiscal 2021" than price increases that would follow more recent decisions,
where the effects would be more prevalent in subsequent periods.

Please submit the computations that you performed in formulating your present
disclosures attributing the increase in revenues to increased volumes, and concluding that
price differences during 2022 compared to 2021 did not have a material effect on
revenues.  Please describe your methodology and the inputs sufficiently to understand
how you have managed the complexity mentioned in your response in establishing
support for your disclosures and your views on materiality.
2.We note that you provide a discussion and analysis of cost of sales including
its percentage of total revenues, and the subcategories of cost of product sales and cost of
services and their percentages of the corresponding revenues, as well as comparative
percentages for the prior year.

However, your various references to the cost measures utilized in the underlying
computations do not use the line item captions that clarify you have excluded depreciation
and amortization that would be attributable to the various cost measures under GAAP, as
appear in your financial presentation on page 52.

Please revise your disclosures to clarify that you are discussing incomplete cost measures,
due to the exclusion of depreciation and amortization, and to provide equally prominent
disclosure of the comparable percentage metrics based on the complete GAAP measures.
We suggest using a tabulation to facilitate these comparisons.
How We Evaluate our Results of Operations, page 42
3.We note that you identify revenues and four non-GAAP measures used by your
management, including Adjusted EBITDA, a variation of Adjusted EBITDA, Free Cash
Flow, and a variation of Free Cash Flow, as "significant factors in assessing [y]our results
of operations and profitability."

You also state that Adjusted EBITDA and Adjusted EBITDA Less Share-Based
Compensation "...are key metrics that management uses to assess the period-to-period
performance of our core business operations" and that your measure of Free Cash Flow is
used "to evaluate the cash generated by our operations and results of operations."

However, given that you have not mentioned any of these non-GAAP measures in
your discussion and analysis, it appears that you should revise your disclosures to clarify
the role and utility of these measures and to explain how they have enhanced or increased
your understanding of the results of operations and profitability, relative to the most
directly comparable GAAP measures that are identified in your reconciliations.

 FirstName LastNameMike Morrison
 Comapany NameNCS Multistage Holdings, Inc.
 December 22, 2023 Page 3
 FirstName LastNameMike Morrison
NCS Multistage Holdings, Inc.
December 22, 2023
Page 3

Please also clarify the extent to which the disclosures you are providing under this
heading are substantively complete in identifying the significant factors and key metrics
that are used by management to assess and evaluate performance; and if other measures
are also important these should be identified to provide adequate context.
4.On a related point, tell us why you identify gross profit in the financial reviews provided
in your quarterly and annual earnings releases, and in various investor presentations
posted on your website, but do not identify this as a relevant measure in the disclosures
accompanying your periodic financial reports.

With regard to your presentations of gross profit, given that you exclude depreciation and
amortization from the cost of product sales and the cost of services that are net against
revenues in calculating the measure, it appears that you are presenting a non-GAAP
measure utilizing terminology that is generally associated with a GAAP measure.

If you continue to present this non-GAAP margin measure in earnings releases and
investor presentations, you will need to comply with §244.100 of Regulation G, to include
using a different label for your margin measure, providing disclosure that conveys its
character as a non-GAAP measure, identifying the GAAP measure of gross margin as the
most directly comparable GAAP measure, and providing a reconciliation from GAAP
gross margin to your non-GAAP margin measure for each period.

Alternatively, you would need to correct your computation of gross profit to reflect all
costs that are attributable to the measure to comply with GAAP.  Tell us your intentions
relative to this requirement and submit any revisions that you propose in connection with
future disclosures of your non-GAAP margin measures.
Adjusted EBITDA and Adjusted EBITDA Less Share-Based Compensation, page 43
5.We note your response to prior comment three explaining that the professional service
costs excluded from your non-GAAP measure are limited to costs of legal proceedings
associated with the assertion of, or defense of intellectual property and related matters,
while also stating that you do not consider such costs to reflect "ordinary course operating
expenses" that are part of your revenue generating activities. You further clarify that you
have not described the excluded amounts as non-recurring, infrequent or unusual,
although you disclose that these are "not reflective of ongoing operating performance."

The guidance in the answer to Question 100.01 of our non-GAAP Compliance and
Disclosure Interpretations (C&DI's), pertains to the exclusion of normal, recurring, cash
operating expenses that are necessary to operate the business, and is not limited to costs
that would be part of your revenue generating activities or attributable to cost of sales.

Given the frequency with which you incur these costs, it appears that you have an ongoing
need to defend your intellectual property rights. You have disclosures on pages 8 and 18,

 FirstName LastNameMike Morrison
 Comapany NameNCS Multistage Holdings, Inc.
 December 22, 2023 Page 4
 FirstName LastName
Mike Morrison
NCS Multistage Holdings, Inc.
December 22, 2023
Page 4
stating that such rights are "important in enabling us to compete in the market to supply
our customers with our products and services" and clarifying that you have "...in the past,
are presently, and may in the future, become involved in legal proceedings to protect and
enforce our intellectual property rights." Based on these disclosures it appears that
incurring professional fees in order to maintain your intellectual property rights would
be considered necessary to operate your business.

You indicate in your response that you would consider providing additional disclosure in
future filings "related to the limitations" of your non-GAAP measure, and to further
clarify the nature of the excluded costs. However, we believe more certain revisions
would be necessary to address the concerns in the C&DI referenced above, to either
discontinue the exclusion of such costs in computing the measure or possibly to discuss
and analyze the excluded professional fees along with your disclosure of the non-GAAP
measure, if this would adequately serve to avoid misleading inferences, i.e. to clarify the
utility and necessity of the costs in supporting your ongoing operations, and to emphasize
the limitations of your non-GAAP measure in assessing operating performance.

Please submit the revisions that you propose to address these concerns.

            Please contact Mark Wojciechowski at 202-551-3759 or Karl Hiller at 202-551-3686 if
you have questions regarding comments on the financial statements and related matters.
Sincerely,
Division of Corporation Finance
Office of Energy & Transportation