NCS Multistage Holdings, Inc. Annual Report 2017

FY2017 Annual Report · NCS Multistage Holdings, Inc.

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2017 Annual Report

A leading resource for optimized unconventional completions

Dear Fellow Stockholders:

In many ways, 2017 was an exciting and eventful year for NCS Multistage, as improved commodity prices led
to increased customer activity, supporting a sustained turnaround following the industry downturn that began
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completions intensity and initiatives designed to improve our market share in unconventional completions.
Our 2017 revenue of $201.6 million represented an increase of 105% from 2016, driven by record sliding
sleeves sales as well as contributions from our Repeat Precision joint venture and Spectrum Tracer Services,
which were both acquired in 2017. We generated adjusted EBITDA* of $49.5 million in 2017, an improve-
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Repeat Precision Joint Venture

On February 1, 2017, we acquired a 50% interest in Repeat Precision (Repeat) for $6.0 million plus potential earn-out
consideration. Repeat provides third-party machining services and has developed a full line of composite bridge plugs, marketed
under the PurpleSeal brand. Our purchase of 50% of Repeat provides us with continued access to Repeat’s machining capa-
bilities, ensuring that Repeat can continue to support growth in the sales of our sliding sleeves. Our ownership in Repeat also
provides us with an additional revenue opportunity through sales of PurpleSeal composite plugs which are utilized in plug-and-
perf completions.

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of $17.00 per share. The underwriters exercised their option to purchase approximately 1.4 million additional shares of our
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prior term loan and used the remaining proceeds in the acquisition of Spectrum Tracer Services. We added three new Board
members in connection with the IPO: Matthew Fitzgerald, Franklin Myers and W. Matt Ralls. Each of our new Board members
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Spectrum Tracer Services Acquisition

On August 31, 2017, we acquired Spectrum Tracer Services (Spectrum), a provider of chemical and radioactive diagnostics
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development strategies.

2018 Outlook and Conclusion

(cid:58)(cid:86)(cid:3)(cid:77)(cid:72)(cid:89)(cid:3)(cid:80)(cid:85)(cid:3)(cid:25)(cid:23)(cid:24)(cid:31)(cid:19)(cid:3)(cid:74)(cid:92)(cid:90)(cid:91)(cid:86)(cid:84)(cid:76)(cid:89)(cid:3)(cid:72)(cid:74)(cid:91)(cid:80)(cid:93)(cid:80)(cid:91)(cid:96)(cid:19)(cid:3)(cid:72)(cid:90)(cid:3)(cid:84)(cid:76)(cid:72)(cid:90)(cid:92)(cid:89)(cid:76)(cid:75)(cid:3)(cid:73)(cid:96)(cid:3)(cid:87)(cid:92)(cid:73)(cid:83)(cid:80)(cid:74)(cid:83)(cid:96)(cid:3)(cid:72)(cid:93)(cid:72)(cid:80)(cid:83)(cid:72)(cid:73)(cid:83)(cid:76)(cid:3)(cid:89)(cid:80)(cid:78)(cid:3)(cid:74)(cid:86)(cid:92)(cid:85)(cid:91)(cid:3)(cid:80)(cid:85)(cid:77)(cid:86)(cid:89)(cid:84)(cid:72)(cid:91)(cid:80)(cid:86)(cid:85)(cid:19)(cid:3)(cid:79)(cid:72)(cid:90)(cid:3)(cid:74)(cid:86)(cid:85)(cid:91)(cid:80)(cid:85)(cid:92)(cid:76)(cid:75)(cid:3)(cid:91)(cid:86)(cid:3)(cid:80)(cid:84)(cid:87)(cid:89)(cid:86)(cid:93)(cid:76)(cid:3)(cid:80)(cid:85)(cid:3)(cid:91)(cid:79)(cid:76)(cid:3)
United States, while rig count levels in Canada, which historically have more seasonal variability, have lagged the levels from the
same period in 2017.

(cid:51)(cid:86)(cid:86)(cid:82)(cid:80)(cid:85)(cid:78)(cid:3)(cid:77)(cid:86)(cid:89)(cid:94)(cid:72)(cid:89)(cid:75)(cid:19)(cid:3)(cid:94)(cid:76)(cid:3)(cid:76)(cid:95)(cid:87)(cid:76)(cid:74)(cid:91)(cid:3)(cid:91)(cid:86)(cid:3)(cid:75)(cid:76)(cid:83)(cid:80)(cid:93)(cid:76)(cid:89)(cid:3)(cid:86)(cid:85)(cid:3)(cid:87)(cid:89)(cid:86)(cid:196)(cid:91)(cid:72)(cid:73)(cid:83)(cid:76)(cid:3)(cid:78)(cid:89)(cid:86)(cid:94)(cid:91)(cid:79)(cid:3)(cid:73)(cid:96)(cid:3)(cid:74)(cid:72)(cid:87)(cid:80)(cid:91)(cid:72)(cid:83)(cid:80)(cid:97)(cid:80)(cid:85)(cid:78)(cid:3)(cid:86)(cid:85)(cid:3)(cid:72)(cid:85)(cid:96)(cid:3)(cid:80)(cid:85)(cid:74)(cid:89)(cid:76)(cid:72)(cid:90)(cid:76)(cid:90)(cid:3)(cid:80)(cid:85)(cid:3)(cid:74)(cid:86)(cid:84)(cid:87)(cid:83)(cid:76)(cid:91)(cid:80)(cid:86)(cid:85)(cid:90)(cid:3)(cid:72)(cid:74)(cid:91)(cid:80)(cid:93)(cid:80)(cid:91)(cid:96)(cid:19)(cid:3)(cid:76)(cid:90)(cid:87)(cid:76)(cid:74)(cid:80)(cid:72)(cid:83)(cid:83)(cid:96)
in the U.S., further increases in completions intensity, and our ability to utilize our proprietary technology to improve our market
position across our entire products and services portfolio.

We remain focused on creating long-term value for our stockholders. We are, and we will continue to be, responsible stewards
of capital.

On behalf of the entire management team and our Board, I want to thank our stockholders, customers, vendors, and our
employees whose hard work empowers our company to deliver these results.

(cid:42)(cid:79)(cid:80)(cid:76)(cid:77)(cid:3)(cid:44)(cid:95)(cid:76)(cid:74)(cid:92)(cid:91)(cid:80)(cid:93)(cid:76)(cid:3)(cid:54)(cid:1117)(cid:74)(cid:76)(cid:89)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

(cid:1408)(cid:1408) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
or

(cid:1407)(cid:1407) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______

Commission file number: 001-38071

NCS Multistage Holdings, Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

19450 State Highway 249, Suite 200
Houston, Texas
(Address of principal executive offices)

46-1527455
(IRS Employer
Identification number)

77070
(Zip Code)

Registrant’s telephone number, including area code: (281) 453-2222

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common Stock, $0.01 par value

Name of each exchange on which registered
NASDAQ Global Select Market

Securities registered pursuant to section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:1407)(cid:1407) No (cid:1408)(cid:1408)

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13

or Section 15(d) of the Act. Yes (cid:1407)(cid:1407) No (cid:1408)(cid:1408)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes (cid:1408)(cid:1408) No (cid:1407)(cid:1407)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes (cid:1408)(cid:1408) No (cid:1407)(cid:1407)

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. (cid:1408)(cid:1408)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.

Large accelerated filer
Non-accelerated filer

(cid:1407)(cid:1407)
(cid:1408)(cid:1408) (Do not check if a smaller reporting company)

Accelerated filer
Smaller reporting company
Emerging growth company

(cid:1407)(cid:1407)
(cid:1407)(cid:1407)
(cid:1408)(cid:1408)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised

financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:1408)(cid:1408)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:1407)(cid:1407) No (cid:1408)(cid:1408)

As of June 30, 2017, the aggregate market value of the common stock of the registrant held by non-affiliates of the registrant was approximately $274.7 million

(based on the closing sale price of the registrant’s common stock on that date).

As of March 7, 2018, there were 44,482,948 shares of common stock outstanding.

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Business

Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safetytt Disclosures

Properties
Legal Proceedings

TABLE OF CONTENTS

PART I

PART II

Selected Financial Data

Item 5. Market for Registrant’s Common Equitytt , Related Stockholder Matters and Issuer Purchases of Equitytt Securities
Item 6.
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.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information

Financial Statements and Supplementaryrr Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosuruu e

Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Securitytt Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services

PART IV

PART III

Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summaryrr
Signatures

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K (this “Form 10-K”) includes certain forward-lookin

g statements within the meaning of the

Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “anticipates,”
“intends,” “plans,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods, or by the inclusion of forecasts
or projections. Examples of forward-looking statements include, but are not limited to, statements we make regarding the outlook for
our future business and financial performance, such as those contained in Item 7. “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and

other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent
uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from
those contemplated by the forward-looking statements. Important factors that could cause our actual results to differ materially from
those in the forward-looking statements include regional, national or global political, economic,
regulatory conditions and the following:

business, competitive, market and

(cid:120)

declines in the level of oil and natural gas exploration and production activity w

ithin Canada and the United States;

oil and natural gas price fluctuations;

loss of significant customers;

inability to successfully implement our strategy of increasing sales of products and services into the United States;

significant competition for our products and services;

our inability to successfully develop and implement new technologies, products and services;

our inability to protect and maintain critical intellectual property assets;

currency exchange rate fluctuations;

impact of severe weather conditions;

restrictions on the availability of our customers to obtain water essential to the drilling and hydraulic fracturing processes;

our failure to identify and consummate potential acquisitions;

our inability to integrate or realize the expected benefits from acquisitions;

our inability to meet regulatory requirements for use of certain chemicals by our tracer diagnostics business;

our inability to accurately predict customer demand;

losses and liabilities from uninsured or underinsured drilling and operating activities;

changes in legislation or regulation governing the oil and natural gas industry, including restrictions on emissions of
greenhouse gases (“GHGs”);

failure to comply with or changes to federal, state and local and non-U.S. laws and other regulations, including
environmental regulations and the U.S. Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”);

loss of our information and computer systems;

system interruptions or failures, including cyber-security breaches, identity theft or other disruptions that could
compromise our information;

our failure to establish and maintain effective internal control over financial reporting;

our success in attracting and retaining qualified employees and key personnel; and

our inability to satisfy technical requirements and other specifications under contracts and contract tenders.

See Item 1A. “Risk Factors” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” of this Form 10-K for a further description of these and other factors that could cause actual results to differ materially
from those in the forward-looking statements. For the reasons described above, we caution you against relying on any forward-looking
statements, which should also be read in conjunction with the other cautionary statements that are included elsewhere in this Form 10-
K. Any forward-looking statement made by us in this Form 10-K speaks only as of the date on which we make it. Factors or events
that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We
undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future
tt
developments or otherwise, except as may be required by law.

Trademarks and Trade Names

aa
We own or have the rights to use various trademarks, service marks and trade names referred to in this Form 10-K, including,

among others, AirLock, GripShift, Mongoose, MultiCycle, Multistage Unlimited, ATRS, OST, Vector Max, Vector-1, NCS,
Spectrum Tracer Services and their respective logos. Solely for convenience, we refer to trademarks, service marks and trade names in
this Form 10-K without the TM, SM and ® symbols. Such references are not intended to indicate, in any way, that we will not assert,
to the fullest extent permitted by law, our rights to our trademarks, service marks and trade names. Other trademarks, service marks or
trade names appearing in this Form 10-K are the property of their respective owners.

Available information

Our website address is www.ncsmultistage.com. Information that we furnish to or file with the Securities and Exchange
Commission (the “SEC”), including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
proxy statements, and any amendments to, or exhibits included in, those reports or statements are available for download, free of
charge, on our website as soon as reasonably practicable after such materials are filed with or furnished to the SEC. From time to time,
we also post announcements, updates, events, investor information and presentations on our website at http://ir.ncsmultistage.com in
addition to copies of all recent press releases as means of disclosing material non-public information and for complying with our
disclosure obligations under Regulation FD.

Reports and statements that we file with or furnish to the SEC, including related exhibits, are also available on the SEC’s website
at www.sec.gov. In addition, you may obtain and copy materials we furnish to or file with the SEC at the SEC’s public reference room
at 100 F Street, NE, Room 1580, Washington, D.C. 20549. Information on the operation of the SEC’s public reference facilities may
be obtained by calling the SEC at 1-800-SEC-0330. You may request copies of these documents, upon payment of a duplicating fee,
by writing to the SEC at its principal office at 100 F Street, NE, Room 1580, Washington, D.C. 20549.

The contents of the websites referred to above are not incorporated into this filing. References to the URLs for these websites are

intended to be inactive textual references only.

Item 1. Business

Overview

PART I

NCS Multistage Holdings, Inc. (“NCS,” the “Company,” “we,” “our” or “us”) is a leading provider of highly engineered
products and support services that facilitate the optimization of oil and natural gas well completions and field development strategies.
We provide our products and services primarily to exploration and production (“E&P”) companies for use in onshore wells,
predominantly wells that have been drilled with horizontal laterals in unconventional 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 A
rgentina,
China and Russia. We provided our products and services to over 240 customers in 2017, including leading large independent oil and
natural gas companies and major oil companies.

Our primary offering is our Multistage Unlimited family of completion 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
Multistage Unlimited products and services are typically utilized in cemented wellbores and enable our customers to precisely place
stimulation treatments in a more controlled and repeatable manner as compared with traditional completion techniques. Our
Multistage Unlimited products and services are utilized in conjunction with third-party providers of pressure pumping, coiled tubing
and other services.

We began providing pinpoint stimulation products and services in 2006, and since then our technology has been used in the
completion of more than 9,200 wells comprising over 195,000 individual frac stages. Our initial focus on the Canadian market has
resulted in our products and services being used in 25% of all horizontal wells drilled in Canada in 2017. We began our efforts to
increase our penetration of the U.S. market in 2013, and the United States accounted for approximately 32% and 23% of our revenue nn
in 2017 and 2016, respectively. We are focused on increasing our market share in the United States, particularly in the Permian Basin.

Multistage Unlimited completion products and services include our casing-installed sliding sleeves and downhole frac isolation

assembly. Customers typically purchase our casing-installed sliding sleeves, a consumable product that is cemented at intervals into
the casing of the wellbore, and can also utilize services associated with our downhole frac isolation assembly. Our downhole frac
isolation assembly is comprised of numerous subcomponents, including a resettable bridge plug for stage isolation, a sleeve locator to
efficiently locate our sliding sleeves in the wellbore, an abrasive perforating sub that can perforate the casing where our sliding sleeves
are not installed and gauge packages that can measure and record downhole data. Our personnel supervise the use of the downhole
frac isolation assembly during completion operations. In addition, our downhole frac isolation assembly provides valuable downhole
data, including recorded downhole temperatures and pressures, which can be analyzed and used in designing future completion
strategies. Further, because our downhole frac isolation assembly is deployed on coiled tubing, our customers have access to real-time
downhole pressure measurements which can be used to adjust strategies during a well completion. We offer two primary models of
sliding sleeves: our GripShift sliding sleeves, which open one time, and our MultiCycle sliding sleeves, which can be opened and
closed multiple times giving our customers the benefit of additional completion options and the ability to better optimize a well’s
production phase. We hold 28 patents related to our technology and received the World Oil Best Completions Technology Award in
2014 and 2015 for our Multistage Unlimited products and services and MultiCycle sliding sleeves, respectively.

We also offer chemical and radioactive tracer diagnostics services through Spectrum Tracer Services, LLC and its subsidiaries

(“Spectrum”). Our customers utilize these services to better characterize their assets and to optimize completion designs. Chemical
and radioactive tracer studies may provide a cost-effective and reliable means to determine the production profile along a lateral,
assess fluid and proppant communication between wells during completions and determine stage and cluster level efficiency of
completion designs.

We complement our proprietary products and services with our in-house expertise in completions engineering, reservoir
engineering and geology. These capabilities allow us to engage with our customers on well completion design and well spacing
decisions, thereby supporting our customers’ completion optimization strategies and building lasting relationships. In addition, our
extensive research and development efforts are influenced and driven by the needs of our customers, allowing us to introduce
innovative and commercial solutions that improve customer efficiency and profitability.

Our revenue for the years ended December 31, 2017, 2016 and 2015, was $201.6 million, $98.5 million and $114.0 million,

respectively. Our net income (loss) attributable to NCS Multistage Holdings, Inc. for the years ended December 31, 2017, 2016 anda
2015, was $2.1 million, $(17.9) million and $28.0 million, respectively. Our total assets for the years ended December 31, 2017, 2016
and 2015, were $463.9 million, $326.8 million and $332.5 million, respectively. For additional financial information by geographic
area, see Note 16. “Segment and Geographic Information” of our consolidated financial statements.

Competitive Strengths

We believe we are well positioned to achieve our business objectives based on the following competitive strengths:

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Patented and differentiated completions technology.
Our value proposition is built on a foundation of patent-protected
d
technology and industry leading technical capabilities. Our Multistage Unlimited products and services are designed to
provide our customers with an enhanced degree of precision for more predictable, repeatable and verifiable well
n
completions, in order to maximize reservoir connectivity while minimizing the impact of the completion on the
productivity of offsetting wells. Our technology also provides E&P companies access to accurate real-time and recorded
downhole information which can enhance completion and well spacing optimization strategies. This information is
typically not available with traditional completion techniques. We believe that the benefits provided by our proprietary
technology and our operating experience and know-how differentiate us from providers of traditional completion
technologies, including plug and perf and ball drop, and from other pinpoint stimulation competitors.

Proven record of successfully introducing new technologies that drive completion and production optimization. Our
research and development efforts are targeted to solve customer challenges and provide solutions that improve customer
efficiency and profitability. Our in-house and field engineering teams are responsible for developing new technology to
expand our product and service offerings and enhance the performance of our existing products. During the recent
commodity price downturn, we accelerated our investment in these efforts, adding to our pipeline for future product and
service introductions. We believe we are a leader in the development of new completions technology, which is reflected in
our extensive and growing suite of patent-protected products and methods. We hold 11 U.S. patents and 17 related
international patents. We received the World Oil Best Completions Technology Award in 2014 and 2015 for our
Multistage Unlimited products and services and MultiCycle sliding sleeves, respectively. Our patented oil-soluble tracers
(“OSTs”) were the first such tracers to be deployed as a particulate, providing for more uniform distribution throughout
the fracture network and longer-duration results as compared to fluid-based oil tracers. We believe our engineering
expertise, combined with our focus on completions technology, gives us a competitive advantage in designing and
commercializing new completions technology.

Market leader in pinpoint stimulation. We believe we are a global leader in pinpoint stimulation products and services,
based on the number of wells completed using our technology and the number of stages in the wells completed using our
technology. Since our founding, our products and services have been utilized by our customers for the pinpoint
completion of over 9,200 wells, resulting in the placement of over 195,000 frac stages. Our experience as a leader in
pinpoint stimulation has given us the opportunity to gain valuable operational insights into the use of this stimulation
technique. We have used these insights to continually improve upon our existing products and to develop new products.
Our products and services have been utilized in all major unconventional oil and natural gas basins in North America and
in selected global markets. Our leadership in pinpoint stimulation has led to the use of our products and services in a
number of wells that include what we believe to be the highest number of stages in the following basins: 156 stages in a
well in the U.S. Bakken shale, 147 stages in a well in the Permian Basin, 116 stages in a well in the Marcellus shale, 168
stages in a well in the Montney, 135 stages in a well in the Cardium, 123 stages in a well in the Duvernay, 60 stages in a
well in the Vaca Muerta region in Argentina and 30 stages in a well in the Khantos region in Russia.

Asset-light business model and strong balance sheet provide significant flexibility. By focusing on downhole completion
equipment and services, and not high-cost assets deployed on the surface, such as coiled tubing or pressure pumping units,
our net property and equipment as of December 31, 2017 and 2016 was $23.7 million and $9.8 million, respectively. Sales
of our products, which are consumable items, represented approximately 72%, 74% and 70% of our revenue for the years
ended December 31, 2017, 2016 and 2015, respectively. We believe we have a strong balance sheet and ample liquidity to
pursue our growth initiatives. As of December 31, 2017, we had $33.8 million in liquidity from cash on hand and
$55.0 million of available borrowing capacity under our current revolving credit facility (the “Senior Secured Credit
Facility”).

Trusted advisor to a leading customer base. We have leveraged our extensive experience and differentiated products and
services to establish strong relationships with our customers. Our technology has been vetted and chosen by some of the
largest, most sophisticated energy companies in the world, resulting in a customer base that includes more than 240
customers globally, including national, major and large independent oil companies. We established Anderson Thompson
Reservoir Strategies (“ATRS”), a team of engineering consultants, in 2015 as a complement to our products and services
to provide in-house expertise to assist our customers in optimizing their completion designs and development plans and to
evaluate well performance. We believe our ATRS group has deepened our relationships with existing customers, helped
us add new customers and effectively demonstrated the value proposition of our pinpoint stimulation offerings. Our
acquisition of Spectrum has added several additional customers in the United States and Canada, and we expect this
acquisition will further enhance our ability to support our customers’ field development strategies. In addition, several of
our customers have worked with us to develop new completion technology for specific applications, highlighting their
trust in our product development capabilities and adding to our pipeline of technologies available to all of our customers.

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Experienced, entrepreneurial management team with strong culture of innovation. Our management team, led by co-
founders, CEO, Robert Nipper, and President, Marty Stromquist, provides disciplined strategic direction and insight
gained from multi-decade careers in the energy technology and oilfield service industries. Our founders, pioneers in
pinpoint stimulation, led our company through a period of exceptional growth and provide the keystone for our culture.
Our culture is defined by “The Promise,” a document that guides our relationships w
vendors and other stakeholders and affirms our commitment to quality and safety. We maintain our culture through the
ongoing coaching of our employees and continuously measure ourselves to identify areas for improvement. Together,
Mr. Nipper and Mr. Stromquist, have assembled a management team with extensive backgrounds in research and
development, manufacturing, operations and finance, with an average of over 25 years of industry and otherwise relevant
experience.

ith our employees, customers,

Business Strategy

Our primary business objectives are to increase the adoption of our products and services in all geographies, continue to be an

innovator of technology and create value for our stockholders. We intend to achieve these objectives through the execution of the
following strategies:

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Focus on expansion in the United States while pursuing disciplined organic growth globally. We plan to continue to
grow our business in all geographies in which we operate, with our current emphasis on profitably expanding our presence
in the United States. We increased our efforts to target the U.S. market in 2013 and believe we can increase our share in
all basins in the United States as our customers focus on optimizing completion designs in an effort to increase overall
hydrocarbon recovery and improve financial returns from their assets. The United States accounted for approximately
32%, 23% and 29% of our revenue for the years ended December 31, 2017, 2016 and 2015, respectively. We continue to
focus on growing our presence in the Permian Basin, the most active basin in the United States. During 2016, we
expanded into a larger operational facility in Midland, Texas and directed additional sales efforts to customers operating
in the Permian Basin. Outside of the United States, we plan to increase our market position in several deep basin plays in
Canada, including the Montney formation, where we currently have lower, but growing, market shares relative to other
regions in Canada. We also plan to increase our market position in Argentina, China, and Russia, regions where we have
successful operations and which have significant unconventional resource development potential.

Develop and introduce innovative technologies that are aligned with customer needs. Our team of over 40 engineers and
engineering technicians works closely with our technical services organization and our customers to identify specific
product and service needs, develop business cases and bring new technology to market on an expedited basis.
Collaborating with our customers allows us to identify unaddressed industry-wide needs and to develop new technologies,
of which we have several under development. By introducing new technologies, we expand our product and service
portfolio, grow our customer base and leverage our current customer relationships to generate additional revenue. We
believe we have established strong working relationships with our customers, and we are collaborating with several of our
customers on solutions for specific onshore and offshore completions needs. We expect to continue to work with our
customers on specific solutions to supplement our in-house technology development efforts.

Leverage technology leadership to grow market share. Our extensive experience, differentiated offerings and focus on
responding to evolving customer needs has allowed us to establish strong relationships with our customers. Over the years
we have added in-house capabilities that provide additional value-added expertise and services to our customers, including
tracer diagnostics, completions engineering and ATRS engineering services. We believe that by focusing on customer
service, while continuing to introduce innovative completions solutions, we can strengthen our relationships with existing
customers, grow our customer base and increase our revenues. We believe the benefits provided by our technology and
our expertise position us to continue to increase our penetration of large independent and major oil companies. We believe
these customers are typically more consistent in their capital budgeting, operate in multiple geographies and in many cases
are focused on evaluating and deploying technology that can improve well performance. We believe that our ability to
pair our in-house expertise, together with the data that is available through our Multistage Unlimited products and services
have been key factors enabling us to increase our business with these customers.

We expect to continue to employ a disciplined financial policy that maintains

Maintain financial strength and flexibility.
tt
our financial strength and flexibility. We have maintained our financial flexibility by taking actions designed to preserve
positive cash flows, minimize capital expenditures and reduce debt levels. We believe our resulting financial strength and
flexibility provides us with the ability to execute our strategy through industry volatility and commodity price cycles, as
evidenced by our performance throughout the recent commodity price downturn. For example, during the downturn we
were able to leverage our supply chain through initiatives to reduce the number of vendors in our manufacturing
operations, as well as reduce our manufacturing costs for certain products by over 30%, which has supported our gross
margin. We believe that our cash on hand, borrowing capacity and ability to access debt and equity capital markets,
combined with our ability to generate free cash flow, will provide the financial flexibility required to execute our growth
strategies.

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Selectively pursue complementary acquisitions and joint ventures. We believe there is an opportunity to enhance our
existing product and service capabilities and geographic scope by selectively pursuing acquisitions and joint ventures. We
intend to target strategic acquisitions that will enhance our market position, expand our product and service offerings and
provide opportunities for synergies. Our acquisition of Spectrum complements our Multistage Unlimited completion
products and services offering and ATRS engineering services and has expanded our service offering and customer base.
We believe that being a public company allows us to target a broader range of acquisition candidates.

Products and Services

We provide highly engineered products and support services that facilitate the optimization of oil and natural gas well

completions and field development strategies. Our key products and services include:

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Multistage Unlimited. Our Multistage Unlimited family of products and services encompasses our technology developed
to enable efficient pinpoint stimulation and re-stimulation strategies. Pinpoint stimulation is the process of individually
stimulating each entry point into a formation targeted by an oil or natural gas well, a process that we believe improves on
traditional completion techniques. Our pinpoint stimulation solutions and refined field processes are designed to enable
efficient, controlled, verifiable and repeatable completions.

Multistage Unlimited completion products and services are comprised of our casing-installed sliding sleeves and our
downhole frac isolation assemblies, which are deployed using coiled tubing. Our services include advising customers on
optimizing completion designs and operating the downhole frac isolation assemblies.

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Casing-installed sliding sleeves. Our casing-installed sliding sleeves are a consumable product, sold to our
customers and cemented in place in a well’s casing. Over 148,000 of our casing-installed sliding sleeves have been
installed, including over 55,000 of our MultiCycle sliding sleeves. We produce two primary models of sliding
sleeves: our GripShift sliding sleeves, which can be opened only once, and our MultiCycle sliding sleeves,
introduced in late 2013, which can be opened and closed multiple times throughout the life of a well. Our casing-
installed sliding sleeves can be utilized in both cemented and open-hole wellbores, with no practical limitation on
the number of stages that can be installed in a well, and feature an inner-diameter which is the same as the casing in
the wellbore. During completion operations, the downhole frac isolation assembly is placed in the sleeve and the
inner barrel of the sleeve is shifted down, exposing the frac ports to the formation, allowing the completion of that
stage to begin.

Downhole frac isolation assembly. Our proprietary downhole frac isolation assembly is comprised of several
subcomponents. The assembly, which is attached to a third-party’s coiled tubing reel, is primarily used to locate our
sliding sleeves, to establish wellbore isolation and to shift our sliding sleeves open or closed. In addition, gauges
within the downhole frac isolation assembly record downhole pressure and temperature data, wh
ich can be utilized
to optimize the design of future completions. We typically own the assemblies and utilize them in our service to our
customers. Our personnel operate the assemblies during completion operations in coordination with other on-site
service providers.

Sand jet perforating. Our sand jet perforating technology uses a variation of the downhole frac isolation assembly
utilized for shifting sleeves. Sand jet perforating is typically used with cemented wellbores. To cut access points
into the formation, sand-laden fluid is pumped down the coiled tubing and through tungsten-carbide nozzles. The
high-velocity slurry cuts through the casing and cement and into the formation. The tunnels created through this
process serve as initiation points for stimulation. Stimulation treatments are pumped down the annulus between the
coiled tubing and the casing. Although the sand jet perforating process requires more time per stage than using
Multistage Unlimited sliding sleeves, it provides a practical option for pinpoint stimulation in wells that are already
cased, as in the case of drilled, but uncompleted wells.

SpotFrac system. Our SpotFrac system provides a means to straddle and mechanically isolate producing zones for
targeted refracturing applications. The system includes a sand jet perforating assembly, enabling additional stages to
be added if desired, and can perforate, isolate and stimulate multiple stages in a single trip.

BallShift sleeves. Our BallShift sliding sleeves can be cemented in place and are activated by pumping a ball from
surface that lands on seats in the sleeves, providing pinpoint stimulation. In some instances the BallShift sleeves
will be utilized together with our coiled-tubing deployed technology in a hybrid application to increase the amount
of stages that can be run in extended reach applications, with the BallShift sleeves installed at the toe of such wells.

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Spectrum Tracer Services. We provide chemical and radioactive tracer diagnostics technologies used by oil and gas
operators to assess completion performance, evaluate well production, and optimize field development strategies. Our
fracture fluid identifier tracers, oil-soluble tracers and natural gas tracers enable efficient, cost-effective downhole
diagnostics, providing oil and gas operators with critical data to efficiently optimize reservoir development and
production.

Anderson Thompson Reservoir Strategies. Our specialized team of engineering consultants advises customers on
optimized completion designs and field development strategies and evaluates well performance. ATRS engineers help us
strengthen our relationships with our customers and have been effective at demonstrating the benefits of our Multistage
Unlimited products and services as compared to traditional completion techniques.

AirLock casing buoyancy system. Our AirLock casing buoyancy system facilitates landing casing strings in horizontal
wells without altering a customer’s preferred casing and cementing operations. The AirLock system, which is installed
with a well’s casing, allows the vertical casing section to be filled with fluid, while the lateral section remains air-filled
and buoyant. The enhanced buoyancy significantly reduces sliding friction, while the enhanced weight of the vertical
section provides the force needed to push the casing to the toe of the well, ensuring the casing reaches the desired depth
and reducing casing running time and cost. Our AirLock system consists of two components that are made up in the
casing string during run-in: a debris-trap and a seal collar. The debris-trap is installed in a casing connection just above the
float shoe and the seal collar is installed at the bottom-most point of the vertical portion of the wellbore. The seal collar
contains a breakable seal that locks air in the lower section of casing while the upper section is run and filled with fluid.
After the casing is landed, surface pressure is increased to fragment the seal at a predetermined pressure, leaving an
d
unrestricted casing bore, while seal fragments are collected by the debris trap, facilitating cementing operations.

Liner hanger systems. Introduced in late 2014, our proprietary liner hanger systems are specifically designed to perform
in complex horizontal wells and are fully compatible with our Multistage Unlimited products. The liner hanger is used to
distribute the loads and weight of the liner to the supporting casing.

Business History

We were incorporated in Delaware on November 28, 2012, under the name “Pioneer Super Holdings, Inc.” On December 13,

2016, we changed our name to “NCS Multistage Holdings, Inc.” On May 3, 2017, we completed the initial public offering (“IPO”) of
our common stock.

Intellectual Property and Patent Protection

We have dedicated resources toward the development of new technology and products designed to enhance the safety and

efficiency of well completions processes. Our sales and earnings are influenced by our ability to successfully introduce new or
improved products to the market. Our MultiCycle sliding sleeves, downhole frac isolation assembly and other equipment involve a
high degree of proprietary technology developed over several years, some of which is protected by patents.

We hold 11 U.S. patents and 17 related international patents that relate to our Airlock casing buoyancy system, OST tracers,
casing installed sliding sleeves, frac isolation assemblies, and the methods utilized in the provision of our services. Our U.S. patents
expire between 2030 and 2035. Our international patents expire between 2025 and 2032.

We also have a number of U.S. and international patent applications pending. Some of these patent applications cover
equipment and methods which are currently in development. The applications are in various stages of the patent prosecution process
and patents may not issue on such applications in any jurisdiction for some time, if they issue at all.

We believe that our patents have historically been important in enabling us to compete in the market to supply our customers

with our products and services. We intend to enforce, and have in the past vigorously enforced, our patents. We may from time t
in the future be involved in litigation to determine the enforceability, scope and validity of our patent rights. In addition to patent
rights, we use a significant amount of trade secrets, or “know-how,” and other proprietary information and technology.

o time

Research and Development

We are engaged in research and development activities focused on the design, development, tr

ialing and commercialization of

innovative completions technologies and the improvement of existing products and servi
2016 and 2015, we incurred approximately $3.0 million, $3.3 million and $3.0 million, respectively, of research and development
expense. In 2017, research and development expense was 1.5% of consolidated revenue and 4.6% of our total selling, general and
administrative (“SG&A”) expense. We expect that our research and development expense will increase in anticipation of the growth tt
of our business.

ces. For the years ended December 31, 2017,

Customers

Our customer base primarily consists of oil and natural gas producers in North America and in certain international markets as

well as oilfield service companies. For the years ended December 31, 2017, 2016 and 2015, we had over 240, 140 and 150 customers,
respectively. Our top five customers accounted for approximately 30%, 49% and 44% of our revenue for the years ended
December 31, 2017, 2016 and 2015, respectively. Crescent Point Energy (“Crescent Point”) accounted for 14%, 26% and 31% of our
revenue during the years ended December 31, 2017, 2016 and 2015, respectively. No other customer accounted for more than 10% of
our revenue during those years. Although we believe we have a broad customer base and wide geographic coverage of operations, the
loss of one or more of our significant customers could have a material adverse effect on our results of operations.

Sales and Marketing

Our sales and marketing activities are performed through a technically-trained direct sales

force. We recognize the importance

of a technical marketing program in demonstrating the advantages of new technologies that offer benefits relative to established
industry methodologies. Our technical sales force advises customers on the benefits of pinpoint stimulation, MultiCycle sliding
sleeves, tracer diagnostics services and our technical engineering resources.

In the U.S. and Canada, sales of our Multistage Unlimited products and services, tracer diagnostics services and ATRS services
are made directly to E&P companies. Our customers also hire the coiled tubing companies and pressure pumping services companies
that work alongside us during the completion of a well. We provide our AirLock casing buoyancy system and liner hanger products
directly to E&P companies as well as to oilfield services companies that act as distributors for those product lines. Although we do not
.
typically maintain supply or service contracts with our customers, a significant portion of our sales represent repeat business

International sales are typically made to our local operating partners on a free on board basis with a point of sale in the United

States. Some of the locations in which we have operating partners or sales representatives include Argentina, China, Russia and the
aa
Middle East. Our operating partners and representatives do not have authority to contractually bi
products in their respective territories as part of their product or service offering.

d
nd our company, but market our

We provide extensive support services and have developed proprietary methodologies for assessing and reporting the

information that is collected on our downhole gauges and through tracer diagnostics evaluations. In addition, ATRS engineers work
with customers to evaluate post-completion well performance and on a pre-job basis to simulate the production and economic
outcomes from pinpoint stimulation strategies relative to traditional completion techniques. We also provide technical education to the
coiled tubing services companies and pressure pumping services companies, explaining the benefits of utilizing our technology for
their operations and our customers.

In addition to the technical marketing effort, we occasionally engage in field trials to demonstrate the economic benefits of our

products and services. Periodically, we will provide ATRS services to E&P companies on a discounted basis, in exchange for their
agreement to provide production data for direct comparison of the results of pinpoint stimulation to traditional completion techniques.

Seasonality

b
A substantial portion of our business is subject to 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 drill 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 s
econd
quarter, but lower than activity in the first quarter. Our business can also be impacted by a reduction in customer activity du
uu
ring the
winter holidays in late December and early January.

Suppliers and Raw Materials

We acquire component parts and raw materials from suppliers, including machine shops. The prices we pay for our raw
materials may be affected by, among other things, energy, steel and other commodity prices, tariffs and duties on imported materials
and foreign currency exchange rates. Most of the raw materials we use in our operations, such as steel in various forms, electronic
components, chemicals and elastomers are available from many sources.

We generally try to purchase our raw materials from multiple suppliers, so we are not dependent on any one supplier. We will

generally utilize multiple machine shops for the manufacturing of our component parts so that we are not dependent on any one
machine shop. Our suppliers are also active in multiple regions which allows us to react to changes in foreign currency exchange rates.
During 2017, we added suppliers to increase third-party component part supply capacity. In addition, our joint venture, Repeat
Precision, LLC (“Repeat Precision”), allows us to reduce our costs for certain product categories.

Operating Risks and Insurance

We currently carry a variety of insurance for our operations. Although we believe we currently maintain insurance coverage
adequate for the risks involved, there is a risk our insurance may not be sufficient to cover any particular loss or that our insurance
may not cover all losses.

Competition

The markets in which we operate are highly competitive. To be successful, we must provide services and products that meet the
specific needs of E&P companies at competitive prices. We compete in all areas of our operations with a number of companies, some
of which have financial and other resources greater than or comparable to ours.

We believe that we compete not only against other providers of pinpoint stimulation equipment and services, but also with

companies that support the other primary means of hydraulically fracturing a horizontal well, including plug and perf and ball drop
completions.

Our major competitors for our completion products and services include Schlumberger Limited, Halliburton Company, Baker
Hughes, a GE company (“Baker Hughes”), Weatherford International Ltd, Packers Plus Energy Services, Nine Energy Service Inc.,
Superior Energy Services Inc. and Core Laboratories N.V. as well as a number of smaller or regional competitors.

We believe that the most significant factors influencing our customer’s decision to utilize our equipment and services are

technology, service quality, safety track record and price. While we must be competitive in our pricing, we believe our customers
select our products and services based on the technical attributes of our products and equipment, the level of technical and operational
kk
service we provide before, during and after the job, and the know-how derived from our extensive operational track record.

Environmental and Occupational Health and Safety Matters

We are subject to stringent and complex federal, state, provincial and local laws and regulations governing the discharge of
materials into the environment or otherwise relating to protection of worker health, safety and the environment. Compliance with these
laws and regulations may require the acquisition of permits to conduct regulated activities, capital expenditures to prevent, limit or
address emissions and discharges, and stringent practices to handle, recycle and dispose of certain wastes and materials. Failure to
comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of
remedial or corrective obligations, and the issuance of injunctive relief.

We believe that we are in substantial compliance with applicable environmental, health and safety laws and regulations. Further,
we do not anticipate that compliance with existing environmental, health and safety laws and regulations will have a material effect on
our consolidated financial statements. However, laws and regulations protecting the environment generally have become more
stringent in recent years and are expected to continue to do so. It is possible, that substantial costs for compliance with applicable
environmental, health and safety laws and regulations may be incurred in the future. Moreover, it is possible that other developments,
such as the adoption of stricter environmental laws, regulations, and enforcement policies, could result in additional costs or liabilities
that we cannot currently quantify.

While we do not anticipate that compliance with existing environmental, health and safety laws and regulations will have a
direct adverse effect on our operations, our customers are subject to a wide range of such laws and regulations, which could materially
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and adversely affect their businesses and indirectly, through reduced demand for our products and services, have a material adv
effect on our business, financial condition and results of operations, including with respect to the following:

erse

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Air Emissions. The Federal Clean Air Act (the “CAA”) and comparable state laws regulate emissions of various air
pollutants through air emissions permitting programs and the imposition of other emission control requirements. In
addition, the Environmental Protection Agency (“EPA”) has developed, and continues to develop, stringent regulations
governing emissions of toxic air pollutants at specified sources. Non-compliance with air permits or other requirements of
the CAA and associated state laws and regulations can result in the imposition of administrative, civil and criminal
penalties, as well as the issuance of orders or injunctions limiting or prohibiting non-compliant operations.

Water Discharges. The Federal Clean Water Act (the “CWA”), and analogous state laws impose restrictions and strict
controls with respect to the discharge of pollutants, including spills and leaks of oil and other substances, into state waters
or waters of the United States. The discharge of pollutants into regulated waters is prohibited, except in accordance with
the terms of a permit issued by the EPA or an analogous state agency. Federal and state regulatory agencies can impose
administrative, civil and criminal penalties as well as other enforcement mechanisms for non-compliance with discharge
permits or other requirements of the CWA and analogous state laws and regulations.

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Climate Change. Our customers are or may become subject to statutes or regulations aiming to reduce emissions of
GHGs. In December 2009, the EPA determined that emissions of carbon dioxide, methane and other GHGs present an
endangerment to public health and the environment because emissions of such gases are, according to the EPA,
contributing to warming of the earth’s atmosphere and other climatic changes. Based on these findings, the EPA has
begun adopting and implementing regulations to restrict emissions of GHGs under existing provisions of the CAA. For
example, in June 2016, the EPA published final rules under the CAA that establish new and more stringent emission
control standards for methane and volatile organic compounds (“VOCs”) released from new and modified oil and natural
gas development and production operations. These rules could have an adverse effect on our customers and result in an
indirect material adverse effect on our business. However, in June 2017, the EPA published a proposal to stay the
implementation of certain requirements while it reconsiders the rules. These rules have also been the subject of litigation.
As a result, the future implementation of these rules remains uncertain. In addition, the United States and Canada are
among almost 200 nations that, in December 2015, agreed to the Paris Agreement, an international climate change
agreement that calls for countries to set their own GHG emissions targets and be transparent about the measures each
country will use to achieve its GHG emissions targets. The agreement entered into force on November 4, 2016. On June 1,
2017, the Trump Administration announced that the United States would be pulling out of the Paris Agreement. Although
it is not possible at this time to predict how any legal requirements imposed following the implementation of the Paris
Agreement that may be adopted or issued to address GHG emissions would impact our business or that of our customers,
any such future laws, regulations or legal requirements imposing reporting or permitting obligations on, or limiting
emissions of GHGs from, oil and natural gas exploration activities could require our customers to incur costs to reduce
emissions of GHGs associated with their operations. In addition, substantial limitations on GHG emissions could
adversely affect demand for the oil and natural gas our customers produce.

Non-Hazardous and Hazardous Wastes. The Resource Conservation and Recovery Act (“RCRA”) and comparable state
laws control the management and disposal of hazardous and non-hazardous waste. These laws and regulations govern the
generation, storage, treatment, transfer and disposal of wastes that our customers generate. Drilling fluids, produced
waters, and most of the other wastes associated with the exploration, development, and production of oil or natural gas, if
properly handled, are currently exempt from regulation as hazardous waste under RCRA and, instead, are regulated under
RCRA’s less stringent non-hazardous waste provisions, state laws or other federal laws. It is possible, however, that
certain oil and natural gas drilling and production wastes now classified as non-hazardous could be classified as hazardous
wastes in the future. For example, in May 2016, several non-governmental environmental groups filed suit against the
EPA in the U.S. District Court for the District of Columbia for failing to timely assess its RCRA Subtitle D criteria
regulations for oil and natural gas wastes, asserting that the agency is required to review its Subtitle D regulations every
three years but has not conducted an assessment on those oil and natural gas waste regulations since July 1988. A loss of
the RCRA exclusion for drilling fluids, produced waters and related wastes could result in an increase in our customers’
costs to manage and dispose of generated wastes and a corresponding decrease in their drilling operations, which
developments could have a material adverse effect on our business.

The Comprehensive Environmental Response, Compensation, and Liability Act, and comparable state laws, impose joint and

several liability, without regard to fault or legality of conduct, on classes of persons who are considered to be responsible for the
release of a hazardous substance into the environment. These persons include the owner or operator of the site where the release
s not
occurred, and anyone who disposed or arranged for the disposal of a hazardous substance released at the site. In addition, it i
uncommon for neighboring landowners and other third-parties to file claims for personal injury and property damage allegedly ca
aa
used
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by hazardous substances released into the environment.

The oil and natural gas industry is extensively regulated by numerous federal, state and local authorities. Legislation affecting
the oil and natural gas industry is under constant review for amendment or expansion, frequently increasing the regulatory burden.
Also, numerous departments and agencies, at the federal, state and local level, are authorized to issue rules and regulations that are
binding on the oil and natural gas industry and its individual members, some of which carry substantial penalties for failure to comply.
Although changes to the regulatory burden on the oil and natural gas industry could affect the demand for our services, we would not
expect to be affected any differently or to any greater or lesser extent than other companies in the industry with similar operations.

Our customers’ operations are subject to various types of regulation at the federal, state and local level. These types of
regulation include requiring permits for the drilling of wells, drilling bonds and reports concerning operations. The effect of these
regulations may be to limit or increase the cost of oil and natural gas exploration and production, which could have a material adverse
effect on our customers and indirectly materially and adversely affect our business.

We supply equipment and services to customers in the oil and natural gas industry conducting hydraulic fracturing operations.

Although we do not directly engage in hydraulic fracturing activities, our customers purchase our products and services for use in their
hydraulic fracturing activities. Hydraulic fracturing is typically regulated by state oil and natural gas commissions and similar
agencies. Some states have adopted, and other states are considering adopting, regulations that could impose new or more stringent
permitting, disclosure or well construction requirements on hydraulic fracturing operations. States could also elect to prohibit high
volume hydraulic fracturing altogether, following the approach taken by the State of New York in 2015. Aside from state laws, local

land use restrictions may restrict drilling in general or hydraulic fracturing in particular. Municipalities may adopt local ordinances
attempting to prohibit hydraulic fracturing altogether or, at a minimum, allow such fracturing processes within their jurisdictions to
proceed but regulating the time, place and manner of those processes. In addition, federal agencies have asserted regulatory authority
over the process and various studies have also been conducted or are currently underway by the EPA, and other federal agencies
concerning the potential environmental impacts of hydraulic fracturing activities. State and federal regulatory agencies have recently
focused on a possible connection between the operation of injection wells used for oil and natural gas waste disposal and seismic
activity. Similar concerns have been raised that hydraulic fracturing may also contribute to seismic activity. At the same time
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environmental groups have suggested that additional laws may be needed to more closely and uniformly limit or otherwise regulate
the hydraulic fracturing process, and legislation has been proposed by some members of Congress to provide for such regulation.

, certain

The adoption of new laws or regulations at the federal or state levels prohibiting, limiting or otherwise regulating the hydraulic

fracturing process could make it more difficult, or even impossible, to complete oil and natural gas wells, increase our customers’
costs of compliance and doing business, and otherwise adversely affect the hydraulic fracturing services they perform, which could
negatively impact demand for our products and services. In addition, heightened political, regulatory, and public scrutiny of hydraulic
fracturing practices could expose us or our customers to increased legal and regulatory proceedings, which could be time-consuming,
costly, or result in substantial legal liability or significant reputational harm. We could be directly affected by adverse litigation
involving us, or indirectly affected if the cost of compliance limits the ability of our customers to operate. Such costs and scrutiny
could directly or indirectly, through reduced demand for our products and services, have a material adverse effect on our business,
financial condition and results of operations.

We are subject to a number of federal and state laws and regulations, including the federal Occupational Safety and Health Act
and comparable state statutes, establishing requirements to protect the health and safety of workers. Substantial fines and penalties can
be imposed and orders or injunctions limiting or prohibiting certain operations may be issued in connection with any failure to comply
with laws and regulations relating to worker health and safety.

Part of our business involves the use of radioactive tracers, typically consisting of three standard isotopes (Iridium 192,
Scandium 46 and Antimony 124), to help determine the existence of fractures within a well formation. The use of these materials
requires us to obtain and comply with radioactive materials licenses issued by the U.S. Nuclear Regulatory Commission (“NRC”) or
its counterparts in the states where we perform these services if they are among the states to which the NRC has delegated its
regulatory authority pursuant to the Atomic Energy Act (so-called “Agreement States”). Under the terms of these licenses, we are
required to train designated personnel, maintain records, submit periodic reports, ensure the safety and reliability of related equipment
and storage facilities, conduct radiation safety monitoring, and ensure the proper disposal of materials and equipment at the end of
their useful lives. In the event we fail to adequately comply with these requirements, we could be subject to enforcement action, which
could include fines, injunctive relief, or the revocation of our licenses.

Employees

As of December 31, 2017, we had 363 employees. 256 of our employees as of such date were based in the United States, 104

were based in Canada and three were based outside of North America. Our international operations are currently serviced by
employees operating out of the United States and Canada. We are not a party to any collective bargaining agreements, and we
consider our relations with our employees to be good.

Item 1A. Risk Factors

Described below are certain risks that we believe apply to our business and the industry in which we operate. You should
carefully consider each of the following risk factors in conjunction with other information provided in this Form 10-K and in our
other public disclosures. The risks described below highlight potential events, trends or other circumstances that could adversely
affect our business, financial condition, results of operations, cash flows, liquidity or access to sources of financing, and consequently,
the market value of our common stock. Additional risks and uncertainties not currently known to us or that we currently deem
immaterial may also materially adversely affect our business, financial condition and results of operations. All forward-looking
statements made by us or on our behalf are qualified by the risks described below.

Risks Related to Our Business and the Oil and Natural Gas Industry

Our business depends on the oil and natural gas industry and particularly on the level of exploration and production activity
within Canada and the United States, and the volatility of prices for oil and natural gas has had, and may continue to have, a
material adverse effect on our business, financial condition and

results of operations.

Demand for our products and services depends substantially on the level of expenditures by companies in the oil and natural gas
industry. The average price of oil during the year ended December 31, 2017 was $50.78 per barrel. This average oil price remains well

below the average prices in 2014. The low commodity price environment resulted in a reduction in the drilling, completion and other
production activities of most of our customers and a reduction in their spending on our products and services. The reduction in
demand from our customers reduced the prices we were able to charge our customers for our products and services. Although oil
pricing has improved since mid-2016, and the demand for our products and services has subsequently increased, oil and natural g
as
prices remain volatile, and prolonged reductions in oil and natural gas prices have had and may continue to have a material adverse
effect on our business, financial condition and results of operations.

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Many factors over which we have no control affect the supply of and demand for, an

d our customers’ willingness to explore,

develop and produce oil and natural gas, and therefore, influence demand levels and prices for our products and services, including:

(cid:120)

the domestic and foreign supply of and demand for oil and natural gas;

the level of prices, and expectations about future prices, of oil and natural gas;

the level of global oil and natural gas exploration and production;

the cost of exploring for, developing, producing and delivering oil and natural gas;

the expected decline rates of current production;

the price and quantity of foreign imports;

political and economic conditions in oil producing countries, including the Middle East, Africa, South America and
Russia;

the ability of members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and
production controls;

speculative trading in crude oil and natural gas derivative contracts;

the level of consumer product demand;

the discovery rates of new oil and natural gas reserves;

contractions in the credit market;

the strength or weakness of the U.S. dollar;

available pipeline and other transportation capacity;

the levels of oil and natural gas storage;

weather conditions and other natural disasters;

political instability in oil and natural gas producing countries;

domestic and foreign tax policy;

domestic and foreign governmental approvals and regulatory requirements and conditions;

the continued threat of terrorism and the impact of military and other action, including military action in the Middle East;

technical advances affecting energy demand, generation and consumption;

the proximity and capacity of oil and natural gas pipelines and other transportation facilities;

alternative fuel requirements or technological advances and the demand and availability of alternative fuel sources;

fuel conservation measures;

the ability of oil and natural gas producers to raise equity capital and debt financing;

merger and divestiture activity among oil and natural gas producers; and

overall domestic and global economic conditions.

These factors and the volatility of the energy markets make it difficult to predict future oil and natural gas price movements with
any certainty or how long the current low commodity price environment will continue. Any of the above factors could impact the level
of oil and natural gas exploration and production activity and could have a material adverse effect on our business, financial condition
and results of operations. Further, should the low commodity price environment continue or worsen, we could encounter difficulties
such as an inability to access needed capital on attractive terms or at all, the incurrence of asset impairment charges, an inability to
meet the financial ratios contained in our debt agreements, a need to reduce our capital spending and other similar impacts any of
which could have a material adverse effect on our business, financial condition and results of operations.

The cyclicality of the oil and natural gas industry may cause our results of operations to fluctuate.

We derive our revenues from companies in the oil and natural gas exploration and production industry, a historically cyclical

industry with levels of activity that are significantly affected by the levels and volatility of oil and natural gas prices. Prices for oil and
natural gas historically have been extremely volatile and are expected to continue to be volatile. During the past four years,
the posted
West Texas Intermediate (WTI) price for oil has ranged from a low of $26.21 per barrel, or Bbl, in February 2016 to a high of $107.95
per Bbl in June 2014. Over the same period, the Henry Hub spot market price of natural gas has ranged from a low of $1.49
per million British thermal units, or MMBtu, in March 2016 to a high of $7.92 per MMBtu in March 2014. During 2016, WTI prices
ranged from $26.21 to $54.06 per Bbl and during 2017, WTI prices ranged from $42.48 to $60.46 per Bbl. During 2016, the Henry
Hub spot market price of natural gas ranged from $1.49 to $3.80 per MMBtu and during 2017, the Henry Hub spot market price of
natural gas ranged from $2.44 to $3.71 per MMBtu. We have, and may in the future, experience significant fluctuations in operat
results as a result of the reactions of our customers to changes in oil and natural gas prices. For example, prolonged low commodity
prices experienced by the oil and natural gas industry during 2015 and 2016, combined with adverse changes in the capital and credit
markets, caused many E&P companies to reduce their capital budgets and drilling activity. This resulted in a significant decline in
demand for oilfield services and adversely impacted the prices oilfield services companies could charge for their services. We have
master services agreements (“MSAs”) with most of our customers which have no minimum purchase requirements. As a result, most
of our customers are not obligated to buy our products or utilize our services for an extended period or at all.

ing

Low commodity price environments can negatively impact oil and natural gas E&P companies and, in some cases, impair their
ability to timely pay for products or services provided or can result in their insolvency or bankruptcy, any of which exposes us
to credit risk of our oil and natural gas exploration and production customers.

In weak economic and commodity price environments, we may experience difficulties, delays or failures in collecting
outstanding receivables from our customers, due to, among other reasons, a reduction in their cash flow from operations, their
inability to access the credit markets and, in certain cases, their insolvencies. Such collection issues could have a material adverse
effect on our business, financial condition and results of operations.

To the extent one or more of our key customers commences bankruptcy proceedings, our contracts with these customers may
be subject to rejection under applicable provisions of the United States Bankruptcy Code, or may be renegotiated. Further, during
any such bankruptcy proceeding, prior to assumption, rejection or renegotiation of such contracts, the bankruptcy court may
temporarily authorize the payment of value for our services less than contractually required, which could also have a material
adverse effect on our business, financial condition and results of operations.

A single customer constituted 14%, 26% and 31% of our revenue for the years ended December 31, 2017, 2016 and 2015,
respectively, and the loss of that customer or any other of our significant customers, or their failure to pay the amounts they owe
us, could cause our revenue to decline substantially.

Our largest customer is Crescent Point which accounted for approximately 14%, 26% and 31% of our revenue for the years

ended December 31, 2017, 2016 and 2015, respectively. Additionally, our top five customers accounted for approximately 30%, 49%
and 44% of our revenue for the years ended December 31, 2017, 2016 and 2015, respectively. It is likely that we will continue to
derive a significant portion of our revenue from these customers in the near future. If any of these customers decided not to continue to
use our products and services, our revenue would decline, which could have a material adverse effect on our business, financial
condition and results of operations. In addition, we are subject to credit risk due to the c
oncentration of our customer base. Any
nonperformance by these customers, including their failure to pay the amounts they owe us, either as a result of changes in general
financial and economic conditions, conditions in the oil and natural gas industry or otherwise, could have a material adverse effect on
our business, financial condition and results of operations.

We may not be able to successfully implement our strategy of increasing sales of our products and services for use in basins
located in the United States.

A key component of our growth strategy is to increase our market share in the United States. Our products and services enable

pinpoint stimulation of an oil or natural gas well. Currently, most E&P companies in the United States rely on traditional well
completion techniques and do not utilize pinpoint stimulation. We may not be successful in convincing potential customers of the
benefits of our technologies relative to traditional well completion techniques. If we are unable to convince potential customers in the
United States of the benefits of our pinpoint stimulation, we will not be able to execute on our strategy to increase the level of sales of
our products and services in the United States, which could harm our growth prospects. Additionally, the sales of our products and
services depend in large part on the perception of pinpoint stimulation in the oil and natural gas industry. Events that would harm the
perception of pinpoint stimulation, including unfavorable industry reports or poor well performance for wells that were completed
using pinpoint stimulation could impact our ability to grow our U.S. sales, which could harm our growth prospects.

Competition within our industry may adversely affect our ability to market our services.

The markets in which we operate are generally highly competitive. The principal competitive factors in our market are
technology, service quality, safety track record and price. We compete with large national and multi-national companies that have
substantially longer operating histories, greater financial, technical and other resources and greater name recognition than we do.
Several of our competitors provide a broader array of services and have a stronger presence in more geographic markets. In addition,
we compete with several smaller companies capable of competing effectively on a regional or local basis. Our competitors may be
able to respond more quickly to new or emerging technologies, products and services and changes in customer requirements. In
certain circumstances, work is awarded on a bid basis, which further increases competition based on price. Pricing is often the
factor in determining which qualified contractor is awarded the work. The competitive environment may be further intensified by
mergers and acquisitions among oil and natural gas companies or other events that ha
ilable
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ve the effect of reducing the number of ava
customers. As a result of competition, we may lose market share or be unable to maintain or increase prices for our present services or
to acquire additional business opportunities, which could have a material adverse effect on our business, financial condition and
results of operations.

primary

Advancements in drilling and well completion technologies could have a material adverse effect on our business, financial
condition, results of operations and cash flows.

Our industry is characterized by rapid and significant technological advancements and introductions of new products and
services using new technologies. As new well completion technologies develop, we may be placed at a competitive disadvantage, and
competitive pressure may force us to implement new technologies at a substantial cost. We may not be able to successfully acquire or
use new technologies. New technologies, services or standards, including improvements to existing competing technologies, could
render our technologies, products or services obsolete, which could have a material adverse effect on our business, financial condition
and results of operations. In addition, the development of new processes to replace hydraulic fracturing altogether or that replace our
technologies, could cause a decline in the demand for the products and services that we provide and could result in a material adverse
effect on our business, financial condition and results of operations.

We often have long sales cycles, which can result in significant time between initial contact with a prospective customer and
sales of our products and services to that customer, making it difficult to project when, if at all, we will obtain new customers
and when we will generate revenue from those customers.

Our sales cycle, from initial contact to sales of our products and services to a customer can take significant time. Our sales
efforts involve educating our customers about the use, technical capabilities and benefits of our completion technologies. Some of our
customers undertake an evaluation process that frequently involves not only our technology but also the offerings of our competitors.
As a result, it is difficult to predict when we will obtain new customers and begin generating revenue from these new customers. As a
result, we may not be able to add customers, or generate revenue, as quickly as we may expect, which could harm our growth
prospects.

Our success depends on our ability to develop and implement new technologies, products and services.

Our success depends on the ongoing development and implementation of new product designs and improvements, and on our
ability to protect and maintain critical intellectual property assets related to these developments. If we are not able to obtain patent or
other intellectual property protection of our technology, we may not be able to recoup development costs or fully exploit systems,
services and technologies in a manner that allows us to meet evolving industry requirements at prices acceptable to our customers. In
addition, some of our competitors are large national and multinational companies that may be able to devote greater financial,
technical, manufacturing and marketing resources to research and development of new systems, services and technologies than we are
able to do.

Investments in new technologies involve uncertainties and risk. Commercial success depends on many factors, including the
levels of innovation, the development costs and the availability of capital resources to fund those costs, the levels of competition from
others developing similar or other competing technologies, our ability to obtain or maintain government permits or certifications, the
effectiveness of production, distribution and marketing efforts, and the costs to customers to deploy and provide support for the new
technologies. We may not achieve significant revenues from new product and service investments for a number of years, if at all,
which could have a material adverse effect on our business, financial condition and results of operations.

Most of our revenue generated is denominated in the Canadian dollar and could be negatively impacted by currency
fluctuations.

Because approximately 63% of our revenue for the year ended December 31, 2017 was generated in Canada, we could be

materially affected by currency fluctuations. Changes in currency exchange rates, particularly with respect to the Canadian dollar
(“CAD”), could have a material adverse effect on our results of operations or financial position. As we have a trade accounts
receivable balance in Canadian dollars of $27.3 million CAD as of December 31, 2017 a 10% increase in the strength of the Canadian
dollar versus the U.S. dollar would result in an increase in pre-tax income of $2.0 million. Conversely, a corresponding decrease in the
strength of the Canadian dollar would have resulted in a comparable decrease in pre-tax income. We have not hedged our exposure to
changes in foreign currency exchange rates and, as a result, could incur significant and unanticipated translation gains and losses.

Our operations may be limited or disrupted in certain parts of the
conditions, which could have a material adverse effect on our business, financial condition and results of operations.

continental United States and Canada during severe weather

We provide products and services to E&P companies that operate in basins throughout the continental United States and
Canada. We serve these markets through our facilities and service centers located in Texas, Oklahoma, Montana, West Virginia and
Alberta and Saskatchewan, Canada. A substantial portion of our revenue is generated from our operations in geographies where
weather conditions may be severe, particularly during winter and spring months. Repercussions of severe weather conditions may
include:

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curtailment of drilling and completion activity;

weather-related damage to equipment resulting in suspension of operations;

weather-related damage to our facilities;

inability to deliver equipment and materials to jobsites in accordance with contract schedules; and

loss of productivity.

Many municipalities impose bans or other restrictions on the use of roads and highways, which include weight restrictions on

the paved roads that lead to our jobsites due to the muddy conditions caused by spring thaws. This can limit our access to these
jobsites and our ability to service wells in these areas. These constraints and the resulting shortages or high costs could delay our
operations and materially increase our operating and capital costs in those regions. Weather conditions may also affect the pri
crude oil and natural gas, and related demand for our services. Any of these factors could have a material adverse effect on our uu
business, financial condition and results of operations.

ce of

Hydraulic fracturing is substantially dependent on the availability of water. Restrictions on the ability of our customers to
obtain water may have a material adverse effect on our business, financial condition and results of operations.

Water is an essential component of deep shale oil and natural gas production during both the drilling and hydraulic fracturing

processes. Over the past several years, certain of the areas in which we sell our products and services have experienced extreme
drought conditions and competition for water in such shales is growing. As a result of this
have begun restricting the use of water subject to their jurisdiction for hydraulic fracturing to protect local water supply. The inability
of our customers to obtain water to use in their operations from local sources or to effectively utilize flowback water could impact
demand for our products and services, which could have a material adverse effect on our business, financial condition and results of
operations.

severe drought, some local water districts

The growth of our business through acquisitions or strategic partnerships exposes us to various risks, including identifying
suitable opportunities and integrating businesses, assets and personnel.

We completed the acquisition of Spectrum in 2017 (the “Spectrum Acquisition”) and we expect to pursue future acquisitions in

order to expand and diversify our business. We may also form strategic partnerships with third parties that we believe will
complement or augment our existing business. We may not be able to identify any potential acquisition or strategic partnership
candidates, consummate any acquisitions or enter into any strategic partnerships and any future ac
may not be successfully integrated or may not be advantageous to us. In addition, we may not have or be able to obtain sufficient
capital resources to complete any acquisitions. Entities we acquire may not achieve the revenue and earnings we anticipate or their
liabilities may exceed our expectations. We could face integration issues pertaining to the internal controls and operational functions
of the acquired companies and we also could fail to realize cost efficiencies or synergies that we anticipated when selecting our
acquisition candidates. Client dissatisfaction or performance problems with a particular acquired entity or resulting from a strategic
be unable to profitably manage any acquired
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partnership could have a material adverse effect on our reputation as a whole. We may
entities, or we may fail to integrate them successfully without incurring substantial expenses, delays or other problems. We may not
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achieve the anticipated benefits from our acquisitions or any of the strategic partnerships we form. In addition, business acqu
isitions,
f
including the Spectrum Acquisition, and strategic partnerships involve a number of risks that could affect our business, financial
condition and results of operations, including but not limited to:

quisitions or strategic partnerships

(cid:120)

our ability to integrate operational, accounting and technology policies, processes and systems and the implementation of
those policies and procedures;

our ability to integrate personnel and human resources systems as well as the cultures of each of the acquired businesses;

our ability to implement our business plan for the acquired business;

transition of operations, users and clients to our existing platforms or the integration of data, systems and technology
platforms with ours;

compliance with regulatory requirements and avoiding potential conflicts of interest in markets that we serve;

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diversion of management’s attention and other resources;

our ability to retain or replace key personnel;

our ability to maintain relationships with the customers of the acquired business or a strategic partner and further develop
the acquired business or the business of our strategic partner;

our ability to cross-sell our products and services of the acquired businesses or strategic partners to our respective clients;

entry into unfamiliar markets;

assumption of unanticipated legal or financial liabilities and/or negative publicity
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entity;

related to prior acts by the acquired

litigation or other claims in connection with the acquired company, including claims from terminated employees, clients,
former stockholders or third parties;

misuse of intellectual property by our strategic partners;

disagreements with strategic partners or a misalignment of incentives within any strategic partnership;

becoming subject to increased regulation or a result of an acquisition;

becoming significantly leveraged as a result of incurring debt to finance an acquisition;

unanticipated operating, accounting or management difficulties in connection with the acquired entities; and

impairment of acquired intangible assets, including goodwill, and dilution to our earnings per share.

If we fail to successfully integrate the businesses that we acquire or strategic partnerships that we enter into, we may not realize
any of the benefits we anticipate in connection with the acquisitions or partnerships, which could have a material adverse effect on our
business, financial condition and results of operations.

If we are unable to accurately predict customer demand or if customers cancel their orders on short notice, we may hold excess
or obsolete inventory, which would reduce gross margins. Conversely, insufficient inventory would result in lost revenue
opportunities and potentially in loss of market share and damaged customer relationships.

Customers can generally cancel or defer purchase

orders on short notice without incurring a significant penalty. As a result, we
cannot accurately predict what or how many products such customers will need in the future. Anticipating demand is difficult because
our customers face unpredictable demand for their own products and are increasingly focused on cash preservation and tighter
inventory management.

Orders are placed with our suppliers based on forecasts of customer demand and, in some instances, we may establish buffer

inventories to accommodate anticipated demand. Our forecasts of customer demand are based on multiple assumptions, each of which
may introduce errors into the estimates. If we overestimate customer demand, we may allocate resources to the purchase of material or
manufactured products that we may not be able to sell when we expect to, if at all. As a result, we would hold excess or obsolete
inventory, which would reduce gross margin and adversely affect financial results. Conversely, if we underestimate customer demand
or if insufficient manufacturing capacity is available, we would miss revenue opportunities and potentially lose market share and
damage our customer relationships. In addition, any future significant cancellations or deferrals of product orders or the return of
a
previously sold products could materially and adversely affect profit margins, increas
fund our operations.

e product obsolescence and restrict our ability to

Our products are used in operations that are subject to potential hazards inherent in the oil and natural gas industry, including
claims for personal injury and property damage, and, as a result, we are exposed to potential liabilities that may affect our
financial condition and reputation.

Our products are used in potentially hazardous drilling, completion and production applications in the oil and natural gas

industry where an accident or a failure of a product can potentially have catastrophic consequences. Risks inherent to these
applications, such as equipment malfunctions and failures, equipment misuse and defects, explosions, blowouts and uncontrollable
flows of oil, natural gas or well fluids and natural disasters can cause personal injury, loss of life, suspension of operations, damage to
formations, damage to facilities, business interruption and damage to or destruction of property, surface water and drinking water
resources, equipment and the environment. If our products or services fail to meet specifications or are involved in accidents or
failures, we could face warranty, contract or other litigation claims, which could expose us to substantial liability for personal injury,
wrongful death, property damage, pollution and other environmental damages. We operate with most of our customers under MSAs.
We endeavor to allocate potential liabilities and risks between the parties in MSAs, which may result in material liability to us. In
addition, despite our intention to generally allocate risk under MSAs, we might not succeed in enforcing such contractual allocation,
might incur an unforeseen liability falling outside the scope of such allocation or may be required to enter into an MSA with terms that
are unfavorable to us. As a result, we may incur substantial losses which could have a material adverse effect on our business,
financial condition and results of operations.

In addition, the frequency and severity of such incidents will affect operating costs, insurability and relationships with

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customers, employees and regulators. In particular, our customers may elect not to purcha
as unacceptable, which could cause us to lose customers and substantial revenues. In addition, these risks may be greater for us
because we may acquire companies that have not allocated significant resources and management focus to safety and have a poor
safety record requiring rehabilitative efforts during the integration process and we may incur liabilities for losses before such
rehabilitation occurs.

se our services if they view our safety record

Losses and liabilities from uninsured or underinsured drilling and operating activities could have a material adverse effect on
our financial condition and operations.

Our insurance policies may not be adequate to cover all liabilities. Further, insurance may not be generally available in the
future or, if available, insurance premiums may make such insurance commercially unjustifiable. Moreover, even if we are successful
in defending a claim, it could be time-consuming and costly to defend. The operational insurance coverage we maintain for our
business may not fully insure us against all risks, either because insurance is not available or because of the high premium co
sts
relative to perceived risk. Further, any insurance obtained by us may not be adequate to cover any losses or liabilities and this
insurance may not continue to be available at all or on terms which are acceptable to us. Insurance rates have in the past been subject
n
to wide fluctuation and changes in coverage could result in less coverage, increases in cost or higher deductibles and retentions.
Liabilities for which we are not insured, or which exceed the policy limits of our applicable insurance, could have a material adverse
effect on our business, financial condition and results of operations.

Our competitors may infringe upon, misappropriate, violate or challenge the validity or en
n
r
property and we may not be able to adequately protect or enforce our intellectual property rights in the future.

forceability of our intellectual

We currently hold multiple U.S. and international patents and have multiple pending patent applications for products and
processes. Patent rights give the owner of a patent the right to exclude third parties from making, using, selling, and offering for sale
the inventions claimed in the patents in the applicable country. Patent rights do not necessarily grant the owner of a patent t
tt
he right to
practice the invention claimed in a patent, but merely the right to exclude others from practicing the invention claimed in the patent. It
may be possible for a third-party to design around our patents. Furthermore, patent rights have strict territorial limits. We may not be
able to enforce our patents against infringement occurring in “non-covered” territories. Also, we do not have patents in every
jurisdiction in which we conduct business and our patent portfolio will not protect all aspects of our business and may relate to
obsolete or unusual methods, which would not prevent third parties from entering the same market.

In addition, by customarily entering into employment, confidentiality and/or license agreements with our employees, customers
and potential customers and suppliers, we attempt to limit access to and distribution of our technology. Our rights in our confidential
information, trade secrets, and confidential know-how will not prevent third parties from independently developing similar
information. Publicly available information (e.g. information in expired issued patents, published patent applications, and scientific
literature) can also be used by third parties to independently develop technology. This independently developed technology may be
equivalent or superior to our proprietary technology.

Confidential information shared with employees, customers and potential customers and suppliers may be used by those parties

in a manner inconsistent with their employment, confidentiality and/or license agreements and we may not be able to adequately
protect against or stop such behavior. We may not be able to determine if competitive technology offered by third parties was
independently developed or resulted from breach of our agreements. When we do become aware of breaches, we may become
involved in legal proceedings from time to time to protect our legal interests and enforce such agreements.

We may be adversely affected by disputes regarding intellectual property rights and the value of our intellectual property rights
is uncertain.

As discussed above, we may become involved in legal proceedings from time to time to protect and enforce our intellectual
property rights. Third parties from time to time may initiate litigation against us by asserting that the conduct of our business infringes,
misappropriates or otherwise violates intellectual property rights. We may not prevail in any such legal proceedings related to such
claims, and our products and services may be found to infringe, impair, misappropriate, dilute or otherwise violate the intellectual
property rights of others. If we are sued for infringement and lose, we could be required to pay substantial damages and/or be enjoined
from using or selling the infringing products or technology. Any legal proceeding concerning intellectual property could be protracted
and costly and is inherently unpredictable and could have a material adverse effect on our business, financial condition and results of
operation, regardless of its outcome.

Further, our intellectual property rights may not have the value that management believes them to have and such value may

change over time as we and others develop new product designs and improvements.

The adoption of climate change legislation or regulations restricting emissions of GHGs could result in increased operating
costs and reduced demand for oil and natural gas.

In recent years, federal, state and local governments have taken steps to reduce emissions of GHGs. The EPA has finalized a

series of GHG monitoring, reporting and emissions control rules for the oil and natural gas industry. For example, in October 2015,
the EPA finalized rules adding new sources to the scope of the GHG monitoring and reporting rule. These new sources include
gathering and boosting facilities as well as completions and workovers of hydraulically fractured wells. More recently, in June 2016,
the EPA published final rules establishing new and more stringent methane and VOCs emissions control requirements for oil and
natural gas development and production operations. However, in June 2017, the EPA published a proposal to stay the implementation
of certain requirements while it reconsiders the rules. These rules have also been the subject of litigation. As a result, the future
implementation of these rules remains uncertain.

While Congress has from time to time considered legislation to reduce emissions of GHGs, there has not been significant
activity in the form of adopted legislation to reduce GHG emissions at the federal level in recent years. In the absence of federal
climate legislation, a number of state and regional efforts have emerged that are aimed at tracking or reducing GHG emissions by
means of cap and trade programs. In addition, in December 2015, the United States joined the international community at the 21st
Conference of the Parties of the United Nations Framework Convention on Climate Change in Paris, France. The resulting Paris
Agreement calls for the parties to undertake “ambitious efforts” to limit the average global temperature, and to conserve and enhance
sinks and reservoirs of GHGs. The Paris Agreement, which entered into force on November 4, 2016, establishes a framework for the
parties to cooperate and report actions to reduce GHG emissions. The direction of future U.S. climate change regulation is difficult to
predict given the current uncertainties surrounding the policies of the Trump Administration. The EPA may or may not continue

developing regulations to reduce greenhouse gas emissions from the oil and natural gas industry. Even if federal efforts in this area
slow, states may continue pursuing climate regulations.

Restrictions on emissions of methane or carbon dioxide that may be imposed could adversely affect the oil and natural gas
industry by reducing demand for hydrocarbons and by making it more expensive to develop and produce hydrocarbons, either of
which could have a material adverse effect on future demand for our products and services. At this
estimate how potential future laws or regulations addressing GHG emissions would impact our or our customers’ business.

time, it is not possible to accurately

In addition, claims have been made against certain energy companies alleging that GHG emissions from oil and natural gas

operations constitute a public nuisance under federal and/or state common law. As a result, private individuals may seek to enforce
environmental laws and regulations against certain energy companies and could allege personal injury or property damages. While our
business is not a party to any such litigation, we could be named in actions making similar allegations. An unfavorable ruling in any
such case could significantly impact our or our customers’ operations and could have a material adverse effect on our business,
financial condition and results of operations.

Moreover, climate change may cause more extreme weather conditions such as more intense hurricanes, thunderstorms,

tornadoes and snow or ice storms, as well as rising sea levels and increased volatility in seasonal temperatures. Extreme weather
conditions can interfere with our or our customers’ operations and increase our costs, and damage resulting from extreme weather may
not be fully insured. However, at this time, we are unable to determine the extent to which climate change may lead to increased storm
or weather hazards affecting our operations.

Federal and state legislative and regulatory initiatives relating to hydraulic fracturing
g
y
additional operating restrictions or delays on our customers which could in turn decrease the demand for our products and
services.

could result in increased costs and

Our business is dependent on the ability of our customers to conduct hydraulic fracturing and horizontal drilling activities.

f
y

gas,
Hydraulic fracturing is an important common practice that is used to stimulate production of hydrocarbons, particularly natural
l
from tight formations, including shales. The process, which involves the injection of water, sand and other proppants under pre
ssure
into formations to fracture the surrounding rock and stimulate production, is typically regulated by state oil and natural gas
commissions. However, federal agencies have asserted regulatory authority over certain aspects of the process and there are certain
governmental reviews either completed, underway, or being proposed that focus on the environmental aspects of hydraulic fracturing
practices. These completed, ongoing, or proposed studies, depending on their degree of pursuit and whether any meaningful results are
obtained, could spur initiatives to further regulate hydraulic fracturing. For example, in December 2016, the EPA released a final
report assessing the potential impacts of hydraulic fracturing on drinking water resources. In this report, the EPA found scientific
evidence that hydraulic fracturing activities can impact drinking water resources under some circumstances. Other governmental
agencies, including the U.S. Department of Energy, the U.S. Geological Survey and the U.S. Government Accountability Office, have
evaluated or are evaluating various other aspects of hydraulic fracturing. State and federal regulatory agencies recently have focused
on a possible connection between the operation of injection wells used for oil and natural gas waste disposal and seismic activity.
Similar concerns have been raised that hydraulic fracturing may also contribute to seismic activity. When caused by human activity,
such events are called induced seismicity. Regulatory agencies at all levels are continuing to study the possible linkage between oil
and natural gas activity and induced seismicity. These ongoing or proposed studies could spur initiatives to further regulate hydraulic
fracturing, and could ultimately make it more difficult or costly to perform fracturing and increase the costs of compliance and doing
business for our customers. In addition, in response to concerns regarding induced seismicity, regulators in some states have from time
to time, developed and implemented plans directing certain wells where seismic incidents have occurred to restrict or suspend disposal
well operations. Such actions to restrict or suspend disposal well operations could make it more difficult or costly for our customers to
perform fracturing.

Various state and local-level initiatives in regions with substantial shale resources have been or may be proposed or

implemented to further regulate hydraulic fracturing practices, limit water withdrawals and water use, require disclosure of fracturing
fluid constituents, restrict which additives may be used, or implement temporary or permanent bans on hydraulic fracturing. For
instance, the State of New York elected in 2015 to prohibit high volume hydraulic fracturing altogether. Any increased regulation of
hydraulic fracturing could reduce our customers’ demand for our products and services and have a material adverse effect on our
business, financial condition and results of operations.

At this time, it is not possible to estimate the impact on our business of newly enacted or potential federal, state or local laws

governing hydraulic fracturing.

We may not be able to meet applicable regulatory requirements for our use of certain chemicals by our recently acquired tracer
diagnostics business, and, even if requirements are met, complying on an ongoing basis with the numerous regulatory
requirements will be time-consuming and costly.

The chemicals that we use in our recently acquired tracer diagnostics business may be subject to government regulation in our

target markets. In the United States, the EPA administers the Toxic Substances Control Act (the “TSCA”) which regulates the
commercial registration, distribution, and use of many chemicals, including the chemicals we use in our tracer diagnostics business.
Before we can manufacture or distribute significant volumes of a chemical, we need to determin
e whether that chemical is listed ind
the TSCA inventory. If the substance is listed, then manufacture or distribution can commence immediately. If not, then we must file
a Pre-Manufacture Notice (“PMN”) with the EPA for review. Certain categories of chemical substances may be exempt from a full
PMN review, including chemical substances that qualify for a Low Volume Exemption (“LVE”). We have filed PMNs for certain
chemicals, and have sought for and obtained LVEs for other chemicals that we use in our tracer diagnostics business, and we may
file additional PMNs or seek additional LVEs in the future. We may not be able to expediently receive approval from the EPA to list
such chemicals on the TSCA inventory, resulting in delays in our ability to manufacture such chemicals, or significant increases in
testing requirements.

In addition, even once we have a consent order from the EPA allowing us to manufacture PMN substances for our tracer
diagnostics business, we remain subject to numerous regulatory requirements, including, as applicable, volume limitations that may
impede us from producing sufficient quantities of such chemicals. Noncompliance with an EPA consent order could result in civil or
criminal penalties and delays, or require us to cease operations that are authorized under the consent order. Similar programs exist in
most, if not all, of the countries in which we may seek to produce, import or use certain chemicals in our tracer diagnostics business,
including compliance with regulations imposed in Canada by the Environment and Climate Change Canada/Health Canada. We
cannot assure you that we will be able to obtain necessary approvals in a timely manner or at all. If we do not meet applicable
regulatory requirements in a particular country for some chemicals, then we may not be able to commercialize those chemicals or
tracers in such country, and our business could be adversely affected. Changes in regulatory requirements, laws and policies, or
evolving interpretations of existing regulatory requirements, laws and policies, may result in increased compliance costs, delays,
capital expenditures and other financial obligations that could adversely affect our business or financial results.

Our operations and our customers’ operations are subject to a variety of governmental laws and regulations that may increase
our costs, limit the demand for our products and services or restrict our operations.

Our business and our customers’ businesses may be significantly affected by:

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federal, state and local and non-U.S. laws and other regulations relating to import tariffs, oilfield operations, worker safety
and protection of the environment;

changes in these laws and regulations; and

the level of enforcement of these laws and regulations.

If we fail to comply with safety regulations or maintain an acceptable level of safety at our facilities we may incur fines,
penalties or other liabilities, or may be held criminally liable. We may incur additional costs to upgrade equipment or conduct
additional training, or otherwise incur costs in connection with compliance with safety regulations. Failure to maintain safe operations
or achieve certain safety performance metrics could disqualify us from doing business with certain customers, particularly major oil
companies.

We depend on the demand for our products and services from the oil and natural gas industry which is affected by changing

taxes, price controls and other laws and regulations relating to the oil and natural gas industry in general. For example, the
adoption of
laws and regulations curtailing exploration and development drilling for oil and natural gas for economic or other policy reasons could
adversely affect our operations by limiting demand for our products. In addition, some non-U.S. countries may adopt regulations or
practices that give advantage to indigenous oil companies in bidding for oil leases, or require indigenous companies to perform oilfield
services currently supplied by international service companies. To the extent that such companies are not our customers, or we are
unable to develop relationships with them, our business may suffer. We cannot determine the extent to which our future operatio
ns
ff
and earnings may be affected by new legislation, new regulations or changes in existing regulations.

In addition, the prices we pay for raw materials used in our products may be impacted by tariffs. On March 8, 2018, the Trump

Administration signed an order that will impose an import tariff of 25% on steel. As a result of this tariff, if we are unable to obtain
raw materials, including steel, at historical prices, it could have a material adverse effect on our business, financial condition and
results of operations.

Because of our non-U.S. operations and sales, we are subject to changes in regional, political or economic conditions, and non-

U.S. laws and policies, including taxes, trade protection measures, and changes in regulatory requirements governing the operations of
companies in non-U.S. countries. We are also subject to changes in non-U.S. laws and regulations that may encourage or require
hiring of local contractors or require non-U.S. contractors to employ citizens of, or purchase supplies from, a particular juri
we fail to comply with any applicable law or regulation, it could have a material
and results of operations.

r
adverse affect on our business, financial condition

sdiction. If

We could be subject to additional income tax liabilities.

We are subject to income taxes in the U.S. (federal and state), Canada and other foreign jurisdictions. Tax laws, regulations, and

administrative practices in various jurisdictions may be subject to significant change, with or without notice, due to economic,
political, and other conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these
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taxes. There are many transactions that occur during the ordinary course of business for which the ultimate tax determination i
uncertain. Our effective tax rates could be affected by numerous factors, such as intercompany transactions, the relative amount of our
foreign earnings, including earnings being lower than anticipated in jurisdictions where we have lower statutory rates and higher than
anticipated in jurisdictions where we have higher statutory rates, losses incurred in jurisdictions for which we are not able to realize
the related tax benefit, changes in foreign currency exchange rates, entry into new businesses and geographies, changes to our existing
businesses and operations, acquisitions (including integrations) and investments and how they are fina
a
nced, changes in our defe
tax assets and liabilities and their valuation, and changes in the relevant tax, accounting, and other laws, regulations, admin
practices, principles, and interpretations. In addition, a number of countries are actively pursuing changes to their tax laws applicable
to corporate multinationals, such as the recently enacted U.S. tax reform legislation. Finally, foreign governments may enact tax laws
in response to the 2017 Tax Act that could result in further changes to global taxation and materially affect our financial position and
results of operations.

rred
istrative

The 2017 Tax Act significantly changes how the U.S. taxes corporations. The 2017 Tax Act requires complex computations to
be performed that were not previously required by U.S. tax law, judgments to be made in
interpretation of the provisions of the 2017
Tax Act and estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced.
The U.S. Treasury Department, the IRS, and other standard-setting bodies could interpret or issue guidance on how provisions of the
2017 Tax Act will be applied or otherwise administered that is different from our interpretation. As we complete our analysis of the
2017 Tax Act, collect and prepare necessary data, and interpret any additional guidance, we may make adjustments to amounts that we
have recorded that may impact our provision for income taxes in the period in which the adjustments are made.

We are also currently subject to audit in various jurisdictions, and these jurisdictions may assess additional income tax liabilities

against us. Developments in an audit, litigation, or the relevant laws, regulations, administrative practices, principles, and
interpretations could have a material effect on our operating results or cash flows in the period or periods for which that development
occurs, as well as for prior and subsequent periods.

Loss of our information and computer systems could adversely affect our business.

We are heavily dependent on our information systems and computer based programs, including our engineering information and
accounting data. If any of such programs or systems were to fail or create erroneous information in our hardware or software network
infrastructure, whether due to cyber-attack or otherwise, possible consequences include our loss of communication links and inability
a
to automatically process commercial transactions or engage in similar automated or computerized business activities. Any such
consequence could have a material adverse effect on our business, financial condition and results of operations.

We are subject to cyber security risks. A cyber incident could occur and result in information theft, data corruption, operational
disruption and/or financial loss.

The oil and natural gas industry has become increasingly dependent on digital technologies to conduct certain processing
activities. For example, we depend on digital technologies to perform many of our services and process and record financial and
operating data. At the same time, cyber incidents, including deliberate attacks or unintentional events, have increased. The United
States government has issued public warnings that indicate that energy assets might be specific targets of cyber security threats. Our
technologies, systems and networks, and those of our customers, vendors, suppliers and other business partners, may become the
target of cyberattacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse,
loss or destruction of proprietary and other information, or other disruption of its business operations.

Our databases and systems, as well as those of our third-party vendors, have been, and likely will continue to be, subject to
computer viruses or other malicious codes, unauthorized access attempts, denial of service attacks, phishing and other cyber-attacks.
We also face risks associated with new personnel, as well as with new processes and technologies which are implemented from time
y
to time to augment our security and privacy management programs. To date, we have se
operations from these attacks, however, we cannot guarantee that our security efforts or the security efforts of our third-party vendors
will prevent breaches or breakdowns to our or their databases or systems. If our security measures or those of the third-party vendors
we use who have access to this information are inadequate or are breached as a result of third party action, employee error,
malfeasance, malware, phishing, hacking attacks, system error, trickery or otherwise, and, as a result, someone obtains unauthorized
access to sensitive information on our systems or our providers’ systems, our reputation and business could be damaged. We cannot
guarantee that our security efforts will prevent breaches or breakdowns to our or our third-party vendors’ databases or systems.

en no material impact on our business or

In addition, certain cyber incidents, such as surveillance, may remain undetected for an extended period. Our systems and

may be
insurance coverage for protecting against cyber security risks may not be sufficient. As cyber incidents continue to evolve, we
required to expend additional resources to continue to modify or enhance our protective measures or to investigate and remediate any
vulnerability to cyber incidents. Our insurance coverage for cyberattacks may not be sufficient to cover all the losses we may
experience as a result of such cyberattacks.

Our business operations in countries outside of the United States are subject to a number of U.S. federal laws and regulations,
including restrictions imposed by the Foreign Corrupt Practices Act as well as trade sanctions administered by the Office of
”
Foreign Assets Control (“OFAC”) and the Commerce Department.

Local laws and customs in many countries differ significantly from those in the United States. In many countries, particularly in
those with developing economies, it is common to engage in business practices that are prohibited by U.S. regulations applicable to us.
The United States Foreign Corrupt Practices Act (“FCPA”) and similar anti-bribery laws in other jurisdictions, including the UK
Bribery Act 2010, prohibit corporations and individuals, including us and our employees, from engaging in certain activities to obtain
or retain business or to influence a person working in an official capacity. We are responsible for any violations by our employees,
contractors and agents, whether based within or outside of the United States, for violations of the FCPA. We may also be held
responsible for any violations by an acquired company that occur prior to an acquisition, or subsequent to the acquisition but before
we are able to institute our compliance procedures. In addition, our non-U.S. competitors that are not subject to the FCPA or similar
laws may be able to secure business or other preferential treatment in such countries by means that such laws prohibit with respect to
us. A violation of any of these laws, even if prohibited by our policies, could have a material adverse effect on our business, financial
condition or results of operation. Actual or alleged violations could damage our reputation, be expensive to defend, and impair our
ability to do business.

Compliance with U.S. regulations on trade sanctions and embargoes administered by OFAC also poses a risk to us. We cannot

provide products or services to certain countries subject to U.S. trade sanctions. Furthermore, the
import activity, export recordkeeping and reporting, export control and economic sanctions are complex and constantly changing. Any
failure to comply with applicable legal and regulatory trading obligations could result in criminal and civil penalties and sanctions,
such as fines, imprisonment, debarment from governmental contracts, seizure of shipments and loss of import and export privileges.

laws and regulations concerning

We may have difficulty managing growth in our business, which could have a material adverse effect on our business, financial
condition and results of operations.

Any significant growth, if achieved, could place a significant strain on our financial, technical, operational and management
resources. As we expand the scope of our activities and our geographic coverage through organic growth, acquisitions and strategic
partnerships, there will be additional demands on our financial, technical, operational and management resources. The failure to
continue to upgrade our technical, administrative, operating and financial control systems or the occurrences of unexpected expansion
difficulties, including the failure to recruit and retain experienced managers, engineers and other professionals, could have a material
adverse effect on our business, financial condition and results of operations.

Our success may depend on the continued service and availability of key personnel.

Our success and future growth is dependent upon the ability of our executive officers, senior managers and other key personnel

to operate and manage our business and execute on our growth strategies successfully. We may be unable to continue to attract and
retain our executive officers, senior managers or other key personnel. We may incur increased expenses in connection with the hiring,
promotion, retention or replacement of any of these individuals. The loss of the services of any of our key personnel could have a
material adverse effect our business, financial condition and results of operations.

We may be unable to attract and retain skilled and technically knowledgeable employees, which could adversely affect our
business.

Our success and future growth is dependent upon attracting and retaining highly skilled professionals and other technical
personnel. A number of our employees are highly skilled engineers, geologists and highly trained technicians, and our failure to
continue to attract and retain such individuals could adversely affect our ability to compete in the oilfield services industry. We may
confront significant and potentially adverse competition for these skilled and technically knowledgeable personnel, particularly during
periods of increased demand for oil and natural gas. Additionally, at times there may be a shortage of skilled and technical personnel
available in the market, potentially compounding the difficulty of attracting and retaining these employees. If we are unable to recruit
or retain sufficient skilled and technical personnel it could have a material adverse effect on our business, financial condition and
results of operations.

Unionization efforts could increase our costs or limit our flexibility.

Presently, none of our employees work under collective bargaining agreements. Unionization efforts have been made from time

to time within our industry, to varying degrees of success. Any such unionization could increase our costs or limit our flexibility,
which could have a material adverse effect on our business, financial condition and results of operations.

Restrictions on drilling activities intended to protect certain species of wildlife may adversely affect the ability of our customers
to conduct drilling activities in some of the areas where we operate.

Oil and natural gas operations in our operating areas can be adversely affected by seasonal or permanent restrictions on drilling

activities designed to protect various wildlife, which may limit the ability of our customers to operate in protected areas. Permanent
restrictions imposed to protect endangered species could prohibit drilling in certain areas or require the implementation of ex
pensive
mitigation measures. Additionally, the designation of previously unprotected species as threatened or endangered in areas where we
operate could result in increased costs arising from species protection measures. Restrictions on the oil and natural gas operations of
our customers to protect wildlife could reduce demand for our products and services, which could have a material adverse effect on
our business, financial condition and results of operations.

We are subject to the risk of supplier concentration.

Certain of our product lines depend on a limited number of third-party suppliers and vendors. As a result of this concentration

inn
some of our supply chains, our business and operations could be negatively affected if our key suppliers were to experience significant
disruptions affecting the price, quality, availability or timely delivery of their products. The partial or complete loss of any one of our
key suppliers, or a significant adverse change in the relationship with any of these suppliers, through consolidation or otherwise, may
limit our ability to manufacture and sell certain of our products.

We may not be able to satisfy technical requirements, testing requirements, code requirements or other specifications under
contracts and contract tenders.

Many of our products could be used in harsh environments and severe service applications. Our contracts with customers and
customer requests for bids may set forth detailed specifications or technical requirements (including that they meet certain industrial
code requirements, such as API, ASME or similar codes, or that our processes and facilities maintain ISO or similar certifications) for
our products and services, which may also include extensive testing requirements. We anticipate that such code testing requirements
will become more common in our contracts. We cannot assure you that our products or facilities will be able to satisfy the
specifications or requirements, or that we will be able to perform the full-scale testing necessary to prove that the product
or that the costs of modifications to our products or
specifications are satisfied in future contract bids or under existing contracts,
facilities to satisfy the specifications and testing will not adversely affect our results of operations. If our products or facilities are
unable to satisfy such requirements, or we are unable to perform or satisfy any scale testing, our customers may cancel their contracts
and/or seek new suppliers, and could have a material adverse effect on our business, financial conditions and results of operations.

Risks Relating to Our Indebtedness

We are a holding company and rely on dividends, distributions and other payments, advances and transfers of funds from our
subsidiaries to meet our obligations.

We are a holding company that does not conduct any business operations of our own. As a result, we are largely dependent upon

cash dividends and distributions and other transfers from our subsidiaries to meet our obligations. The agreements governing the
indebtedness of our subsidiaries impose restrictions on our subsidiaries’ ability to pay dividends or other distributions to us. The
ff
deterioration of the earnings from, or other available assets of, our subsidiaries for any reason also could limit or impair th
pay dividends or other distributions to us.

eir ability to

Our outstanding indebtedness could adversely affect our financial condition and our ability to operate our business, and we
may not be able to generate sufficient cash flows to meet our debt service obligations.

As of December 31, 2017, our total outstanding indebtedness was $27.0 million, including $20.0 million under our Senior
Secured Credit Facility. Our outstanding indebtedness and any additional indebtedness we incur may have important consequences for
us, including, without limitation, that:

(cid:120)

we may be required to use a substantial portion of our cash flow to pay the principal of and interest on our indebtedness;

our indebtedness and leverage may increase our vulnerability to adverse changes in general economic and industry
conditions, as well as to competitive pressures;

our ability to obtain additional financing for working capital, capital expenditures, acquisitions and for general corporate
and other purposes may be limited;

expose us to the risk of increased interest rates because our borrowings are at variable rates of interest;

prevent us from taking advantage of business opportunities as they arise or successfully carrying out our plans to expand
our business; and

our flexibility in planning for, or reacting to, changes in our business and our industry may be limited.

Under the terms of the credit agreement governing our Senior Secured Credit Facility, we are required to comply with specified

financial and operating covenants, which may limit our ability to operate our business as we otherwise might operate it. The
obligations under our Senior Secured Credit Facility may be accelerated upon the occurrence of an event of default, which includes
customary events of default including, without limitation, payment defaults, cross-defaults to certain material indebtedness, covenant
defaults, material inaccuracy of representations and warranties, bankruptcy events, material judgments, certain ERISA-related events,
material defects with respect to guarantees and collateral, invalidity of subordination provisions and change of control. If not cured, an
event of default could result in any amounts outstanding, including any accrued interest and unpaid fees, becoming immediately due
and payable, which would require us to, among other things: seek additional financing in the debt or equity markets, refinance
restructure all or a portion of our indebtedness, sell selected assets and/or reduce or delay planned capital or operating expenditures.
Such measures might not be sufficient to enable us to service our debt and any such financing or refinancing might not be available on
economically favorable terms or at all. If we are not able to generate sufficient cash flows to meet our debt service obligations or are
forced to take additional measures to be able to service our indebtedness, it could have a material adverse effect on our business,
financial condition and results of operations.

We and our subsidiaries may be able to incur substantial indebtedness.

We may incur substantial additional indebtedness in the future. Although the terms of the agreement governing our Senior

Secured Credit Facility contains restrictions on our ability to incur additional indebtedness these restrictions are subject to
important exceptions, and indebtedness incurred in compliance with these restrictions could be substantial. If we and our subsidiaries
incur significant additional indebtedness, the related risks to our financial condition could increase.

a number of

Restrictive covenants in the agreement governing our Senior Secured Credit Facility may restrict our ability to pursue our
business strategies.

The agreement governing our Senior Secured Credit Facility contains a number of restrictive covenants that impose significant
operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interests. These
include covenants restricting, among other things, our ability to:

(cid:120)

incur additional indebtedness;

grant liens;

enter into burdensome agreements with negative pledge clauses or restrictions on subsidiary distributions;

make certain investments;

pay dividends;

make payments in respect of junior lien or subordinated debt;

make acquisitions;

consolidate, amalgamate, merge, liquidate or dissolve;

sell, transfer or otherwise dispose of assets;

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make certain organizational changes (including with respect to organizational documents and changes in fiscal year);

engage in sale-leaseback transactions;

engage in transactions with affiliates;

enter into operating leases;

enter into hedging arrangements;

enter into certain leasehold arrangements and arrangements with respect to inventory and equipment;

materially alter our business; and

incur capital expenditures.

on or after March 31, 2018, (ii) commencing with

Our Senior Secured Credit Facility contains financial covenants that require (i) commencing with the fiscal quarter ended
June 30, 2017, compliance with a leverage ratio test set at (A) 3.00 to 1.00 as of the last day of each fiscal quarter ending prior to
March 31, 2018 and (B) 2.50 to 1.00 as of the last day of each fiscal quarter ending
f
the fiscal quarter ended June 30, 2017, compliance with an interest coverage ratio test set at 2.75 to 1.00 as of the last day of each
fiscal quarter, (iii) if the leverage ratio as of the end of any fiscal quarter is greater than 2.00 to 1.00 and the amount outstanding under
the Canadian Facility at any time during such fiscal quarter was greater than $0, compliance as of the end of such fiscal quarter with a
Canadian asset coverage ratio test set at 1.00 to 1.00 and (iv) if the leverage ratio as of the end of any fiscal quarter is gr
eater than 2.00
to 1.00 and the amount outstanding under the U.S. Facility at any time during such fiscal quarter was greater than $0, compliance as of
the end of such fiscal quarter with a U.S. asset coverage ratio test set at 1.00 to 1.00. Our ability to meet these financial ratios can be
affected by events beyond our control and we cannot assure you that we will be able to meet these ratios. A breach of any covenant or
restriction contained in the agreement governing our Senior Secured Credit Facility could result in an event of default under t
agreement. If any such event of default occurs, the lenders under the facility, may elect (after the expiration of any applicable notice or
grace periods) to declare all outstanding borrowings, together with accrued and unpaid interest and other amounts payable thereunder,
to be immediately due and payable. The lenders under our Senior Secured Credit Facility, also have the right upon an event of default
thereunder to terminate any commitments they have to provide further borrowings. Further, following an event of default under the
agreement governing our Senior Secured Credit Facility, the lenders under the facility will have the right to proceed against t
tt
he
r
collateral granted to them to secure that debt. If the debt under our Senior Secured Credit Facility was to be accelerated, our assets
may not be sufficient to repay in full that debt or any other debt that may become due as a result of that acceleration.

histt

Volatility and weakness in bank and capital markets may adversely affect credit availability and related financing costs for us.ss

Bank and capital markets can experience periods of volatility and disruption. If the disruption in these markets is prolonged,

our

ability to refinance, and the related cost of refinancing, some or all of our debt could be adversely affected. Additionally, during
periods of volatile credit markets, there is a risk that lenders, even those with strong balance sheets and sound lending practices, could
fail or refuse to honor their legal commitments and obligations under existing credit commitments, including our Senior Secured
Credit Facility. Although we currently can access the bank and capital markets, there is no assurance that such markets will continue
to be a reliable source of financing for us. These factors, including the tightening of credit markets, could adversely affect our ability
to obtain cost-effective financing. Increased volatility and disruptions in the financial markets also could make it more difficult and
more expensive for us to refinance outstanding indebtedness and obtain financing. In addition, the adoption of new statutes and
regulations, the implementation of recently enacted laws or new interpretations or the enforcement of older laws and regulations
applicable to the financial markets or the financial services industry could result in a reduction in the amount of available credit or an
increase in the cost of credit. Disruptions in the financial markets can also adversely affect our lenders, insurers, customers and other
counterparties. Any of these results could results in a material adverse effect to our business, financial condition and results of
operations.

Risks Relating to Ownership of Our Common Stock

The price of our common stock may be volatile and you could lose all or part of your investment.

Securities markets worldwide have experienced in the past, and are likely to experience in the future, significant price and
volume fluctuations. Specifically, the oilfield services sector has recently experienced significant market volatility. This ma
aa
rket
volatility, as well as general economic, market or political conditions could reduce the market price of our common stock regardless of
our results of operations. The trading price of our common stock may be highly volatile and could be subject to wide price fluctuations
in response to various factors, including, among other things, the risk factors described herein and other factors beyond our control.
f
Factors affecting the trading price of our common stock could include:

(cid:120)

market conditions in the broader stock market;

actual or anticipated variations in our quarterly financial and operating results;

(cid:120)

developments in the oil and natural gas industry in general or in the oil and natural gas services market in particular;

variations in operating results of similar companies;

introduction of new services by us, our competitors or our customers;

issuance of new, negative or changed securities analysts’ reports, recommendations or estimates;

investor perceptions of us and the industries in which we or our customers operate;

sales, or anticipated sales, of our stock, including sales by our officers, directors and significant stockholders;

additions or departures of key personnel;

regulatory or political developments;

the public’s response to press releases or other public announcements by us or third parties, including our filings with the
SEC;

announcements media reports or other public forum comments related to litigation, claims or reputational charges against
us;

guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance;

the sustainability of an active trading market for our common stock;

investor perceptions of the investment opportunity associated with our common stock relative to other investment
alternatives;

other events or factors, including those resulting from system failures and disruptions, earthquakes, hurricanes, war, acts
m
of terrorism, other natural disasters or responses to these events;

changes in accounting principles;

share-based compensation expense under applicable accounting standards;

litigation and governmental investigations; and

changing economic conditions.

These and other factors may cause the market price and demand for shares of our common stock to fluctuate substantially,
which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the
liquidity of our common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock
sometimes have instituted securities class action litigation against the company that issued the stock. Securities litigation against us,
regardless of the merits or outcome, could result in substantial costs and divert the time and attention of our management from our
business, which could significantly harm our business, profitability and reputation.

We are controlled by the Advent Funds, whose interests may differ from those of our public stockholders.

We are controlled by funds (the “Advent Funds”) managed by Advent International Corporation (“Advent”), which beneficially

own in the aggregate 64.7% of the combined voting power of our common stock. As a result of this ownership, Advent will have
effective control over the outcome of votes on all matters requiring approval by our stockholders, including the election of directors,
the adoption of amendments to our charter and bylaws and other significant corporate transactions.

In addition, persons associated with Advent currently serve on our board of directors (our “Board”). The interests of Advent
may not always coincide with the interests of our other stockholders, and the concentration of effective control in Advent will limit
other stockholders’ ability to influence corporate matters. The concentration of ownership and voting power of Advent also may delay,
defer or even prevent an acquisition by a third-party or other change of control and may make some transactions more difficult or
impossible without their support, even if such events are in the best interests of our other stockholders.

Further, Advent may have an interest in having us pursue acquisitions, divestitures, financing or other transactions, including,
but not limited to, the issuance of additional debt or equity and the declaration and payment of dividends, that, in its judgment, could
enhance Advent’s equity investments, even th
Advent Funds may make investments in businesses that directly or indirectly compete with us, or may pursue acquisition opportunities
that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us.

ough such transactions may involve risk to us or to our creditors. Additionally, the

Advent may take actions that our other stockholders do not view as beneficial, which may adversely affect our business,

financial condition and results of operations and cause the value of your investment to decline.

Advent and our directors affiliated with Advent, with certain exceptions,
opportunities to us and may compete with us.

do not have obligations to present business

Our amended and restated certificate of incorporation provides that Advent and our directors affiliated with Advent do not have
any obligation to offer us an opportunity to participate in business opportunities presented to them even if the opportunity is one that
we might reasonably have pursued (and therefore may be free to compete with us in the same business or similar businesses), and that,
to the extent permitted by law, Advent and such directors, will not be liable to us or our stockholders for breach of any duty by reason
of any such activities.

As a result, Advent or any of its managers, officers, directors, agents, stockholders, members, partners, affiliates and

subsidiaries (other than us and our subsidiaries) will not be prohibited from investing in competing businesses or doing business with
our clients. Therefore, we may be in competition with Advent and such persons or their respective affiliates, and we may not have
knowledge of, or be able to pursue, transactions that could potentially be beneficial to us. Accordingly, we may lose certain corporate
opportunities or suffer competitive harm, which could have a material adverse effect on our business, financial condition, results of
operation or prospects.

Future sales of our common stock, or the perception in the public markets that these sales may occur, could cause the market
price for our common stock to decline.

We may sell additional shares of common stock in subsequent public offerings. As of March 7, 2018, we had 44,482,948
outstanding shares of our common stock and one outstanding share of preferred stock. We also have registered 7,645,071 shares of
common stock reserved for issuance under our equity incentive plans and 2,000,000 registered shares of common stock are reserved
for issuance under our Employee Stock Purchase Plan for U.S. Employees (the “U.S. ESPP”) and our Employee Stock Purchase Plan
for non-U.S. Employees (the “Non-U.S. ESPP”). Certain equity holders of NCS Multistage Inc. (Canada), our indirect subsidiary, also
have an exchange right to convert shares of common stock of NCS Multistage Inc. (Canada) into 1,326,935 shares of common stock.

We cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of our common

stock for sale will have on the market price of our common stock prevailing from time to time. Sales of substantial amounts of shares
of our common stock in the public market, or the perception that those sales will occur, could cause the market price of our common
stock to decline.

We have elected to take advantage of the “controlled company” exemption to the corporate governance rules for publicly-listed
companies, which could make our common stock less attractive to some investors or otherwise harm our stock price.

Because we qualify as a “controlled company” under the corporate governance rules for publicly-listed companies on NASDAQ
Global Select Market (“NASDAQ”), we are not required to have a majority of our Board be independent, nor are we required to have
a compensation committee or a Board committee performing the Board nominating function. As permitted by our status as a
controlled company, we may choose to change our Board composition, or the composition of the compensation, nominating and
corporate governance committee. Accordingly, should the interests of the Advent Funds differ from those of other stockholders, the
other stockholders may not have the same protections afforded to stockholders of companies that are subject to all of the corporate
governance rules for publicly-listed companies. Our status as a controlled company could make our common stock less attractive to
some investors or otherwise harm our stock price.

Anti-takeover protections in our amended and restated certificate of incorporation, our amended and restated bylaws or our
tt
contractual obligations may discourage or prevent a takeover of our company, even if an acquisition would be beneficial to our
stockholders.

Provisions contained in our amended and restated certificate of incorporation and amended and restated bylaws, as amended, as

well as provisions of the Delaware General Corporation Law (the “DGCL”), could delay or make it more difficult to remove
tt
incumbent directors or could impede a merger, takeover or other business combination involving us or the replacement of our
management or discourage a potential investor from making a tender offer for our common stock, which, under certain circumstances,
could reduce the market value of our common stock, even if it would benefit our stockholders.

In addition, our Board has the authority to cause us to issue, without any further vote or action by the

10,000,000 shares of preferred stock, par value $0.01 per share, in one or more series, to designate the number of shares constituting
any series, and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, voting rights, rights and
terms of redemption, redemption price or prices and liquidation preferences of such series. The issuance of shares of preferred stock or
the adoption of a stockholder rights plan may have the effect of delaying, deferring or preventing a change in control of our c
f
without further action by the stockholders, even where stockholders are offered a premium for their shares.

ompany

stockholders, up to
tt

In addition, under the agreement governing our Senior Secured Credit Facility, a change of control would cause an event of
default to occur and the lenders under the facility would have the right to accelerate their loans, and if so accelerated, we would be
required to repay all of our outstanding obligations under our Senior Secured Credit Facility. In addition, from time to time we may
enter into contracts that contain change of control provisions that limit the value of, or even terminate, the contract upon a change of
control. These change of control provisions may discourage a takeover of our company, even if an acquisition would be beneficial to
our stockholders.

The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act, and
the requirements of the Sarbanes-Oxley Act, may strain our resources, increase our costs and distract management, and we may
be unable to comply with these requirements in a timely or cost-effective manner.

As a publicly traded company, we have incurred and will continue to incur additional legal, accounting and other expenses that
we were not required to incur in the past, and will incur additional expenses after we cease to be an emerging growth company (to the
extent that we take advantage of certain exceptions from reporting requirements that are available to us as an emerging growth
company under the JOBS Act). We are required to file with the SEC annual and quarterly information and other reports that are
specified in Section 13 of the Exchange Act. We are also subject to other reporting and corporate governance requirements, including
the requirements of NASDAQ and certain provisions of the Sarbanes-Oxley Act and the regulations promulgated thereunder, which
impose additional compliance obligations upon us. Among other things, as a public company:

(cid:120)

we prepare and distribute periodic public reports and other stockholder communications in compliance with our
obligations under the federal securities laws and applicable NASDAQ rules;

the roles and duties of our Board and committees of the Board are expanded;

we comply with more comprehensive financial reporting and disclosure compliance functions;

we manage enhanced investor relations functions; and

we involve and retain to a greater degree outside counsel and accountants in the activities listed above.

These changes require a commitment of additional resources. Our internal resources may not be adequate to support our
increased reporting obligations, and we may be unable to hire, train or retain necessary staff and may be reliant on engaging outside
consultants or professionals to overcome our lack of resources. If our internal resources are inadequate, we are unable to engage
outside consultants or are otherwise unable to fulfill our public company obligations, it could have a material adverse effect on our
business, financial condition and results of operations.

The changes necessitated by becoming a public company require a significant commitment of resources and management
oversight that has increased and may continue to increase our costs and might place a strain on our systems and resources. As a result,
a
our management’s attention might be diverted from other business concerns. If we are unable to offset these costs through other
savings then it could have a material adverse effect on our business, financial condition and results of operations.

In addition, being a public company subject to these rules and regulations makes it more difficult and more expensive for us to

obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain
qualified individuals to serve on our Board or as executive officers.

We are an “emerging growth company” and may elect to comply with reduced reporting requirements applicable to emerging
growth companies, which could make our common stock less attractive to investors.

We are an emerging growth company and we may take advantage of certain exemptions from various reporting requirements
that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required
to comply with the auditor attestation requirements of Section 404 of Sarbanes-Oxley, reduced disclosure obligations regarding
executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding
advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In
addition, even if we choose to comply with certain of the greater obligations of public companies that are not emerging growth
companies, we may avail ourselves of the reduced requirements applicable to emerging growth companies from time to time in the
future. We cannot predict if investors will find our common stock less attractive if we choose to rely on these exemptions. If some
investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our
stock price may be more volatile.

We will remain an emerging growth company until December 31, 2022, or until the earliest of (i) the last day of the first fiscal

year in which our annual gross revenues exceed $1.07 billion, (ii) the date that we become a “large accelerated filer” as defined in
Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds
$700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued
more than $1.0 billion in non-convertible debt during the preceding three-year period, whether or not issued in a registered offering.

We have identified material weaknesses in our internal control over financial reporting and may identify additional material
weaknesses in the future or otherwise fail to maintain an effective system of internal controls, which may result in material
misstatements of our financial statements or cause to us to fail to meet our reporting obligations or fail to prevent fraud; which
would harm our business and could negatively impact the price of our common stock.

Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. If we fail to maintain an
effective system of internal controls, we might not be able to report on our financial results accurately or prevent fraud; which would
harm our business and could negatively impact the price of our common stock. Prior to our IPO, we were a private company and ha
d
limited accounting and financial reporting personnel and other resources with which to address our internal controls and procedures.
In connection with the audit of our financial statements for the years ended December 31, 2015 and December 31, 2016, we and our uu
independent registered public accounting firm identified material weaknesses in our internal control over financial reporting, which
have not yet been remediated as of December 31, 2017. A material weakness is defined as a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstat
h
financial statements will not be prevented or detected on a timely basis.

ement of our

We determined that we did not design or maintain an effective control environment with a sufficient number of trained
professionals with the appropriate level of accounting knowledge and experience to properly analyze, record and disclose accounting
matters commensurate with our financial reporting requirements. This material weakness contributed to the following material
weaknesses in our internal control over financial reporting:

(cid:120)

We did not design and maintain sufficient formal accounting policies and controls
over income taxes. Specifically, we did
t
not have controls designed to address the accuracy of income tax expense (benefit) and related consolidated balance sheet
accounts, including deferred income taxes, as well as adequate procedures and controls to review the work of external
experts engaged to assist in income tax matters related to our tax structure or to monitor the presentation and disclosure of
income taxes.

We did not design and maintain sufficient formal accounting policies and controls
t
of cash flows. Specifically, we did not have controls designed to properly classify cash flows related to our foreign
exchange gains (losses) associated with our foreign denominated debt and deferred financing costs related to our
extinguishment of debt.

over the presentation of the statement

We did not design and maintain adequate controls to address segregation of duties related to journal entries and account
reconciliations as certain accounting personnel have the ability to prepare and post journal entries, as well as reconcile
accounts, without an independent review by someone other than the preparer. Specifically, our internal controls were not
designed or operating effectively to evidence that journal entries were appropriately recorded or were properly reviewed
for validity, accuracy and completeness.

These material weaknesses resulted in the need to correct material misstatements in our consolidated financial statements for the

years ended December 31, 2014 and 2015 prior to their issuance. Each of the material weaknesses described above or any newly
identified material weakness could result in a misstatement of our accounts or disclosures that would result in a material misstatement
of our annual or interim consolidated financial statements that would not be prevented or detected.

We have begun to remediate and plan to further remediate these material weaknesses primarily by implementing additional

review procedures within the accounting and finance department, hiring additional staff, implementing new software and, if
appropriate, engaging external accounting experts with the appropriate knowledge to supplement our internal resources in our
computation and review processes. These actions and planned actions are subject to ongoing management review and the oversight of
our Board. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be
sufficient to remediate the control deficiencies that led to our material weaknesses in our internal control over financial reporting or to
avoid potential future material weaknesses. In addition, neither our management nor an independent registered public accounting firm
has ever performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-
Oxley Act because no such evaluation has been required. Had we or our independent registered public accounting firm performed an
evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, additional
material weaknesses may have been identified. If we are unable to successfully remediate our existing or any future material weakness
in our internal control over financial reporting, or identify any additional material weaknesses that may exist, the accuracy and timing
of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements
regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, we may be unable to prevent
fraud, investors may lose confidence in our financial reporting, and our stock price may decline as a result. Additionally, our reporting
obligations as a public company could place a strain on our management, operational and financial resources and systems for the
a
foreseeable future and may cause us to fail to timely achieve and maintain the adequacy of our internal control over financial
reporting.

Our amended and restated certificate of incorporation provides, subject to certain exceptions,
State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our
stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or
stockholders.

that the Court of Chancery of the

Our amended and restated certificate of incorporation provides, subject to limited exceptions, that the Court of Chancery of the

State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or
proceeding brought on our behalf; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers
or other employees to us or our stockholders; (iii) any action asserting a claim against us, any director or our officers or employees
arising pursuant to any provision of the DGCL, our certificate or our amended and restated by-laws; or (iv) any action asserting a
claim against us, any director or our officers or employees that is governed by the internal affairs doctrine. Any person or entity
purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented
to the provisions of our certificate described above. This choice of forum provision may limit a stockholder’s ability to bring a claim
in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockhol
ders which
may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision that will be
contained in our certificate to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving
such action in other jurisdictions, which could have a material adverse effect on our business, financial condition and results of
operations.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our corporate headquarters are located at 19450 State Highway 249, Suite 200, Houston, Texas 77070. We currently own one

property, located in Calgary, Alberta, which is used for our engineering and research and development activities. In addition to our
property in Calgary, Alberta, we also lease 33 properties that are used for our corporate headquarters, sales offices, manufacturing,
engineering, district operations, laboratory, warehousing and storage yards. All of these properties are leased from third parties. We
believe that these facilities are adequate for our current operations and that none of our leases are individually material to our business.

Item 3. Legal Proceedings

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 and employee matters. Our management currently does not expect that the
results of any of these legal proceedings, either individually or in the aggregate, would have a material adverse effect on our financial
position, results of operations or cash flows.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock has traded on the NASDAQ under the symbol “NCSM” since April 28, 2017. Prior to that time, there was
no public market for our shares. The following table sets forth the NASDAQ high and low sales prices for our common stock for the
periods indicated.

Year Ended December 31, 2017

Second Quarter (beginning April 28, 2017 (first trading date after IPO))
Third Quarter
r
Fourth Quarter

High

Low

$
$
$

29.07 $
25.96 $
24.16 $

19.25
18.17
13.85

See Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for

information regarding shares of common stock authorized for issuance under our stock incentive plans.

Holders

On March 7, 2018, we had 44,482,948 shares of common stock outstanding, which were held by approximately 22 record
holders. The actual number of stockholders is considerably greater than this number of record holders, and includes stockholders who
are beneficial owners but whose shares are held in street name by brokers and other nominees.

Dividends

We do not intend to pay cash dividends on our common stock in the foreseeable future. However, in the future, we may change
this policy and choose to pay dividends. Any future determination to pay dividends will be at the discretion of our Board and will take
into account restrictions in our debt instruments, including our secured credit facilities, our general economic business conditions, our
net income, financial condition and results of operations, our capital requirements, our prospects, the ability of our operating
subsidiaries to pay dividends and make distributions to us, legal restrictions and such other factors as our Board may deem relevant.

Performance Graph

The following performance graph compares the performance of our common stock to the Philadelphia Oil Service Index (OSX)

and the S&P 500 Index. The graph compares the cumulative total return to holders of our common stock with the cumulative total
returns of the Philadelphia Oil Service Index (OSX) and the S&P 500 Index for the period from April 28, 2017, using the closing price
for the first day of trading immediately following the effectiveness of our IPO (rather than the IPO offering price of $17.00 per share)
through December 31, 2017. The graph assumes the value of the investment of $100 on April 28, 2017 and tracks the return on the
investment, including the reinvestment of dividends, through December 31, 2017. The shareholder return set forth herein is not
f
necessarily indicative of future performance.

COMPARISON OF CUMULATIVE TOTAL RETURN AMONG NCSM, THE
PHILADELPHIA OIL SERVICE INDEX (OSX) AND THE S&P 500 INDEX (SINCE
IPO - APRIL 28, 2017)

$140.00

$130.00

$120.00

$110.00

$100.00

$90.00

$80.00

$70.00

$60.00

4/30/2017

5/31/2017

6/30/2017

7/31/2017

8/31/2017

9/30/2017

10/31/2017

11/30/2017

12/31/2017

NCS Multistage, Inc.

OSX Index

S&P 500 Index

The performance graph above and related information shall not be deemed “soliciting material” or to be “filed” with the SEC,

nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended (th
e
“Securities Act”) or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), except to the extent that we specifi
incorporate by reference.

cally

Unregistered Sales of Equity Securities and Use of Proceeds

The following sets forth information regarding all unregistered securities sold by us in transactions that were exempt from the

requirements of the Securities Act in the last three years:

(cid:120)

In May 2015, we granted options to purchase 18,612 and 15,399 shares of common stock at a strike price of $11.82 per
share, to certain employees.

In December 2015, we granted options to purchase an aggregate of 8,289 shares of common stock at a strike price of
$0.003 per share, to certain employees.

In December 2015, in connection with entering into the Subscription Agreement with the Advent Funds, we issued to
Advent and certain stockholders and members of our management consisting of Robert Nipper, Tim Willems, Wade
Bitter, Ryan Hummer and certain employees, an aggregate of 4,179,174 shares of common stock at a purchase price of
$9.55 per share.

(cid:120)

In January 2016, we issued 5,235 shares of common stock at a purchase price of $9.55 per share, to a former employee.

In April 2016, we granted options to purchase 6,150, 4,500 and 18,843 shares of common stock at a strike price of $9.55
per share, to certain employees.

In July 2016, we issued 5,400 shares of common stock at a purchase price of $9.55 per share and granted options to
purchase an aggregate of 23,553 shares of common stock at a strike price of $9.55 per share, to Kevin Trautner.

In August 2016, we granted options to purchase an aggregate of 17,835 shares of common stock at a strike price of $9.81
per share, to a certain employee.

In May 2017, in connection with the exercise of the over-allotment option in connection with our IPO, we issued 50,000
shares of common stock to Cemblend Systems, Inc. (“Cemblend”) in exchange for shares of one of our wholly-owned
subsidiaries.

In August 2017, we issued 355,658 shares of common stock to certain individuals in exchange for their membership
interests in Spectrum.

In February 2018, we issued 442,312 shares of common stock to Cemblend in exchange for shares of one of our wholly-
owned subsidiaries.

The shares of common stock in all of the transactions listed above were issued or will be issued in reliance upon Section 4(a)(2)
of the Securities Act or Rule 701 promulgated under Section 3(b) of the Securities Act as the sale of such securities did not or will not
involve a public offering. The recipients of the securities in each of these transactions represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends
were placed upon the stock certificates issued in these transactions. All recipients had adequate access, through their relationships with
us, to information about us.

Issuer Purchases of Equity Securities

None.

Item 6. Selected Financial Data

The selected consolidated financial information contained below is derived from our consolidated financial statements and

should be read in conjunction with Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and our audited consolidated financial statements each of which is included in this Form 10-K. Our historical results are
not necessarily indicative of our results to be expected in any future period.

2017

Year Ended December 31,
2016
(in thousands, except per share amounts)

2015

Revenues
Product sales
Services

Total revenues

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

Total cost of sales, exclusive of depreciation
and amortization expense shown below
Selling, general and administrative expenses
Depreciation
Amortization
Change in fair value of contingent consideration

Income (loss) from operations

Other income (expense)
Interest expense, net
Other income (expense), net
t
Foreign currency exchange gain (loss)

Total other (expense) income

Income (loss) before income tax
Income tax expense (benefit)

Net income (loss)
Net loss attrtt ibutable to non-controlling interest
Net income (loss) attributable to NCS Multistage Holdings, Inc.
Net income (loss) per share

Basic
Diluted

Weighted average shares outstanding
Basic
Diluted (1)
Consolidated Statement of Cash Flows Data:
Net cash provided by (used in)
Operating activities
Investing activities
Financing activities
Other Financial Data:
Adjd usted EBITDA (2)
Consolidated Balance Sheet Data:
Cash and cash equivalents
Total assets
Total debt, net
t
Total liabilities
Total stockholders' equitytt
_______________

144,666
56,968
201,634

73,220
25,259
98,479

80,079
33,926
114,005

76,288

22,504

98,792
64,707
3,193
24,458
5,525
4,959

(4,306)
1,085
224
(2,997)
1,962
670
1,292
(810)
2,102

0.05
0.05

40,484
43,583

16,114
(85,221)
84,033

49,498

33,809
463,913
27,036
94,922
356,847

$
$

40,511

13,322

53,833
37,061
1,766
23,801
—
(17,982)

(6,286)
45
(2,522)
(8,763)
(26,745)
(8,818)
(17,927)
—
(17,927) $

(0.53) $
(0.53) $

34,008
34,008

10,684
(1,840)
(315)

13,880

18,275
326,827
89,166
149,349
177,478

40,160

14,553

54,713
37,804
2,695
24,576
—
(5,783)

(8,064)
(131)
25,779
17,584
11,801
(16,224)
28,025
—
28,025

0.88
0.86

29,966
32,433

4,369
(1,221)
(12,766)

26,219

9,545
332,537
85,856
145,068
187,469

$
$

(1) The diluted weighted average shares outstanding amount excludes the impact of options that would be anti-dilutive.

(2) Adjusted EBITDA is defined as net income (loss) before interest expense, net, income tax expense (benefit) and depreciation

and amortization adjusted to exclude certain items which we believe are not reflective of ongoing performance or which, in
the case of share-based compensation, are non-cash in nature. We believe that Adjusted EBITDA is an important measure
that excludes costs that management believes do not reflect our ongoing operating performance and certain costs associated
with our capital structure. Accordingly, Adjusted EBITDA is a key metric that management uses to assess the period-to-
period performance of our core business operations. We believe that presenting Adjusted EBITDA enables investors to assess
our performance from period to period using the same metrics utilized by management and also allows investors to evaluate
our performance relative to other companies that are not subject to such factors. Adjusted EBITDA is not defined under
generally accepted accounting principles (“GAAP”), is not a measure of net income, income from operations or any other
performance measure derived in accordance with GAAP, and is subject to important limitations. Adjusted EBITDA may not
be comparable to similarly titled measures of other companies in our industry and is not a measure of performance calculated
in accordance with GAAP.

A reconciliation of net income (loss), the most directly comparable GAAP measure, to Adjusted EBITDA on a consolidated
basis for the periods indicated is as follows (in thousands):

Net income (loss)
Income tax expense (benefit)
Interest expense, net (a)
Depreciation
Amortization
EBITDA

Share-based compensation (b)
Restructuring charges (c)
Professional fees (d)
Unrealized foreign currency loss (gain) (e)
Realized foreign currency gain (f)
Change in fair value of contingent consideration (g)
Other (h)

Adjusted EBITDA

2017

Year Ended December 31,
2016

2015

1,292
670
4,306
3,193
24,458
33,919
6,108
—
3,870
17,006
(17,230)
5,525
300
49,498

(17,927)
(8,818)
6,286
1,766
23,801
5,108
1,354
277
3,079
2,612
(89)
—
1,539
13,880

28,025
(16,224)
8,064
2,695
24,576
47,136
1,313
430
306
(12,787)
(12,992)
—
2,813
26,219

(a)

Includes the remaining debt issuance costs of $1,422 related to the prior credit agreement that were expensed when the debt was
repaid with a portion of our net proceeds from the IPO during the second quarter of 2017.

(b) Represents non-cash compensation charges related to share-based compensation granted to our officers, employees and directors.
(c) Represents severance and other expenses associated with headcount reductions and other cost savings initiated as part of our

restructuring initiatives.

(d) Represents non-capitalizable costs of professional services incurred in connection with our IPO, financings and refinancings and

the evaluation of proposed and completed acquisitions.

(e) Represents unrealized foreign currency translation gains and losses primarily in respect of our indebtedness.
(f) Represents realized foreign currency translation gains and losses with respect to principal and interest payments related to our uu

indebtedness.

(g) Represents the change in the fair value of the earn-outs associated with our acquisitions.
(h) Represents the impact of a research and development subsidy that is included in income tax expense (benefit) in accordance with
GAAP, fees incurred in connection with refinancing our credit facilities, arbitration awards, board of directors fees and trave
l
expenses prior to our IPO as permitted by the terms of our prior credit agreement and other charges and credits.

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 St
atements,” Item 6. “Selected Historical
CC
Financial Data” 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
Item 1A. “Risk Factors.” Our actual results may differ materially from those contained in or implied by these forward-looking
statements.

Overview

We are a leading provider of highly engineered products and support services that facilitate the optimization of oil and natural
gas well completions and field development strategies. We provide our products and services primarily to E&P companies for use in
onshore wells, predominantly wells that have been drilled with horizontal laterals in unconventional 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 Argentina, China and Russia. We provided our products and services to over 240 customers in 2017, including leading large
independent oil and natural gas companies and major oil companies.

Our primary offering is our Multistage Unlimited family of completion products and services, which enable efficient pinpoint

In addition to our Multistage Unlimited family of completion products and services, we sell other products including our

AirLock casing buoyancy system and liner hanger systems. We also prov
characterization services that utilize downhole chemical and radioactive tracers through Spectrum Tracer Services and engineering
consulting services through Anderson Thompson Reservoir Strategies. We operate in one reportable segment.

ide well completion diagnostics and reservoir

Market Conditions

Oil and Natural Gas Drilling and Completion Activity

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

Over the past several years, North American E&P companies have been able to reduce their cost structures in response to lower

oil and natural gas prices and have also utilized technologies, including ours, to increase efficiency and improve well performance.
After a period of declining drilling and completion activity from late 2014 through early 2016, North American E&P companies began
to increase activity levels beginning in the second quarter of 2016, as evidenced by increasing rig counts in the U.S. and Canada. The
average U.S. land rig count improved from 398 in the second quarter of 2016 to 902 in the fourth quarter of 2017, while the average
rig count in Canada, which exhibits a higher degree of seasonality than the U.S., increased from 180 in the fourth quarter of 2016 to
203 in the fourth quarter of 2017. Over this time, the demand for our products and services has also increased. On an annual basis, the
average U.S. land rig count improved from 486 in 2016 to 856 in 2017, while the average rig count in Canada increased from 128 in
2016 to 205 in 2017.

Oil and natural gas prices remain volatile, with WTI crude oil pricing falling to a low of approximately $26 per barrel in
February 2016 before recovering to approximately $60 per barrel by the end of December 2017. Crude oil pricing has been supported
by voluntary oil production reductions by members of the Organization of Petroleum Exporting Countries (“OPEC”), and certain other
countries, including Russia. These supply reductions were announced in November 2016 and were initially implemented in 2017. In
November 2017, OPEC and certain other countries, including Russia, announced their intent to extend the supply reductions through
the end of 2018. There can be no assurance that the countries involved will comply with the intended reductions or the amount of oil
supply that may be returned to the market if the supply reductions are not extended beyond the end of 2018. Natural gas pricing
reached a low of approximately $1.50 per mmBtu in March 2016 before recovering to an average level of approximately $3.00 per
mmBtu during 2017. Realized natural gas prices for Canadian E&P customers are typically at a discount to U.S. Henry Hub pricing.

Spot pricing for Canadian natural gas at the AECO hub has been volatile since mid-2017, with wider-than-normal discounts to Henry
Hub pricing resulting from infrastructure bottlenecks and elevated local storage levels. Some Canadian E&P customers have reacted to
the lower prices by shutting in a portion of their natural gas production, negatively impacting their cash flows and planned capital
spending and drilling activity. Sustained declines in commodity prices, combined with potential increases in the cost of drilling and
completing wells resulting from high utilization in certain oilfield services categories could 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:

Quarter Ended
3/31/2015
6/30/2015
9/30/2015
12/31/2015
3/31/2016
6/30/2016
9/30/2016
12/31/2016
3/31/2017
6/30/2017
9/30/2017
12/31/2017

WTI Crude
(per bbl)

Average Price

Brent Crude
(per bbl)

Henry Hub Natural
Gas
(per mmBtu)

48.49
57.85
46.49
41.94
33.35
45.46
44.85
49.14
51.62
48.10
48.15
55.27

53.98
61.65
50.44
43.56
33.84
45.57
45.80
49.11
53.59
49.55
52.10
61.40

2.90
2.75
2.76
2.12
1.99
2.15
2.88
3.04
3.02
3.08
2.95
2.91

Crude Oil (per bbl)

$65.00

$55.00

$45.00

$35.00

$25.00

$15.00

3/31/2015

6/30/2015

9/30/2015 12/31/2015 3/31/2016

6/30/2016

9/30/2016 12/31/2016 3/31/2017

6/30/2017

9/30/2017 12/31/2017

WTI Crude (per bbl)

Brent Crude (per bbl)

Henry Hub Natural Gas (per mmBtu)

$4.00

$3.50

$3.00

$2.50

$2.00

$1.50

$1.00

3/31/2015

6/30/2015

9/30/2015

12/31/2015

3/31/2016

6/30/2016

9/30/2016

12/31/2016

3/31/2017

6/30/2017

9/30/2017

12/31/2017

Henry Hub Natural Gas (per mmBtu)

Listed and depicted below are the average number of operating onshore rigs in the U.S. and in Canada per quarter since the first

quarter of 2015, as provided by Baker Hughes:

Quarter Ended
3/31/2015
6/30/2015
9/30/2015
12/31/2015
3/31/2016
6/30/2016
9/30/2016
12/31/2016
3/31/2017
6/30/2017
9/30/2017
12/31/2017

Average Drilling Rig Count

U.S. Land

Canada Land

North America
Land

1,353
876
833
724
524
398
461
567
722
874
927
902

310
95
186
168
170
47
119
180
294
116
207
203

1,664
971
1,020
892
694
445
580
746
1,016
990
1,134
1,105

North American Land Rig Count

Consider Canada on Right Axis

1,800

1,600

1,400

1,200

1,000

800

600

400

200

-
3/31/2015

800

700

600

500

400

300

200

100

6/30/2015

9/30/2015

12/31/2015

3/31/2016

6/30/2016

9/30/2016

12/31/2016

3/31/2017

6/30/2017

9/30/2017

12/31/2017

U.S. Land (LHS)

North America Land (LHS)

Canada Land (RHS)

A substantial portion of our business is subject to 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 drill sites and road bans that curtail drilling and completion activity. Access to well sites
econd
typically improves throughout the third and fourth quarters in Canada, leading to activity levels that are higher than in the s
quarter, but lower than activity in the first quarter. Our business can also be impacted by a reduction in customer activity du
uu
ring the
winter holidays in late December and early January.

The average Canadian rig count declined slightly in the fourth quarter of 2017 relative to the third quarter, especially in

Saskatchewan, where we have significant operations. We believe this reduction in drilling activity was primarily a result of low recent
spot natural gas prices, certain customers having exhausted their 2017 capital budgets prior to year-end and typical reductions in
activity driven by holidays in the fourth quarter.

Based on the current commodity price environment, many U.S. E&P companies have indicated that they expect to increase their

drilling and completions budgets in 2018, relative to 2017. In the first quarter of 2018 many E&P and oilfield services companies,
including us, have noted instances of supply chain disruptions related to material and labor availability, which have resulted in what
are expected to be temporary delays in planned drilling and completion activity. The market in Canada continues to be impacted by
logistical constraints in moving oil and natural gas from areas of production activity to demand centers. These constraints have led to
lower realized pricing for our Canadian customers, especially those that sell natural gas into the local market. As a result, industry
capital spending in Canada in 2018 is currently forecast to be in line with or below 2017 levels, with higher spending by producers of
oil and liquids-rich natural gas offset by declines by producers of natural gas. During the first nine weeks of 2018, the average land
drilling rig count in Canada, as provided by Baker Hughes, has been seven percent lower than during the same period in 2017. We
expect that we will be able to leverage our technologically differentiated product and service offering to continue to grow our business
in 2018, especially in the United States, where industry activity is expected to grow and where we have greater opportunities for
further market share penetration.

r
ff

Increasing Adoption of Pinpoint Stimulation

Traditional well completion techniques, including plug and perf and ball drop, currently account for the majority of

unconventional well completions in North America. We believe that pinpoint stimulation provides substantial benefits compared to
these traditional well completion techniques and that pinpoint stimulation has become increasingly utilized by operators in North
America, particularly in Canada. Our ability to grow our market share, as evidenced by the percentage of horizontal wells in North
America completed using our products and services, will depend in large part on the industry’s continued adoption of pinpoint
stimulation to complete wells.

Increasing Well Complexity and Focus on Completion Optimization

In recent years, E&P companies have drilled longer horizontal wells and completed more hydraulic fracturing stages per well to

maximize the volume of hydrocarbon recoveries per well. This trend towards more complex wells has resulted in us selling more
sleeves per well on average, which increases our revenue opportunity per well completion. Additionally, E&P companies have
become increasingly focused on well productivity through optimization of completion designs and we believe this trend may further
the adoption of pinpoint stimulation, and in turn, increase the opportunity for sales of our products and services if our customers
observe operational benefits and long-term production results from the application of pinpoint stimulation. This trend towards more
complex well completions has also resulted in increased use of tracer diagnostics services, which can be utilized to assess the
effectiveness of various well completion techniques in support of completion optimization efforts.

Acquisitions

On August 31, 2017, we acquired 100% of the equity interests in Spectrum in exchange for approximately $83 million.

Spectrum offers chemical and radioactive tracer diagnostics services that our customers utilize to better characterize their assets and to
optimize completion designs. Chemical and radioactive tracer studies may provide a cost-effective and reliable means to determine the
production profile along a lateral, assess fluid and proppant communication between wells during completions and determine stage
and cluster level efficiency of completion designs. We believe Spectrum’s tracer diagnostics services strengthens our ability t
our customers with actionable data and analysis to optimize o

Spectrum’s tracer diagnostics services strengthens our ability to provide

il and natural gas well completions and field development strategies.

On February 1, 2017, we acquired a 50% interest in Repeat Precision for $6.0 million. Repeat Precision has historically been a

supplier to NCS. Our strategic purchase of 50% of this business ensures that we have continued access to their machining services and
allows us greater control of the allocation of Repeat Precision’s capacity, ensuring that we can scale their operations together with
ours. In addition, Repeat Precision also markets certain completion products on a wholesale basis, providing an additional revenue
opportunity.

In connection with both the Repeat Precision and Spectrum acquisitions, we may need to pay the respective sellers additional

consideration as part of an earn-out upon meeting certain specified
d
targets. For additional inform
see “Note. 3 Acquisitions” of our consolidated financial statements.

ation regarding our 2017 acquisitions,

How We Generate Revenues

We derive the majority of our revenues from the sale of our Multistage Unlimited products and the provision of related services.

The remainder of our revenues are generated from sales of our AirLock casing buoyancy system, our liner hanger systems and
services provided by Spectrum and Anderson Thompson Reservoir Strategies. Our joint venture, Repeat, generates revenue through
the provision of third-party manufacturing services and the sale of composite bridge plugs.

Product sales represented approximately 72%, 74% and 70% of our revenue for the years ended December 31, 2017, 2016 and
2015, respectively. Most of our sales are on a just-in-time basis, as specified in individual purchase orders, with a fixed pri
ce for our
sliding sleeves. We occasionally supply our customers with large orders that may be filled on negotiated terms. Services represented
28%, 26% and 30% for the years ended December 31, 2017, 2016 and 2015. Services include our tool charges and associated services
related to our Multistage Unlimited offering and our tracer diagnostics services (which are classified together as “services” in our
i
financial results). Services are provided at agreed rates we charge to our customers for the provision of our downhole frac iso
assembly, our personnel and for the provision of tracer diagnostics services.

lation

During periods of low drilling and well completion activity we will, in certain instances, lower the prices of our products and

services. Our revenues are also impacted by well complexity, with wells with more stages resulting in longer jobs and increased
revenue attributable to selling more sliding sleeves and the provision of our services.

For the years ended December 31, 2017, 2016 and 2015, approximately 63%, 71% and 66%, respectively, of our revenues were

derived from sales in Canada and were denominated in Canadian dollars. Because our Canadian contracts are typically invoiced in
Canadian dollars, the effects of foreign currency fluctuations are regularly monitored.

Although most of our sales are to North American E&P companies, we do have sales to customers outside of North America
and expect sales to international customers to increase over time. These international sales are typically made to our local operating
partners on a free on board basis with a point of sale in the United States. Some of the locations in which we have operating partners
or sales representatives include Argentina, China, Russia and the Middle East. Our operating partners and representatives do no
authority to contractually bind our company, but market our products in their respective territories as part of their product or service
offering.

t have

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 manufacturing of components used in our products and costs related to our employees that perform quality control analysis,
assemble and test our products. During the first quarter of 2017, we entered into our joint venture, Repeat Precision, which we believe
will allow us to reduce our costs for certain product categories. We review forecasted activity levels in our business and either directly
procure or ensure that our vendors procure the required raw materials with sufficient lead time to meet our business requirements. On
March 8, 2018, the Trump Administration signed an order that will impose an import tariff of 25% on steel. While we and our
suppliers have locked in pricing for certain raw materials required to support our anticipated business
activity during 2018, we
anticipate that the tariff could result in an increase in our cost of sales, beginning as early as the second quarter. We expect to have
success in passing through some, if not all, increases in raw material costs directly resulting from the tariff to our customers, however
there can be no assurance that we will be able to do so. 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 and revaluation or scrap related to our existing inventory and costs related to the chemicals and laboratory analysis
associated with our tracer diagnostics services.

Our selling, general and administrative 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, software licensing, advertising and marketing,
third party research and development, risk insurance and professional service fees fo
k
2015 and 2016, in response to decreased demand for our products and services resulting from the decline in E&P activity in our
markets, we reduced our headcount and took certain other actions which resulted in restructuring charges, primarily severance
expense. As a result of being a public company, our legal, accounting and other expenses have increased and will further increase for
costs associated with our compliance with the Sarbanes-Oxley Act.

r audit, legal and other consulting services. In

The percentage of our costs, defined as cost of sales, excluding depreciation and amortization, and including SG&A,
denominated in Canadian dollars for the years ended December 31, 2017, 2016 and 2015, were approximately 32%, 36% and 33%,
respectively.

How We Evaluate our Results of Operations

Our management uses a variety of financial and operating metrics to analyze our performance. These metrics are significant

factors in assessing our results of operations and profitability and include:

Revenues

We primarily sell our products and services under purchase orders with pricing negotiated on a one-off basis with each
customer. Our revenues are generated primarily from the sales of our completion products and from services related to the utilization
of our downhole frac isolation assembly as well as from the provision of tracer diagnostics services. We compare our actual revenue
performance on a monthly, quarterly and annual basis to our annual budget and to the most recent estimate we have for the relevant
period and to applicable market metrics.

Adjusted EBITDA

We define Adjusted EBITDA as net income (loss) before interest expense, net, income tax expense (benefit) and depreciation

and amortization further adjusted to exclude certain items which we believe are not reflective of our ongoing performance or which, in
the case of share-based compensation, are noncash in nature. We believe that Adjusted EBITDA is an important measure that excludes
many of the costs associated with our existing capital structure and excludes costs that management believes do not reflect our
ongoing operating performance. Adjusted EBITDA helps to identify trends in the performance of our core ongoing operations by
excluding the effects related to (i) noncash items, such as share-based compensation expense, the amortization of intangible assets,

and realized and unrealized gains associated with fluctuations in foreign currency exchange rates and (ii) charges that do not relate to
our operations, such as interest expense and income tax benefits. Accordingly, Adjusted EBITDA is a key metric that management
uses to assess the period-to-period performance of our core business operations, as a benchmark for certain performance-based
compensation awards and to compare our operating performance to our peers and competitors.

Adjusted EBITDA is a non-GAAP financial measure and should not be considered as an alternative to net income as a measure

of profitability.

Free Cash Flow

We also utilize free cash flow to evaluate the cash generated by our operations and results of ope

rations. We define free cash

flow as net cash provided by (used in) operating activities less purchases of property and equipment plus proceeds from sales of
property and equipment, as presented in our consolidated statement of cash flows. Management believes free cash flow is useful
because it provides information to investors regarding the cash that was available in the period that was in excess of our needs to fund
our capital expenditures and other investment needs. Free cash flow does not represent our residual cash flow available for
discretionary expenditures, as we have non-discretionary expenditures, including, but not limited to, repayment of outstanding
balances under our Senior Secured Credit Facility, that is not deducted in calculating free cash flow.

Free Cash Flow is a non-GAAP financial measure and should not be considered as an alternative to cash provided by operating

activities as a cash flow measurement.

Total Sleeves Sold and Total Wells Completed

We also evaluate our performance using certain key operating data relating to levels of activity in our business, including, th

e
number of wells completed using our technology, and the number of sleeves we sold to our customers. We use the operating metrics
described above as measures of performance. Our management als
comparing our current actual results against budgeted and estimated amounts and industry trends.

o evaluates and manages the performance of our business by

Results of Operations

We made acquisitions in the first quarter and third quarter of 2017. For additional information about these acquisitions, see
“Note. 3 Acquisitions” of our consolidated financial statements. Due to these acquisitions, our results of operations for the 2017
periods presented may not be comparable to historical results of operations for the prior periods. The following table summariz
f
revenues and expenses for the periods indicated (dollars in thousands):

es our

Revenues
Product sales
Services

Total revenues

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

Income (loss) from operations

Other income (expense)
Interest expense, net
Other income (expense), net
t
Foreign currency exchange gain (loss)

Total other (expense) income

Income (loss) before income tax
Income tax expense (benefit)

Net income (loss)
Net loss attributable to non-controlling interest
Net income (loss) attributable to NCS Multistage
Holdings, Inc.
g

2017

2016

2015

2017 /2016
% Change

2016 /2015
% Change

Year Ended December 31,

144,666
56,968
201,634

73,220
25,259
98,479

80,079
33,926
114,005

97.6 %
125.5 %
104.7 %

(8.6)%
(25.5)%
(13.6)%

76,288

40,511

40,160

88.3 %

0.9 %

22,504

13,322

14,553

68.9 %

(8.5)%

98,792
64,707
3,193
24,458
5,525
4,959

(4,306)
1,085
224
(2,997)
1,962
670
1,292
(810)

53,833
37,061
1,766
23,801
—
(17,982)

(6,286)
45
(2,522)
(8,763)
(26,745)
(8,818)
(17,927)
—

54,713
37,804
2,695
24,576
—
—
(5,783)

(8,064)
(131)
25,779
17,584
11,801
(16,224)
28,025
—
—

83.5 %
74.6 %
80.8 %
2.8 %
100.0 %
127.6 %

(31.5)%
2,311.1 %
108.9 %
65.8 %
107.3 %
(107.6)%
107.2 %
(100.0)%

(1.6)%
(2.0)%
(34.5)%
(3.2)%
––%
(210.9)%

(22.0)%
134.4 %
(109.8)%
(149.8)%
(326.6)%
(45.6)%
(164.0)%
––%

2,102

(17,927) $

28,025

111.7 %

(164.0)%

Year Ended December 31, 2017 compared to Year Ended December 31, 2016

Revenues

Revenues were $201.6 million for the year ended December 31, 2017 as compared to $98.5 million for the year ended

December 31, 2016. This increase was primarily attributable to an increase in volume of sales of our completions products and
services due to higher drilling and well completion activity in North America as a result of an improved commodity price
environment in 2017 as compared to 2016 as well as the contribution of Repeat Precision and four months of revenue from Spectrum.
Product sales for the year ended December 31, 2017 were $144.7 million as compared to $73.2 million for the year ended
December 31, 2016. Our service revenue was $57.0 million for the year ended December 31, 2017 as compared to $25.3 million for
the year ended December 31, 2016.

Cost of sales

Cost of sales was $98.8 million, or 49.0% of revenues, for the year ended December 31, 2017 as compared to $53.8 million, or
54.7% of revenues, for the year ended December 31, 2016. The increase in cost of sales was primarily a result of a higher number of
wells completed and a higher volume of product sales as well as the effect of Repeat Precision and four months of cost of sales from
Spectrum. Cost of sales were a lower percentage of revenues due to the higher volume of well completions and sliding sleeve and
AirLock system sales, resulting in greater absorption of fixed costs. Cost of product sales was $76.3 million or 52.7% of product sales
revenue and cost of services was $22.5 million or 39.5% of service revenue for the year ended December 31, 2017. For the year ended
December 31, 2016, cost of product sales was $40.5 million or 55.3% of product sales revenue and cost of services was $13.3 million
or 52.7% of service revenue.

Selling, general and administrative expenses

Selling, general and administrative expenses were $64.7 million for the year ended December 31, 2017 as compared to
$37.1 million for the year ended December 31, 2016. The increase was the direct result of headcount additions in substantially all
functional areas. In addition, there were significant non-capitalizable additional expenses incurred related to our IPO of $2.3 million,
subsequent costs related to operating as a public company, expenses related to the acquisitions, the effect of Repeat Precision and four
months of operations from Spectrum and an increase in share-based compensation related to the issuance of restricted stock units and
amendments to certain stock options that were to vest only in connection with a change of control (the “Liquidity Options”) as
discussed in “Note 11. Share-Based Compensation” of our consolidated financial statements.

Depreciation

Depreciation was $3.2 million for the year ended December 31, 2017 as compared to $1.8 million for the year ended
December 31, 2016. The increase is attributable to a higher level of property and equipment, primarily related to our acquisitions.

Amortization

Amortization was $24.5 million for the year ended December 31, 2017 as compared to $23.8 million for the year ended
December 31, 2016. The majority of the increase in amortization was due to an increase in amortizable intangible assets related to our
d
acquisitions and the increase in the average exchange rate between the Canadian dollar and the U.S. dollar.

Change in fair value of contingent consideration

Change in fair value of contingent consideration was $5.5 million for the year ended December 31, 2017 due to the $5.5 million

increase in the fair value of the earn-outs associated with our acquisitions.

Interest expense, net

Interest expense, net was $4.3 million for the year ended December 31, 2017 as compared to $6.3 million for the year ended
December 31, 2016. The decrease in interest expense, net was primarily a result of prepaying our Prior Term Loan in full in May 2017
by utilizing a portion of the proceeds from our IPO. The decrease was partially offset by the write-off of the remaining loan fees of
$1.4 million associated with the prepayment of the Prior Term Loan and interest expense due to borrowing $20.0 million under our uu
Senior Secured Credit Facility in August 2017.

Other income (expense), net

Other income (expense), net was $1.1 million for the year ended December 31, 2017 as compared to $45 thousand for the year

ended December 31, 2016. Other income (expense), net was higher primarily due to the receipt of $0.9 million from an arbitration
case that was decided in our favor in February 2017.

Foreign currency exchange gain (loss)

Foreign currency exchange gain was $0.2 million for the year ended December 31, 2017 as compared to a loss of $(2.5) million

for the year ended December 31, 2016. The change was primarily due to the impact of the retirement of our foreign currency
denominated debt and changes in the foreign currency exchange rates between the periods.

Income tax expense (benefit)

Income tax expense (benefit) was $0.7 million for the year ended December 31, 2017 as compared to a benefit of $(8.8) million

for the year ended December 31, 2016. For the years ended December 31, 2017 and 2016, our effective income tax rates were
34.1% and 33.0%, respectively. The primary differences between these effective tax rates were due to several offsetting items,
tt
including the effects of recording a tax expense for the recently enacted U.S. tax reform legislation commonly referred to as the 2017
Tax Act of $3.9 million, not providing U.S. income taxes on the undistributed earnings of foreign subsidiaries because we intend to
permanently reinvest such earnings outside the U.S. and a tax benefit for the reversal of our deferred tax liability due to the change in
our foreign unremitted earnings assertion of $3.9 million. During the first quarter of
undistributed foreign earnings are indefinitely or permanently reinvested as a result of cash proceeds received from the IPO during
May 2017, a portion of which was used to pay off existing debt.

2017, we changed our assertion to state that

The 2017 Tax Act significantly changes how the U.S. taxes corporations. The 2017 Tax Act requires complex computations to

be performed that were not previously required by U.S. tax law, significant judgments to be made in interpretation of the provisions of
the 2017 Tax Act, significant estimates in calculations, and the preparation and analysis of information not previously relevant or

regularly produced. The ultimate impact of the 2017 Tax Act ma
y differ from our estimates, possibly materially, due to changes in the
interpretations and assumptions made as well as additional regulatory guidance that may be issued and actions we may take as a result
of the 2017 Tax Act.

The 2017 Tax Act was signed into law on December 22, 2017. The 2017 Tax Act significantly revises the U.S. corporate
income tax by, among other things, lowering the statutory corporate tax rate from 35% to 21%, eliminating certain deductions,
imposing a mandatory one-time tax on accumulated earnings of foreign subsidiaries as of 2017, introducing new tax regimes, and
changing how foreign earnings are subject to U.S. tax. We have reasonably estimated the effects of the 2017 Tax Act and recorded
amounts in our financial statements as of December 31, 2017. We recorded a tax benefit of $0.5 million for the remeasurement of
federal net deferred tax liabilities resulting from the permanent reduction in the U.S. statutory corporate tax rate to 21% fro
recorded a mandatory one-time tax on the accumulated earnings of our foreign subsidiaries of $4.4 million. As we complete our
analysis of the 2017 Tax Act, collect and prepare necessary data, and interpret any additional guidance issued by the U.S. Treasury
Department, the IRS, and other standard-setting bodies, we may make adjustments to the recorded amounts. Those adjustments may
impact our provision for income taxes in the period in which the adjustments are made.

m 35% and

On a longer term basis, certain aspects of the 2017 Tax Act are expected to have a positive impact on our future income tax

expense, including the reduction in the U.S. corporate income tax rate.

As a result of the geographic mix of earnings and losses, including discrete tax items, our tax rate has been and will continue to

be volatile.

Year Ended December 31, 2016 compared to Year Ended December 31, 2015

Revenues

Revenues were $98.5 million for the year ended December 31, 2016 as compared to $114.0 million for the year ended

December 31, 2015. The decrease was a direct result of a decline in the sales of our completions products and services resulting from
lower drilling and well completion activity in North America driven by declines in commodity pricing. Product sales for the year
ended December 31, 2016 were $73.2 million as compared to $80.1 million for the year ended December 31, 2015. The decreased
revenue as compared to the increased sleeve quantity reflects pricing declines per sleeve and a shift in mix to lower-priced sleeve
models during the period. Our service revenue was $25.3 million for the year ended December 31, 2016 as compared to $33.9 million
for the year ended December 31, 2015.

Cost of sales

Cost of sales was $53.8 million, or 54.7% of revenues, for the year ended December 31, 2016 as compared to $54.7 million, or

48.0% of revenues, for the year ended December 31, 2015. The decrease in cost of sales was primarily a result of a decline in thett
number of wells completed, partially offset by the higher volume of product sales. The higher percentage of revenues is related to the
realized pricing concessions on all product lines in addition to the specific lower pricing related to excess inventory sales made at
discounted prices. Offsetting some of these negative effects was improved pricing in conjunction with our strategic decision to
manufacture products with a new international vendor in Mexico to produce certain products at a significantly lower cost, which
began in the second quarter of 2016. Cost of product sales was $40.5 million or 55.3% of product sales revenue and cost of services
was $13.3 million or 52.7% of service revenue for the year ended December 31, 2016. For the year ended December 31, 2015, cost of
product sales was $40.2 million or 50.2% of product sales revenue and cost of services was $14.6 million or 42.9% of service revenue.

Selling, general and administrative expenses

Selling, general and administrative expenses were $37.1 million for the year ended December 31, 2016 as compared to
$37.8 million for the year ended December 31, 2015. The decrease was the direct result of headcount reductions in all functional
areas, with the exception of engineering. In addition, discretionary spending was reduced to improve profitability during the prolonged
market downturn. Offsetting these operating expense reductions were significant additional expenses incurred related to the IPO
process.

Depreciation

Depreciation was $1.8 million for the year ended December 31, 2016 as compared to $2.7 million for the year ended

December 31, 2015. The decrease is attributable to the reduction in our fleet of trucks along with a portion of our service tools
becoming fully depreciated at the end of 2015.

Amortization

Amortization was $23.8 million for the year ended December 31, 2016 as compared to $24.6 million for the year ended
December 31, 2015. The majority of the decrease in amortization was due to the decrease in the exchange rate between the Canadian
dollar and the U.S. dollar.

Interest expense, net

Interest expense, net was $6.3 million for the year ended December 31, 2016 as compared to $8.1 million for the year ended
December 31, 2015. The decrease was due to lower average debt outstanding for the year ended December 31, 2016 as a result of a
prepayment made on our Term Loan in December 2015 of $40.0 million in addition to a small favorable foreign exchange effect due
to the weakening of the Canadian dollar of $0.2 million.

Other income (expense) net

Other expense, net was $45 thousand for the year ended December 31, 2016 as compared to other income, net of ($0.1) million

for the year ended December 31, 2015.

Foreign currency exchange (loss) gain

Foreign currency exchange loss was ($2.5) million for the year ended December 31, 2016 as compared to a gain of

$25.8 million for the year ended December 31, 2015. The decrease was directly due to the change in foreign currency exchange rates
between the periods and the effect that the change had on the outstanding balance of debt on our Prior Senior Secured Credit Facility,
which is denominated in Canadian dollars, within each respective period.

Income tax expense (benefit)

Income tax benefit was ($8.8) million for the year ended December 31, 2016 as compared to a benefit of ($16.2) million for the

year ended December 31, 2015. For the years ended December 31, 2016 and 2015 our effective income tax rates were 33.0% and
(137.5%), respectively. The difference in the effective income tax rate for the year ended December 31, 2016 and for the year ended
December 31, 2015 was due to a tax planning strategy implemented in 2015 and the effect of an adjustment of our deferred tax
liability on our differences between book value and tax basis in our Canadian subsidiary. The tax planning strategy was a change to
the foreign company’s year-end to conform to United States income tax reporting.

Liquidity and Capital Resources

Our primary sources of liquidity are our existing cash and cash equivalents, cash provided by operating activities, borrowings

under our Senior Secured Credit Facility and proceeds from sales of our equity securities. As of December 31, 2017, we had cash and
cash equivalents of $33.8 million and availability under the Senior Secured Credit Facility of $55.0 million. Our total indebtedness
was $27.0 million as of December 31, 2017.

Our principal liquidity needs have been, and are expected to continue to be, capital expenditures, working capital, debt service
tt

and potential mergers and acquisitions. On February 1, 2017, we contributed $6.0 million
venture, Repeat Precision, which was funded from available cash. Concurrent with entering into the joint venture, we made a
$3.0 million Term Loan prepayment, also funded from available cash, and the previous ow
uu
$1.0 million promissory note to us. On August 31, 2017, we acquired 100% of the equity
t
approximately $83 million, subject to certain adjustments, which was comprised of approximately $76 million in cash and 0.4 million
shares of common stock. The cash portion was funded with available cash and borrowings under our Senior Secured Credit Facility.
Also, in connection with both the Repeat Precision and Spectrum acquisitions, we may need to pay the respective sellers additional
consideration as part of an earn-out upon meeting certain specified targets. See “Not
e 3. Acquisitions” of our consolidated financial
statements.

ner of the 50% interest repaid in full a
interests in Spectrum in exchange for

in exchange for a 50% interest in a joint

On May 3, 2017, we completed our IPO of 9,500,000 shares of our common stock at a price to the public of $17.00 per share.

The underwriters exercised their option to purchase an additional 1,425,000 shares of our common stock from certain selling
stockholders and the closing of the over-allotment option occurred on May 3, 2017 concurrently with the closing of the IPO. We
received $148.9 million in net proceeds after deducting underwriting discounts and commissions and other offering expenses. We
used a portion of the net proceeds from the IPO to repay our remaining indebtedness under our Term Loan and used the remaining
proceeds to acquire Spectrum on August 31, 2017.

net

We plan to incur $15.0 million to $18.0 million in capital expenditures in 2018, which includes capital expenditures related to a

new enterprise resource planning system and the remainder of the estimated spending for our research and development facility

described below. We are investing in our owned facility in Canada to create a research and development facility for product
development as well as to further demonstrate the capabilities and benefits of our products to our customers. We estimate total
spending for the project to be approximately $11 million CAD ($9 million at December 31, 2017), which started in 2017 and will
continue in 2018. Our capital expenditures for the years ended December 31, 2017, 2016, and 2015 were $5.4 million, $1.2 million
and $0.9 million, respectively. We believe our cash on hand, cash flows from operations and potential borrowings under our Senior
Secured Credit Facility, will be sufficient to fund our capital expenditure and liquidity requirements for the next twelve months.

We anticipate that to the extent that we require additional liquidity, it will be funded through the incurrence of additional

indebtedness, the proceeds of equity issuances, or a combination thereof. We cannot assure you that we will be able to obtain thist
additional liquidity on reasonable terms, or at all. Our liquidity and our ability to meet our ob
requirements are also dependent on our future financial performance, which is subject to general economic, financial and other
factors
that are beyond our control. Accordingly, we cannot assure you that our business will generate sufficient cash flow from operations or
decide to
that funds will be available from additional indebtedness, the capital markets or otherwise to meet our liquidity needs. If we
pursue one or more significant acquisitions, we may incur additional debt or sell additional equity to finance such acquisitions, which
could result in additional expenses or dilution.

ligations and fund our capital

Cash Flows and Free Cash Flow

The following table provides a summary of cash flows from operating, investing and financing activities for the periods

presented (in thousands):

Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Free cash flow (1)
_______________

2017

Year Ended December 31,
2016

2015

16,114
(85,221)
84,033
608
15,534
11,102

$
$

10,684
(1,840)
(315)
201
8,730
9,844

$
$

4,369
(1,221)
(12,766)
(1,008)
(10,626)
3,903

$
$

(1) Free cash flow is a non-GAAP financial measure. We define free cash flow as net cash provided by (used in) operating
activities less purchases of property and equipment plus proceeds from sales of property and equipment. Management
believes free cash flow is useful because it provides information to investors regarding the cash that was available in the
period that was in excess of our needs to fund our capital expenditures and other investment needs. Free cash flow does not
represent our residual cash flow available for discretionary expenditures, as we have non-discretionary expenditures,
including, but not limited to, repayment of outstanding balances under our Senior Secured Credit Facility, that are not
deducted in calculating free cash flow. A reconciliation of net cash provided by (used in) operating activities, the most
directly comparable GAAP measure, to free cash flow for the periods indicated is as follows (in thousands):

Net cash provided by operating activities
Purchases of property and equipment
Proceeds from sales of propertytt and equipment
Free cash flow

2017

Year Ended December 31,
2016

2015

16,114
(5,366)
354
11,102

10,684
(1,157)
317
9,844

4,369
(890)
424
3,903

Net cash provided by operating activities was $16.1 million and $10.7 million for the years ended December 31, 2017 and 2016,
respectively. The increase in 2017 was primarily related to higher net income and higher levels
of non-cash expenses, including share-
based compensation and changes in the fair value of contingent consideration. The increase was partially offset by changes in working
capital including higher accounts receivable, inventories and income taxes payable and a decrease in accounts payable.

Net cash provided by operating activities was $10.7 million and $4.4 million for the years ended December 31, 2016 and 2015,

respectively. The increase in 2016 was primarily related to an increase in business activity in the fourth quarter that resulted in
accounts payable, accrued expenses and taxes payable all being higher, along with lower inventory. Offsetting these increases were
higher accounts receivables and lower net income for the year.

Investing Activities

Net cash used in investing activities was $85.2 million and $1.8 million for the years ended December 31, 2017 and 2016,
r
respectively. The increase in cash used in investing activities during the year ended December 31, 2017 as compared to the year ended
December 31, 2016 was primarily due to the $81.2 million funding of two acquisitions. See “Note 3. Acquisitions” in our consolidated
financial statements. We also incurred an additional $4.2 million of capital expenditures for the year ended December 31, 2017 in
comparison to the same period in 2016. The increase is primarily attributable to the growth of our business and capital expenditures
for Repeat Precision and Spectrum. The increase was partially offset by a $1.0 million note receivable repayment during the year aa
ended December 31, 2017.

Net cash used in investing activities was $1.8 million and $1.2 million for the years ended December 31, 2016 and 2015,
respectively. The increase in cash used in investing activities during the year ended December 31, 2016 as compared to the year ended
r
December 31, 2015 primarily was due to the funding of a $1.0 million short-term loan to a supply chain partner to support
expenditures required for our business activity.

Financing Activities

The net cash provided by financing activities for the year ended December 31, 2017 was $84.0 million as compared to net cash

used in financing activities of $0.3 million for the year ended December 31, 2016. The cash provided by financing activities for the
year ended December 31, 2017 primarily related to net proceeds of $148.9 million from our IPO after deducting underwriting
discounts and commissions and other offering expenses. Additionally, we borrowed $20.0 million under our Senior Secured Credit
Facility. The increases were partially offset by $89.1 million of note repayments of the Prior Term Loan under our Prior Senior
Secured Credit Facility.

The net cash used in financing activities was $0.3 million and $12.8 million for the years ended December 31, 2016 and 2015,

respectively. The cash used in financing activities for the year ended December 31, 2015 primarily related to amortization payments of
the Prior Term Loan under our Prior Senior Secured Credit Facility.

Prior Senior Secured Credit Facility

On August 7, 2014, Pioneer Investment, Inc. and Pioneer Intermediate, Inc., each wholly owned subsidiaries of the Company
along with certain of their subsidiaries entered into that certain Credit Agreement (the “Prior Credit Agreement,” and the facilities
thereunder, the “Prior Senior Secured Credit Facility”). The Prior Senior Secured Credit Facility consisted of a term loan in the
original principal amount of $197.6 million CAD (the “Prior Term Loan”) and a $27.8 million CAD revolving credit facility (the
“Prior Revolving Credit Facility”), of which $5.0 million CAD was available for letters of credit and $5.0 million CAD was available
for swingline loans. In connection with the IPO, we repaid all outstanding indebtedness under the Prior Term Loan.

Senior Secured Credit Facility

On May 4, 2017, we entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with Pioneer
Investment, Inc., as borrower (the “U.S. Borrower”), NCS Multistage Inc., as borrower (the “Canadian Borrower”), Pioneer
Intermediate, Inc. (together with the Company, the “Parent Guarantors”) and the lenders party thereto, Wells Fargo Bank, National
Association as administrative agent in respect of the U.S. Facility (as defined below) and Wells Fargo Bank, National Association,
Canadian Branch as administrative agent in respect of the Canadian Facility (as define
n
restated the Prior Credit Agreement in its entirety. The Senior Secured Credit Facility will mature on May 4, 2020.

d below). The Credit Agreement amended and

The Senior Secured Credit Facility originally consisted of a (i) senior secured revolving credit facility in an aggregate principal

amount of $25.0 million made available to the U.S. Borrower (the “U.S. Facility”), of which up to $5.0 million may be made available
for letters of credit and up to $5.0 million may be made available for swingline loans and (ii) senior secured revolving credit facility in
an aggregate principal amount of $25.0 million made available to the Canadian
Amendment No. 1 to the Credit Agreement on August 31, 2017 (the “Amendment”). The Amendment increased the loan commitment
available to the U.S. Borrower to $50.0 million from $25.0 million under the U.S. Facility. The loan commitment available under the
Canadian Facility remained at $25.0 million. At December 31, 2017, we had $20.0 million in outstanding indebtedness under the U.S.
Facility.

Borrower (the “Canadian Facility”). We entered into

Borrowings under the U.S. Facility may be made in U.S. dollars, Canadian dollars or Euros and bear interest at a rate equal to

the Adjusted Base Rate or Eurocurrency Rate (each as defined in the Credit Agreement), in each case, plus an applicable interest
margin as set forth in the Credit Agreement. Borrowings under the Canadian Facility may be made in U.S. dollars or Canadian dollars
and bear interest at the Canadian (Cdn) Base Rate, Canadian (U.S.) Base Rate, Eurocurrency Rate or Discount Rate (each as defined
in the Credit Agreement), in each case, plus an applicable interest margin as set forth in the Credit Agreement. The Adjusted Base
Rate, Canadian (U.S.) Base Rate and Canadian (Cdn) Base Rate applicable margin will be between 2.25% and 3.00% and

Eurocurrency Rate applicable margin will be between 3.25% and 4.00%, in each case, depending on the Company’s leverage ratio.
The applicable interest rate at December 31, 2017 was 5.50%.

The obligations of the U.S. Borrower under the U.S. Facility are guaranteed by the Parent Guarantors and each of the other
existing and future direct and indirect restricted subsidiaries of the Company organized under the laws of the United States (subject to
certain exceptions) and are secured by substantially all of the assets of the Parent Guarantors, the U.S. Borrower and such other
subsidiary guarantors, in each case, subject to certain exceptions and permitted liens. The obligations of the Canadian Borrower under
the Canadian Facility are guaranteed by the Parent Guarantors, the U.S. Borrower and each of the future direct and indirect restricted
subsidiaries of the Company organized under the laws of the United States and Canada (subject to certain exceptions) and are secured
by substantially all of the assets of the Parent Guarantors, the U.S. Borrower, the Canadian Borrower and such subsidiary guarantors,
in each case, subject to certain exceptions and permitted liens.

ount outstanding under the Canadian

The Credit Agreement contains financial covenants that require (i) commencing with the fiscal quarter ended June 30, 2017,
compliance with a leverage ratio test set at (A) 3.00 to 1.00 as of the last day of each fiscal quarter ending prior to March 31, 2018 and
(B) 2.50 to 1.00 as of the last day of each fiscal quarter ending on or after March 31, 2018, (ii) commencing with the fiscal quarter
ended June 30, 2017, compliance with an interest coverage ratio test set at 2.75 to 1.00 as of the last day of each fiscal quarter, (iii) if
the leverage ratio as of the end of any fiscal quarter is greater than 2.00 to 1.00 and the am
Facility at any time during such fiscal quarter was greater than $0, compliance as of the end of such fiscal quarter with a Canadian
asset coverage ratio test set at 1.00 to 1.00 and (iv) if the leverage ratio as of the end of any fiscal quarter is greater than 2.00 to 1.00
and the amount outstanding under the U.S. Facility at any time during such fiscal quarter was gr
f
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end of such fiscal quarter with a U.S. asset coverage ratio test set at 1.00 to 1.00. 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. As of December 31, 2017, we were
in compliance with these financial covenants. The Credit Agreement also includes customary events of default for facilities of this
type (with customary grace periods, as applicable). If an event of default occurs, the lenders under each of the U.S. Facility and the
Canadian Facility 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 payabl
e. The
lenders under each of the U.S. Facility and the Canadian Facility also have the right upon an event of default thereunder to terminate
any commitments they have to provide further borrowings under such facility. Further, following an event of default under each of the
U.S. Facility and the Canadian Facility, the lenders thereunder will have the right to proceed against the collateral granted to them to
secure such facility. If the debt under the Senior Secured Credit Facility were to be accelerated, our assets may not be sufficient to
repay in full that debt or any other debt that may become due as a result of that acceleration.

eater than $0, compliance as of the

Contractual Obligations

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The following table presents our contractual obligations and other commitments as

of December 31, 2017 (in thousands):

Capital lease obligations including interest payments
Senior Secured Credit Facility and other debt
t
Interest on long-term debt
Earn-outs for the acquisitions
Income tax payaa able related to the 2017 Tax Act (1)
Equipment and office operating leases

_______________

Total

2,661
24,608
3,325
12,835
4,157
5,597
53,183

Less than
1 year

1-3 years

3- 5 years

More than
5 years

1,286
4,184
1,456
—
333
2,983
10,242

1,179 $
20,390
1,869
12,835
665
2,223
39,161 $

196
34
—
—
665
391
1,286

—
—
—
—
2,494
—
2,494

(1) The 2017 Tax Act includes a mandatory one-time tax on accumulated earnings of foreign subsidiaries, and as a result, all
previously unremitted earnings for which no U.S. deferred tax liability had been accrued have now been subject to U.S.
tax. The income tax payable related to the 2017 Tax Act is due in installments in varying percentages over the next eight
years.

Off-Balance Sheet Arrangements

We have no off-balance sheet financing arrangements with the exception of operating leases.

Effects of Inflation

We do not believe that the effects of inflation have had a material effect on our business, financial condition or results of

operations. However, if our costs become subject to significant inflationary pressures, we may not be able to offset such increased

costs through price increases. Our inability or failure to offset any such cost increases in the future could have a material adverse
effect on our business, financial condition and results of operations.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial
statements, which have been prepared in accordance with GAAP. 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 uu
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 policies that we believe to be the most critical to an understanding of our fin
ancial
condition and results of operations and that require the most complex and subjective management judgments are discussed below.

Revenue Recognition

We recognize revenue when it is determined that the following criteria are met: (i) persuasive evidence of an arrangement

exists; (ii) delivery has occurred or services have been rendered; (iii) the fee is fixed or determinable; and (iv) collectability is
reasonably assured. For the year ended December 31, 2017, we recognized revenue from our largest customer totaling $27.4 million,
or 14% of total revenue for the year. Amounts due from this customer included in trade accounts receivable was $2.0 million, or 4% of
trade accounts receivable, as of December 31, 2017. No other customer individually accounted for 10% or more of our consolidated
revenue during the year ended 2017 or trade receivable accounts balance as of December 31, 2017. For the year ended December 31,
2016, we recognized revenue from our largest customer totaling $25.5 million, or 26% of total revenue for the year. Amounts due
from this customer included in trade accounts receivable was $7.8 million, or 24% of trade accounts receivable, as of December 31,
2016. No other customer individually accounted for 10% or more of our consolidated revenue during 2016 or trade receivable
accounts balance as of December 31, 2016. For the year ended December 31, 2015, the same customer accounted for $35.1 million, or
approximately 31% of total revenue, and as of December 31, 2015, $4.4 million in trade accounts receivable were due from this
customer, or 17% of trade accounts receivable.

We recognize revenue 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 it does not include right of return or
other similar provisions or other significant post-delivery obligations. Revenue is re
cognized for products generally upon installation
and when the customer assumes the risks and rewards of ownership. In cases where services are being performed, we generally do not
recognize revenue until a job has been completed, which includes a customer signature or acknowledgement and that there are no
additional services or future performance obligations required by us. Rates for services are typically priced on a per day, per man-hour
or similar basis that include both the cost of the downhole frac isolation assembly a
t
operation of the assembly.

r
nd our personnel required to supervise the

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for estimated losses that may result from the inability of our customers to make

required payments. Earnings are charged with a provision for doubtful accounts based on a current review of the collectability of
customer accounts by management. Such allowances 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 doubtful accounts. We have recorded $11 thousand and
$0.1 million in provisions for doubtful accounts as of December 31, 2017 and 2016, respectively.

Inventories

Inventories consist primarily of raw material, sliding sleeve components, assembled sliding sleeves, certain components used to

internally construct our frac isolation assemblies and chemicals, in raw material or finished goods, used for frac diagnostics testing
and reporting. Inventories are stated at the lower of cost or estimated net realizable value. Cost is determined at standard co
sts
approximating the first-in first-out basis with the exception of chemical costs, which are determined using average costing. 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. Adjustments to reduce such inventory to its estimated recoverable value have
been recorded by management as an adjustment to cost of sales.

Property and Equipment

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 capital 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
capital 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 other (expense) income, net in the year of disposal.

Depreciation on property and equipment, including assets held under capital leases, is calculated using the straight-line method

over the following useful service lives or lease term (which includes reasonably assured renewal periods):

Buildings
Building equipment
Machinery and equipment
Furniture and fixtures
Computers and software
Vehicles and rental equipment
Leasehold improvements

Years

30
5 - 15
5 - 12
3 - 5
3 - 5
3 - 4
Lease term (1-4)

We periodically assess potential impairment of our property and equipment, when events or changes in circumstances occur that

indicate the carrying value of the asset or asset group may not be recoverable. The assessment of possible impairment is based on our
overall valuation calculation using forward looking as well as historical computations to measure the value of our long-lived assets. If
the overall valuation results are less than the carrying value of such assets, an impairment loss with respect to property and equipment
is recognized for the difference between estimated fair value and carrying value. No impairment loss has been recognized for the years
ended December 31, 2017, 2016 and 2015.

Business Combinations, Goodwill and Intangible Assets

Business combinations are accounted for under the acquisition method of accounting in accordance with Financial Accounting

Standards Board (“FASB”) 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 related to the acquisition, other than those associated with the issuance of debt or equity securities, that we incur in

connection with a business combination 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.

For goodwill, an assessment for impairment is performed annually or, more frequently, when there is an indication an
impairment may have occurred. We complete our annual impairment test for goodwill using an assessment date in the fourth quarter
of each fiscal year. Goodwill is reviewed for impairment by comparing the carrying value of the reporting unit’s net assets (including
allocated goodwill) to the fair value of the reporting unit. The fair value of the reporting unit is determined using a discounted cash
flow approach. Determining the fair value of a reporting unit requires the use of estimates and assumptions. The principal estimates
and assumptions that we use include revenue growth rates, operating margins, weighted average costs of capital, a terminal growth
rate, and future market conditions. We believe that the estimates and assumptions used in impairment assessments are reasonable. Any
impairment losses are reflected in operating income. We concluded that there was no impairment of goodwill in 2017, 2016 or 2015,
based on our annual impairment analysis.

All identifiable intangibles are amortized on a straight-line basis over the estimated useful life or term of related agreements.

Deferred loan costs are amortized to interest expense using the effective interest method. These assets are tested for impairment
whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. We concluded there was no
impairment of identifiable intangibles for the years ended December 31, 2017, 2016 or 2015.

Income Taxes

NCS Multistage Holdings, Inc. is 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. As of December 31, 2017 and 2016, the valuation allowance was
$18 thousand and $63 thousand, respectively. We recognize accrued interest and penalties related to uncertain tax positions in other
income (expense). During the years ended December 31, 2017, 2016 and 2015, we recognized $0.2 million, $0.1 million and $0.1
million, respectively, in interest and penalties. We had $0.6 million and $0.4 million in interest and penalties accrued at December 31,
2017 and 2016, respectively.

One of our Canadian subsidiaries guaranteed the credit facilities of our U.S. entities until May 2017 when cash proceeds were
received from the IPO, a portion of which was used to pay off the existing debt. Under U.S. federal income tax rules, this guarantee
resulted in all of the earnings and profits of our Canadian subsidiary being subject to current U.S. tax. As a result of the 2017 Tax Act
and a change in our permanent earnings reinvestment assertion, we have recognized a U.S. tax benefit for the reversal of our deferred
tax liability on a portion of our differences between book value and tax basis in our Canadian subsidiary for which we are now
asserting indefinite reinvestment. No U.S. deferred tax liabilities have been recognized on the differences between book value and tax
basis that we continue to indefinitely reinvest. Upon reversal of these book value and tax basis differences through dividends or
otherwise, we may be subject to foreign withholding taxes. It is not practical, however, to estimate the amount of taxes that may be
payable on the eventual remittance of these temporary differences after consideration of available foreign tax credits.

We completed our analysis of our tax positions and believe there are no material uncertain tax positions that would require

derecognition in the consolidated financial statements as of December 31, 2017 and 2016. We believe that there are no tax positions
nths
taken or expected to be taken that would significantly increase or decrease unrecognized tax benefits within the next twelve mo
following the balance sheet date. As of December 31, 2017 and 2016, there were no material amounts that had been accrued with
respect to uncertain tax positions.

We file income tax returns in the United States, Canada and various state and foreign jurisdictions. Our U.S. income tax returns
for 2011 and subsequent years remain open for examination. The Internal Revenue Service (“IRS”) commenced an examination of our
United States income tax returns for 2011 through 2012 in the first quarter of 2014 which was completed in 2015. No tax adjustments
were proposed. Additionally, subsequent to December 31, 2015, the IRS commenced an examination of our United States income tax
return for 2014 in the second quarter of 2016, which was completed in 2017. No tax adjustments were proposed.

Share-Based Compensation

We account for our stock-based compensation awards in accordance with ASC Topic 718, Compensation— Stock Compensation
(“ASC 718”). We recognize compensation cost for all share-based payment transactions with employees, including compensation cost
associated with the grant of options and restricted stock units for our common stock using the Black-Scholes model for options and the
market price of the common stock on the date of the grant for the restricted stock units. Expense is recognized ratably from one to five
years based upon the requisite service period. We also have an employee stock purchase plan, which allows eligible employees to
purchase shares of our common stock. The purchase price of the stock will be 85% of the lower of the stock price at the beginning or
end of the plan period. The fair value of the employees’ purchase rights under the employee stock purchase plan will be estimated
using the Black-Scholes model. The Black-Scholes model for both options and the shares purchased under the employee stock
purchase plan requires assumptions and estimates for inputs, especially the estimate of volatility, that affect the resultant values and
hence the amount of compensation expense recognized. Prior to our IPO, we were a private company. Therefore, we estimated our
expected stock volatility based on the historical volatility of a publicly traded set of peer companies and expect to continue to do so
until such time as we have adequate historical data regarding the volatility of our own traded stock price.

The following table presents the timing of service based options granted, number of underlying shares and related exercise
prices of stock options granted between January 1, 2015 and December 31, 2017, along with the fair value per share of common stock
utilized to calculate share-based compensation expense.

Grant Timing
2015:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2016:
First Quarter
Second Quarter
r
Third Quarter
Fourth Quarter
2017:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter

Shares
Underlying
Options

Common Stock
Fair Value
Per Share as of
Grant Date

Exercise Price
Per Option

— $
13,605 $
— $
8,289 $

—
4.84
—
9.55

$
$
$
$

—
11.82
—
0.003

— $

—
11,796 $ 4.24-4.47
12,552 $ 4.40-5.45
—

— $

$
—
$ 8.96-9.55
$ 9.55-9.81
—
$

— $
12,647 $
— $
— $

—
7.61
—
—

$
$
$
$

—
17.00
—
—

Determining fair market value

Determining the appropriate fair value model and calculating the fair value of options requires

the input of highly subjective

assumptions, including the expected volatility of the price of our stock, the risk-free rate, the expected term of the options and the
expected dividend yield of our common stock. These estimates involve inherent uncertainties and the application of management’s
judgment. If factors change and different assumptions are used, our share-based compensation expense could be materially different in
the future. We estimate the fair value of each option grant using the Black-Scholes option-pricing model. The Black-Scholes option
pricing model requires estimates of key assumptions based on both historical information and management judgment regarding mark
factors and trends.

Expected volatility—We developed our ex

pected volatility by using the historical volatilities of our peer group of public
companies for a period equal to the expected life of the option by taking the median of the annualized weekly ten year standard
deviation of their stock prices.

Risk-free interest rate—The risk-free interest rates for options granted are based on the constant maturity Treasury bond rates

whose term is consistent with the expected life of an option from the date of grant.

Expected term—As we do not have sufficient historical experience for determining the expected term of the stock option awards

granted, we based our expected term for awards issued to employees on the “simplified” method under the provisions of ASC Topic
718-10, Compensation-Stock Compensation. The expected term is based on the midpoint between the vesting date and contractual
term of an option. The expected term represents the period that our stock-based awards are expected to be outstanding.

Expected dividend yield—We do not anticipate paying cash

dividends on our shares of common stock; therefore, the expected

dividend yield is assumed to be zero.

The fair value of each option granted in 2017, 2016 and 2015 was estimated on the date of grant using the Black-Scholes-

Merton method, with the following weighted average assumptions being used:

Expected volatility
Average risk free interest rate
Expected term (in years)
Expected dividends

2017

44.4 %
2.0 %
6.0
— %

Year Ended December 31,
2016
42-44.7%
1.7 %
6.5
— %—

2015

43.0 %
2.3 %
6.5
— %

In conjunction with the stock options issued above, we also issued Liquidity Options. In connection with the IPO, the Liquidity

Options were amended for 22 employees to provide that such awards will vest in three equal installments on each of the first three
anniversaries of the consummation of our IPO, which occurred on May 3, 2017, subject to certain requirements including, as
applicable, the recipient’s continued employment on the vesting date. The Liquidity Options are still subject to accelerated vesting
upon a company sale, as defined in our 2012 Equity Incentive Plan. The unamortized compensation expense of the Liquidity Options
is being recognized over a period of three years from the date of the modification.

As a result of the modification, we estimated the fair value of the Liquidity Options on April 27, 2017, the amendment date,

using the Black-Scholes option-pricing model, which required estimates of key assumptions based on both historical information and
management judgment regarding market factors and trends. The weighted average assumptions used to estimate the fair value of the
Liquidity Options were as follows:

Expected volatility
Average risk free interest rate
Expected term (in years)
Expected dividends

44.4 %
1.7 %
4.6
— %

Upon completion of the IPO, we began granting restricted stock units. All restricted stock units vest ratably over a period of one

to three years. During the year ended December 31, 2017, we granted 167,494 restricted stock units at a weighted average grant date
fair value of $18.78 of which 57,348 restricted stock units were granted to the non-employee members of the Board of Directors.
fair value of restricted stock units issued subsequent to the IPO is based on the closing price of our common stock on the NASDAQ on
the grant date.

The

As of December 31, 2017, the total unamortized compensation expense was valued at $16.0 million compared to $11.7 million

and $12.7 million at December 31, 2016 and 2015, respectively. For additional information, see “Note. 11 Share-Based
Compensation” of our consolidated financial statements.

Recently Issued Accounting Pronouncements

See “Note 2. Summary of Significant Accounting Policies” to our consolidated financial statements for discussion of the

accounting pronouncements we recently adopted and the accounting pronouncements recently issued by the Financial Accounting
Standards Board.

Item 7A. Quantitative and Qualitative Disclosures About Market 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
exploration and production industries. 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 are 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 U.S. dollars. During
the years ended December 31, 2017, 2016 and 2015, approximately 63%, 71% and 66%, respectively, of our revenues were
attributable to our operations in Canada. We indirectly hedged our exposure to adverse changes in foreign currency exchange rates by
having our Prior Senior Secured Credit Facility denominated in Canadian dollars, which allowed us to have a significant amount of
our fixed costs related to interest and principal payments denominated in Canadian dollars. On May 4, 2017, we repaid the Prior Term
Loan under our Prior Senior Secured Credit Facility in full and entered into a Senior Secured Credit Facility, which included a U.S.
Facility and a Canadian Facility. We also may use foreign currency forward exchange contracts to hedge our future exposure to the
Canadian dollar.

Interest Rate Risk

We were exposed to interest rate risk through our Prior Revolving Credit Facility and the Prior Term Loan under our Prior

Senior Secured Credit Facility. We repaid the Prior Term Loan under our Prior Senior Secured Credit Facility on May 4, 2017 and
entered into our Senior Secured Credit Facility, which is also subject to variable interest rates. The Senior Secured Credit Facility
consists of a U.S. Facility and a Canadian Facility. As of December 31, 2017, we had $20.0 million in outstanding indebtedness under
our U.S. Facility.

Borrowings under the U.S. Facility may be made in U.S. dollars, Canadian dollars or Euros and will bear interest at a rate equal

to the Adjusted Base Rate or Eurocurrency Rate (each as defined in the Credit Agreement), in each case, plus an applicable interest
margin. Borrowings under the Canadian Facility may be made in U.S. dollars or Canadian dollars and will bear interest at the
Canadian (Cdn) Base Rate, Canadian (U.S.) Base Rate, Eurocurrency Rate or Discount Rate (each as defined in the Credit
Agreement), in each case, plus an applicable interest margin as set forth in the Credit Agreement. The Adjusted Base Rate, Canadian
(U.S.) Base Rate and Canadian (Cdn) Base Rate applicable margin will be between 2.25% and 3.00% and Eurocurrency Rate
applicable margin will be between 3.25% and 4.00%, in each case, depending on our leverage ratio. The applicable interest rate at
December 31, 2017 was 5.50%. Based on our outstanding debt as of December 31, 2017, and assuming that it remains the same, the
annualized effect of a one percentage point change in variable interest rates would have an annualized pre-tax impact on our earnings
and cash flows of $0.2 million.

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.

Item 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Operations for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Changes in Stockholders’ Equitytt for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements

FINANCIAL STATEMENTS SCHEDULE
Schedule I – Condensed Financial Information of Registrant
Condensed Balance Sheets as of December 31, 2017 and 2016
Condensed Statements of Operations for the Years Ended December 31, 2017, 2016 and 2015
Condensed Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2017, 2016 and 2015
Condensed Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015
Notes to Condensed Financial Statements

Schedule II – Valuation and Qualifying Accounts for the Years Ended December 31, 2017, 2016 and 2015

Page

59
60
61
62
63
64
65

89
89
90
91
92
93

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of NCS Multistage Holdings, Inc.:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of NCS Multistage Holdings, Inc. and its subsidiaries as of December
31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’
equity and cash flows for each of the three years in the period ended December 31, 2017, including the related notes and financ
ial
statement schedules listed in the accompanying index (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, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2017 in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it presents deferred tax
assets and liabilities in 2017.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an aa
opinion on the Company’s consolidated financial statements based on our audits. We
t
aa
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 Exch
Commission and the PCAOB.

are a public accounting firm registered with the

ange

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standardsaa
require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free
of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
a
basis, evidence regarding the amounts and disclosures in the consolidated 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
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Houston, Texas
March 9, 2018

We have served as the Company's auditor since 2013.

NCS MULTISTAGE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

Assets
Current assets

—

Cash and cash equivalents
Accounts receivable—trade, net
Inventories
Prepaid expenses and other current assets
Other current receivables
Deferred income taxes, net

Total current assets

Noncurrent assets

Propertyt and equiqq pment, net
Goodwill
Identifiable intangibles, net
Deposits and other assets

Total noncurrent assets
Total assets

Liabilities and Stockholders’ Equity
Current liabilities

Accounts payable—trade
Accrued expenses
Income taxes payable
Other current liabilities
Current maturities of long-term debt

Total current liabilities

Noncurrent liabilities

Long-term debt, less current maturities
Contingent consideration
Other long-term liabilities
Deferred income taxes, net

Total noncurrent liabilities
Total liabilities

Commitments and contingencies (Note 9)
Stockholders’ equity

Preferred stock, $0.01 par value, 10,000,000 shares authorized, one share issued and outstanding at
December 31, 2017 and one share authorized, issued and outstanding at December 31, 2016

Common stock, $0.01 par value, 225,000,000 shares authorized, 43,931,484 shares issued

and 43,913,136 shares outstanding at December 31, 2017 and 54,000,000 shares authorized,
34,024,326 shares issued and 34,005,978 shares outstanding at December 31, 2016

Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Treasury stock, at cost; 18,348 shares at December 31, 2017 and at December 31, 2016

Total stockholders’ equity

Non-controlling interest
Total equity
Total liabilities and stockholders' equity

December 31,
2017

December 31,
2016

33,809
47,880
33,135
1,616
1,369
—
117,809

23,651
184,478
136,412
1,563
346,104
463,913

7,448
6,673
10,561
1,673
5,334
31,689

21,702
12,835
4,513
24,183
63,233
94,922

18,275
32,116
17,017
2,445
3,053
2,116
75,022

9,759
122,077
118,697
1,272
251,805
326,827

10,258
3,290
—
3,223
772
17,543

88,394
—
717
42,695
131,806
149,349

—

439
399,426
(66,707)
23,864
(175)
356,847
12,144
368,991
463,913

340
237,566
(82,015)
21,762
(175)
177,478
—
177,478
326,827

The accompanying notes are an integral part of these consolidated financial statements.
60

NCS MULTISTAGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

Revenues
Product sales
Services

Total revenues

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

Income (loss) from operations

Other income (expense)
Interest expense, net
Other income (expense), net
t
Foreign currency exchange gain (loss)

Total other (expense) income

Income (loss) before income tax
Income tax expense (benefit)

Net income (loss)
Net loss attributable to non-controlling interest
Net income (loss) attributable to NCS Multistage Holdings, Inc.
Earnings (loss) per common share

Basic earnings (loss) per common share attributable to

NCS Multistage Holdings, Inc.

Weighted average common shares outstanding
g

Diluted earnings (loss) per common share attributable to
NCS Multistage Holdings, Inc.
g
Basic
Diluted

2017

Year Ended December 31,
2016

2015

144,666
56,968
201,634

73,220
25,259
98,479

80,079
33,926
114,005

76,288

22,504

98,792
64,707
3,193
24,458
5,525
4,959

(4,306)
1,085
224
(2,997)
1,962
670
1,292
(810)
2,102

0.05

40,484
43,583

40,511

13,322

53,833
37,061
1,766
23,801
—
(17,982)

(6,286)
45
(2,522)
(8,763)
(26,745)
(8,818)
(17,927)
—
(17,927) $

(0.53) $

34,008
34,008

40,160

14,553

54,713
37,804
2,695
24,576
—
(5,783)

(8,064)
(131)
25,779
17,584
11,801
(16,224)
28,025
—
28,025

0.88

0.86

29,966
32,433

The accompanying notes are an integral part of these consolidated financial statements.
61

NCS MULTISTAGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)

Net income (loss)
Foreign currency translation adjd ustments, net of tax of $0
Comprehensive income (loss)
Comprehensive loss attributable to non-controlling interest
Comprehensive income (loss) attributable to

NCS Multistage Holdings, Inc.

2017

Year Ended December 31,
2016
(17,927) $
6,655
(11,272)
—

1,292
15,308
16,600
(810)

2015

28,025
(43,280)
(15,255)
—

17,410

(11,272) $

(15,255)

The accompanying notes are an integral part of these consolidated financial statements.
62

Balances as of
December 31, 2014
Contributions
Share-based compensation
Net income
Currency translation
adjustment

Balances as of
December 31, 2015
Contributions
Share-based compensation

Treasury shares purchased
at cost
Net loss

Currency translation
adjustment

Balances as of
December 31, 2016
Acquisitions
Share-based compensation
Net income (loss)

Issuance of common
stock upon IPO, net
of offering costs
Exercise of stock options

Currency translation
adjustment

Balances as of
December 31, 2017

NCS MULTISTAGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands, except share data)

Preferred Stock

Amount

Common Stock
Shares

Amount

Additional
Paid-In
Capital

Accumulated
Other
Comprehensive
(Loss) Income

Retained
Earnings

Treasury Stock

Amount

Non-
controlling
Interest

Total
Stockholders'
Equity

1 $ — 29,826,669 $
—
4,187,022
—
—

—
—
—

—
—

298 $
42
—
—

194,840 $
39,957
1,313
—

(45,390) $

—
—
—

11,664
—
——
28,025

— $
—
—
—

161,412
39,999
1,313
28,025

—

(43,280)

——

—

(43,280)

1 $
—
—

—
—

—
—
—

—
—

—

1 $
—
—
—

—
—
—
—

34,013,691 $ 340 $

10,635

—

—
—

—

—
—

—

236,110 $
102
1,354

—
—

—

34,024,326 $ 340 $

355,658

—
—

4
—
—

237,566 $
6,903
6,108
—

—
—

9,550,000

1,500

95
—

148,841
8

(88,670) $

—
—

39,689
——
—

— $
—
—

—— 18,348

(175)

(17,927)

—

6,655

——

—

— $
—
—

—
—

—

(82,015) $

—
—
—

—
—

21,762
——
—
2,102

18,348 $
—
—
—

(175) $
—
—
—

— $

12,954
—
(810)

—
——

—

—
—

—

—
—

—

187,469
102
1,354

(175)
(17,927)

6,655

177,478
19,861
6,108
1,292

148,936
8

15,308

—

15,308

1 $ — 43,931,484 $

439 $

399,426 $

(66,707) $

23,864

18,348 $ (175) $

12,144 $

368,991

The accompanying notes are an integral part of these consolidated financial statements.
63

NCS MULTISTAGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Cash flows from operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash

provided by operating activities:

Amortization of deferred loan cost
Share-based compensation
Provision for doubtful accounts receivable
Provision for inventory obsolescence
Deferred income tax benefit
(Gain) loss on sale of property and equipment
Foreign exchange (gain) loss on financing item
Deferred loan costs
Change in fair value of contingent consideration

Changes in operating assets and liabilities:

Accounts receivable—trade —
Inventories
Prepaid expenses and other assets
Accounts payable—trade
Accrued expenses
Other liabilities
Income taxes receivable/p// ayable

Net cash provided by operating activities

Cash flows from investing activities
Purchases of property and equipment
Proceeds from sales of propertyt and equipment
Purchases of intangible assets
Issuance of note receivable—related partyt
Proceeds (funding) from short-term note receivable
Acquisitions of businesses, net of cash acquired

Net cash used by investing activities

Cash flows from financing activities
Debt issuance cost
Equipment note borrowings
Payments on equiqq pment note and capaa ital leases
Promissory note borrowings
Payments on promissoryr note
Line of credit borrowings
Payment of deferred loan cost related to new credit agreement
Payments related to public offering
Proceeds from related partyt note receivable
Repayment of term note
Proceeds from the exercise of options for common stock, net
Purchases of treasury stock
Proceeds from issuance of common stock, net of offering costs
Net cash provided (used) by financing activities

Effect of exchange rate changes on cash and cash equivalents

Net change in cash and cash equivalents

Cash and cash equivalents beginning of period
Cash and cash equivalents end of period
Supplemental cash flow information
Cash paid for interest, net of amounts capitalized
Cash paid for income taxes (net of refunds)
Noncash investing and financing activities
Unpaid costs related to public offering
Issuance of common stock for business acquisition
Assets obtained by entering into a capa ital lease

2017

Year Ended December 31,
2016

2015

1,292

(17,927) $

28,025

444
6,108
—
—
(18,959)
(33)
(1,760)
1,422
5,525

(9,490)
(10,608)
(114)
(3,755)
2,843
(247)
15,795
16,114

(5,366)
354
(54)
—
1,000
(81,155)
(85,221)

—

1,533
(704)
8,995
(5,682)
20,000
(971)
(2,178)
752
(89,077)
9
—
151,356
84,033
608
15,534
18,275
33,809

3,023
4,033

—

6,907
1,092

740
1,354
—
2,415
(9,266)
(143)
2,576
—
—

(6,482)
3,540
(119)
5,131
1,861
1,209
228
10,684

(1,157)
317
—
—
(1,000)
—
(1,840)

—
—
—
—
—
—
—
(242)
—
—
—
(175)
102
(315)
201
8,730
9,545
18,275

5,447
130

708
—
—

945
1,313
113
1,544
(11,300)
744
(26,277)
—
—

16,297
4,159
(195)
(3,130)
(6,672)
(2,842)
(25,626)
4,369

(890)
424
—
(755)
—
—
(1,221)

(1,195)
—
—
—
—
—
—
—
—
(51,570)
—
—
39,999
(12,766)
(1,008)
(10,626)
20,171
9,545

9,381
20,476

—
—
—

The accompanying notes are an integral part of these consolidated financial statements.
64

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Basis of Presentation

Organization

NCS Multistage Holdings, Inc., through its wholly owned subsidiaries and subsidiaries for which we have a controlling voting
s and
d

interest (collectively referred to as the “Company,” “NCS,” “we”
g g
(collectively referred to as the “Company,” “NCS,” “we”
support services for oil and natural gas well completions and field development strategies. We
t strategies. We offer our products and services
eld
primarily to exploration and production companies for use in onshore wells. We operate through service facilities principally l
primarily to exploration and produ
in Houston, Midland and Corpus Christi, Texas; Tulsa and Oklahoma City, Oklahoma; and Calgary, Red Deer, Grande Prairie and
aa
homa City, Oklahoma; and Calgary, Red Deer, Grande Prairie and
Estevan, Canada.

in providing engineered product
g

or “us”), is primarily engaged

ocated
d

We are a Delaware corporation. We changed our name from Pioneer Super Holdings, Inc. to NCS Multistage Holdings, Inc. on

December 13, 2016.

Basis of Presentation

Our accompanying consolidated financial statements have been prepared in accordance with accounting principles generally

accepted in the United States (“U.S. GAAP”). All intercompany transactions have been eliminated in consolidation

Initial Public Offering

On April 13, 2017, in connection with the initial public offering of shares of our common stock (“IPO”), our board of directors
and stockholders approved an amendment to the amended and restated certificate of incorporation effecting a 3.00 for 1.00 stock split
of our issued and outstanding shares of common stock. The stock split was implemented on April 13, 2017 and the par value of the
common and preferred stock was not adjusted as a result of the stock split. All other common stock share amounts disclosed in thistt
Annual Report on Form 10-K (this “Form 10-K”) have been adjusted to reflect this stock split for all periods presented. In addi
tion, in
d
connection with the IPO, our certificate of incorporation was amended and restated to increase our authorized capital stock to consist
of 225.0 million shares of common stock, par value $0.01 per share, and 10.0 million shares of preferred stock, par value $0.01 per
share.

On May 3, 2017, we completed the initial public offering of 9.5 million shares of our common stock, $0.01 par value, at a price

to the public of $17.00 per share pursuant to a Registration Statement on Form S-1, as amended (File No. 333-216580) (the
“Registration Statement”). The underwriters exercised their option to purchase an additional 1.425 million shares of our common
stock from certain selling stockholders and the closing of the over-allotment option occurred on May 3, 2017, concurrently with the
closing of the IPO. We received $148.9 million in net proceeds after deducting underwriting discounts and commissions and other
offering expenses of $12.6 million. We used a portion of the net proceeds from the IPO to repay our indebtedness under our Prior
Senior Secured Credit Facility (see “Note 8. Debt”). We used the remaining net proceeds from the IPO to acquire Spectrum Tracer
Spectrum Tracer
Services, LLC, an Oklahoma limit

ed liability company (“Spectrum”), on August 31, 2017.

”), on August 31, 2017

Note 2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of 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 support impairment tests, share based compensation, amounts of deferred taxes and income tax
contingencies. Actual results could materially differ from those estimates.

Foreign Currency

Our functional currency is the U.S. Dollar (“USD”). The financial position and results of operations of our Canadian subsidiary
are 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 the subsidiary have been
translated into U.S. dollars at average exchange rates prevailing during the period. Assets and liabilities have been translated at the
rates of exchange on the consolidated balance sheet date. The resulting translation gain and loss adjustments have been recorded

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

directly as a separate component of other comprehensive (loss) in the accompanying consolidated statements of comprehensive (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 included in the consolidated statements of operations as incurred.

Revenue Recognition

We recognize revenue when it is determined that the following criteria are met: (i) persuasive evidence of an arrangement

exists; (ii) delivery has occurred or services have been rendered; (iii) the fee is fixed or determinable; and (iv) collectability is
reasonably assured.

We recognize revenue 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 it does not include right of return or
other similar provisions or other significant post-delivery obligations. Revenue is
recognized generally for products upon installation
and when the customer assumes the risks and rewards of ownership. In cases where services are being performed, we generally do not
recognize revenue until a job has been completed, which includes a customer signature or acknowledgement and that there are no
additional services or future performance obligation required by us. Rates for services are typically priced on a per day, per man-hour
or similar basis that include both the cost of utilizing our downhole frac isolation ass
embly and our personnel required to supervise the
operation of the assembly.

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 Canadian subsidiary 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 credit to these customers and, therefore, collection of receivables is affected by the oil and gas industry ec
onomy. 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.

For the years ended December 31, 2017, 2016 and 2015, there was one customer that accounted for 10% or more of the total

revenue or 10% or more of the total accounts receivable balance at the end of the respective periods. We recognized revenue from this
customer totaling $27.4 million, or 14% of 2017 total revenue for the year ended December 31, 2017, $25.5 million, or 26% of 2016
total revenue for the year ended December 31, 2016 and $35.1 million or 31% of 2015 total revenue for the year ended December 31,
2015. Amounts due from this customer included in trade accounts receivable in the accompanying consolidated balance sheets was
$2.0 million as of December 31, 2017 and $7.8 million as of December 31, 2016. No other customer individually accounted for 10%
or more of our consolidated revenue during 2017, 2016 and 2015 or trade receivable balance as of December 31, 2017 and 2016.

Accounts Receivable, Trade and Allowance for Doubtful Accounts

Trade accounts receivable are recorded at their invoiced amounts and do not bear interest. We perform ongoing credit

evaluations of our clients and monitor collections and payments.

We maintain an allowance for doubtful accounts for estimated losses that may result from the inability of our customers to make

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accounts deemed uncollectible are applied against the allowance for doubtful accounts. As of December 31, 2017 and 2016, we have
recorded $11 thousand and $0.1 million, respectively, in provisions for doubtful accounts.

Inventories

Inventories consist primarily of raw material, sliding sleeves components, assembled sliding sleeves, certain components used to

internally construct our frac isolation assemblies and chemicals, in raw material or finished good
and reporting. Inventories are stated at the lower of cost or estimated net realizable value. Cost is determined at standard co
sts
approximating the first-in first-out basis with the exception of chemical costs, which are determined using average costing. 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. Adjustments to reduce such inventory to its estimated recoverable value have
been recorded as an adjustment to cost of sales.

s, used for frac diagnostics testing

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Equipment held under capital leases are stated at the
present value of minimum lease payments. Expenditures for property and equipment and for items which substantially increase the
useful lives of existing assets are capitalized at cost and depreciated over their estimated useful life utilizing the straight-line method.
Routine expenditures for repairs and maintenance are expensed as incurred. Depreciation is calculated over the estimated useful lives
l
of the related assets using the straight-line method. Leasehold improvements and property under capital leases are amortized ov
er the
shorter of the remaining lease term or useful life of the related asset. Depreciation expense includes amortization of assets under
capital 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 other (expense) income, net in the year of disposal.

Depreciation on property and equipment, including assets held under capital leases, is calculated using the straight-line method

over the following useful service lives or lease term (which includes reasonably assured renewal periods):

Buildings
Building equipment
Machinery and equipment
Furniture and fixtures
Computers and software
Vehicles and rental equipment
Leasehold improvements

Years

30
5 - 15
5 - 12
3 - 5
3 - 5
3 - 4
Lease term (1-4)

We periodically assess potential impairment of our property and equipment, when events or changes in circumstances occur that

indicate the carrying value of the asset or asset group may not be recoverable. The assessment of possible impairment is based on our
overall valuation calculation using forward looking as well as historical computations to measure the value of our long-lived assets. If
the overall valuation results are less than the carrying value of such assets, an impairment loss is recognized for the difference between
estimated fair value and carrying value. No impairment loss has been recognized for the years ended December 31, 2017, 2016 and
2015.

Business Combinations, Goodwill and Intangible Assets

Business combinations are accounted for under the acquisition method of accounting in accordance with FASB 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 related to the acquisition, other than those associated with the issuance of debt or equity securities, that we incur in

connection with a business combination are expensed as incurred.

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 intangibles are amortized on a straight-line basis over the estimated useful life or term of related agreements.

We concluded that there was no impairment of goodwill or identifiable assets for the years ended December 31, 2017, 2016 or

2015.

Income Taxes

NCS Multistage Holdings, Inc. is 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 are 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 and applies to all income tax
positions. 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 is more likely than not that some portion or all the deferred tax assets will not be realized. As of
December 31, 2017 and 2016, our valuation allowance was $18 thousand and $63 thousand, respectively. We recognize accrued
interest and penalties related to uncertain tax positions in other income (expense) on the statements of operations. During the years
ended December 31, 2017, 2016 and 2015, respectively, we recognized $0.2 million, $0.1 million and $0.1 million in interest and
penalties. We had $0.6 million and $0.4 million in interest and penalties accrued at December 31, 2017 and 2016, respectively.

We completed our analysis of our tax positions and believe there are no material uncertain tax positions that would require
recognition in the consolidated financial statements as of December 31, 2017 and 2016. We believe that there are no tax positions
taken or expected to be taken as of December 31, 2017 and 2016 that would significantly increase or decrease unrecognized tax
benefits within the next twelve months following the balance sheet date. As of December 31, 2017 and 2016, there were no material
amounts that had been accrued with respect to uncertain tax positions.

One of our Canadian subsidiaries guaranteed the credit facilities of our U.S. entities until May 2017 when cash proceeds were
received from the IPO, a portion of which was used to pay off the existing debt. Under U.S. federal income tax rules, this guarantee
resulted in all of the earnings and profits of our Canadian subsidiary being subject to current U.S. tax. As a result of the 2017 Tax Act
and a change in our permanent earnings reinvestment assertion, we have recognized a $3.9 million U.S. tax benefit for the reversal of
sis in our Canadian subsidiary for which we are
uu
our deferred tax liability on a portion of our differences between book value and tax ba
now asserting indefinite reinvestment. Therefore, as of December 31, 2017 no U.S. deferred tax
liabilities have been recognized on the
differences between book value and tax basis that we continue to indefinitely reinvest. As of December 31, 2016, we have recognized
a U.S. deferred tax liability of $3.9 related to a portion of our book value and tax basis differences in our Canadian subsidiary for
which we are unable to assert indefinite reinvestment.

No U.S. deferred taxes have been recognized on $91.3 million and $52.1 million as of December 31, 2017 and 2016,

respectively, of our book value and tax basis differences that we continue to indefinitely reinvest. Upon reversal of these book value
and tax basis differences through dividends or otherwise, we may be subject to foreign withholding taxes. It is not practical,

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

however, to estimate the amount of taxes that may be payable on the eventual remittance of these temporary differences after
consideration of available foreign tax credits.

We file income tax returns in the U.S., Canada and various state and foreign jurisdictions. Our U.S. income tax returns for 2011

and subsequent years remain open for examination. The Internal Revenue Service (“IRS”) commenced an examination of our U.S.
income tax returns for 2011 through 2012 in the first quarter of 2014 which was completed in 2015. No tax adjustments were
proposed. Additionally, the IRS commenced an examination of our U.S. income tax return for 2014 in the second quarter of 2016
which was completed in the second quarter of 2017. No tax adjustments were proposed.

We account for our stock-based compensation awards in accordance with ASC Topic 718, Compensation—Stock Compensation

(“ASC 718”). We measure all share-based compensation awards at fair value on the date they are granted and recognize the
compensation expense in the financial statements over the requisite period. We record forfeitures as they occur. Fair value of the
share-based compensation was measured using the market price of the common stock for restricted stock units and the Black-Scholes
model for options. We also have an employee stock purchase plan, which allows eligible employees to purchase shares of our
common stock. The purchase price of the stock will be 85% of the lower of the stock price at the beginning or end of the plan period.
The fair value of the employees’ purchase rights under the employee stock purchase plan will also be estimated using the Black-
Scholes model. The Black-Scholes model for both options and the shares purchased under the employee stock purchase plan requires
assumptions and estimates that affect the resultant values and hence the amount of compensation recognized. These assumptions
include our stock price, expected stock price volatility over the term of the awards, expected term, risk free interest rate and expected
dividends. Prior to our IPO, we were a private company. Therefore, we estimated our expected stock volatility based on the historical
volatility of a publicly traded set of peer companies and expect to continue to do so until such time as we have adequate historical data
regarding the volatility of our own traded stock price.

Shipping and Handling Fees and Cost

Shipping and handling fees, if billed to customers, are included in revenues. Shipping and handling costs are classified as cost of

revenues.

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, such as our debt under our Senior Credit
Facility, approximates fair value because interest rates charged are similar to other financial instruments with similar terms and
maturities and the rates vary in accordance with a market index in accordance with ASC 820—Fair Value measurement.

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:

(cid:120)

Level 1—inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity
has the ability to access at the measurement date;

Level 2—inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either
directly or indirectly; and

Level 3—inputs are unobservable for the asset or liability, which reflect the best judgment of management.

The financial assets and liabilities that are disclosed 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
n
reliable measure of fair value, whereas Level 3 generally requires significant management judgment. For additional information on
our Level 3 liabilities, see “Note 3. Acquisitions.”

measurement in its entirety. Level 1 provides the most

Earnings Per Share

Basic income per share is calculated by dividing net income (loss) attributable to NCS Multistage Holdings, Inc., reduced for the

t
allocation of net income (loss) attributable to participating security holders of exchangeable securities held in our indirect subsidiary,
by the weighted-average number of common shares outstanding during the period. The participating security holders were allocated

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.2%, 0.0% and 5.7% of the net income for December 31, 2017, 2016 and 2015, respectively. The participating security holders are
not contractually obligated to share in our losses, therefore, losses are not allocated to the participating security holders. The diluted
income per share computation 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, of shares that would be iss
uable
upon the exercise of outstanding stock options, unvested restricted stock units, purchases under the employee stock purchase plan and
conversion of the participating security holders exchangeable securities, reduced by the number of shares purchased by us at cost,
when such amounts are dilutive to the income per share calculation.

Research and Development

Research and development (“R&D”) costs are incurred both through engaging third parties to perform development activities

under our coordination and management as well as through the utilization of our employees to create and develop new ideas and
product. We incurred approximately $3.0 million, $3.3 million and $3.0 million in R&D costs for the years ended December 31, 2017,
2016 and 2015, respectively. These costs are recorded in selling, general and administrative expense on the consolidated statements of
operations.

Recent Accounting Pronouncements

Pronouncements Adopted in 2017

In May 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-09, Scope of Modification Accounting (Topic
718), which clarifies when to account for a change to the terms and conditions of a share-based payment award as a modification. Under
the new guidance, an entity should apply modification accounting unless the modified award has the same fair value, vesting conditions,
and classification of equity or liability as the original award. We have elected to early adopt this ASU in the second quarter of 2017.
The adoption of this ASU had no material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Accounting for Goodwill Impairment (Topic 350). This

new standard simplifies the test for goodwill impairment. In the original guidance, an entity is required to perform additional analysis
in Step 2, which measures a goodwill impairment loss by comparing the implied fair va
r
carrying amount of that goodwill. The FASB simplifies the subsequent measurement of goodwill by eliminating Step 2. Instead, under
the amendments in this update, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of
a reporting unit with its carrying amount with excess carrying value over the fair value recognized as a loss on impairment. In
addition, income tax effects from any tax deductible goodwill are considered in measuring the goodwill impairment loss, if applicable.
The amendments in this update are effective for public companies for annual or interim goodwill impairment tests in fiscal years
beginning after December 15, 2020, with early adoption permitted. We adopted the guidance in ASU 2017-04 effective April 1, 2017.

lue of a report unit’s goodwill with the

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718), to

simplify the accounting for share-based payment transactions, including accounting for forfeitures, excess tax benefit/expense, and tax
withholding requirements. The guidance is effective for fiscal years, and interim periods within those years, beginning after
December 31, 2016. We adopted this guidance on January 1, 2017 and have elected to recognize actual forfeitures when they occur.
The adoption did not have a material impact on our consolidated financial statements.

. This
In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740)
standard requires all deferred taxes, along with any related valuation allowance, to be presented as a noncurrent deferred asset or
liability. The guidance is effective for fiscal years beginning after December 15, 2016, and includes interim periods within those fiscal
years. Early adoption is permitted and the guidance may be applied either prospectively, for all deferred tax assets and liabilities, or
retrospectively by reclassifying the comparative balance sheet. We adopted this ASU in the first quarter of 2017 on a prospective
basis.

Pronouncements Not Yet Effective

In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business (Topic 805), to clarify the definition of

a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as
acquisitions or disposals of assets or businesses. For public entities, this guidance will be effective for annual periods beginning after
December 15, 2017, including interim periods within those periods. We will adopt ASU 2017-01 on January 1, 2018 and do not
expect to have a material impact on our consolidated financial statements.

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (Topic 230). The
objective of the guidance is to reduce the existing diversity in practice related to the presentation and classification of certain cash
receipts and cash payments. The guidance addresses eight specific cash flow issues including but not limited to, debt prepayment or
extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance
claims and proceeds from the settlement of corporate-owned life insurance policies. For public entities, the guidance is effective for
financial statements issued for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and
is retrospective for all periods presented. Early adoption is permitted including for interim periods. We will adopt ASU 2016-15 on
January 1, 2018 and do not expect to have a material impact on our consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which replaces the existing guidance in ASC 840,
Leases. ASC 842 requires lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use
assets. The new lease standard does not substantially change lessor accounting. The new standard is effective for interim and annual
reporting periods beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the impact of the
adoption of this guidance.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The new standard is

effective for annual reporting periods beginning after December 15, 2017 and early adoption is permitted, however, not before fiscal
years beginning after December 15, 2016. Subsequent to ASU 2014-09’s issuance, Topic 606 was amended for FASB updates that
changed the effective date as well as addressed certain aspects regarding new revenue standards. The comprehensive new standard
will supersede existing revenue recognition guidance and require revenue to be recognized when promised good
transferred to customers in amounts that reflect the consideration to which entities expect to
services. Adoption of the new rules could affect the timing of revenue recognition for certain transactions. The guidance permits the
use of either a full retrospective or modified retrospective transition method. We put in place a team during the second quarter of
2017, including a third-party consultant, to assess the impacts of the new standard and to deve
lop and carry out our implementation
f
plan. The team reviewed our revenue streams and compared our historical accounting policies and practices to the new accounting
guidance. The review also included our acquisitions of Spectrum and Repeat Precision, LLC (“Repeat Precision”). Based upon the
analysis, we will adopt and apply the modified retrospective method of transition on January 1, 2018. We have concluded that the
adoption of this ASU will not have a material impact on our consolidated financial statements.

be entitled in exchange for those goods or

s or services are

Note 3. Acquisitions

Spectrum Tracer Services

On August 31, 2017, we acquired 100% of the equity interests in Spectrum in exchange for approximately $83 million, subject
On August 31, 2017, we acquired 100% of the equity interests in Spectrum in exchange for approximately $83 million, subject
stock
k

to certain adjustments, which was comprised of (i) approximately $76 million in cash and (ii) 0.4 million shares of our common
y
y
using a fair market value of $19.42 per share. The cash portion was funded with available cash and borrowings under our Senior
using a fair market value of $19.42 per share. The cash portion
Secured Credit Facility. We believe Spectrum’s tracer diagnostics services strengthens our ability to provide our customers wit
Spectrum’s tracer diagnostics services strengthens our ability to provide our customers withtt
actionable data and analysis to optimize oil and natural gas well completions and field

development strategies.

The acquisition of Spectrum includes an earn-out provision that could provide up to $12.5

million in additional cash
h

consideration to Spectrum’s former unitholders if Spectrum’s actual gross profit during the earn-out period that commenced on
l gross profit during the earn-out period that commenced on
October 1, 2017 and ends on December 31, 2018 is greater than the earn-out threshold. The fair value of the earn-out recognized on
f
the acquisition date was $0.4 million and is included in contingent consideration on the balance sheet. We estimated the fair v
alue of
the earn-out using a Black-Scholes closed form option pricing model. The earn-out is subject to re-measurement each reporting p
eriod
d
a
bility are
using Level 3 inputs until the full amount of the liability has been satisfied. Subsequent changes in the fair value of the liability are
reflected in our consolidated statements of operations as a change in fair value of contingent consideration. As of December 31
g
the earn-out had a value of $3.4 million. During the year ended December 31, 2017, we recognized $3.0 million as a change in fa
the earn-out had a value of $3.4 million. During the year ended December 31, 2017, we recognized $3.0 million as
value of contingent consideration expense in the consolidated stat
value of contingent consideration
Spectrum earn-out. The cash payment, if any, is expected
y

related to the change in fair value of t
ements of operations related to the change in fair value of t

to be paid during the second quar
g

change in fa r ir

ter of 2019.

, 2017,

hett

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Spectrum contributed revenues of $12.8 million and net income of $0.3 million to

us for the period from September 1, 2017 to
December 31, 2017. The net income included a one-time charge of $0.4 million of income tax expense related to the U.S. transition
tax on its unremitted foreign earnings. The following unaudited pro forma summary presents our select financial information as if the
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acquisition had occurred on January 1, 2016. The below information reflects pro forma adjustments based on available informatio
tt
and certain assumptions we believe are reasonable, including: (i) adjustments related to the depreciation and amortization of t
he fair
r
value of acquired intangibles and fixed assets, (ii) removal of the historical interest expense of Spectrum as well as the addition of the
t related
interest expense of the borrowings under ou
d
to historical U.S. operations and the aforementioned pro forma adjustments, (iv) adjustments related to the number of shares of
f
our
common stock outstanding to reflect the 0.4 million shares issued in connection with the acquisition and (v) accounting policy
n and (v) accounting policy
conformity changes.
conformity changes. The pro forma combined financial information has
indicative of the results that might have actually occurred had the Spectrum acquisition taken place on January 1, 2016; furthermore,
the financial information is not intended to be a projection of future results. The following table summarizes our unaudited selected
financial information on a pro forma basis (in thousands, except per share data):

r Senior Secured Credit Facility in connection with the acquisition, (iii) tax effec

been included for comparative purposes and is not necessarily

y
stments, (iv)

Revenue
Net income (loss) attributable to NCS Multistage Holdings, Inc.
Diluted earnings (loss) per share

Pro Forma (Unaudited)
Year Ended December 31,
2016
2017
117,211
220,478
(19,442)
1,664
(0.57)
0.04

$
$
$

The purchase price is allocated to the estimated fair value of assets acquired and liabilities assumed as of the acquisition date.
Goodwill is calculated as the excess of the consideration transferred over the fair value of the net assets recognized. The assets and
liabilities of Spectrum have been measured based on various preliminary estimates using assumptions that we believe are reasonable
based on information that is currently available. The purchase price allocation is preliminary and adjustments to provisional amounts
may occur as we continue to analyze information. We have recognized $40.2 million of goodwill as a resu
which approximately $6 million will be non-deductible for tax purposes. Additional change
result in a corresponding change to goodwill in the period of the change, however, we do not expect such adjustments to materially
change the purchase price allocation. We also incurred acquisition
December 31, 2017 and 2016, respectively, which were included in general and administrative expense on our consolidated statements
of operations.

We also incurred acquisition costs of $0.7 million and $1.0 million during the years ended

lt of the transaction of
s to the purchase price allocation may

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the consideration and the assets acquired at the Spectrum closing date (in thousands):

Consideration

Cash consideration
Equity consideration
Earn-out liabilitytt recognized

Total consideration
y

Preliminary purchase price allocation

Cash
Accounts receivable
Inventories
Other current assets
Propertyt and equipment
Intangible assets
Other long-term assets

Total identifiable assets acquired

Accounts payable—trade
Accrued expenses
Income taxes payable
Other current liabilities
Deferred tax liabilitytt
Other long-term liabilities

Total liabilities assumed
Net identifiable assets acquired
Goodwill
Net assets acquired

76,485
6,907
352
83,744

1,326
4,648
3,761
480
4,725
31,900
26
46,866
454
436
228
44
956
1,191
3,309
43,557
40,187
83,744

The amount allocated to intangible assets was attributed to the following categories (in thousands):

Technology
Trademarks
Customer relationships
Total intangible assets

Fair Value

5,600
1,600
24,700
31,900

Estimated Useful
Lives (Years)
16
10
21

These intangible assets are amortized on a straight-line basis, which is presented in amortization in our consolidated statements

of operations. Amortization expense for the intangible assets for the Spectrum acquisition was $0.6 million for the year ended
December 31, 2017.

Repeat Precision

On
On February 1, 2017, we acquired a 50%

for $6 million. Historically, the business has been a
1, 2017, we acquired a 50% interest in Repeat Precision for $6.0 million. Historically, the business has been a

supplier to NCS. Our strategic purchase of 50% of this business ensures that we have continued access to these services and allows us
greater control of the allocation of their capacity, ensuring that we can scale their op
ing an additional revenue opportunity.
Precision also markets certain completion products on a wholesale basis, providing an additional revenue opportunity.

erations together with ours. In additio

n, Repeat
t

repaid a $1.0 million promissory note to
Concurrent with entering into the transaction, the previous owner of the 50% interest repaid a $1.0 million promissory note to

us. We also recorded an earn-out at the acquisition date as a contingent adjustment to the purchase price in the amount of $7.0 million,
which was included in contingent consideration on the balance sheet. We estimated the fair value of the earn-out using a Monte Carlo
simulation on the acquisition date. The earn-out equity value was based on Repeat Precision’s 2018 EBITDA, multiplied by three,
which was then reduced by debt and increased by cash. The earn-out equity value was then discounted at the adjusted cost of equity.
ity.
The earn-out is subject to re-measurement each reporting period using Level 3 inputs until the full amount of the liability has
satisfied. Subsequent changes in the fair value of the liability are reflected in our
fair value of contingent consideration. As of December 31, 2017, the earn-out had a value of $9.4 million. During the year ended
December 31, 2017, we recognized $2.5 million as a change in fair value of contingent consideration expense in the consolidated
December 31, 2017, we recognized $2.5 million as
statements of operations rrelated
first quarter of 2019 and will not exceed $10.0 million.

been
a change in
consolidated statements of operations as a change in

change in fair value of contingent consideration expense

during the
cash payment, if any, is expected to be paid during the

to the change in fair value of the earn-out. The

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As NCS has the controlling voting interest in the joint venture, we determined that the transaction was a

and used the acquisition method of account ging and have included Repeat Precision in our consolidated financial statements from
acquisition date. As a result, the other
acquisition date. As a result, the other party’s ownership per

centage is presented separately as a non-controlling interest.

business combination
n
the

The purchase price is allocated to the fair value of assets acquired and liabilities assumed as of the acquisition date and goo
dwill
is recognized for the excess consideration transferred over the fair value of the net assets. The purchase price allocation is preliminary
and adjustments to the working capital provisional amounts may continue to occur as we analyze information. We have recognized
$15.2 million of goodwill as a result of the transaction and expect the full amount to be deductible for tax purposes. Additional
changes to the purchase price allocation may result in a corresponding change to goodwill in the period of the change, however, we do
not expect such adjustments to materially change the purchase price allocation. WeWe also incurred acquisition costs of $0.3 million
during the first quarter of 2017, which were included in genera
operations.

l and administrative expense on our consolidated statements of
f

The following table summarizes the consideration and the assets acquired at the Repeat Precision closing date (in thousands):

Consideration

Cash paid by NCS
Earn-out liabilitytt recognized

Total consideration

Preliminary purchase price allocation

Other net assets
Inventoryrr
Property and equipment
Intangible assets
Goodwill

Total assets acquired
Less: non-controlling interest
Net assets acquired

5,996
6,958
12,954

174
662
5,750
4,100
15,222
25,908
(12,954)
12,954

The unaudited pro forma operating results pursuant to ASC 805 related to the Repeat Precision acquisition have been excluded

due to immateriality.

In connection with the Repeat Precision acquisition, we acquired intangible assets in the amount of $4.1 million related to

customer relationships. The intangible assets are amortized over their estimated ten year useful lives. Amortization expense for the
intangible assets for the Repeat Precision acquisition was $0.4 million for the year ended December 31, 2017.

Note 4. Inventories

Inventories consist of the following as of December 31, 2017 and 2016 (in thousands):

Raw materials
Work in process
Finished goods

December 31,
2017

December 31,
2016

2,412
623
30,100
33,135

695
688
15,634
17,017

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5. Property and Equipment

Property and equipment by major asset class consist of the following as of December 31, 2017 and 2016 (in thousands):

Land
Building and improvements
Machinery and equipment
Computers and software
Furniture and fixtures
Vehicles
Service equipment

Less: Accumulated depreciation and amortization

Construction in progress

t
Propertyt and equipment, net

December 31,
2017

December 31,
2016

2,167
5,155
13,418
2,157
1,013
5,751
244
29,905
(7,012)
22,893
758
23,651

2,026
4,517
1,983
1,345
916
2,475
1,964
15,226
(5,763)
9,463
296
9,759

Depreciation expense and amortization for property and equipment totaled $3.2 million, $1.8 million and $2.7 million for the

years ended December 31, 2017, 2016 and 2015, respectively.

We lease vehicles for our transportation fleet, which are included in the table above. See “Note 8. Debt” for the related

amortization expense.

Note 6. Goodwill and Identifiable Intangibles

Changes in the carrying amount of goodwill is as follows (in thousands):

At December 31, 2015
Currency translation adjd ustment
At December 31, 2016
Acquisitions
Currency translation adjd ustment
At December 31, 2017

119,283
2,794
122,077
55,409
6,992
184,478

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

Technology
Trademarks
Customer relationships

Total identifiable intangibles

Estimated
Useful
Lives (Years)
14 - 16
5 - 10
10 - 21

Gross
Carrying
Amount

December 31, 2017

Accumulated
Amortization

Net

Balance

151,433
2,588
41,058
195,079

(52,730) $
(1,042)
(4,895)
(58,667) $

98,703
1,546
36,163
136,412

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Technology
Trademarks
In-process research and development
Customer relationships
Noncompete agreements

Total identifiable intangibles

$24.0 million, respectively.

Estimated
Useful
Lives (Years)
14
5
5
15
5

Gross
Carrying
Amount

December 31, 2016

Accumulated
Amortization

Net
Balance

138,026
936
35,306
11,577
28,065
213,910

(39,956) $
(759)
(28,621)
(3,128)
(22,749)
(95,213) $

98,070
177
6,685
8,449
5,316
118,697

The total weighted average amortization period is 15 years and estimated future amortization expense is as follows (in

thousands):

2018
2019
2020
2021
2022
Thereafter
Total

Note 7. Accrued Expenses

Accrued expenses consist of the following as of December 31, 2017 and 2016 (in thousands):

13,327
13,327
13,327
13,327
13,327
69,777
136,412

Accrued payroll and bonus
Property and franchise taxes accrual
Accrual related to public offering
Accrued acquisition related costs
Accrued other miscellaneous liabilities

Note 8. Debt

Our long-term debt is as follows (in thousands):

Term loan under Prior Senior Secured Credit Facilitytt
Senior Secured Revolving Credit Facilitytt
Promissoryr note
Equipment notes
Capital leases
Total

Less debt issuance costs
Total debt, net
Less: current portion
Long-term debt

December 31,
2017

December 31,
2016

5,167
390
—
25
1,091
6,673

850
322
1,153
618
347
3,290

December 31,
2017

December 31,
2016

— $

20,000
3,313
1,295
2,428
27,036
—
27,036
(5,334)
21,702

90,836
—
—
—
—
90,836
1,670
89,166
(772)
88,394

The estimated fair value of total debt for the periods ended December 31, 2017 and December 31, 2016 was $26.7 million and

$92.8 million, respectively. The carrying value of the Senior Secured Revolving Credit Facility as of December 31, 2017

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

approximated the fair value of debt as it can be paid at any time. The fair value was estimated using Level 2 inputs by calculating the
sum of the discounted future interest and principal payments through the date of maturity.

Below is a description of our prior and new credit agreements and other financing arrangements.

Prior Senior Secured Credit Facility

Effective August 7, 2014, we entered into a credit agreement (the “Prior Credit Agreement”) with a group of financial
institutions which was denominated in Canadian dollars (“CAD”) and allowed for a term loan of up to $197.6 million CAD
($180.0 million USD), and a $38.4 million CAD ($35.0 million USD) revolving line of credit of which $5.0 million CAD was
available for letters of credit and $5.0 million CAD was available for swingline loans (together, the “Prior Credit Facility”). We
entered into Amendment No. 1, effective April 15, 2015, and Amendment No. 2, effective December 22, 2015, which modified the
original credit agreement governing the Prior Credit Facility. The modifications changed various defined terms as well as the
covenants. These amendments also revised the revolving credit commitment to $27.8 million CAD ($20.0 million USD) and
evidenced the prepayment of the Prior Term Loan in an amount of $55.8 million CAD.

The term loan accrued interest at the adjusted base rate or Canadian base rate plus an applicable margin, as defined in the credit
agreement governing the Prior Credit Facility, with quarterly interest payments. The term loan was collateralized by certain assets of
the Company and guaranteed by certain wholly owned subsidiaries of the Company. The interest on the term loan was payable in
quarterly installments. All unpaid principal and interest was scheduled to mature on August 7, 2019. As of December 31, 2016, the
t
term loan had an outstanding balance of $90.8 million. We incurred interest expense of $1.7 million and $5.5 million for the years
ended December 31, 2017 and 2016, respectively.

The revolving line of credit was collateralized by certain assets of the Company and guaranteed by certain wholly owned
subsidiaries of the Company. Interest on the revolving line of credit was payable quarterly at the adjusted base rate or Canadian base
rate plus an applicable margin, as defined in the agreement governing the Prior Credit Facility.

Direct costs incurred in connection with the term loan were capitalized and amortized over the term of the debt using the
effective interest method. Net fees attributable to the lenders of $1.7 million were presented as a discount to the carrying value of debt
as of December 31, 2016. As a result of the payment of the loan in full on May 4, 2017, we expensed the remainder of the deferred
loan costs of $1.4 million as a component of interest expense, net in the consolidated statements of operations.

In February 2017, to ensure compliance with non-financial covenants per the Prior Credit Facility, we made a $3.0 million term
loan prepayment. On May 4, 2017, the term loan was paid in full and terminated using a portion of the proceeds from our IPO and wed
d
also entered into a new Amended and Restated Credit Agreement (the “Credit Agreement”).

Senior Secured Credit Facility

On May 4, 2017, we entered into an Amended and Restated Credit Agreement with Pioneer Investment, Inc., as borrower (the

“U.S. Borrower”), NCS Multistage Inc., as borrower (the “Canadian Borrower”), Pioneer Intermediate, Inc. (together with the
Company, the “Parent Guarantors”) and the lenders party thereto, Wells Fargo Bank, National Association as administrative agent in
respect of the U.S. Facility (as defined below) and Wells Fargo Bank, National Association, Canadian Branch, as administrative agent
in respect of the Canadian Facility (as defined below) (the senior secured revolving credit facilities provided thereunder, the “Senior
Secured Credit Facility”). The Credit Agreement amended and restated the Prior Credit Agreement in its entirety. The Senior Secured
Credit Facility will mature on May 4, 2020.

The Senior Secured Credit Facility originally consisted of a (i) senior secured revolving credit facility in an aggregate principal

We entered into Amendment No. 1 to the Credit Agreement on August 31, 2017 (the “Amendment”). The Amendment
increased the loan commitment available to the U.S. Borrower to $50.0 million from $25.0 million under the U.S. Facility. The loan
commitment available under the Canadian Facility remained at $25.0 million. At December 31, 2017, we had $20.0 million in
outstanding indebtedness under the U.S. Facility. We incurred interest expense related to the Senior Secured Credit Facility of
$0.4 million for the year ended December 31, 2017.

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Borrowings under the U.S. Facility may be made in U.S. dollars, Canadian dollars or Euros and bear interest at a rate equal to

The Credit Agreement contains financial covenants that require (i) commencing with the fiscal quarter ending June 30, 2017,

to 1.00 as of the last day of each fiscal quarter ending prior to

aa
00 and (iv) if the leverage ratio as of the end of any fiscal quarter is greater tha
n 2.00 to 1.00

1, 2018 and
compliance with a leverage ratio test set at (A) 3.00 to 1.00 as of the last day of each fiscal quarter ending prior to March 3
3
d
uarter
(B) 2.50 to 1.00 as of the last day of each fiscal quarter ending on or after March 31, 2018, (ii) commencing with the fiscal q
qq
r
ending June 30, 2017, compliance with an interest coverage ratio test set at 2.75 to 1.00 as of the last day of each fiscal qua
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rter, (iii) if
f
the leverage ratio as of the end of any fiscal quarter is greater than 2.00 to 1.00 and the amount outstanding under the Canadi
Facility at any time during such fiscal quarter was greater than $0, compliance as of the end of such fiscal quarter with a Canadian
asset coverage ratio test set at 1.00 to 1.
g
and the amount outstanding under the U.S. Facility at any time du
uu
ring such fiscal quarter was gr
g
end of such fiscal quarter with a U.S. asset coverage ratio test
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. As of December 31, 2017, w
e were
in compliance with these financial covenants. The Credit Agreement also includes cust
type (with customary grace periods, as applicable). If an event of default occurs, the lenders under each of the U.S. Facility
Canadian Facility may elect (after the expiration of any applicable notice or grace periods) to declare all outstanding borrowings under
ngs under
such facility, together with accrued and unpaid interest and other amounts payable thereunder, to be immediately due and payabl
e, The
lenders under each of the U.S. Facility and the Canadian Facility also have the right upon an event of default thereunder to terminate
any commitments they have to provide further borrowings under such facility. Further, following an event of default under each
U.S. Facility and the Canadian Facility, the lenders thereunder w
secure such facility.
secure such facility.

s. The Credit Agreement also includes customary events of default for facilities of this
and the

eater than $0, compliance as of
f
also contains customary

Agreement also contains custom

ill have the right to proceed g

against the collateral granted t

set at 1.00 to 1.00. The

o them to

Credit

of the

the

Direct costs of $1.0 million were incurred in connection with the Senior Secured Credit Facility. The costs were capitalized as
an asset as they represent the benefit of being able to access capital over the contractual term. The costs are being amortized over the
term of the credit facilities using the straight-line method. Amortization expense of the deferred financing charges of $0.2 million was
included in interest expense, net for the year ended December 31, 2017.

Promissory Note

On February 27, 2017, Repeat Precision entered into a promissory note with Security State Bank & Trust, Fredericksburg, for an

aggregate borrowing capacity of $3.8 million. The promissory note is secured against equipment, inventory and receivables. It bears
interest at a variable interest rate based on prime plus 1% and matures on February 27, 2018. Any principal amount not paid by the
maturity date bears interest at the lesser of the maximum rate allowed per law or 18% per annum. As of December 31, 2017, the
outstanding balance on the promissory note was $3.3 million.

Equipment Notes

In February 2017, Repeat Precision entered into an equipment note in the amount of $0.8 million with Security State Bank &

Trust, Fredericksburg. The equipment note bears interest at prime plus 1%, matures on February 27, 2021 and is collateralized by
certain property. Any principal amount not paid by the maturity date bears interest at the lesser of the maximum rate allowed per law
aa
or 18% per annum. As of December 31, 2017, the outstanding balance on the equipment note was $0.6 million.

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In April 2017, Repeat Precision entered into another equipment note in the amount of $0.8 million with Security State Bank &

Trust, Fredericksburg. The equipment note bears interest at prime plus 1%, matures on December 21, 2018 and is collateralized by
certain property. Any principal amount not paid by the maturity date bears interest at the lesser of the maximum rate allowed p
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or 18% per annum. As of December 31, 2017, the outstanding balance on the equipment note was $0.7 million.

er law

Future principal payments on the Senior Secured Credit Facility, promissory note and equipment notes for each of the years

ending December 31, are as follows (in thousands):

2018
2019
2020
2021

Capital Leases

4,184
190
20,200
34
24,608

We have entered into various capital lease agreements which expire at various dates through 2021. Total capital lease
amortization expense was $0.4 million for the year ended December 31, 2017 and $0.2 million for each of the years ended
December 31, 2016 and 2015. Future minimum lease payments under capital leases at December 31, 2017, together with the present
value of the minimum lease payments, are as follows (in thousands):

2018
2019
2020
2021
Subtotal
Less: amount representing interest
Present value of payments

1,286
847
332
196
2,661
(233)
2,428

Property under capital leases included within property and equipment consisted of the following at December 31, 2017 and 2016

(in thousands):

Vehicles

Assets under capital leases
Less: accumulated amortization
Net assets under capital leases

Note 9. Commitments and Contingencies

Litigation

December 31,
2017

December 31,
2016

3,584
3,584
(785)
2,799

1,025
1,025
(439)
586

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 and employee matters.

Our management currently does not expect that the results of any of these legal proceedings, either individually or in the

aggregate, would have a material adverse effect on our financial position, results of operations or cash flows.

On March 3, 2017, we received $0.9 million resulting from an arbitration case that was decided in our favor in February 2017.

This was recorded as other income (expense), net in our consolidated statements of operations for the year ended December 31, 2017.

Operating Leases

We have entered into certain operating lease commitments for buildings and office equipment, which expire at various dates
through December 2022. Total rental expense charged to consolidated statements of operations was $2.4 million for the year ended
December 31, 2017 and $2.1 million for each of the years ended December 31, 2016 and 2015.

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Minimum rental payments under non-cancelable operating leases which have terms in excess of one year as of

December 31, 2017, are as follows (in thousands):

2018
2019
2020
2021
2022
Total payments

Note 10. Stockholders’ Equity

2,983
1,738
485
298
93
5,597

As disclosed in “Note 1. Basis of Presentation”, on April 13, 2017 our board of directors (“Board”) and stockholders approved

an amendment to the amended and restated certificate of incorporation effecting a 3.00 for 1.00
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outstanding shares of common stock. The stock split was implemented on April 13, 2017. The par value of the common and preferred
stock was not adjusted as a result of the stock split. All other issued and outstanding shares and per share amounts included in the
accompanying consolidated financial statements have been adjusted to reflect this stock split for all periods presented.

stock split of our issued and

We currently have common stock and preferred stock outstanding. On April 27, 2017, our certificate of incorporation was

amended and restated and the number of shares of common stock authorized to be issued by us was increased from 54,000,000 to
225,000,000 and the number of our authorized shares of preferred stock was increased from one share to 10,000,000 shares. As of
December 31, 2017 and 2016, 43,913,136 and 34,005,978 shares of common stock were outstanding, respectively. Additionally, one
share of preferred stock, designated as the “Special Voting Share” in our amended and restated certificate of incorporation, was issued
and outstanding as of December 31, 2017 and December 31, 2016.

The holders of common stock are entitled to one vote for each share of common stock held. The holder of the Special Voting

Share shall be entitled to vote on all matters that a holder of common stock is entitled to vote on and shall be entitled to cast a number
of votes equal to the number of exchangeable shares of NCS Multistage, Inc. (“NCS Canada”), a subsidiary of the Company, then
outstanding that are not owned by us, multiplied by the exchange ratio (as defined in the articles of incorporation of NCS Canada). In
connection with our stock split, the exchange ratio was adjusted to three from one. As of December 31, 2016, the number of shares of
common stock issuable for the exchangeable shares totaled 1,819,247 and was held by the preferred stockholder. On May 3, 2017, the
preferred stockholder sold shares of our common stock in our initial public offering, which reduced the number of shares of common
stock issuable for the exchangeable shares. As of December 31, 2017, the number of shares of common stock issuable for the
exchangeable shares totaled 1,769,247. The exchangeable shares are convertible upon demand at the stock price on the conversion
date. The holders of common stock are entitled to receive dividends as declared from time-to-time by our board of directors. The
holder of the Special Voting Share is not entitled to receive dividends. No dividends were declared during the periods ended
December 31, 2017 or December 31, 2016.

Note 11. Share-Based Compensation

Equity Incentive Plans

We maintain three equity incentive plans for the benefit of our employees, directors and other service providers: our 2011
tt

Equity Incentive Plan (the “2011 Plan”), our 2012 Equity Incentive Plan (the “2012 Plan”) and our 2017 Equity Incentive Plan (the
“2017 Plan”). The following is a summary of certain features of the 2011 Plan, 2012 Plan and the 2017 Plan.

2011 Plan

The 2011 Plan provided awards to employees, directors and consultants of NCS Energy Holdings, LLC. In connection with
Advent’s acquisition on December 20, 2012, we assumed the options under the 2011 Plan and converted them into options to purchase
shares of our common stock. There remains 649,047 options outstanding and exercisable that were granted pursuant to the 2011 Plan
as of December 31, 2017.

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2012 Plan

mm
The 2012 Plan provided awards to our employees, directors and consultants prior to

our IPO. We no longer grant awards under
the 2012 Plan. The 2012 Plan is administered by the Compensation, Nominating and Governance Committee of our Board. The 2012
Plan has a total of 2,463,501 shares authorized for issuance. Awards granted under the 2012 Plan will remain outstanding until the
earlier of exercise, forfeiture, cancellation or expiration. There remains 2,462,001 options outstanding and 934,323 options exercisable
that were granted pursuant to the 2012 Plan as of December 31, 2017.

2017 Plan

The 2017 Plan was adopted in connection with our IPO and provides for awards of stock options, stock appreciation rights,
restricted stock awards, restricted stock units, stock awards and performance awards. Awards under the 2017 Plan may be granted to
d
any employee, non-employee director, consultant or other personal service provider to us
or any of our subsidiaries. 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 2017 Plan was established with the authorization for
grants of up to of 4,532,523 shares of authorized but unissued shares of common stock. As of December 31, 2017, the total number of
shares available for future issuance under the 2017 Plan is 4,352,382.

Stock Options

Stock options granted under the 2012 Plan and the 2017 Plan generally vest annually in equal increments over three or five
years and have a 10-year term. Before our IPO, we issued certain stock options that were to vest only in connection with a change of
control (the “Liquidity Options”). In connection with the IPO, the Liquidity Options were amended for 22 employees to provide that
such awards will vest in three equal installments on each of the first three anniversaries of the consummation of our IPO, which
occurred on May 3, 2017, subject to certain requirements including, as applicable, the recipient’s continued employment on the
vesting date. The modified Liquidity Options are still subject to accelerated vesting upon a company sale, as defined in our 20
, as defined in our 2012
Equity Incentive Plan
Equity Incentive Plan.

We estimate the fair value of each option grant using the Black-Scholes option-pricing model. The Black-Scholes option pricing
model requires estimates of key assumptions based on both historical information and management judgment regarding market factors
and trends. Determining the appropriate fair value model and calculating the fair value of options requires the input of highly
subjective assumptions, including the expected volatility of the price of our stock, the risk-free rate, the expected term of the options
and the expected dividend yield of our common stock. Prior to our IPO, we were a private company. Therefore, we estimated our
expected stock volatility based on the historical volatility of a publicly traded set of peer companies and expect to continue
until such time as we have adequate historical data regarding the volatility of our own traded stock price. These estimates involve
inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, our share-
based compensation expense could be materially different in the future.

to do so

The weighted average assumptions used to estimate the fair value of stock options granted in 2017, 2016 and 2015 are as

follows:

Expected volatility
Average risk free interest rate
Expected term (in years)
Expected dividends

2017

44.4 %
2.0 %
6.0
— %

Year Ended December 31,
2016
42-44.7%
1.7 %
6.5
— %—

2015

43.0 %
2.3 %
6.5
— %

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As a result of the modification of the terms of the Liquidity Options, we estimated the fair value of the Liquidity Options on
April 27, 2017, the amendment date, using the Black-Scholes option-pricing model. The total unamortized compensation expense was
valued at $17.2 million at April 27, 2017, the amendment date, compared to $10.1 million at December 31, 2016. The weighted
average assumptions used to estimate the fair value of the Liquidity Options were as follows:

Expected volatility
Average risk free interest rate
Expected term (in years)
Expected dividends

44.4 %
1.7 %
4.6
— %

The following table summarizes stock option activity during the years ended December 31, 2017, 2016, and 2015:

2012 Equity Plan and 2017 Equity Plan
Outstanding at December 31, 2015
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding at December 31, 2016
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding at December 31, 2017
Unvested as of December 31, 2017
Exercisable as of December 31, 2017

Service
Based
Options

973,173
24,348
—
(6,651)
990,870
12,647
(1,500)
—
1,002,017
67,694
934,323

Liquidity
Options
1,436,073
46,533
—
(9,975)
1,472,631
—
—
—
1,472,631
1,472,631
—

Total
Options
2,409,246 $
70,881
—
(16,626)
2,463,501 $
12,647
(1,500)
—

2,474,648 $
1,540,325

934,323 $

Service Based
Weighted
Average
Exercise
Price

Liquidity
Based
Weighted
Average
Exercise
Price

6.13 $
9.55
—
5.88
6.01 $

17.00
5.88
—
6.15 $
10.01
5.87 $

6.35
9.58
—
5.88
6.19

—
—
—

6.19
6.19
—

Service Based
Weighted
Average
Remaining
Contractual
Life (Years)
7.05

Liquidity
Weighted
Average
Remaining
Contractual
Life (Years)

7.03

6.19

5.24

5.07

5.19

—

The weighted average grant-date fair value of service-based option awards granted during the years 2017, 2016, and 2015 was
$7.61, $4.58 and $6.62, respectively. The weighted average grant-date fair value of the Liquidity Options at the amendment date of
April 27, 2017 was $11.69. Aggregate intrinsic value represents the difference between our estimated fair value of common stock and
the exercise price of outstanding in the money options. As of December 31, 2017, our outstanding, unvested and exercisable aggregate
intrinsic values were $21.2 million, $12.9 million and $8.3 million, respectively. The total intrinsic value of options exercised during
the years ended December 31, 2017 was $14 thousand. No shares were exercised during the years ended December 31, 2016 and
2015.

Restricted Stock Units

Upon completion of our IPO and pursuant to the 2017 Plan, we began granting restricted stock units (“RSUs”). We account for
RSUs granted to employees at fair value on the date of grant, which we measure as the closing price of our stock on the date of grant,
and recognize the compensation expense in the financial statements over the requisite service period. Currently outstanding RSUs
generally vest over a period of one or three years from the date of grant.

The following is a summary of RSU activity under the 2017 Plan:

Non-vested at December 31, 2016
Granted
Non-vested at December 31, 2017

Number of
Awards

— $

167,494
167,494 $

Weighted
Average
Grant Date
Fair Value

—
18.78
18.78

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Employee Stock Purchase Plan

On August 3, 2017, our board of directors adopted our Employee Stock Purchase Plan (the “U.S. ESPP”) and an employee stock

purchase plan specifically applicable to non-U.S. employees on substantially the same terms as the ESPP (the “Non-U.S. ESPP” and
together with the U.S. ESPP, the “ESPP”). There are an aggregate of 2,000,000 shares of our common stock reserved for issuance and
sale pursuant to the ESPP. The first offering period under our ESPP began on October 16, 2017 and ends on December 31, 2018. We
believe future offering periods will span a calendar year. The ESPP allows eligible employees to contribute, subject to any other plan
limitations, up to 18% of their base salary, up to a maximum of $25 thousand per calendar year ($50 thousand for the first offering
period), toward the purchase of our common stock at a discounted price. The purchase price of the shares on each purchase date is
equal to 85% of the lower of the fair market value of our common stock on the first and last trading days of each offering period. The
U.S. ESPP is designed to be qualified under Section 423 of the Internal Revenue Code.

The fair value of the ESPP was estimated using the Black-Scholes model with the following assumptions and resulting

weighted-average fair value per share:

Expected volatility
Average risk free interest rate
Expected dividends
Weighted-average fair value per share

Total Share Based Compensation Expense

Year Ended
December 31, 2017
38.8 %
1.4 %
— %

7.16

The following table summarizes share-based compensation expense recognized in selling, general and administrative expense in

our consolidated statements of operations for the years ended December 31, 2017, 2016 and 2015, respectively (in thousands):

Stock options
Restricted stock units
ESPP

which we expect to recognize over approximately two years.

Note 12. Employee Benefit Plan

2017

Year Ended December 31,
2016

2015

5,218
775
115
6,108

1,354
-
-
1,354

1,313
-
-
1,313

Our U.S. employees are eligible to participate in a 401(k) plan sponsored by us. All eligible employees may contribute a

percentage of their compensation subject to a maximum imposed by the Internal Revenue Code. All of our contributions are
discretionary. We suspended the matching program on April 30, 2015 but reinitiated it on January 1, 2016. Similarly, our Canadian
employees are eligible to participate in the Group Registered Retirement Savings Program. All eligible employees may make tax
deferred contributions to the plan. This matching program was also suspended on April 30, 2015 until January 1, 2016. Contributions
made on behalf of Canadian employees by NCS are taxable income to the employee and may not exceed the Canadian Revenue
Agency’s deduction limit for the given year. Our contributions were $0.8 million for the year ended December 31, 2017 and
$0.6 million for each of the years ended December 31, 2016 and 2015, respectively.

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13. Income Taxes

The provision (benefit) from income taxes consists of the following for the years ended December 31, 2017, 2016 and 2015 (in

thousands):

Current tax expense (benefit)

State
Foreign

Total current

Deferred tax expense (benefit)
U.S. Federal
State
Foreign

Total deferred
Total income taxes

2017

Year Ended December 31,
2016

2015

628
7,215
19,629

(14,389) $
(299)
(4,271)
(18,959)
670

(145)
1,098
448

(4,190) $
(133)
(4,943)
(9,266)
(8,818) $

189
3,934
(4,924)

(7,608)
253
(3,945)
(11,300)
(16,224)

The following is the domestic and foreign components of our income (loss) before income taxes for the years ended

December 31, 2017, 2016 and 2015 (in thousands):

U.S. Federal
Foreign
Income (loss) before income tax

2017

Year Ended December 31,
2016
(15,221) $
(11,524)
(26,745) $

(6,337) $
8,299
1,962

2015

18,047
(6,246)
11,801

The following is a summary of the items that caused recorded income taxes to differ from income taxes computed using the

statutory federal income tax rate for the years ended December 31, 2017, 2016 and 2015:

Income tax expense at federal statutoryrr rate
Increase (decrease) in income taxes resulting from

2017

Year Ended December 31,
2016

35.0%

2015

35.0%

Noncontrolling interest losses
U.S. tax on foreign earnings
Deferred tax adjd ustment for foreign book value and tax basis differences
Change in tax year for subsidiaryr
Nondeductible expenses
Non U.S. income taxed at different rates
ff
Research and other tax credits
Effect of rate change on deferred tax
Stock-based compensation
Manufacturing deduction
State taxes
Change in valuation allowance
Other

Income tax

35.5%
200.5%
(197.3)%

0.0%
36.6%
(16.9)%
(44.0)%
(24.3)%
22.1%
(23.8)%
8.6%
(2.3)%
4.4%
34.1%

0.0%
(3.6)%
1.8%
0.0%
(0.2)%
(3.6)%
3.0%
0.0%
(0.5)%
0.3%
0.8%
0.0%
0.0%
33.0%

0.0%
20.2%
(99.6)%
(105.9)%
2.1%
4.3%
(6.3)%
16.2%
1.0%
(7.6)%
3.1%
0.0%
0.0%
(137.5)%

2016 and 2015, respectively. For the years ended December 31, 2017, 2016 and 2015, our effective tax rate was 34.1%, 33.0% and
(137.5%). The primary differences between these effective tax rates were due to several offsetting items, including the effects of
recording tax expense for the 2017 Tax Act of $3.9 million, not providing U.S. income taxes on the undistributed earnings of foreign
subsidiaries because we intend to permanently reinvest such earnings outside the U.S. and a tax benefit for the reversal of our deferred
tax liability due to the change in our foreign unremitted earnings assertion of $3.9 million. During the first quarter of 2017,

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

we changed our assertion to state that undistributed foreign earnings are indefinitely or permanently reinvested as a result of cash
proceeds received from the IPO during May 2017, a portion of which was used to pay off existing debt. The negative effective tax rate
aa
in 2015 was primarily due to a tax planning strategy and the effect of an adjustment of our deferred taxes liability on differences
between book value and tax basis in our Canadian subsidiary. The tax planning strategy resulted in the Company receiving permission
from a foreign tax authority to change the year end to conform to U.S. income tax reporting

The 2017 Tax Act was signed into law on December 22, 2017. The 2017 Tax Act significantly revises the U.S. corporate
income tax by, among other things, lowering the statutory corporate tax rate from 35% to 21%, eliminating certain deductions,
imposing a mandatory one-time tax on accumulated earnings of foreign subsidiaries as of 2017, introducing new tax regimes, and
changing how foreign earnings are subject to U.S. tax. We recorded a tax benefit of $0.5 million for the remeasurement of federal net
deferred tax liabilities resulting from the permanent reduction in the U.S. statutory corporate tax rate to 21% from 35% and recorded a
mandatory one-time tax on the accumulated earnings of our foreign subsidiaries of $4.4 million. Our preliminary estimate of the 2017
Tax Act and the remeasurement of our deferred tax assets and liabilities is subject to the finalization of management’s analysis related
to certain matters, such as developing interpretations of the provisions of the 2017 Tax Act, changes to certain estimates and the filing
of our tax returns. U.S. Treasury regulations, administrative interpretations or court decisions interpreting the 2017 Tax Act may
require further adjustments and changes in our estimates. The final determination of the 2017 Tax Act and the remeasurement of our
f
deferred assets and liabilities will be completed as additional information becomes available, but no later than one year from the
enactment of the 2017 Tax Act in accordance with SAB 118. Those adjustments may impact our provision for income taxes in the
period in which the adjustments are made.

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities as

of December 31, 2017 and 2016 are as follows (in thousands):

Deferred tax assets
Accruals not currently deductible
Tax credit carryrr forwards
Other

Valuation allowance for deferred tax assets

Total deferred tax assets

Deferred tax liabilities
Depreciation and amortization
Foreign currency translation
Foreign unremitted earnings
Other

Total deferred tax liabilities
Net deferred tax liabilities

December 31,

2017

2016

3,344 $
—
871
4,215
(18)
4,197

(27,404)
(358)
—
(618)
(28,380)
(24,183) $

2,829
872
1,221
4,922
(63)
4,859

(33,913)
(6,843)
(3,869)
(813)
(45,438)
(40,579)

The above are included in the accompanying consolidated balance sheet as follows (in thousands):

Deferred income tax assets—current
Deferred income tax liabilities—noncu—

rrent

December 31,

2017

2016

— $

(24,183)
(24,183) $

2,116
(42,695)
(40,579)

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 14. Earnings Per Share

The following table presents the reconciliation of the numerator and denominator for calculating earnings per share from net

income (loss) (in thousands):

Numerator—Basic
et income (loss)

Less: income attributable to participating shares
Less: loss attributable to non-controlling interest
Net income (loss) attributable to
––
NCS Multistage Holdings, Inc.––Basic

Numerator—Diluted
Net income (loss)
Less: loss attributable to non-controlling interest
Net income (loss) attributable to
––
NCS Multistage Holdings, Inc.––Dilute

Denominator

Basic weighted average number of shares
k
Exchangeable shares for common stock
Dilutive effect of stock options, restricted stock and ESPP
Diluted weighted average number of shares

Earnings (loss) per common share

Basic
Diluted

$
$

2017

Year Ended December 31,
2016

2015

1,292
55
(810)

(17,927) $
—
—

2,047

(17,927)

28,025
1,604
—

26,421

1,292
(810)

(17,927) $
—

28,025
—

2,102

(17,927) $

28,025

40,484
1,786
1,313
43,583

34,008
—
—
34,008

0.05
0.05

$
$

(0.53) $
(0.53) $

29,966
1,819
648
32,433

0.88
0.86

—

Potentially dilutive securities excluded as anti-dilutive

—

2,601

Note 15. Related Party Transactions

As of December 31, 2016, we held a long-term note receivable in the amount of $0.8 million due from a related party. During

the first quarter of 2017, the long-term note receivable was paid in full.

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16. Segment and Geographic Information

We have determined that we operate in one reportable segment that has been identified based on how our chief operating

decision maker manages our business (see “Note 1. Organization and Basis of Presentation”).

Revenue by country for 2017, 2016 and 2015 is attributed based on the current billing address of the customer. The following

table summarizes revenue by geographic area (in thousands):

2017

Year Ended December 31,
2016

2015

United States

Services

Total United States

Canada

Product Sales
Services

Total Canada

Other Countries
Product Sales
Services

Total Other Countries

Total

Product Sales
Services

Total

United States
Canada
Other Countries

22,659
63,920

96,716
31,183
127,899

6,689
3,126
9,815

144,666
56,968
201,634

4,747
22,342

53,088
16,994
70,082

2,537
3,518
6,055

73,220
25,259
98,479

assets by geographic area (in thousands):

December 31,
2017

14,714
8,710
227
23,651

8,645
33,502

53,108
21,801
74,909

2,114
3,480
5,594

80,079
33,926
114,005

December 31,
2016

2,819
6,940
—
9,759

NCS MULTISTAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 17. Quarterly Financial Data (Unaudited)

The table below sets forth unaudited financial information for each quarter of the last two years (in thousands, except per share aa

amounts):

2017
Revenue
Cost of sales
Income (loss) from operations
Net income (loss)
Net income (loss) attributable to NCS Multistage Holdings, Inc.
Earnings (loss) per share:
Basic (1)
Diluted (1)

2016
Revenue
Cost of sales
Loss from operations
Net loss
Net loss attributable to NCS Multistage Holdings, Inc.
Loss per share:
Basic (1)
Diluted (1)
___________________________
a
(1) The sum of the individual quarterly earnings per share amount

First

Quarter

Second

Quarter

Third

Quarter

Fourth

Quarter

$
$

58,636
29,354
9,924
6,348
6,550

0.18
0.18

23,107
12,695
(4,266)
(8,126)
(8,126)

$
$

36,857 $
18,885
(5,609)
(4,745)
(4,491)

55,957
25,958
5,246
3,541
3,386

(0.11) $
(0.11) $

0.07
0.07

11,281 $
6,489
(10,167)

(8,590)
(8,590)

28,650
14,713
(1,017)
(280)
(280)

(0.24) $
(0.24) $

(0.25) $
(0.25) $

(0.01) $
(0.01) $

50,184
24,595
(4,602)
(3,852)
(3,343)

(0.08)
(0.08)

35,441
19,936
(2,532)
(931)
(931)

(0.03)
(0.03)

s may not agree with the annual amount reported as each quarterly

computation is based on the weighted average number of common shares outstanding during the period.

Note 18. Subsequent Events

On February 14, 2018, we issued 442,312 shares of common stock to Cemblend Systems, Inc. (“Cemblend”) in exchange for

shares of one of our wholly-owned subsidiaries.

On February 16, 2018, we entered into Amendment No. 2 to the Credit Agreement. The amendment amends certain negative

covenants contained in the Credit Agreement.

SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NCS MULTISTAGE HOLDINGS, INC. (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
(In thousands, except share data)

Assets
Current assets

Cash and cash equivalents
Accounts receivable—trade, net

—

Total current assets

Noncurrent assets

Investment in subsidiaries
Loans to subsidiaryrr compm anies
Long term note receivable

Total noncurrent assets
Total assets

Liabilities and Stockholders’ Equity
Current liabilities

Accrued expenses

Total current liabilities
Total liabilities

Stockholders’ equity

Preferred stock, $0.01 par value, 10,000,000 shares authorized, one share issued and outstanding at
December 31, 2017 and one share authorized, issued and outstanding at December 31, 2016

Common stock, $0.01 par value, 225,000,000 shares authorized, 43,931,484 shares issued

and 43,913,136 shares outstanding at December 31, 2017 and 54,000,000 shares authorized,
34,024,326 shares issued and 34,005,978 shares outstanding at December 31, 2016

Additional paid-in capital
Accumulated other compm rehensive loss
Retained earnings
Treasuryrr stock, at cost; 18,348 shares at December 31, 2017 and at December 31, 2016

Total stockholders’ equity
Total liabilities and stockholders' equityt

December 31,
2017

December 31,
2016

1,498
4
1,502

187,413
168,018
—
355,431
356,933

86
86
86

—

439
399,426
(66,707)
23,864
(175)
356,847
356,933

131
4
135

169,889
6,723
751
177,363
177,498

20
20
20

—

340
237,566
(82,015)
21,762
(175)
177,478
177,498

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

SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NCS MULTISTAGE HOLDINGS, INC. (PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF OPERATIONS
(In thousands)

Equity in net income (loss) of subsidiaries
Other loss
Net income (loss)

Year Ended December 31,

2017

2,216
(114)
2,102

2016
(17,840) $
(87)
(17,927) $

2015

28,122
(97)
28,025

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

SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NCS MULTISTAGE HOLDINGS, INC. (PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
(In thousands)

Net income (loss)
Foreign currency translation adjd ustments, net of tax of $0
Comprehensive income (loss)

Year Ended December 31,

2017

2,102
15,308
17,410

2016
(17,927) $
6,655
(11,272) $

2015

28,025
(43,280)
(15,255)

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

SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NCS MULTISTAGE HOLDINGS, INC. (PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)

Cash flows from operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash

provided by operating activities:

y in net (loss) income of subsidiaries

Accrued expenses

Net cash used by operating activities
Cash flows from investing activities
g
Investment in subsidiaries
Issuance of note receivable—related part
ytt
—
Loans to affiliated company

Net cash used by investing activities

Cash flows from financing activities
Contributions from shareholders
Proceeds from related partytt note receivable
Proceeds from issuance of common stock, net of offering costs

Net cash provided by financing activities
Net change in cash and cash equivalents
Cash and cash equivalents beginning of period
Cash and cash equivalents end of period

Year Ended December 31,

2017

2016

2015

2,102

(17,927) $

28,025

(2,216)
65
(49)

17,840
80
(7)

—
—
(151,196)
(151,196)

—
752
151,860
152,612
1,367
131
1,498

—
—
—
—

102
—
—
102
95
36
131

(28,122)
97
—

(40,000)
(755)
—
(40,755)

39,999
—
—
39,999
(756)
792
36

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

SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NCS MULTISTAGE HOLDINGS, INC. (PARENT COMPANY ONLY)
NOTES TO CONDENSED FINANCIAL STATEMENTS

Note 1. Background and basis of presentation

NCS Multistage Holdings, Inc. (the “Parent Company”) is a holding company that conducts substantially all of its business

operations through its subsidiaries. The ability of the Parent Company’s subsidiaries to pay dividends is currently restricted by the
terms of its credit agreement with a group of financial institutions. Substantially all of the net assets of the Parent Company’s
consolidated subsidiaries are restricted.

The accompanying condensed financial information includes the accounts of the Parent Company and, on an equity method

basis, its investment in subsidiaries. Accordingly, these condensed financial statements have been presented on a “parent only” basis.
These parent only financial statements should be read in conjunction with NCS Multistage Holdings, Inc. consolidated financial
statements and related notes thereto included elsewhere herein.

The condensed parent-only financial statements have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-

X as the restricted net assets of the subsidiaries of the Parent Company exceeds 25% of the consolidated net assets of the Pare
Company. The ability of the Parent Company’s operating subsidiaries to pay divi
dends may be restricted due to terms of the
subsidiaries financing arrangements (see “Note 8. Debt” of our consolidated financial statements).

Note 2. Related Party Transactions

As of December 31, 2016, the Company held a long-term note receivable in the amount of $0.8 million due from a related party.

During the first quarter of 2017, the long-term note receivable was paid in full.

As of December 31, 2017 and 2016, the Parent Company has total subsidiary loans between the subsidiaries and the Parent

Company in the amount of $168.0 million and $6.7 million, respectively.

Note 3. Commitments and Contingencies

For discussion of the commitments and contingencies of the subsidiaries of the Parent Company see “Note 9. Commitments and

Contingencies” of our consolidated financial statements.

NCS MULTISTAGE HOLDINGS, INC.
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016, AND 2015
(In thousands)

Accrued obsolescence for inventoryrr

December 31, 2017
December 31, 2016
December 31, 2015

Balance at

Charges to

Recoveries and

Balance at

Beginning of Period Costs and Expenses

Write-Offs

End of Period

3,992 $
1,577
83

1,192 $
5,082
1,494

(3,884) $
(2,667)
—

1,300
3,992
1,577

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial

Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period
covered by this report. Disclosure controls and procedures are designed to ensure that information required to be disclosed in the
reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in
ff
the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and

procedures were not effective as of such date due to the material weaknesses described below.

Material Weaknesses in Internal Control over Financial Reporting

In connection with the audit of our financial statements for the years ended December 31, 2016 and 2015, we and our

independent registered public accounting firm identified material weaknesses in our internal control over financial reporting. A
t
material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, s
uch that
a timely
there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely
basis.
basis.

(cid:120)

over the presentation of the statement

These material weaknesses resulted in the need to correct material misstatements in our consolidated financial statements for the

As of December 31, 2017, we continue to remediate the previously reported material weaknesses in our internal control over
As of December 31, 2017, we continue to remediate the previously reported material weaknesses in our internal control over

financial reporting. The following captures the progress made by management related to each of the previously reported material
financial reporting. The following captures the progress made by management related to each of the previously reported material
weaknesses:

Lack of sufficient knowledgeable accounting and financial reporting personnel
Lack of sufficient knowledgeable account

: We completed a review of required skill sets
: We completed a review of required skill sets

nts as a public company and identified various gaps in both
that would be commensurate with our financial reporting requirements as a public company and identified various gaps in both
specific accounting knowledge and expertise and the number of reso
urces required and have now employed those with the appropriate
pp p
level of knowledge and experience. By adding the appropriate personnel and instituting various programs, we have significantly
rious programs, we have significantly
gorganization. In order to consider this m
of our accounting and financial reporting
y
g
g
improved the knowledge base and proficiency
g

p y

aterial

weakness to be fully remediated, we believe additional time is
over financial reporting.
over financial reporting.

needed to demonstrate sustainability as it relates to our intern

al control

: We did not design and maintain sufficient formal accounting policies and controls over
Improper accounting for income taxes: We did not design and maintain sufficient formal accounting policies and controls over
Improper accounting for income taxes

income taxes. To address this material weakness, we are establishing accounting controls over the tax provisioning process which
includes meetings with tax and accounting personnel to discuss items which impact the income tax accounts and disclosures. If w
an expert, a control is in place whereby ma g
nagement is currently designing controls to
y
ensure appropriate review over work is performed by the Director of Tax.
ensure appropriate review over work is performed by the Director of Tax.

nagement reviews the expert’s findings. Ma g

e use

IImproper classification within statement of cash flows

: We identified a material weakness related to insufficient accounting
g
policies, procedures and controls designed to
policies, procedures and controls designed to properly classify cash flows related to foreign exchange gains/losses associated with
foreign denominated debt and deferred financing costs. Throughout 2017, we have taken many step
the statement of cash flows, which includes a quarterly detailed review meeting attended by accounting personnel responsible forr
financial reporting to ensure each line item classification is properly reflected. Howe
m
these review meetings, management has determined that a sufficient
t
g
weakness as of December 31, 2017 has been remediated.

ver, even with the additional procedures related to
erial
y

amount of time has not yet passed to fully conclude this mat

s to prevent misclassifications on

Segregation of duties within the

accounting and finance organization

: This material weakness can be split into two different
t

areas: Journal Entries and Account Reconciliations.

over journal entries.
JJournal Entries: We identified a material weakness in the design and operating effectiveness of controls over journal entries.
Journal entry access and ability to post was removed from those who would be approving the entries with the exception of one
individual. Journal entries are now reviewed and approved only by those
properly authorized to do so. We utilize a third-party
software that assists with the systematic review and approval process for each assigned user. System access controls are in place
to ensure compliance and controls are func
post manual journal entries function by th
post manual journal entries function by th

g
tioning properly. We have designed a monitoring control to review the create and
itoring control to review the create and
y
e one individual mentioned above.

AAccount Reconciliations: We identified a material weakness in the design
reconciliations. During 2017, we began the process of initiating preventive controls to eliminate the possibility of non-
compliance. Account reconciliation creation and approval was separated, so that each reconciliation was approved by someone
compliance. Account reconciliation creation and approval was separated, so that each reconciliation was approved by someone
other than the preparer. We purchased and installed a third party
software, which is widely used in the market to assist with thett
y
workflow and tracking of the account reconciliation creation and approval process. However, even with the enhanced controls
workflow and tracking of the account reconciliation creation and approval process. However, even with the enhanced controls
and systematic process, management has determined that a sufficient amount of time has not yet passed to fully conclude this
has not yet passed to fully conclude this
material weakness as of December 31, 2017 has been remediated.

and operating effectiveness of controls over account

We continue to complete the documentation, implementation and testing of the remediation actions described above and as of
We continue to complete the documentation, implementation and testing of the remediation actions described above and as of
rted
d

December 31, 2017, concluded that the steps taken have made significant progress towards the remediation of the previously repo
g
material weaknesses in our internal control over financial reporting. Notwithstanding the material weaknesses described above,
rting. Notwithstanding the material weaknesses described above,
management, based upon the substantial work performed, has concluded that the Company’s consolidated financial statements for t
periods covered by and included in this A
nnual Report on Form 10-K are fairly stated in all material respects for each of the periods
periods covered by and included in this A
presented herein.
presented herein.

hett

Management’s Report on Internal Control Over Financial Reporting

This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over

financial reporting due to a transition period established by the SEC for newly public companies.

In addition, because we are an “emerging growth company” under the JOBS Act, our independent registered public accounting
firm will not be required to attest to the effectiveness of our internal control over financial reporting for so long as we are an emerging
growth company.

Changes in Internal Control Over Financial Reporting

Management has designed a monitoring control to address the review of the create an

d post manual journal entries function as
d post manual journal entries function as

well as the review of the income tax expert’s findings and the work performed by the Director of Tax, during the quarter ended
work performed by the Director of Tax, during the quarter ended
reporting.
December 31, 2017 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
y

Item 9B. Other Information

None.

Item 10. Directors, Executive Officers and Corporate Governance

Directors and Executive Officers

PART III

The following table sets forth the names and ages, as of December 31, 2017, of the individuals who serve as our executive

officers and directors.

Name
Robert Nipper
Martytt Stromquist
Tim Willems
RyRR an Hummer
Kevin Trautner
Wade Bitter
Michael McShane
John Deane
Matthew Fitzgerald
Gurinder Grewal
David McKenna
Franklin Myers
W. Matt Ralls

Robert Nipper

Age
53
57
56
40
51
54
63
66
60
40
50
65
68

Position

Chief Executive Officer and Director
President and Director
Chief Operations Officer
Chief Financial Officer
Executive Vice President, General Counsel and Secretaryrr
Chief Accounting Officer and Treasurer
Chairman
Director
Director
Director
Director
Director
Director

Mr. Nipper is our Chief Executive Officer, a position he has held since November 2016. He has served as a member of our

Board since 2012. He previously served as our Chief Executive Officer from December 2012 until April 2016 and as Executive
Chairman from April 2016 until February 2017. Mr. Nipper co-founded NCS in 2006 and has served on our Board since December
2012. He has more than 30 years of industry experience and has invented several patented technologies relating to downhole oil and
natural gas and geothermal service equipment. Prior to founding NCS, Mr. Nipper spent 18 years with Tri-State Oil Tools Inc. and
Baker Hughes, including various operations and sales management positions. Prior to leaving Baker Hughes, he held the position of
North American Marketing Manager. We believe Mr. Nipper’s extensive experience as the co-founder of NCS and over 30 years of
industry experience provide insight and informational knowledge about our company and qualify him to serve as one of our directors.

Marty Stromquist

Mr. Stromquist is our President, a position he has held since November 2016. He has served as a member of our Board since

January 2010. Mr. Stromquist co-founded NCS and served as Chief Operating Officer from January 2010 to June 2015, Chief
Technology Officer from June 2015 to March 2016 and Chief Executive Officer from March 2016 to November 2016, before being
named to his current position. He has served in technical and management positions in the oil and natural gas industry for more than
ting solutions,
35 years, in both service company and producer roles. He co-founded Cemblend Systems, Inc., which provided cemen
and Frac Source, Inc., which specialized in stimulation services for unconventional reservoirs. He also served as operations manager
aa
of the well services group for Pioneer Natural Resources USA, Inc., and as technical manager for stimulation services for Halliburton
Energy Services Canada. He holds numerous patents for completion-related tools, processes and downhole procedures, and he has
tt
authored numerous technical papers and articles. We believe Mr. Stromquist’s extensive experience as the co-founder of NCS and
over 35 years of industry experience provide insight and informational knowledge about our company and qualify him to serve as one
of our directors.

Tim Willems

Mr. Willems is our Chief Operations Officer, a position he has held since May 2015. Mr. Willems previously served as our
President of U.S./International Operations from January 2012 to May 2015 and Senior Vice President from April 2010 to January
2012. Mr. Willems has more than 30 years’ experience in the oil and natural gas industry, specializing in wellbore construction,
completion and remediation. Sixteen of those years were spent in the international arena. He has held diverse positions, including
applications engineering, operations, sales and marketing, and he has held vice president positions for a major service company in
U.S. and international operations and marketing. Mr. Willems received a B.S. in Petroleum Engineering from Montana College of
Mineral Science and Technology.

Ryan Hummer

Mr. Hummer is our Chief Financial Officer, a position he has held since November 2016. Mr. Hummer previously served as

Executive Vice President, Corporate Development since August 2015 and as Vice President, Corporate Development from July 2014
until August 2015. Prior to joining us, Mr. Hummer served as Director, Investment Banking at Lazard Freres & Co. from January
2011 to April 2014, during which time he advised clients on a broad range of transactions, including mergers & acquisitions,
restructuring and debt and equity capital raises. Mr. Hummer holds a B.S. in Economics from the Wharton School of the University of
Pennsylvania.

Kevin Trautner

Mr. Trautner is our Executive Vice President, General Counsel and Secretary, a position he has he

ld since November 2016. Mr.

Trautner previously served as Vice President, General Counsel from July 2016 to November 2016. Prior to joining us, Mr. Trautner
was a corporate and securities Partner at Andrews Kurth Kenyon LLP from March 2014 to July 2016 and a Partner at Norton Rose
Fulbright US LLP from March 2007 to March 2014. Prior to that, Mr. Trautner was engaged in the private practice of law as an
associate and then a Partner at other national law firms. Mr. Trautner has more than 20 years of experience in advising energy
companies on corporate and securities matters including mergers and acquisitions, SEC filings and corporate governance matters. Mr.
Trautner has a J.D. from the University of Virginia School of Law, an M.D. from the Vanderbilt University School of Medicine, and a
B.S. from the University of Notre Dame.

Wade Bitter

Mr. Bitter is our Chief Accounting Officer and Treasurer, a position he has held since November 2016. He previously served as

our Chief Financial Officer from January 2011 to November 2016. He has more than 25 years of corporate financial experience,
including more than 20 years in the oilfield services industry. He has extensive experience with international accounting and reporting,
currency and treasury functions, compliance and systems integrations and conversions. Mr. Bitter received an MBA from Utah State
University and a B.S. in Finance from Brigham Young University.

Michael McShane

Mr. McShane has served as the Chairman of our Board since February 2017 and as one of our directors since December 2012.

Since September 2009, Mr. McShane has been an Operating Partner for Advent in the oil and natural gas services and equipment
sector. Prior to his engagement with Advent, Mr. McShane was the Chairman and Chief Executive Officer of Grant Prideco Inc., a
manufacturer and supplier of oilfield drill pipe and other drill stem products. Prior to joining Grant Prideco, Mr. McShane was Senior
Vice President—Finance and Chief Financial Officer of BJ Services Company, a provider of pressure pumping, cementing,
stimulation and coiled tubing services for oil and natural gas operators. Mr. McShane also serves on the board of directors of Superior
Energy Services, Inc., Forum Energy Technologies Inc., Enbridge Inc. and Oasis Petroleum Inc. We believe that Mr. McShane’s
management experience and broad experience in the energy industry qualify him to serve as one of our directors.

John Deane

Mr. Deane has served as one of our directors since December 2012 and served as Chairman of the Board from December 2012
to April 2016. Since October 2009, Mr. Deane has been an Operating Partner for Advent in the oil and natural gas industry, primarily
in the services sector, and sits on the board of BOS Solutions Ltd. and RGL Reservoir Management Inc. Prior to his engagement with
Advent, Mr. Deane served as President of ReedHycalog, L.P., Vice President of Schlumberger Limited, President of Hycalog and
numerous executive and technical positions with Reed Tool Co. and Camco Intl. Mr. Deane has over 40 years of experience in the oil
and natural gas industry, specializing in drilling technology. Mr. Deane holds a B.S. in Physics from the Colorado School of Mines.
We believe that Mr. Deane’s management experience and expertise in the oil and natural gas industry qualify him to serve as one of
our directors.

Matthew Fitzgerald

Mr. Fitzgerald has served as one of our directors since February 2017. Mr. Fitzgerald is now a

private investor and volunteer

instructor and counselor with SCORE (Service Corp of Retired Executives), an affiliate of the Small Business Administration. From
2009 until July 2013, Mr. Fitzgerald served as President of Total Choice Communications LLC, a wireless retailer in Houston, Texas.
Mr. Fitzgerald retired from Grant Prideco, Inc. following its merger with National Oilwell Varco in 2008. He had served as Senior
d
Vice President and Chief Financial Officer beginning in January 2004 and as Treasurer beginning in February 2007. Mr. Fitzgeral
held the positions of Executive Vice President, Chief Financial Officer, and Treasurer of Veritas DGC from 2001 until January 2004.
Mr. Fitzgerald also served as Vice President and Controller for BJ Services Company from 1989 to
serves on the board of directors, as chairman of the audit committee and the corporate governance and nominating committee of
Independence Contract Drilling, Inc. He also currently serves on the board of directors and as chairman of the audit committee of
Oasis Midstream Partners LP. He previously served on the board of directors of Rosetta Resources, Inc. and Maverick Oil and Gas,
Inc. Mr. Fitzgerald began his career as a certified public accountant with the accounting firm of Ernst & Whinney. He holds a
Bachelor of Business Administration in Accounting and a Masters in Accountancy from the University of Florida. We believe that
Fitzgerald’s diverse management experience and experience serving as a director qualify him to serve as one of our directors.

2001. Mr. Fitzgerald currently

Mr.

Gurinder Grewal

Mr. Grewal has served as one of our directors since December 2012. He is a managing director of Advent, focusing on
investments in the energy and industrial sectors. Prior to joining Advent, Mr. Grewal was a vice president at Bain Capital where he
was involved in investments in several large companies in the industrial, media and retail sectors. He currently serves on the boards of
directors of BOS Solutions Ltd., Oleoducto Central S.A. (Ocensa), Quala and Culligan International Group. Mr. Grewal received an
HBA from the Richard Ivey School of Business at the University of Western Ontario and an M.B.A. from Harvard Business School.
We believe that Mr. Grewal’s experience in the private equity and energy industries qualify him

to serve as one of our directors.

David McKenna

Mr. McKenna has served as one of our directors since December 2012. He is a managing partner of Advent and coordinates the

firm’s investment efforts in the North American industrial sector. Mr. McKenna joined Advent in 1992 and for eight years held
various positions, including head of the firm’s Hong Kong office. In 2000, he joined Bain Capital, where he spent three years as a
senior dealmaker working on large investments in the industrial, retail and consumer sectors before rejoining Advent in 2003. Mr.
McKenna currently serves on the boards of directors of BOS Solutions Ltd., RGL Reservoir Management Inc., Serta Simmons
Bedding LLC and Culligan International Group and previously served on the boards of ABC Supply Co. Inc., Aspen Technology Inc.,
Boart Longyear Limited, Bradco Supply and Keystone Automotive Operations Inc. He holds an A.B. in English from Dartmouth
College. We believe that Mr. McKenna’s experience at Advent and experience as a director of numerous private and public companies
qualify him to serve as one of our directors.

Franklin Myers

Mr. Myers has served as one of our directors since February 2017. Mr. Myers serves as Senior Advisor to Quantum Energy
Partners, a Houston-based private equity firm. Previously, Mr. Myers served as Senior Advisor to Cameron International Corporation,
a publicly traded provider of flow equipment products, from April 2008 through March 2009, prio
March 2008, he served as the Senior Vice President and Chief Financial Officer. From 1995 to 2003, he served as Senior Vice
President and President of a division within Cooper Cameron Corporation, as well as General Counsel and Secretary. Prior to joi
r
Cooper Cameron Corporation in 1995, Mr. Myers served as Senior Vice President and General Counsel of Baker Hughes, and as
attorney and partner at the law firm of Fulbright & Jaworski (now known as Norton Rose Fulbright). Mr. Myers currently serves on
the board of directors of ION Geophysical Corporation, Comfort Systems USA, Inc. and HollyFrontier Corporation. Mr. Myers also
served as an operating adviser for Paine Partners, a private equity fund, from 2009 through December 2012. We believe that Mr.
Myers’s management experience and experience serving as a director of numerous public companies qualify him to serve as one of
our directors.

r to which, from 2003 through

ning

W. Matt Ralls

Mr. Ralls has served as one of our directors since March 2017. Mr. Ralls previously served as Executive Chairman of Rowan
Companies plc from April 2014 to April 2016, its Chief Executive Officer from January 2009 until April 2014, and its President and
Chief Executive Officer from January 2009 to April 2013. Mr. Ralls served as Senior Vice President and Chief Financial Officer from
2001 to 2005 and as Executive Vice President and Chief Operating Officer of GlobalSantaFe Corporation from 2005 until the
completion of the merger of GlobalSantaFe with Transocean, Inc. in 2007. Mr. Ralls currently serves on the board of directors Cabot
Oil & Gas Corporation and Superior Energy Services, Inc. Mr. Ralls previously served on the boards of several other publicly traded
companies as well as the boards of the American Petroleum Institute, the National Oceanic Industries Association and the
International Association of Drilling Contractors. We believe that Mr. Ralls’ boardroom experience and
experience in the oil and gas industry qualify him to serve as one of our directors.

broad management

Board of Directors

Our Board has established an Audit Committee and a Compensation, Nominating and Governance Committee. Each committee

operates under a charter approved by our Board. Each committee has the composition and primary responsibilities described below.
Members serve on these committees until their resignations or until otherwise determined by our Board. The charter of each
committee is available on our website.

Audit Committee. The primary purposes of our Audit Committee are to assist the Board in its oversight of our accounting and
financial reporting processes and compliance with legal and regulatory requirements, including (i) producing the annual report of the
Audit Committee required by the rules of the SEC and (ii) the oversight of:

(cid:120)

audits of our financial statements of the Company;

the integrity of our financial statements;

our processes relating to risk management and the conduct and systems of internal control over financial reporting and
disclosure controls and procedures;

the qualifications, engagement, compensation, independence and performance of our independent auditor, and the
auditor’s conduct of the annual audit of our financial statements and any other serv

ices provided to the Company; and

the performance of our internal audit function.

Our Audit Committee is currently composed of Messrs. Fitzgerald, Myers and Ralls. Mr. Fitzgerald serves as chair of the Audit
Committee. Messrs. Fitzgerald, Myers and Ralls each qualifies as an “audit committee financial expert” as such term has been defined
by the SEC in Item 407(d)(5) of Regulation S-K. Our Board has affirmatively determined that Messrs. Fitzgerald, Myers and Ralls
meet the definition of an “independent director” for the purposes of serving on the Audit Committee under applicable NASDAQ rules
and Rule 10A(cid:486)3 under the Exchange Act. The Audit Committee is governed by a charter that complies with the NASDAQ rules.

The Audit Committee met three times during the year ended December 31, 2017.

Compensation, Nominating and Governance Committee. The primary purposes of our Compensation, Nominating and
Governance Committee are to: (i) produce the annual report of the Compensation, Nominating and Governance Committee required
by the rules of the SEC, (ii) assist the Board’s oversight of the Company’s employee compensation policies and practices, including:

(cid:120)

determine and approve the compensation of our Chief Executive Officer and other executive officers;

review and approve incentive compensation and equity compensation policies and programs; and

(iii) assist the Board’s oversight of the Company’s governance policies and practices, including:

(cid:120)

identify and screen individuals qualified to serve as directors and recommend to the Board candidates for nomination for
election at the annual meeting of stockholders or to fill Board vacancies;

develop, recommend to the Board and review our Corporate Governance Guidelines;

coordinate and oversee the annual self-evaluation of the Board and its committees; and

review on a regular basis our overall corporate governance of the Company and recommend improvements for approval
by the Board where appropriate.

100

Our Compensation, Nominating and Governance Committee is currently composed of Messrs. Deane, McShane, Myers and
Ralls. Mr. Deane serves as the chairman. Our Board has affirmatively determined that Messrs. Deane, McShane, Myers and Ralls
meet the definition of an “independent director” for the purposes of serving on the committee under applicable NASDAQ rules. The
Compensation, Nominating and Governance Committee is governed by a charter that complies with the NASDAQ rules.

The Compensation, Nominating and Governance Committee met three times during the year ended December 31, 2017.

Code of Business Conduct and Ethics

We have a Code of Business Conduct and Ethics that applies to our employees, officers and directors, and all subsidiaries and

entities controlled by us. A copy of the code is available in the “Corporate Governance” section of the “Investors” page of our website
located at http://ir.ncsmultistage.com. Any amendments to or waivers from our code for our principal executive officer, principal
financial officer, principal accounting officer or controller, or persons performing similar functions, will be disclosed on our Internet
website promptly following the date of such amendment or waiver. Our Internet website and the information contained therein or
connected thereto shall not be deemed to be incorporated into this Form 10-K.

Corporate Governance Guidelines

Our Board has adopted Corporate Governance Guidelines in accordance with the NASDAQ corporate governance rules that
serve as a flexible framework within which our Board and its committees operate. These guidelines cover a number of areas including:
the duties and responsibilities of the Board; director independence; Board leadership structure; executive sessions; Chief Executive
Officer evaluations; management development and succession planning; director nomination, qualification and election; director
orientation and continuing education; Board agenda, materials, information and presentations; director access to company employees
and independent advisers; Board communication with stockholders and others; director compensation; and annual board and
committee performance evaluations. A copy of our Corporate Governance Guidelines is posted in the “Corporate Governance” section
of the “Investors” page of our website located at http://ir.ncsmultistage.com. Our Internet website and the information contained
therein or connected thereto shall not be deemed to be incorporated into this Form 10-K.

Family Relationships

There are no family relationships between or among our directors and executive officers.

Section 16(A) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors, executive officers and stockholders who beneficially own more than
10% of any class of our equity securities registered pursuant to Section 12 of the Exchange Act, including our common stock, to file
with the SEC initial reports of beneficial ownership and reports of changes in beneficial ownership of our common stock and oth
er
f
equity securities, and to provide us with a copy of those reports.

Based solely upon our review of the copies of such reports furnished to us and written representations received by us that no
other reports were required, we are not aware of any instances of noncompliance with the Section 16(a) filing requirements by any
director, executive officer or beneficial owner of more than 10% of any class of our equity securities during the year ended
December 31, 2017.

101

Item 11. Executive Compensation

The following discussion and analysis of compensation arrangements should be read with the compensation tables and related
disclosures set forth below. This discussion contains forward-looking statements that are based on our current plans and expect
tt
ations
regarding future compensation programs. See “—Cautionary Note Regarding Forward-Looking Statements.” Actual compensation
r
programs that we adopt may differ materially from the programs su

mmarized in this discussion.

Overview

The discussion below includes a review of our compensation decisions with respect to 2017 and 2016 for our “named executive

officers,” or “NEOs,” namely our principal executive officer and our two other most highly compensated executive officers. Our
NEOs for 2017 were:

Robert Nipper, our Chief Executive Officer;

Marty Stromquist, our President; and

Tim Willems, our Chief Operations Officer.

In 2017 and 2016, we compensated our NEOs through a combination of base salary and annual cash bonuses as well as
modifications to existing stock options under the terms of our 2012 Plan. Our executive officers are also eligible to receive certain
benefits, which include a 401(k) plan with matching contributions, an automobile allowance, life insurance and group health
insurance, including medical, dental and vision insurance.

Summary Compensation Table

The following table sets forth the compensation for 2017 and 2016 of the Company’s NEOs.

Non-Equity
Incentive Plan
Compensation
($)(4)

All Other
Compensation
($)(5)

Option
Awards
($)(3)
2,940,132
—
1,784,063

Name and
principal position
Robert Nipper
Chief Executive Officer
Marty Stromquist (6)
President
Tim Willems
Chief Operations Officer
___________________
(1) Represents annual salary paid pursuant to the terms of each NEO’s employment agreement then in existence. See “—

Year
2017
2016
2017

Salary
($)(1)
408,160
208,154
320,067

260,293
—
202,304

52,487
48,260
24,481

—
2,220
—

186,508
—

318,800
268,953

814,189
—

46,589
46,916

2017
2016

Bonus
($)(2)

—
2,220

Total ($)

3,661,072
258,634
2,330,915

1,366,086
318,089

Employment Agreements” for a description of their current employment agreements.

(2) Represents cash bonus paid pursuant to their employment agreements, which were at the discretion of the Board.

(3) Represents the aggregate incremental fair value of the modification of option awards, computed in accordance with ASC 718. In
connection with the IPO, the Liquidity Options were amended to provide that such awards will vest in three equal installments on
each of the first three anniversaries of the consummation of our IPO, which occurred on May 3, 2017, subject to certain
requirements including, as applicable, the recipient’s continued employment on the vesting date. As a result of the modification,
we estimated the fair value of the Liquidity Options on April 27, 2017, the amendment date, using the Black-Scholes option-
pricing model, which required estimates of key assumptions based on both historical information and management judgment
regarding market factors and trends. The weighted average assumptions used to estimate the fair value of the Liquidity Options
were as follows:

Expected term (years)
Expected volatility
Expected dividend yield
Weighted average risk-free interest rate

4.6
44.4 %
— %
1.7 %

102

(4) Represents cash incentives earned under our bonus program earned at a level between the minimum level and the target level.
“—Annual Cash Incentive Bonus” section below for more details.” The current target cash bonus for each of Messrs. Nipper,
Stromquist and Willems, respectively, are 105%, 85% and 80% of base salary. The target cash bonus for 2017 has been prorated
for the base salary and target cash bonus percentage then in effect.

See

(5) Includes the following:

Name
Robert Nipper
Chief Executive Officer
r
yMarty Stromquist (6)
President
t
Tim Willems
r
Chief Operations Officer

Automobile
Allowance ($)

401(k) Matching
and
Contributions ($)

Health
Insurance
Premiums ($)

22,200
21,150
13,882

22,200
21,150

10,800
9,172
8,329

10,800
11,604

19,487
17,938
2,270

13,589
14,162

Year
2017
2016
2017

2017
2016

Total ($)

52,487
48,260
24,481

46,589
46,916

(6) Amounts paid to Mr. Stromquist are paid in Canadian dollars. Compensation is stated in United States dollars. Where

compensation was provided in Canadian dollars, compensation is based on an exchange rate of 0.7712 U.S. dollars for each 1.00
Canadian dollar during the 2017 fiscal year, computed by averaging the foreign exchange rate for each month of the year.

Outstanding Equity Awards as of December 31, 2017

The following table sets forth certain information about outstanding equity awards held by our NEOs as of December 31, 2017.

Option Awards

Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
165,549

Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
248,322 (1)

100,452
242,115
45,846
119,235 (2)

150,681 (1)
—
—
68,766 (1)
—
—

Option
Grant
Date
12/21/2012

12/21/2012
01/01/2011
12/21/2012
01/01/2011

Option
Exercise
Price
($)

5.88

5.88
1.24
5.88
1.24

Option
Expiration
Date
12/21/2022

12/21/2022
01/01/2019
12/21/2022
01/01/2019

Name
Robert Nipper
Chief Executive Officer
yMarty Stromquist
President
t
Tim Willems
r
Chief Operations Officer

___________________
(1) These options vest and become exercisable in three equal annual installments beginning on May 3, 2018.

(2) These securities are held by the Willems Family Limited Partnership, a limited partnership of which the reporting person and his

spouse are co-trustees of the sole general partner, Willems Family Management Trust.

Employment Agreements

f
We are currently party to employment agreements with each of our NEOs. The material provisions of each such agreement are

described below.

On August 3, 2017, we entered into amended and restated employment agreements with each of Robert Nipper, our Chief
Executive Officer, Marty Stromquist, our President, and Tim Willems, Chief Operations Officer, each of whom we refer to as an
Executive. The agreements provide for an initial term of three years which will automatically renew at the end of such period for
additional one year-terms. The agreements provide that the Executives will receive an annualized base salary subject to review by our
Board (currently $450,000 for Mr. Nipper, $463,000 Canadian dollars for Mr. Stromquist and $330,000 for Mr. Willems). The
agreements also provide that the Executives are eligible to receive discretionary annual bonuses each year with target annual bonuses
of 105%, 85% and 80% of base salary for each of Messrs. Nipper, Stromquist and Willems
, respectively, and up to a maximum bonus
of 200% of base salary for each Executive, based on achievement of annual performance targets established by the Board each year. aa

103

Either we or the Executive may terminate the agreement at any time upon written notice. We may terminate the Executive’s
employment for death, disability, for cause, without cause or upon the close of business on the last day of the term of the employment
agreement by giving notice of non-renewal of the agreement 90 days prior to the expiration of the term. The Executive may resign
following a good reason event or without a good reason event.

If we terminate an Executive’s employment without cause, the Executive resigns following a good reason event or we elect not

to renew the employment agreement at the end of the term, then, in addition to any accrued but unpaid base salary and accrued but
unpaid annual bonus for the year prior to the year of termination, we must provide the Executive with, subject to Executive’s
execution of a release of claims, such release becoming effective and Executive’s continued compliance with the restricted covenants
contained in the agreement, (i) one (1) times (two (2) times in the case of Mr. Nipper) the sum of (A) base salary and (B) the
Executive’s target bonus, payable over the twelve-month period following the date of the termination; (ii) a lump sum payment equal
to the pro-rated annual bonus the Executive would have received for the year of termination, based on actual performance for such
year; (iii) continued vesting of unvested equity awards in accordance with the app
the Executive’s timely election for coverage under COBRA, a cash payment equal to the full premium for actively employed
executives for up to 24 months. If such termination of employment occurs within 24 months following a Change of Control (as
defined in the employment agreements), in addition to any accrued but unpaid base salary and accrued but unpaid annual bonus for the
year prior to the year of termination, in lieu of the benefits described above, we must provide the Executive with, subject to
Executive’s execution of a release of claims, such release becoming effective and Executive’s continued compliance with the
restricted covenants contained in the agreement, (i) two (2) times (three (3) times in the case of Mr. Nipper) the sum of (A) base salary
and (B) the Executive’s target bonus, payable over the twelve-month period following the date of the termination; (ii) a lump s
payment equal to the pro-rated annual bonus the Executive would have received for the year of termination, based on actual
performance for such year; (iii) full vesting of unvested equity awards; and (iv) subject to the Executive’s timely election fo
y
under COBRA, a cash payment equal to the full premium for actively employed executives for up to 24 months.

licable existing vesting schedules; and (iv) subject to

r coverage

If an Executive’s employment is terminated as a result of death, disability, voluntary resignation other than following a good

reason event, or by us for cause, the Executive shall be entitled to receive accrued but unpaid base salary through the date of
termination and any accrued but unpaid annual bonus for the year prior to the year of termination. In addition, if the Executive’s
employment terminates as a result of death or disability, the Executive or Executive’s legal representatives shall be entitled to a lump
sum amount equal to the pro-rated annual bonus the Executive would have received for the year of termination, based on actual
performance.

For purposes of the agreements, good reason event means, without an Executive’s consent, (i) any material diminution in
Executive’s responsibilities, authorities or duties (including title and reporting structure for Messrs. Nipper and Stromquist), (ii) any
material reduction in Executive’s base salary or target annual bonus opportunity (except in the event of an across the board reduction
in base salary or target annual bonus opportunity of up to 10% applicable to substantially all of our senior executives), (iii)
a
relocation of Executive’s principal place of employment by more than 50 miles from the location on the effective date of the
agreement and such place is more than 50 miles from Executive’ principal residence, or (iv) a material breach by us of any provisions
of the agreement; provided that Executive has given us written notice of such event within 60 days following the occurrence of such
event and we do not cure the event within 60 days following such notice. For purposes of the agreements, cause means (i) Executive’s
indictment for, conviction of, or a plea of guilty or no contest to, any indict
involving fraud, misappropriation or moral turpitude, (ii) Executive’s continued failure to materially perform Executive’s duties under
the employment agreement (for any reason other than illness or physical or mental incapacity) or a material breach of fiduciary duty,
(iii) Executive’s theft, fraud, or dishonesty with regard to us or any of our affiliates or in connection
Executive’s material violation of our code of conduct or similar written policies, (v) Executive’s willful misconduct unrelated to us or
any of our affiliates having, or likely to have, a material negative impact on us or any of our
affiliates (economically or its reputation),
(vi) an act of gross negligence or willful misconduct by the Executive that relates to our or any of our affiliates affairs, or (vii) material
breach by Executive of any provisions of the employment agreement.

able criminal offence or any other criminal offence

with Executive’s duties, (iv)

The agreements include perpetual confidentiality provisions, a company non-disparagement provision, as well as provisions

relating to non-competition and non-solicitation that apply during employment and for one year following a termination of
employment.

Potential Payments upon Termination of Employment or Termination Following a Change of Control

Our NEOs are entitled to receive severance payments and acceleration and/or continued vesting of time-based vesting equity
awards upon termination of employment by us other than for cause or by the NEO for good reason or a change of control, as provided
in “—Employment Agreements.”

104

Nonqualified Deferred Compensation Plan

The Nonqualified Deferred Compensation (“NQDC”) Plan provides an income deferral opportunity for executive officers and

certain senior managers of the Company who qualify for participation. The NQDC Plan is unfunded, but the Company may elect to set
aside funds in a Rabbi trust to cover the benefits under the plan, though such funds remain subject to the claims of the Compan
creditors.

y’snn

Participants in the NQDC Plan may make an advance election each year to defer up to 80% of their base salary, bonus and

commissions. Participants are immediately 100% vested in their benefits under the NQDC Plan.

Participants may choose from a variety of investment choices to invest their deferrals over the deferral period. Participants earn

a rate of return on their NQDC Plan account that approximates the rate of return that would be provided by certain specified mutual
funds that participants may designate from a list of available funds selected by the NQDC Plan administrative committee.

Benefits are paid in either a lump-sum or in equal annual installments over a 2- to 5-year period, as elected by the participant.

Generally, benefits that are due as a result of a termination of service are paid or commence after termination. However, only
participants who with at least 5 years of service at termination will be eligible to receive or continue receiving installment distributions
following termination.

Annual Cash Incentive Bonus

We offer our NEOs the opportunity to earn annual cash incentive awards to compensate them for attaining short-term Company

goals. Each NEO has an annual target bonus that is expressed as a percentage of his annual base salary, as discussed above in “—
Employment Agreements.”

Our annual cash incentive awards are intended to be performance-based and, for 2017, were determined based upon the

aa
performance criteria of Adjusted EBITDA and contained a minimum level requirement whereby if the minimum level is not met, there
would be no annual cash incentive award payout. The 2017 annual cash incentive bonus program was approved by the Compensation,
Nominating and Governance Committee.

Director Compensation

Directors who are employed by us or who are full-time investment professionals of Advent are not eligible to receive

compensation for their service on our Board. All other members of our Board received a one-time stock option or restricted stock unit
grant upon their election to the Board. All of our directors are also reimbursed for reasonable out-of-pocket travel expenses incurred in
connection with attendance at Board and committee meetings and other Board-related activities.

t
We pay directors who are not employed by us and who are not full-time investment
professionals of Advent a quarterly
y

retention fee of $12,500, and an additional fee of $2,000 per Board or committee meeting attended. Such directors also receive an
annual award of restricted stock units in an amount of $125,000, which vests on the one year anniversary of the grant date and
is
subject to delayed settlement. Each such director also receives a one-time grant of restricted stock units upon election to the Board in
an amount of $100,000, which vests in equal increments over a period of three years from the grant date and is subject to delayed
settlement. The chair of the Audit Committee and the chair of the Compensation, Nominating and Governance Committee receive an
additional annual fee of $18,000 and $10,000, respectively. The Chairman of our Board also receives an additional $12,500 quarterly
fee and an additional annual award of restricted stock units in an amount of $50,000, which vests on the one year anniversary of the
grant date and is subject to delayed settlement.

105

The compensation for our directors who are not employees or full-time investment professionals of Advent for fiscal 2017 was

as follows:

Fees Earned or
Paid in Cash
($)(1)

Stock Awards
($)(2)(3)

Name
Michael McShane
John Deane
Matthew Fitzgerald
Gurinder Grewal
David McKenna
Franklin Myers
W. Matt Ralls
___________________
(1) Prior to our IPO, our directors received an annual fee of $250,000 and the fees earned in cash for 2017 were pro-rated for the fee

4,013,726
3,937,712
306,978
—
—
294,978
292,978

174,998
124,984
224,978
—
—
224,978
224,978

145,500
119,500
82,000
—
—
70,000
68,000

Option Awards
($)(4)
3,693,228
3,693,228
—
—
—
—
—
—

Total
($)(5)

then in existence.

(2) For 2017, in connection with our IPO, our directors then serving who were not employees or full-time investment professional
Advent received the following awards, which was in lieu of the awards described above. On April 27, 2017, such directors
received a grant of 7,352 restricted stock units which vest on April 27, 2018. Mr. McShane received a grant of 2,942 additional
restricted stock units for a total of 10,294 restricted stock units which vest on such date. Each of Messrs. Fitzgerald, Myers and
Ralls also received a grant of 5,882 additional restricted stock units which vest in three equal annual installments beginning on
April 27, 2018. The restricted stock units settle for shares of common stock on a one-for-one basis within thirty days following
the earliest of (i) one year following the termination of the person’s service for any reason other than cause, (ii) a change of
control or (iii) the fifth anniversary of the grant date (“delayed settlement”).

s of

(3) Represents the aggregate grant date fair value for restricted stock units granted in 2017, determined in accordance with ASC 718.

The grant date fair value of each restricted stock unit was $17.00.

(4) Represents the aggregate incremental fair value of the modification of option awards, computed in accordance with ASC 718. See

footnote (3) in the “—Summary Compensation Table” for more details regarding this computation.

(5) Non-employee directors are reimbursed for expenses (including costs of travel, food and lodging) incurred in attending Board
,

committee and stockholder meetings. No reimbursements for any non-employee director exceeded the $10,000 threshold in the
year ended December 31, 2017.

Equity Incentive Plans

We maintain three equity incentive plans for the benefit of our employees, directors and other service providers: the 2011 Plan,

the 2012 Plan and the 2017 Plan. The following is a summary of certain features of the 2011 Plan, 2012 Plan and the 2017 Plan.

2011 Plan

The 2011 Plan provided awards to employees, directors and consultants of NCS Energy Holdings, LLC (“HoldCo”). In
connection with Advent’s acquisition of HoldCo in 2012, we assumed the outstanding options under the 2011 Plan and converted
them into options to purchase shares of our common stock.

2012 Plan

mm
The 2012 Plan provided awards to our employees, directors and consultants prior to

our IPO. We no longer grant awards under

the 2012 Plan. The 2012 Plan is administered by the Compensation, Nominating and Governance Committee of our Board.

2017 Plan

106

Employee Stock Purchase Plans

We maintain the ESPP for U.S. and non-U.S. employees. The purpose of the ESPP is to provide employees with an opportunity
to acquire a proprietary interest in the Company through the purchase of shares of our common stock. In general, all employees of the
Company and certain subsidiaries are eligible to participate in the ESPP applicable to their jurisdiction, subject to certain exceptions
for employees who have been employed for less than 30 days, whose customary employment is for less than 20 hours per week or
whose customary employment is for not more than five months in a calendar year.

Compensation, Nominating And Governance Committee Interlocks And Insider Participation

The members of our Compensation, Nominating and Governance Committee during 2017 were Messrs. Deane, McShane,
Myers and Ralls. During 2017, none of our executive officers served (i) as a member of the compensation, nominating and governance
committee or board of directors of another entity, one of whose executive officers served on our compensation, nominating and
governance committee, or (ii) as a member of the compensation committee of another entity, one of whose executive officers served
on our Board.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table shows information as of December 31, 2017, regarding the beneficial ownership of our common stock by:

(cid:120)

each person or group who is known by us to own beneficially more than 5% of our common stock;

each member of our Board and each of our named executive officers; and

all members of our Board and our executive officers as a group.

Beneficial ownership of shares is determined under rules of the SEC and generally includes any shares over which a person
and subject to community property laws where

exercises sole or shared voting or investment power. Except as noted by footnote,
t
applicable, we believe based on the information provided to us that the persons and entities named in the table below have sole voting
and investment power with respect to all shares of our common stock shown as beneficially owned by them. Percentage of beneficial
ownership is based on 43,913,136 shares of common stock outstanding as of December 31, 2017. Shares of common stock subject to
options currently exercisable or exercisable within 60 days of December 31, 2017, and shares of common stock underlying restricted
stock units subject to vesting and settlement within 60 days of December 31, 2017, are deemed to be outstanding and beneficially
owned by the person holding the options or restricted stock units for the purposes of computing the percentage of beneficial ownership
of that person and any group of which that person is a member, but are not deemed outstanding for the purpose of computing the
percentage of beneficial ownership for any other person. Except as otherwise indicated, the persons named in the table below have
aa
sole voting and investment power with respect to all shares of capital stock held by them. Unless otherwise indicated, the address for
each holder listed below is c/o NCS Multistage Holdings, Inc., 19450 State Highway 249, Suite 200, Houston, Texas 77070.

Name and Address of Beneficial Owner

5% stockholders:

Funds managed by Advent (1)

Named executive officers and directors

Robert Nipper (2)
Martytt Stromquist (3)
Tim Willems (4)
John Deane (5)
Gurinder Grewal (6)
Matthew Fitzgerald
David McKenna (7)
Michael McShane (8)
Franklin Myers
W. Matt Ralls

All Board members and executive officers as a group (13 persons)
___________________
* Represents beneficial ownership of less than 1% of our outstanding common stock.

Shares of Common Stock Beneficially Owned

Number of Shares

Percentage of Shares

29,568,536

2,122,725
1,227,191
614,340
472,586
—
—
—
532,953
—
30,000
5,118,502

67.3 %

4.8 %
2.8 %
1.4
1.1
—
—
—
1.2
—
*
11.4 %

(1) Consists of 3,693,109 shares indirectly owned by Advent International GPE VII Limited Partners

hip, 3,418,124 shares indirectly owned by Advent International
GPE VII-A Limited Partnership, 8,589,659 shares indirectly owned by Advent International GPE VII-B Limited Partnership, 2,729,175 shares indirectly owned
by Advent International GPE VII-C Limited Partnership, 2,211,725 shares indirectly owned by Advent International GPE VII-D Limited Partnership, 6,188,694

107

shares indirectly owned by Advent International GPE VII-E Limited Partnership, 798,351 shares indirectly owned by Advent International GPE VII-F Limited
Partnership, 798,351 shares indirectly owned by Advent International GPE VII-G Limited Partnership, 481,968 shares indirectly owned by Advent International
GPE VII-H Limited Partnership, 11,828 shares indirectly owned by Advent Partners GPE VII Limited Partnership, 29,570 shares indirectly owned by Advent
Partners GPE VII-A Limited Partnership, 289,771 shares indirectly owned by Advent Partners GPE VII-B Cayman Limited Partnership, 260,204 shares indirectly
owned by Advent Partners GPE VII Cayman Limited Partnership and 68,007 shares indirectly owned by Advent Partners GPE VII-A Cayman Limited
Partnership. Advent-NCS Acquisition L.P. directly owns 29,568,536 shares. The general partner of Advent-NCS Acquisition L.P. is Advent-NCS GP LLC.
Advent International GPE VII Limited Partnership, Advent International GPE VII-A Limited Partnership, Advent International GPE VII-B Limited Partnership,
Advent International GPE VII-C Limited Partnership, Advent International GPE VII-D Limited Partnership, Advent International GPE VII-E Limited Partnership,
Advent International GPE VII-F Limited Partnership, Advent International GPE VII-G Limited Partnership, Advent International GPE VII-H Limited Partnership,
Advent Partners GPE VII Limited Partnership, Advent Partners GPE VII-A Limited Partnership, Advent Partners GPE VII-B Cayman Limited Partnership,
Advent Partners GPE VII Cayman Limited Partnership and Advent Partners GPE VII-A Cayman Limited Partnership collectively own 100% of Advent-NCS
Acquisition L.P. in pro rata proportion to the number of shares above disclosed as owned by each fund.

Advent is the manager of Advent International GPE VII LLC, which is the general partner of Advent Partners GPE VII Limited Partnership, Advent Partners GPE
VII-A Limited Partnership, Advent Partners GPE VII Cayman Limited Partnership, Advent Partners GPE VII-A Cayman Limited Partnership, Advent Partners
GPE VII-B Cayman Limited Partnership; and, GPE VII GP Limited Partnership, General Partner which in turn is the limited partner of Advent International GPE
VII-A Limited Partnership, Advent International GPE VII-E Limited Partnership and Advent International GPE VII-H Limited Partnership; and GPE VII GP
(Delaware) Limited Partnership, General Partner which in turn is the general partner of Advent International GPE VII Limited Partnership, Advent International
GPE VII-B Limited Partnership, Advent International GPE VII-C Limited Partnership, Advent International GPE VII-D Limited Partnership, Advent International
GPE VII-F Limited Partnership and Advent International GPE VII-G Limited Partnership. Advent exercises voting and investment power over the shares held by
each of these entities and may be deemed to have beneficial ownership of these shares. With respect to the shares held by the Advent Funds, a number of
individuals currently composed of David M. McKenna, David M. Mussafer and Steven M. Tadler, none of whom have individual voting or investment power,
exercise voting and investment power over the shares beneficially owned by Advent. The address of Advent and each of the funds and other entities listed above is
c/o Advent International Corporation, Prudential Tower, 800 Boylston St., Suite 3300, Boston, MA 02199.

(2) Consists of 1,771,926 shares held by the Nipper Family Limited Partnership. Mr. Nipper exercises sole voting and investment power over the shares beneficially

owned by the Nipper Family Limited Partnership. Also, includes 165,549 shares of common stock that Mr. Nipper has the right to acquire within 60 days upon
exercise of stock options.

(3) Consists of 884,624 shares held by Mr. Stromquist as a 50% owner of Cemblend. Also, includes 342,567 shares of common stock that Mr. Stromquist has the

right to acquire within 60 days upon exercise of stock options.

(4) Consists of 449,259 shares held by the Willems Family Limited Partnership, a limited partnership of which the reporting person and his spouse are co-trustees of
the sole general partner, Willems Family Management Trust. Also, includes 119,235 shares of common stock that the Willems Family Limited Partnership has the
right to acquire within 60 days upon exercise of stock options and 45,846 shares of common stock that Mr. Willems has the right to acquire within 60 days upon
exercise of stock options.

(5) Consists of 214,632 shares held by the Deane Family Partnership Limited. Mr. Deane holds sole voting and investment power over the shares beneficially owned
by the Deane Family Partnership Limited. Also, includes 207,954 shares of common stock that the Deane Family Partnership Limited has the right to acquire
within 60 days upon exercise of stock options.

(6) Mr. Grewal holds no shares directly. Mr. Grewal is a managing director at Advent, which manages funds that collectively own 29,568,536 shares. See footnote (1)

above. The address of Mr. Grewal is c/o Advent International Corporation, Prudential Tower, 800 Boylston St., Suite 3300, Boston, MA 02199.

(7) Mr. McKenna holds no shares directly. Mr. McKenna is a managing partner at Advent, which manages funds that collectively own 29,568,536 shares. See
footnote (1) above. Mr. McKenna’s address is c/o Advent International Corporation, Prudential Tower, 800 Boylston St., Suite 3300, Boston, MA 02199.

(8)

Includes 207,954 shares of common stock that Mr. McShane has the right to acquire within 60 days upon exercise of stock options.

Securities Authorized for Issuance Under Equity Compensation Plans

See “Item 11. Executive Compensation—Equity Incentive Plans” for a discussion of our equity incentive plans.

The following table shows information relating to the number of shares of common stock authorized for issuance under our

equity compensation plans as of December 31, 2017:

December 31, 2017
Equity compensation plans

Approved by stockholders
Not approved by stockholders (1)

Securities to be Issued
Upon Exercise of
Outstanding Options,
Warrants and Rights

Weighted Average
Exercise Price of
Outstanding Options,
Warrants and Rights

Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans

3,291,189

$
— $

5.15
—

4,352,382
2,000,000

___________________
(1) Reflects 2,000,000 shares of common stock available for future issuance under the ESPP as of December 31, 2017.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Set forth below is a description of certain relationships and related person transactions between us or our subsidiaries, and our

directors, executive officers and holders of more than 5% of our common stock:

108

Registration Rights Agreement

In connection with our IPO, the affiliates of Advent which own our Common Stock, the Company and certain stockholders of

the Company entered into a Registration Rights Agreement (the “Registration Rights Agreement”). The Registration Rights
Agreement provides for (i) demand registration rights for Advent, subject to a required anticipated aggregate gross proceeds of $25.0
million; (ii) piggyback registration rights for certain stockholders, subject to a pro rata reduction if the total amount of shares
requested to be included exceeds the amount of securities which in the opinion of the underwriters can be sold; and (iii) shelf
registration rights that may be requested by Advent to include registrable securities
of Advent and certain stockholders, subject to a
y
required anticipated aggregate gross proceeds of $10.0 million; provided that any such holders that are capable of selling all of their
registrable securities pursuant to the Securities Act, without timing or volume limitations will not have these piggyback regis
tration
rights. We will be responsible for fees and expenses in connection with the registration rights, other than underwriters’ discounts and
brokers’ commissions, if any, relating to any such registration and offering.

Cemblend Transactions

In connection with Advent’s acquisition of HoldCo in 2012, we entered into an exchange agreement with Cemblend, Mr.
Stromquist is a 50% owner of Cemblend. HoldCo and NCS Canada, dated December 20, 2012 (the “Exchange Agreement”). Pursuant
to the Exchange Agreement, we exchanged Cemblend’s exchangeable shares, which were exchangeable for common units of HoldCo,
for shares of NCS Canada which are exchangeable on a one-to-three basis for shares of our common stock. On May 3, 2017, we
issued 50,000 shares of common stock to Cemblend in exchange for shares of NCS Canada and Cemblend sold these shares of
common stock in our IPO. On February 14, 2018, we issued 442,312 shares of common stock to Cemblend in
NCS Canada.

exchange for shares of

In connection with a cash dividend we paid to each holder of our common stock on August 7, 2014, we provided a loan in the

amount of $0.8 million to Cemblend for the payment of withholding taxes payable by Cemblend as a result of the dividend. Cemblend
repaid the loan in February 2017.

Indemnification Agreements

Our Bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by the Delaware General

Corporation Law, subject to certain exceptions contained in our Bylaws. In addition, our Amended and Restated Certificate of
Incorporation provides that our directors will not be liable for monetary damages for breach of fiduciary duty.

We have entered into indemnification agreements with each of our directors. The indemnification agreements provide the
directors with contractual rights to indemnification, expense advancement and reimbursement, to the fullest extent permitted under the
Delaware General Corporation Law, subject to certain exceptions contained

in those agreements.

Policies for Approval of Related Person Transactions

Our Board of Directors has adopted a written policy relating to the approval of related person transactions. A “related person

transaction” is a transaction or arrangement or series of transactions or arrangements in which we participate (whether or not we are a
party) and a related person has a direct or indirect material interest in such transaction. Our Audit Committee will review and approve
or ratify all relationships and related person transactions between us and (i) our directors, director nominees or executive officers, (ii)
any 5% record or beneficial owner of our common stock or (iii) any immediate family member of any person specified in (i), (ii) and
(iii) above. The Audit Committee will review all related person transactions and, where the Audit Committee determines that such
transactions are in our best interests, approve such transactions in advance of such transaction being given effect.

As set forth in the related person transaction policy, in the course of its review and approval or ratification of a related person

transaction, the Audit Committee will, in its judgment, consider in light of the relevant facts and circumstances whether the transaction
is, or is not inconsistent with, our best interests, including consideration of various factors enumerated in the policy.

Any member of the Audit Committee who is a related person with respect to a related person transaction under review or is

otherwise not disinterested will not be permitted to participate in the discussions or approval or ratification of the transaction.
However, such member of the Audit Committee will provide all material information concerning the transaction to the Audit
Committee. Our policy also includes certain exceptions for related person transactions that need not be reported and provides the
Audit Committee with the discretion to pre-approve certain related person transactions.

109

Director Independence and Controlled Company Exemption

Advent beneficially owns common stock representing more than 50% of the voting power of our Voting Stock eligible to vote in

the election of directors. As a result, we qualify as a “controlled company” and avail ourselves of certain “controlled company”
exemptions under the NASDAQ corporate governance rules. As a controlled company, we are not required to have a majority of
“independent directors” on our Board of Directors as defined under the NASDAQ rules, or have a compensation, nominating or
governance committee composed entirely of independent directors.

Even though we qualify as a controlled company, we have a majority of independent directors serving on our Board of Directors

and our Compensation, Nominating and Governance Committee is composed entirely of independent directors. Our Board has
affirmatively determined that Messrs. McShane, Deane, Fitzgerald, Grewal, McKenna, Myers and Ralls are independent directors
tt
under the applicable NASDAQ rules. In evaluating and determining the independence of the directors, the Board considered that the
Company may have certain relationships with its directors. Specifically, the Board considered that
Messrs. McShane, Deane, Grewal
ff
and McKenna are affiliated with, or are operating partners of, Advent, which owns approximately 65% of our common stock as of
December 31, 2017. The Board determined that this relationship does not impair their independence from us and our management.

We are not required to maintain compliance with NASDAQ’s director independence requirements and may choose to change
our Board or committee composition or other arrangements in the future to manage our corporate governance in accordance with the
controlled company exemption. If we cease to be a controlled company, we will be required to comply with NASDAQ’s corporate
governance requirements applicable to listed companies, subject to a permitted “phase-in” period.

The “controlled company” exemption does not modify the independence requirements for the Audit Committee. NASDAQ and

SEC rules require that our Audit Committee be composed of at least three members, subject to certain permitted phase-in rules for
ff
newly public companies and a limited NASDAQ exception. Our Audit Committee is composed entirely of independent directors.

Item 14. Principal Accounting Fees and Services

f
The following table summarizes the fees of PricewaterhouseCoopers LLP, our indepe

ndent registered public accounting firm,

billed to us for each of the last two fiscal years for audit services and billed to us in each of the last two fiscal years for other services:

Fee Category
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
Total Fees

Audit Fees

Fiscal 2017

Fiscal 2016

1,093,450 $
83,165
280,652
1,904
1,459,171 $

606,762
1,161,998
44,389
—
1,813,149

Audit fees consist of fees for the audit of our consolidated financial statements, the review of the unaudited interim financial
statements included in our quarterly reports on Form 10(cid:31)Q and other professional services provided in connection with regulatory rr
filings or engagements.

Audit-Related Fees

Audit-related fees consist of fees for assurance and related services that are reasonably related to the performance of the audit

and the review of our financial statements and which are not reported under “Audit Fees.” The amount in 2016 relates primarily to
services performed in connection with our IPO.

Tax Fees

Tax fees comprise fees for a variety of permissible services relating to international tax compliance, tax planning and tax advice.

All Other Fees

All other fees were paid for an online technical research tool.

110

Audit Committee Pre-Approval Policy and Procedures

Our Audit Committee’s charter provides that the Audit Committee must consider and, in its discretion, pre-approve any audit or

non-audit service provided to us by our independent registered public accounting firm. The Audit Committee may delegate authority
to one or more subcommittees of the Audit Committee consistent with law and applicable rules and regulations of the SEC and
NASDAQ.

For the year ended December 31, 2017, all fees of PricewaterhouseCoopers LLP were reviewed and pre-approved by the Audit

Committee.

111

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) Documents filed as part of this report

(1) Financial Statements

See “—Index to Consolidated Financial Statements” in Item 8 of this Annual Report on Form 10-K.

(2) Financial Statement Schedules

Other than the financial statement schedules included on Schedule I – Condensed Financial Information of NCS Multistage
Holdings, Inc. and Schedule II – Valuation and Qualifying Accounts, all financial statement schedules have been omitted since the
required information is not applicable or is not present in amounts sufficient to re
quire submission of the schedule, or because the
r
information required is included on the consolidated financial statements and notes thereto.

(3) Exhibits

See exhibits listed under Part (b) below.

(b) Index of Exhibits

Exhibit
No.

2.1

3.1

3.2

4.1

10.1

10.2

Description
Agreement and Plan of Merger by and among Spectrum Tracer Services, LLC, NCS Multistage Holdings, Inc.,
Pioneer Investment, Inc., Spartan Merger Sub, LLC and STSR LLC, dated as of August 30, 2017 (incorporated
by reference to Exhibit 2.1 to the Company’s Form 8-K filed on August 30, 2017).
Second Amended and Restated Certificate of Incorporation of NCS Multistage Holdings, Inc. (incorporated by
reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-38071) filed on May 3,
2017).
Amended and Restated Bylaws of NCS Multistage Holdings, Inc. (incorporated by reference to Exhibit 3.2 to
the Company’s Current Report on Form 8-K (File No. 001-38071) filed on Mayaa 3, 2017).
Registration Rights Agreement (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on
Form 8-K (File No. 001-38071) filed on Ma
yaa 3, 2017).
Amended and Restated Credit Agreement, dated as of May 4, 2017, by and among
f
Inc., Pioneer Intermediate, Inc., Pioneer Investment, Inc., NCS Multistage Inc., Wells Fargo Bank, National
Association, Wells Fargo Bank, National Association, Canadian Branch, and the lenders party thereto
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-38071)
filed on May 4, 2017).
Amendment No. 1 to Amended and Restated Credit Agreement, dated as of August 31, 2017, by and among
r
NCS Multistage Holdings, Inc., Pioneer Intermediate, Inc., Pioneer Investmen
Fargo Bank, National Association, Wells Fargo Bank, National Association, Canadian Branch, and the lenders
party (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on September 1, 2017).

NCS Multistage Holdings,

t, Inc., NCS Multistage Inc., Wells

112

10.3

10.4

10.5

10.6

10.7

10.8

10.9
10.10
10.11
10.12

10.13

10.14

†

†*
†*
†*
†

†

†*

10.15

†

10.16

10.17

10.18

10.19

10.20

10.21

t, Inc., NCS Multistage Inc., Wells

Amendment No. 2 to Amended and Restated Credit Agreement, dated as of February 16, 2018, by and among
NCS Multistage Holdings, Inc., Pioneer Intermediate, Inc., Pioneer Investmen
r
Fargo Bank, National Association, Wells Fargo Bank, National Association, Canadian Branch, and the lenders
party (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on Februaryrr 16, 2018).
NCS Multistage Holdings, Inc. 2017 Equity Incentive Plan (“2017 Equity Incentive Plan”) (incorporated by
reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-8 (File No. 333-217516) filed on
April 27, 2017).
2012 Equity Incentive Plan of NCS Multistage Holdings, Inc. (formerly known as Pioneer Super Holdings, Inc.)
(incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form S-8 (File No. 333-
217516) filed on April 27, 2017).
NCS Multistage Holdings, Inc. Employee Stock Purchase Plan for U.S. Employees (incorporated by reference to
Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (File No. 333-220165) filed on August 25,
2017).
NCS Multistage Holdings, Inc. Employee Stock Purchase Plan for Non-U.S. Employees (incorporated by
reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-8 (File No. 333-220165) filed on
August 25, 2017).
Form of Director Restricted Stock Unit Award Agreement under the 2017 Equity Incentive Plan (incorporated
by reference to Exhibit 10.10 to the Company’s Registration Statement on Form S-1 (File No. 333-216580) filed
on April 17, 2017).
Form of Restricted Stock Unit Award Agreement under the 2017 Equity Incentive Plan for executives.
Form of Performance Stock Unit Award Agreement under the 2017 Equitytt Incentive Plan for executives.
Form of Stock Option Award Agreement under the 2017 Equity Incentive Plan for executives.
Form of Restricted Stock Unit Award Agreement under the 2017 Equity Incentive Plan for non-executive
employees (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q (File
No. 001-38071) filed on August 9, 2017).
Form of Stock Option Award Agreement under the 2017 Equity Incentive Plan for non-executive employees
(incorporated by reference to Exhibit 10.14 to the Company’s Registration Statement on Form S-1 (File No.
333-216580) filed on April 17, 2017).
Amended and Restated Employment Agreement between NCS Multistage Holdings, Inc. and Robert Nipper,
dated as of August 3, 2017 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on
August 9, 2017).
Amended and Restated Employment Agreement between NCS Multistage Inc. and Marty Stromquist, dated as
of August 3, 2017.
Amended and Restated Employment Agreement between NCS Multistage Holdings, Inc. and Tim Willems,
dated as of August 3, 2017 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on
August 9, 2017).
Form of Director Indemnification Agreement (incorporated by reference to Exhibit 10.6 to the Company’s
Registration Statement on Form S-1 (File No. 333-216580) filed on April 17, 2017).
Exchange Agreement, dated as of December 20, 2012, by and between NCS Energy Holdings, LLC,
NCS Multistage Inc. (formerly known as NCS Oilfield Service Canada, Inc.), Cemblend Systems, Inc. and NCS
Multistage Holdings, Inc. (formerly known as Pioneer Super Holdings, Inc.) (incorporated by reference to
Exhibit 10.15 to the Company’s Registration Statement on Form S-1 (File No. 333-216580) filed on April 17,
2017).
Call Rights Agreement, dated as of December 20, 2012, by and between NCS Energy Holdings, LLC,
NCS Multistage Inc. (formerly known as NCS Oilfield Service Canada, Inc.), Cemblend Systems, Inc. and NCS
Multistage Holdings, Inc. (formerly known as Pioneer Super Holdings, Inc.) (incorporated by reference to
Exhibit 10.16 to the Company’s Registration Statement on Form S-1 (File No. 333-216580) filed on April 17,
2017).
Subscription Agreement, dated as of December 22, 2015, by and between NCS Multistage Holdings, Inc.
(formerly known as Pioneer Super Holdings, Inc.) and Advent-NCS Acquisition Limited Partnership
(incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-1 (File No. 333-
216580) filed on March 9, 2017).
Contribution Agreement by and among NCS Multistage Holdings, Inc. and certain unitholders of Spectrum
Tracer Services, LLC, as identified therein, dated as of August 31, 2017 (incorporated by reference to
Exhibit 10.1 to the Company’s Form 8-K filed on September 1, 2017).

113

21.1
23.1
24.1
31.1
31.2
32.1
32.2

*
*
*
*
*
**
**
*** 101.INS
*** 101.SCH
*** 101.CAL
*** 101.DEF
*** 101.LAB
*** 101.PRE

List of subsidiaries of the Company.
Consent of PricewaterhouseCoopers LLP.
Power of Attorney (included on the signature pages herein).
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxle
y Act of 2002.
u
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxle
y Act of 2002.
u
XBRL Instance Document
XBRL Taxonomy Extension Schema
XBRL Taxonomy Extension Calculation Linkbase
XBRL Taxonomy Extension Definition Linkbase
XBRL Taxonomy Extension Label Linkbase
XBRL Taxonomym Extension Presentation Linkbase

† Management contracts or compensatoryrr plans or arrangements.
* Filed herewith.

** Furnished herewith.
*** Submitted electronically with this Report.

Item 16. Form 10-K Summary

None.

114

Pursuant to the requirements of Section 13
dersigned, thereunto duly authorized.
to be signed on its behalf by the undersigned, thereunto duly authorized.

or 15(d) of the Securities Exchange Act of

1934, the registrant has duly caused this

report
t

SIGNATURES

Date: March 9, 2018

NCS Multistage Holdings, Inc.

By:

/s/ Robert Nipper
Robert Nipper
Chief Executive Officer

115

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kevin
Trautner and Ryan Hummer, each or any one of them, his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual
Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the United
States Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and
ff
authority to do and perform each and every
intents and purposes as he might or could do in person, hereby ratifying and confirming all that
t
said attorneys-in-fact and age
any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.

act and thing requisite and necessary to be done in connection therewith, as fully to all

nts, or

Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities

indicated on March 9, 2018.

Title
r
Chief Executive Officer and Directo
(Principal Executive Officer)

President and Director

Chief Financial Officer
(Principal Financial Officer)

Chief Accounting Officer and Treasurer
(Principal Accounting Officer)

Chairman

Director

Signature
r
/s/ Robert Nipper
r
Robert Nipper

/s/ Martyt Stromquist
Martytt Stromquist

/s/ RyRR an Hummer
RyRR an Hummer

/s/ Wade Bitter
Wade Bitter

/s/ Michael McShane
Michael McShane

/s/ John Deane
John Deane

/s/ Matthew Fitzgerald
Matthew Fitzgerald

/s/ Gurinder Grewal
Gurinder Grewal

/s/ David McKenna
David McKenna

/s/ Franklin Myers
Franklin Myers

/s/ W. Matt Ralls
W. Matt Ralls

116

THE PROMISE

EMPLOYEES

We will invest in our employees, our most important resource, by providing coaching
and training that enables them to learn and grow to their full potential. Together, we will
maintain a culture that promotes teamwork and an environment that is challenging,
rewarding, and fun. We will listen to our employees, treat them with respect, and support
them when they make decisions that are aligned with The Promise.

HEALTH, SAFETY, AND THE ENVIRONMENT

We will provide leadership, tools, and training to empower our employees, customers,
and vendors to remain healthy and safe. We will integrate environmental stewardship
into our business activities and respect the communities in which we operate.

CUSTOMERS

We will treat our customers as partners and operate in a fair and honest manner.
We will listen to our customers, set clear, common expectations, and respond with
execution excellence.

TECHNOLOGY

We will deliver reservoir analysis, insights and technologies that support our customers’
development strategies and resource recovery objectives. We will develop technology
and processes to drive improvement in our products and services.

QUALITY

We will continuously improve our processes and systems in order to strive to meet or
exceed all applicable quality requirements.

VENDORS

We will treat our vendors as partners, stand by our commitments to them, and expect
the same from them.

STAKEHOLDERS

We will ethically and responsibly increase stakeholder value by focusing on innovation,
(cid:90)(cid:92)(cid:90)(cid:91)(cid:72)(cid:80)(cid:85)(cid:72)(cid:73)(cid:83)(cid:76)(cid:3)(cid:78)(cid:89)(cid:86)(cid:94)(cid:91)(cid:79)(cid:19)(cid:3)(cid:72)(cid:85)(cid:75)(cid:3)(cid:90)(cid:91)(cid:89)(cid:86)(cid:85)(cid:78)(cid:3)(cid:196)(cid:85)(cid:72)(cid:85)(cid:74)(cid:80)(cid:72)(cid:83)(cid:3)(cid:87)(cid:76)(cid:89)(cid:77)(cid:86)(cid:89)(cid:84)(cid:72)(cid:85)(cid:74)(cid:76)(cid:21)(cid:3)

Times Square, April 28, 2017

19450 State Highway 249 • Suite 200

Houston, Texas 77070

281.453.2222

ir@ncsmultistage.com

ncsmultistage.com

Nasdaq: NCSM