NCS Multistage Holdings, Inc. Commitments Disclosure

Note 12. Commitments and Contingencies

 

Litigation

 

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, intellectual property and employee matters.

 

Canada Patent Matters 

 

●    In July 2018, we filed a patent infringement lawsuit seeking unspecified damages against Kobold Corporation, Kobold Completions Inc. and 2039974 Alberta Ltd. (“Kobold”) in the Federal Court of Canada (“Canada Court”), alleging that Kobold’s fracturing tools and methods infringe several of our Canadian patents. In  July 2019, Kobold filed a counterclaim seeking unspecified damages alleging that our fracturing tools and methods infringe their patent. The patent infringement litigation was heard in early 2022.

 

In October 2023, the trial judge rendered a decision against us holding that our asserted patents are invalid and that we were infringing the Kobold asserted patent. The Canada Court ordered us to pay Kobold approximately $1.8 million in costs and disbursements, including taxes payable thereon, and granted an injunction prohibiting us from any further infringement of their patent. This amount was paid to Kobold in November 2023. We filed an appeal with the Court of Appeal of Canada (“Court of Appeal”), which was heard in April 2025.

 

In July 2024, Kobold filed a motion with the Canada Court regarding whether the injunction allowed us to modify our product or, as Kobold contends, we needed to destroy or deliver the product to Kobold. This matter has been stayed by the parties pending the resolution of the redetermination described below. If the Canada Court agrees with Kobold, a fine or other remedy may be imposed against the Company. 

 

In October 2025, the Court of Appeal found that the trial judge erred in construing Kobold’s patent claims and set aside the findings of infringement, the permanent injunction, and the costs award. The Court of Appeal remitted the case back to the trial court to reconsider whether Kobold's patent is invalid for double patenting (claiming the same invention in two different patents), with the redetermination hearing scheduled for September 2026. The Court of Appeal reduced the costs award from approximately $1.8 million to approximately $0.9 million and further indicated that if Kobold's patent is found invalid on remand, the costs award may be further reduced or eliminated. As a result of the reduced costs award, Kobold returned $0.9 million to NCS in November 2025, presented as a benefit in the provision for litigation, net of recoveries in the accompanying consolidated statement of operations for the year ended December 31, 2025. 

 

While the Court of Appeal’s reasoning indicates that Kobold’s patent may be found invalid on remand, we cannot predict with certainty the outcome of the remand proceedings. If Kobold’s patent is ultimately upheld as valid and we are found to infringe, damages would then be determined by the Canada Court, which would likely extend for one or more years after the remand decision. We would expect any damages awarded to be modest because of the relative ease and minimal cost incurred to implement changes to our product, with such changes resulting in no significant commercial impact to date. As of December 31, 2025, we believe a loss is reasonably possible but not probable, and any potential loss is not reasonably estimable.

 

●    In April 2020, Kobold filed a separate patent infringement lawsuit seeking unspecified damages against us in the Canada Court, alleging that our fracturing tools infringe their Canadian patents. In the summary judgment phase, we successfully had claims relating to some of our products dismissed. We believe we have strong arguments of invalidity and non-infringement as to all remaining claims in this matter. We expect the trial for this matter to be heard in the fourth quarter of 2026.

 

Other Patent Matters

 

In connection with patent infringement claims we asserted regarding U.S. Patent No. 10,465,445 (“the ’445 Patent”), we received favorable jury verdicts against Nine Energy Services, Inc. (“Nine”) and TCO AS (“TCO”) in the Western District of Texas, Waco Division (“Waco District Court”). In January 2022, the jury awarded NCS approximately $0.5 million in damages against Nine, and in August 2022, the jury awarded NCS approximately $1.9 million in damages against TCO. At subsequent hearings in December 2022 and May 2024, respectively, the Waco District Court awarded supplemental damages, interest, and costs, and ordered both Nine and TCO to pay ongoing royalties for their sales of infringing casing flotation devices for the life of the ’445 Patent. As of December 31, 2025, Nine and TCO have posted security totaling over $7.5 million to secure the judgments pending their appeal.

 

Nine and TCO appealed their respective judgments to the U.S. Court of Appeals for the Federal Circuit. Nine and TCO filed their respective opening appellate briefs in late 2024, and we filed our responses in early 2025. Oral argument is currently scheduled for March 2026. As the decisions are subject to appeal, we have not recorded any potential gain contingencies associated with these matters in the accompanying consolidated statements of operations.

 

In accordance with GAAP, we accrue for contingencies where the occurrence of a material loss is probable and can be reasonably estimated. Our legal contingencies may increase or decrease, on a matter-by-matter basis, to account for future developments. Legal costs expected to be incurred in connection with a loss contingency are expensed as incurred. Although the outcome of any legal proceeding cannot be predicted with any certainty, our assessment of the likely outcome of litigation matters is based on our judgment of a number of factors, including experience with similar matters, past history, precedents, relevant financial information and other evidence and facts specific to each matter.

 

Other 

 

NCS entered into a collaborative arrangement with the University of Texas at Austin, in conjunction with other partners, to perform research and develop equipment for use in high temperature geothermal wells. The sponsor of this research through the university is the U.S. Department of Energy. NCS expects to receive net funding of $1.7 million under this arrangement over a period of three years, reflecting approximately 80% of the Company's total expected project expenditures. No new intellectual property is expected to result from this arrangement. No significant costs or reimbursements have been recorded as of December 31, 2025. Any income earned under this arrangement will be recorded as other income, net in the consolidated statement of operations. 

 

In December 2024, NCS liquidated a $1.3 million company-owned life insurance policy, and distributed the proceeds to participants, with no remaining liability. See proceeds from company-owned life insurance policy in the consolidated statement of cash flows for the year ended December 31, 2024.