SecProbe.io

CORRESP
1
filename1.htm

CORRESP

 World Headquarters

 19350 State Highway 249,
Suite 600

 Houston, TX 77070

ncsmultistage.com

 January 16,
2024

 United States Securities and Exchange Commission

Division of Corporate Finance

 Office of Energy &
Transportation

 Washington, D.C. 20549

 Dear Mssrs.
Mojciechowski and Hiller:

 On behalf of NCS Multistage Holdings, Inc., we are submitting this letter in response to comments from the Securities and
Exchange Commission (the “Commission”).We received your letter dated December 22, 2023 with additional Staff comments in connection with our response dated December 15, 2023 to the the Staff’s original letter dated
December 1, 2023 relating to the Annual Report of NCS Multistage Holdings, Inc., filed on Form 10-K for the Fiscal Year Ended December 31, 2022 (File
No. 001-38071) (the “2022 Form 10-K”). We requested an extention to provide our response, and the Staff agreed to provide an extention until
January 16, 2024. Our responses also reflect a telephone conversation between the Company and yourselves on January 10, 2024. The Staff’s comments are reproduced below along with management’s responses thereto. All references to
page numbers are to the 2022 Form 10-K.

 References to “NCS”, the “Company”, “we”,
“our” or “us” refer to NCS Multistage Holdings, Inc. and its consolidated affiliates.

 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 represent a material offset to the volume driven increases 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.

Management’s Response:

The Company respectfully acknowledges the Staff’s comment. As described previously, NCS has not historically disclosed a generalized
volume change (such as number of tools sold or number of jobs completed) as these metrics may be misleading since revenues are derived from a mix of product sales, some of which contain a service component (installation), projects and horizontal
laterals of differing sizes, tracer jobs for which well counts and stage counts can vary, and other factors that make it not meaningful to describe the changes in quantitative volumes for relative periods.

However, in order to evaluate the impact of volume, price and sales mix on the change in revenues between periods, management performs an
analysis of six product and service groupings. These groups with regard to Product revenues are: (1) fracturing & toe sleeves, (2) casing buoyancy equipment, (3) liner hangers and float equipment, and (4) plug &
perf products; and with regard to Service revenues the groups are: (1) fracturing systems, and (2) tracer diagnostics. To perform the analysis, we aggregate revenue by category and determine quantities (with assumptions applied as to the
unit of measure which may vary within each category from job to stage to tool or piece of equipment), and extend a value per unit for the comparative periods. This analysis requires the use of several assumptions, most notably, the need to normalize
operating changes that are attributed to sales or geographic mix, through manual adjustments. Examples of such adjustments include normalization for job sizes due to the number of wells or laterals drilled at a site, geographic changes (typically
longer laterals in the U.S. and shorter laterals in Canada), jobs with a service component versus self-serve jobs, jobs completed with more or fewer accessory sales, international jobs of varying size and complexity which are infrequent or do not
necessarily recur between periods.    We apply a weighted average to the groupings within Product revenues to determine an overall percentage change in Product revenues attributable to volume, price and sales mix and to determine
the dollar value of each of these factors on the change in Product revenue between periods. Similarly, we apply a weighted average to the groupings within Service revenues to determine the dollar value of each of these factors on the change in
Service revenues between periods. Finally, we apply a weighted average to the Product revenue and Service revenue to determine the consolidated impact of volume, price and sales mix on the consolidated change in revenue between periods.

 The following table presents our calculations of the impact of volume, price and sales mix
on changes in revenue between Fiscal 2021 to Fiscal 2022:

2022

2021

$ Change

% Change

 Product Revenues

$
105,859

$
83,223

$
22,636

27
%

 Service Revenues

$
49,773

$
35,279

$
14,494

41
%

 Total Revenues

$
155,632

$
118,502

$
37,130

31
%

Revenue Growth Factors

Revenue Growth Factors

Volume

Price

Mix

Total

Volume

Price

Mix

Total

Year-over-Year Percentage Change

Year-over-Year USD Change

 Product Revenues

21.5
%

3.8
%

1.9
%

27.2
%

$
17,899

$
3,190

$
1,547

$
22,636

 Service Revenues

42.5
%

-1.9
%

0.5
%

41.1
%

$
14,993

$
(687
)

$
188

$
14,494

 Total Revenues

27.8
%

2.1
%

1.4
%

31.3
%

$
32,892

$
2,503

$
1,735

$
37,130

 Utilizing these results, management determined that price was not a material factor attributable to the
increase in revenue in Fiscal 2022 compared to Fiscal 2021. Price was calculated at $2.5 million of the $37.1 million increase in total revenue, approximately 2% of total revenues earned in Fiscal 2022. Moreover, price did not vary
significantly in Fiscal 2022 due to the introduction of new products, the addition of new or alternate product lines or any new or unique bundling of services during Fiscal 2022. Therefore, management does not believe that this change in price was
quantitatively or qualitatively material to the overall presentation of the change in revenues for Fiscal 2022 compared to Fiscal 2021.

Management’s Discussion and Analysis, Results of Operations, page 41:

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 percentage for the prior period.

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.

 Management’s Response:

The Company respectfully acknowledges the Staff’s comment. As noted, the presentation of depreciation and amortization attributable to the
Cost of Product Sales and the Cost of Services is included in the financial statements on page 63. To provide clarity for the purposes of our MD&A presentation, we will modify our future presentation of the table included on page 41, and the
disclosure as on page 42, to reflect a discussion of cost of sales (including depreciation and amortization expenses). The table below has been reproduced from the “Results of Operations” within MD&A for our Annual Report on Form 10-K for the year ended December 31, 2022, with a new tabular presentation inserted below to arrive at cost of sales, gross margin and gross margin percentage.

Year Ended December 31,

Variance

2022

2021

$

%

 Revenues

 Product sales

$
105,859

$
83,223

$
22,636

27.2
%

 Services

49,773

35,279

14,494

41.1
%

 Total revenues

155,632

118,502

37,130

31.3
%

 Cost of sales

 Cost of product sales, exclusive of depreciation and amortization expense shown below

68,412

51,897

16,515

31.8
%

 Cost of services, exclusive of depreciation and amortization expense shown below

26,816

18,130

8,686

47.9
%

 Total cost of sales, exclusive of depreciation and amortization expense shown below

95,228

70,027

25,201

36.0
%

 Selling, general and administrative expenses

58,338

49,094

9,244

18.8
%

 Depreciation

3,650

3,832

(182
)

(4.7
)%

 Amortization

669

669

—

—
%

 Loss from operations

(2,253
)

(5,120
)

2,867

56.0
%

 Other income (expense)

 Interest expense, net

(1,015
)

(733
)

(282
)

(38.5
)%

 Other income, net

2,950

2,054

896

43.6
%

 Foreign currency exchange (loss) gain

(283
)

283

(566
)

(200.0
)%

 Total other income

1,652

1,604

48

3.0
%

 Loss before income tax

(601
)

(3,516
)

2,915

82.9
%

 Income tax expense

351

263

88

33.5
%

 Net loss

(952
)

(3,779
)

2,827

74.8
%

 Net income attributable to non-controlling interest

150

955

(805
)

(84.3
)%

 Net loss attributable to NCS Multistage Holdings, Inc.

$
(1,102
)

$
(4,734
)

$
3,632

76.7
%

 Gross Margin and Gross Margin Percentage:

 Depreciation and amortization attributable to cost of product sales

$
1,425

$
1,399

$
26

1.9
%

 Cost of product sales

69,837

53,296

16,541

31.0
%

 Gross Margin

36,022

29,927

6,095

20.4
%

 Gross Margin %

34.0
%

36.0
%

 Depreciation and amortization attributable to cost of services

$
547

$
691

$
(144
)

(20.8
)%

 Cost of services

27,363

18,821

8,542

45.4
%

 Gross Margin

22,410

16,458

5,952

36.2
%

 Gross Margin %

45.0
%

46.7
%

 Total cost of sales

$
97,200

$
72,117

$
25,083

34.8
%

 Gross Margin

58,432

46,385

12,047

26.0
%

 Gross Margin %

37.5
%

39.1
%

 In future filings, we will clarify labeling to denote when cost of sales or gross margin or
an alternative non-GAAP measure is being applied with reconciliation, if applicable.

 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.

Please also clarify the extent to which the disclosures you are providing under this heading are substantively complete in identifying
the significant factors or 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.

Management’s Response:

The Company respectfully acknowledges the Staff’s comment. In response, management has decided to eliminate the use of the non-GAAP measures mentioned above from the MD&A discussion in NCS’s periodic reports on Form 10Q and Form 10K. Management intends to continue the use of these measures in its earnings releases and investor
presentations, with the appropriate reconciliation to the most comparable GAAP measures in compliance with Item 10(e) and/or Regulation G, as applicable.

How We Evaluate our Results of Operations, page 42

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.

 Management’s Response:

 The Company respectfully acknowledges the Staff’s comment. Please see our response to Comment #2. We plan to include a
similar presentation of gross margin and gross margin percentage in our future earnings press releases and to reconcile any alternative non-GAAP measure derived from the GAAP measure of gross margin in
accordance with §244.100 of Regulation G. We will label the alternative non-GAAP measure appropriately, such as “adjusted” gross margin or gross margin (excluding depreciation and amortization
expenses), to clearly indicate that the measure is non-GAAP if used in future earnings press releases or investor presentations and present the measures in compliance with Item 10(e) or Regulation G, as
applicable.

 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 excl