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NCS Multistage Holdings Inc. (Pending:NCSM) IPO

NCS Multistage Holdings filed an S-1/A with the Securities and Exchange Commission for its upcoming initial public offering.

The company intends to sell 9.5 million shares at a marketed price range of $15 to $18. It also has an additional 1.425M shares over-allotted as an option for its underwriters. Assuming it prices at the mid-point of its price range, it would command a market cap value of $771M.

The underwriters for the IPO include Credit Suisse, Citigroup, Wells Fargo Securities, J.P. Morgan, Simmons & Company International, Raymond James, RBC Capital Markets and Tudor, Pickering, Holt & Co.

We first previewed the deal on our IPO Insights Platform.

Business overview

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NCS Multistage Holdings Inc. is based in Houston, Texas and was formed in Canada in 2006. The company has developed what it calls a multistage unlimited fracturing system. The company’s system is designed to help companies that are involved in fracturing with developing networks to produce more oil. As of 2016, it had provided products and services to over 140 customers, and companies are using more than 100,000 of its patented sleeves.

Executive management team overview

Robert Nipper co-founded the company and currently serves as chief executive officer of NCS Multistage Holdings Inc. Previously, he served as the chairman of the board from April 2016 to Feb. 2017, and as the executive chairman from April 2016 until Nov. 2016. Nipper brings more than 30 years of experience in the oil and gas industry and has invented several patented technologies relating to downhole oil and natural gas and geothermal service equipment.

Marty Stromquist was also a co-founder and now serves as the president of NCS Multistage Holdings since Nov. 2016 and has served as a board member since Jan. 2010. He is a co-founder of the company and previously served as the chief operating officer from Jan. 2010 to June 2015; the chief technology officer from June 2015 to March 2016; and as the CEO from March 2016 to Nov. 2016. He has more than 35 years of executive-level and technical experience in the oil and gas industry.

Financial highlights and risks

Revenue generated is highly susceptible to oil and gas industry as a whole. A slowdown in the industry in 2016, led to a 14% drop in revenue from $114M in 2015 to $98M. Gross margins also decreased from 52% in 2015, to 45% in 2016 and the company went from a net profit of $28M to a net loss of $17.9M.

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Conditions have improved remarkably in 2017, pulling revenue way up. The company reported a preliminary estimate of revenue for Q12017 of $57.0 million to $59.0 million, versus $23.1 million for the same period in 2016. It estimates selling 17,000 sleeves over the quarter, versus 17,000 sleeves in 2016.

Despite optimism with these updates, we are wary on the oil and gas industry overall. Prices appear to be recovering, but we expect continued price improvement to be slow. NCS Holdings’ business is highly concentrated amongst several key customers, with one customer account for 26% of its business. This provides additional risk for the business.

(S-1/A)

Conclusion: We Remain Cautious

Although the oil and gas industry shows signs of improving and NCS is on track to deliver strong Q12017 results, we are cautious on the industry overall.

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Additionally, the company’s concentration amongst a few customers adds additional risk.

We recommend only investors very bullish on the oil industry to consider investing.

Don Dion’s IPO Insights provides up-to-date information and analysis on the major IPOs each week, along with additional opportunities to invest and short these stocks at their quiet period and lockup period expirations, respectively. Consider following us at the link above. We will continue our PRO offerings on Seeking Alpha alongside our more exclusive research.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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