PART I. FINANCIAL INFORMATION

ITEM 1.  Financial Statements

NCS MULTISTAGE HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

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

NCS MULTISTAGE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

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

NCS MULTISTAGE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

(Unaudited)

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

NCS MULTISTAGE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data)

(Unaudited)

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

NCS MULTISTAGE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

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

Note 10.  Debt

Our long-term debt consists of the following as of March 31, 2026 and  December 31, 2025 (in thousands):

The estimated fair value of total debt as of March 31, 2026 and  December 31, 2025 was $6.5 million and $6.9 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 a secured asset-based revolving credit facility (the “ABL Facility”), where credit availability is subject to a borrowing base calculation. The ABL Facility is governed by the Credit Agreement 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 scheduled to mature in May 2027. We expect to renew the ABL Facility prior to the maturity date.

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 under the ABL Facility may be limited subject to a borrowing base calculated based on eligible accounts receivable and inventory, provided such eligible balances cannot include the assets of Repeat Precision. Our available borrowing base under the ABL Facility as of  March 31, 2026 was $18.5 million. As of March 31, 2026 and  December 31, 2025, we had no outstanding indebtedness under the ABL Facility. As of March 31, 2026 and December 31, 2025, we utilized letter of credit commitments of $0.2 million.

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 at a rate equal to the benchmark 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 March 31, 2026 was 6.1%. We incurred interest expense related to the ABL Facility, including commitment fees, of less than $0.1 million for each of the three months ended March 31, 2026 and 2025, respectively.

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) 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 March 31, 2026, 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 approximately $0.1 million associated with subsequent amendments, 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 $0.1 million for each of the three months ended March 31, 2026 and 2025, respectively, 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 is a revolving credit facility that has been renewed annually and was most recently renewed in  May 2025 with an aggregate borrowing capacity of $2.5 million. The Repeat Precision Promissory Note is scheduled to mature in  May 2026 and bears interest at a variable interest rate equal to prime plus 1.00%. The applicable interest rate at March 31, 2026 was 7.8%. 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 March 31, 2026 and  December 31, 2025, there was no outstanding indebtedness under the promissory note and the available borrowing base was $2.5 million. Repeat Precision’s indebtedness is guaranteed by its subsidiary and is not guaranteed by NCSH or 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 through which we lease light vehicles and trucks that meet the finance lease criteria.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes thereto included in this Quarterly Report on Form 10-Q (“Quarterly Report”) and with our audited financial statements and the related notes thereto included in our Annual Report on Form 10-K (“Annual Report”), filed with the Securities and Exchange Commission (the “SEC”). This discussion and analysis contains 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 “Risk Factors.” Our actual results may differ materially from those contained in or implied by these forward-looking statements. As used in this Quarterly Report, except where the context otherwise requires or where otherwise indicated, the terms “Company,” “NCS,” “we,” “our” and “us” refer to NCS Multistage Holdings, Inc.

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 completion and field development strategies. We provide our products and services primarily to exploration and production (“E&P”) companies for use in onshore and offshore wells, predominantly those 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 and Argentina. We provide our products and services to various customers, including 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 alternative 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 amount of hydrocarbons produced from their assets.

We own a 50% interest in Repeat Precision, LLC (“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 tracers. We sell products for well construction, including casing buoyancy systems, liner hanger systems and toe initiation sleeves as well as certain complementary products provided by third parties. We operate in one reportable segment that has been identified based on how our chief operating decision maker manages our business.

On July 31, 2025, we acquired 100% of the equity interests of Reservoir Metrics, LLC, and its related entities (“ResMetrics”), a provider of tracer diagnostics services, for $7.1 million, on a cash-free, debt-free basis. The purchase consideration included $1.3 million of contingent consideration, which was paid in January 2026. The acquisition expands our tracer diagnostics capabilities and strengthens our service offerings. 

Our products and services are primarily sold to North American E&P companies. Our ability to generate revenues from our products and services depends largely 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.

Based on year-to-date E&P company drilling and completion activity, expected capital budgets for the remainder of 2026, and recent industry reports, we believe: (i) Canadian and U.S. activity levels will remain stable relative to 2025, as many North American E&P operators continue to emphasize capital discipline, conservative production growth targets, and returns-focused spending strategies despite elevated commodity prices; and (ii) overall spending in international markets is also expected to be stable relative to 2025. However, a prolonged conflict between the United States and Israel against Iran could keep commodity prices elevated, which could increase drilling and completion activity in Canada and the United States in the second half of 2026.

Oil and natural gas prices were volatile through 2025, a trend that continued into 2026. This volatility has been influenced by multiple factors, including trade tensions, the ongoing war between Russia and Ukraine, conflicts in the Middle East and U.S. involvement in Venezuela, including the recent and ongoing war involving the United States and Israel against Iran and associated disruptions and threats to commercial shipping in the Strait of Hormuz. Trade disruptions or any further escalation of these conflicts could intensify commodity price volatility. Also impacting commodity prices are adjustments in oil supply by OPEC+ countries, which began to phase out voluntary cuts in 2025, but recently, announced a flexible approach to future production adjustments in response to evolving market conditions and regional conflicts. 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 to offset rising costs, particularly during periods of higher cost inflation or periods affected by the uncertainty of escalating and de-escalating tariffs, with supply-chain costs impacted by the level of tariffs then in effect. While inflationary cost pressures moderated somewhat in prior years, the implementation of new tariffs, including steel and aluminum, and the continued threats of additional tariffs, have led to additional costs that we may not be able to recover through price increases.

In April 2025, and in the ensuing months thereafter, the U.S. Administration announced targeted tariff measures affecting multiple countries, many of which were substantial. Certain countries have since negotiated trade agreements with the United States, while others remain subject to elevated tariff rates, including baseline tariffs on imported goods and existing tariffs on steel and aluminum imposed under Section 232 of the Trade Expansion Act. These tariffs have increased our manufacturing costs, notably the cost of steel, and chemicals which are largely imported from China. Tariffs imposed by the U.S. Administration, or retaliatory tariffs imposed by other countries on goods imported from the United States could further increase our product costs—particularly tariffs affecting trade relations with Mexico, Canada, or China. Furthermore, U.S. tariffs on certain Canadian energy exports could reduce drilling and completion activity by our Canadian customers, potentially lowering demand for our products and services in that market. Goods covered by the United States-Mexico-Canada Agreement (“USMCA”) continue to be exempt from tariffs; however, ongoing trade tensions and the scheduled six-year joint review of the USMCA in July 2026 may result in amendments to the agreement, changes in interpretation or enforcement, or the implementation of additional measures that could affect USMCA-compliant goods. Our Repeat Precision joint venture provides manufacturing services for components used in our fracturing systems products in Mexico. We believe our supply chain in Mexico is currently compliant with the USMCA. We believe that products we ship from the United States to Canada are also compliant with the USMCA.

In February 2026, the U.S. Supreme Court issued a decision invalidating most tariffs imposed by the U.S. Administration under the International Emergency Economic Powers Act. However, following that decision, the U.S. Administration announced and implemented alternative tariff measures under other statutory authorities, including expanded and restructured tariffs on steel, aluminum, and related products, while continuing to signal a willingness to impose additional or modified tariffs in response to trade and national security considerations. As a result, uncertainty and volatility related to tariffs and trade policy remain elevated.

To counter inflationary pressures on the economy, central banks, including the U.S. Federal Reserve, raised benchmark interest rates several times prior to September 2024, actions typically intended to increase borrowing costs and moderate economic activity. Beginning in September 2024, the U.S. Federal Reserve began lowering rates, with additional reductions throughout 2025 amid improving inflation and decelerating employment data growth. During 2026, the Federal Reserve has held benchmark interest rates steady while continuing to assess incoming economic data, including developments related to inflation, labor market conditions, tariff-related cost pressures, and global geopolitical risks. The pace and timing of any future rate adjustments remain uncertain and will depend on economic conditions and the evolving outlook.

Market Conditions

Oil and Natural Gas Drilling and Completion Activity

Oil and natural gas prices remain volatile. The average WTI crude oil price increased in the first quarter of 2026 compared to the fourth quarter of 2025, largely attributable to the conflict in Iran and the significant supply disruptions. While incremental increases in oil supply from certain producing countries, including members of the Organization of the Petroleum Exporting Countries and certain other producing countries (collectively referred to as “OPEC+”), as well as some non-OPEC+ countries, provided modest supply support, these increases did not fully offset the scale of supply disruptions arising from geopolitical tensions, infrastructure risks, and transportation and logistical constraints. 

Over the past several years, to address the uncertain outlook for the global economy and, specifically, the oil markets, and to reduce the potential for an oversupply of oil and gas inventory, members of OPEC+ agreed to several collective voluntary oil production reductions. Beginning in 2025, OPEC+ began a gradual phase out of these voluntary reductions, while maintaining its stated commitment to market stability and retaining flexibility to pause, adjust, or reverse production changes. In early 2026, OPEC+ announced a pause on planned production increases for the first quarter of 2026 and subsequently announced in March 2026 that it would resume the gradual unwinding of voluntary production cuts beginning in April 2026. Subsequent to March 31, 2026, in April 2026, the United Arab Emirates announced its intention to exit OPEC and OPEC+ effective May 1, 2026, which may add to uncertainty around future oil supply coordination. The pace and scope of further OPEC+ member adjustments remain dependent on evolving market conditions, geopolitical developments and broader economic indicators. In addition, continued geopolitical instability, including potential attacks on energy infrastructure or disruptions to international maritime routes, could contribute to further volatility in global oil markets.

Natural gas pricing continues to be volatile and has increased for the first quarter of 2026 to an average of $4.71 per MMBtu compared to an average of $3.73 per MMBtu for the fourth quarter of 2025. The increase during the first quarter of 2026 was primarily driven by periods of colder-than-expected weather early in the year, higher seasonal demand, and increased demand associated with strong U.S. liquefied natural gas exports, which are operating near available capacity. These price increases were partially offset by continued strong production growth and higher than expected surplus levels of natural gas in storage. 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 due to regional basis differentials.

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, which could be the result of tariffs, 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 the average number of operating onshore rigs in the United States and in Canada per quarter since the first quarter of 2025, as provided by Baker Hughes Company. The quarterly changes are impacted by seasonality, particularly the effect of the spring break-up during the second quarter on the Canadian land rig count:

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, as well as shortages of water available to oil and gas operators. 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, which can result in lower drilling and completion activity during the fourth quarter. 

How We Generate Revenues

We derive our revenues from the sale of products and provision of services. Our products include fracturing systems and enhanced recovery systems, casing buoyancy systems, liner hanger systems and toe initiation sleeves, as well as composite and dissolvable frac plugs, setting tools, and perforating guns sold through Repeat Precision. Our services include fracturing systems field services and tracer diagnostics.

Product sales represented 71% and 70% of our revenues for the three months ended March 31, 2026 and 2025, 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 fulfilled on negotiated terms. Services represented 29% and 30% of our revenues for the three months ended March 31, 2026 and 2025, 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 due to the use of more sliding sleeves or more frac plugs 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 51% and 75% for the three months ended March 31, 2026 and 2025, 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 selling, general and administrative (“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, primarily in the Middle East, usually on a free on board or free carrier basis with a point of sale in the United States. 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.

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, such as steel, 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. We obtain certain chemicals utilized in our tracer diagnostics services business from suppliers in China, which are subject to tariffs that increase our costs. 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 also source certain product categories from other international suppliers. 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. Prices for certain raw materials, including steel and chemicals, and for purchased components and outsourced services, have increased in recent years due to inflation and geopolitical factors. 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 include general operating costs and compensation expense, primarily the compensation and benefits for our employees who are not directly involved in revenue generating activities, including those involved in research and development activities. Our 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 and expected credit losses.

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 21% and 35% for the three months ended March 31, 2026 and 2025, respectively.

Results of Operations

Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025

The following tables summarize our results of operations, gross margins and revenues by geographic area for the periods presented (dollars in thousands): 

Revenues

Revenues were $45.6 million for the three months ended March 31, 2026 compared to $50.0 million for the three months ended March 31, 2025. Product sales and services revenue declined year-over year. The decrease was primarily attributable to lower Canada-based revenues resulting from decreases in market activity as evidenced by lower rig counts and delays in planned customer activity, as well as decreased service revenue for international markets, particularly in the Middle East, due to timing of tracer diagnostics projects. Partially offsetting these declines were increases in U.S. revenues primarily driven by Repeat Precision product sales resulting from successful field trials and new product introductions, and increased service revenue associated with tracer diagnostics, including a contribution of $1.8 million in 2026 by ResMetrics, which we acquired in July 2025. International markets also experienced favorable year-over-year product sales, primarily well construction products in the Middle East. Overall, product sales for the three months ended March 31, 2026 totaled $32.6 million compared to $35.1 million for the three months ended March 31, 2025. Services revenue totaled $13.1 million compared to $14.9 million for the same period. 

Cost of sales was $28.3 million, or 61.9% of revenues, for the three months ended March 31, 2026, compared to $28.9 million, or 57.7% of revenues, for the three months ended March 31, 2025. The increase in cost of sales as a percentage of revenues year-over-year was primarily driven by the mix of products and services and the decline in total revenue, resulting in lower fixed cost absorption. The prior year period benefited from increased activity in Canada and higher-margin international tracer diagnostics activity in the Middle East, which did not recur at similar levels in 2026. The increase was partially offset by a favorable contribution from ResMetrics. For the three months ended March 31, 2026, cost of product sales was $20.3 million, or 62.2% of product sales revenue, and cost of services was $8.0 million, or 61.2% of services revenue. For the three months ended March 31, 2025, cost of product sales was $20.9 million, or 59.5% of product sales revenue, and cost of services was $8.0 million, or 53.6% of services revenue.

Selling, general and administrative expenses

Selling, general and administrative expenses were $15.7 million for the three months ended March 31, 2026, compared to $16.2 million for the three months ended March 31, 2025. The decrease was primarily driven by annual incentive bonus accruals which were $0.7 million lower in 2026, as well as lower share-based compensation expense of $0.3 million, attributable to cash settled awards remeasured at fair value based on the price of our common stock. These decreases were partially offset by incremental expenses of $0.7 million associated with ResMetrics. 

Other income, net

Other income, net was $1.9 million for the three months ended March 31, 2026, compared to $0.9 million for the three months ended March 31, 2025. The year-over-year increase was primarily attributable to more royalty income from licensees and higher scrap sales.

Income tax expense 

Income tax expense was $0.8 million for the three months ended March 31, 2026 as compared to $0.7 million for the three months ended March 31, 2025. Our effective tax rate (“ETR”) from continuing operations was 32.4% and 13.1% for the three months ended March 31, 2026 and 2025, respectively. The income tax expense for these periods relates to results generated by our businesses in the United States, Canada, and certain other foreign jurisdictions. The income tax provision for the three months ended March 31, 2025 did not include the effects of losses within the United States, Canada, or other jurisdictions, as we determined at that time those losses would provide no future benefit. However, during the second and fourth quarters of 2025, respectively, we reversed substantially all of the valuation allowance previously recorded against the deferred tax assets of our Canadian and U.S. operating subsidiaries due to sustained improvements in operating results, including a return to profitability and forecasts of future taxable income sufficient to realize the remaining deferred tax assets. Management considered a variety of positive and negative evidence which provided a basis for the conclusion that it is more likely than not that the deferred tax assets will be realized in future periods. 

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 secured asset-based revolving credit facility (the “ABL Facility”). As of March 31, 2026, we had cash and cash equivalents of $34.5 million, and total outstanding indebtedness of $7.2 million related to finance lease obligations. Our ABL Facility consists of an asset-based revolving credit facility in an aggregate principal amount of $35.0 million. Total borrowings available under the ABL Facility may be limited subject to a borrowing base calculated based on eligible accounts receivable and inventory, provided such eligible balances cannot include the assets of Repeat Precision. At March 31, 2026, our available borrowing base under the ABL Facility was $18.5 million, with no outstanding borrowings. As of March 31, 2026, we utilized letter of credit commitments of $0.2 million. 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 March 31, 2026.

In addition, Repeat Precision’s promissory note, which is a revolving credit facility with Security State Bank & Trust, Fredericksburg (the “Repeat Precision Promissory Note”), has total aggregate borrowing capacity of $2.5 million, with a maturity date in May 2026 and has no borrowings outstanding as of March 31, 2026. We expect to renew the Repeat Precision Promissory Note prior to its maturity.

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

Our capital expenditures for each of the three months ended March 31, 2026 and 2025 were $0.6 million and $0.5 million, respectively. We plan to incur approximately $2.2 million to $2.8 million in capital expenditures in total during 2026, which includes (i) upgrades to our Repeat Precision manufacturing facilities, (ii) additional research and development equipment for product development, (iii) upgrades to our tracer diagnostics deployment, sampling and laboratory equipment, and (iv) upgrades to our manufacturing and field service equipment to support North American fracturing systems and well construction businesses. Our expected 2026 capital expenditures increased compared to our initial expectations primarily due to additional investments to expand Repeat Precision's manufacturing capacity in Mexico to meet increased demand.

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. To the extent we require additional liquidity to fund an acquisition or our capital requirements, we would expect to obtain this funding 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.

Cash Flows 

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