NYSE:NR Newpark Resources Q2 2023 Earnings Report Earnings HistoryForecast Newpark Resources EPS ResultsActual EPS$0.08Consensus EPS N/ABeat/MissN/AOne Year Ago EPSN/ANewpark Resources Revenue ResultsActual Revenue$183.26 millionExpected RevenueN/ABeat/MissN/AYoY Revenue GrowthN/ANewpark Resources Announcement DetailsQuarterQ2 2023Date8/1/2023TimeN/AConference Call DateWednesday, August 2, 2023Conference Call Time9:30AM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)SEC FilingEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Newpark Resources Q2 2023 Earnings Call TranscriptProvided by QuartrAugust 2, 2023 ShareLink copied to clipboard.There are 5 speakers on the call. Operator00:00:00Good morning. My name is Katie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Newpark Resources Second Quarter 2023 Earnings Conference Call. Today's call is being recorded and will be available for replay beginning at 12:30 pm Eastern Standard Time. The recording can be accessed by dialing 800-934 3,336 Domestic OR 402220114 8 International. Operator00:00:33All lines are currently muted and after the prepared remarks, there will be a live question and answer cell from the queue at any time by pressing star 2. We do ask that you please pick up your handset for optimal sound quality. It is now my pleasure to turn the floor over to Rob Crotty, Vice President of Investor Relations, Strategy and Corporate Development. Please go ahead, sir. Speaker 100:01:07Thank you, operator. On behalf of the entire team at Newpark Resources, I'd like to welcome you to our Q2 2023 results conference call. Leading the call today are Matthew Landigen, our President and Chief Executive Officer and Greg Piontek, our Chief Financial Officer. Today's discussion contains forward looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC. Speaker 100:01:44Except as required by law, we undertake no obligations update our forward looking statements. Our comments on today's call may also include certain non GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures are included in our quarterly earnings release, which can be found on our corporate website. There will be a replay of today's call and it will be available by webcast within our Investor Relations section of our website at newpark.com. Please note that the information disclosed on today's call is current as of August 2, 2023. Speaker 100:02:21At the conclusion of our prepared remarks, we'll open the line for questions. With that, I'd like to turn over the call to our President and CEO, Matthew Lanigan. Speaker 200:02:31Thank you, Rob, and welcome to everyone joining us on today's call. During the Q2, we continue to execute on our business transformation strategy, demonstrating meaningful progress around our commercial growth, operational excellence and capital allocation priorities, while continuing to build an industrial solutions platform equipped to drive long term value creation for our shareholders. We delivered the 2nd quarter net income of $1,700,000 or $0.02 per diluted share on revenues of $183,300,000 with net income improving $9,500,000 on a year over year basis in the period. Adjusted EBITDA increased 49% year over year to $19,800,000 in the 2nd quarter, while adjusted EBITDA margin increased nearly 400 basis points to 10.8% in the period. Adjusted EPS came in at $0.08 per diluted share, increasing from $0.01 per diluted share in the prior second quarter. Speaker 200:03:33We generated positive free cash flow and continued to monetize our fluids divestitures in the Q2, which contributed to a modest reduction of debt and the return of capital to shareholders through continued repurchases of our equity in the open market. The timing of working capital changes in Q2 also sets up well for a reacceleration of free cash flow generation in Q3 from the collection of receivables. Let's now begin with the progress update on our commercial growth in the Q2. Within our Industrial Solutions segment, our actions to drive Sustained profitable growth have yielded encouraging results. On a trailing 12 month basis through the Q2, Industrial Solutions Segment revenue and adjusted EBITDA have increased by 20% 41% respectively, driven by our continued penetration of utility projects, improved pricing along with raw material sourcing and operating cost efficiencies. Speaker 200:04:32Importantly, We continue to have a significant pipeline scheduled rental projects and product sales opportunities, which positions the business well heading into the second half of the year. Across the Industrial Solutions business, we've continued to prioritize investment to support the expansion of our higher margin specialty rental and service offering. During the Q2, we invested $7,000,000 to expand our rental fleet, notably roughly 2,500,000 was related to the deployment of our new Durabase 800 Series mat, which fully integrates with our existing Durabase mat format and offers a nearly 15% reduction in weight, driving further efficiency in transportation costs and associated carbon emissions without impacting product performance. We believe our continued organic investment in fleet will equip us to drive sustained double digit annualized revenue growth as we capitalize on accelerating demand in the utilities and critical infrastructure markets we serve. Within our Fluids segment, the 2nd quarter was highlighted by yet another record performance from our Eastern Hemisphere team, which generated $65,000,000 in revenue and surpassed the U. Speaker 200:05:42S. In terms of fluid systems revenue contribution. At the same time, we've continued to take steps to harvest cash from the Fluids segment, reducing our net capital employed by $20,000,000 in the 2nd quarter with reductions coming primarily from the US. Moving now to a progress update on our recent efforts to drive operating cost optimization and efficiency improvements across our global footprint. As outlined in Q1 call, we've taken decisive actions to reduce layers of redundancy across our organization, while building an increasingly durable competitive business structure positioned for profitable growth throughout the cycle. Speaker 200:06:22In 2023, We've taken actions to remove $6,000,000 in annualized fixed overhead costs across both corporate and fluids consistent with our cost optimization initiatives. In addition to these cost reduction efforts, we've also continued to closely examine the areas of the business that do not meet the required return thresholds. During the Q2, we incurred $5,000,000 in charges related to the substantial completion of our exit of the Gulf of Mexico, as well as asset impairments related to the previously discussed decision to wind down our U. S. Stimulation Chemicals business along with the recent decision to shut our The exit of the Dampier facility in the second half of the year. Speaker 200:07:11Further, on June 20, we issued a press release announcing that Newpark exploring strategic alternatives for the long term positioning of our fluid systems division. While we've made significant progress improving the operating performance of our fluids business during the last year. We believe that now is the appropriate time to explore synergistic opportunities for the business. We remain committed to exploring all viable options that are in the best interest of the Fluid System business and our shareholders. We are confident that in pursuing this course of action, we will enhance the competitive positioning of the fluids business and unlock inherent value in our 2 divisions for our shareholders, while also positioning our Industrial Solutions business for accelerated growth, Transforming Newpark into a scaled industrial rental and service company. Speaker 200:07:58Should we successfully divest the Fluids business, we believe this would create opportunity to further simplify our overhead structure and drive a meaningful SG and A reduction within the remaining organization. As a reminder, we do not intend to disclose developments with respect to the progress of our evaluation of any strategic options until such a time as the Board of Directors has approved a transaction or we otherwise deem disclosure required or appropriate. Finally, turning to a discussion of our capital allocation priorities. We remain committed to maintaining conservative well capitalized balance sheet, one that prioritizes maintaining a conservative net leverage profile while providing for organic fleet investment to support growing demand within our critical utilities and infrastructure markets and positioning the company for creative acquisitions to accelerate our growth plans together with return of capital through SARE repurchases. With that, I'll turn the call over to Greg for his prepared remarks. Speaker 300:08:57Thanks, Matthew, and good morning, everyone. I'll begin my remarks with a summary of consolidated and segment level results for the Q2 followed by an update on our near term outlook for the business entering the Q3. Our second quarter results were generally in line with the expectations shared on our Q1 call in May, highlighted by solid rental and service revenue growth, continued margin expansion, positive cash flow generation, Continued momentum within our Industrial Solutions business and another record revenue quarter for the EMEA region of our fluids Industrial Solutions segment revenues were $48,000,000 in the 2nd quarter With rental and service revenues representing 83% of the segment revenue. Rental and service revenue was $40,000,000 for the 2nd quarter, a 32% year over year improvement. Growth in rental and service revenues reflects continued organic growth within our core utility infrastructure markets, which remain healthy. Speaker 300:10:09Product sales activity pulled back to $8,000,000 for the 2nd quarter based on typical quarterly fluctuations in order timing. Though first half twenty twenty three product sales are up 20% year over year, supported by strong demand from the utility sector. Industrial Solutions segment profitability remained strong in the 2nd quarter as reflected by the segment adjusted EBITDA margin of 37.7 percent, a 660 basis point year over year improvement. Improved segment margin realization reflects growth in higher margin rental volumes and continued price discipline, along with improved operating cost leverage, including strong manufacturing and fleet utilization. The food systems segment generated revenue of $135,000,000 in the 2nd quarter, representing a decline of 7% versus the prior year period. Speaker 300:11:09Segment adjusted EBITDA margin improved 3 50 basis points to 6.5% in the second quarter. As Matthew touched on, the Fluids segment incurred $5,000,000 of charges in the During the Q2, we reduced our net capital employed in the Fluid Systems business by $20,000,000 or 8%, reflecting the ongoing monetization of receivables, inventories and excess PP and E as well as the effect of the asset impairments. Our international fluids operations delivered $65,000,000 of revenues in the Q2, reflecting 16% sequential improvement and a 33% year over year growth benefiting from strong customer activity across most of the Eastern Hemisphere. Revenues in Canada declined 46% sequentially and 8% year over year to $10,000,000 in the Q2, relatively in line with expectations and overall market activity, reflecting the effects of the seasonal spring breakup as well as the effects of the wildfires on the Canadian market. $50,000,000 reflecting lower market activity and lower market share as we maintain our focus on pricing discipline. Speaker 300:12:42As of the end of the Q2, the fluids business has a little over $200,000,000 of net working capital consisting primarily of inventory and receivables, which represents roughly 85% of the segment's net capital employed. SG and A expenses increase in both a sequential and a year over year basis, primarily reflecting the costs associated with our 2nd quarter overhead restructuring efforts discussed on our May call as well as our strategic planning activities. 2nd quarter SG and Included $1,000,000 of severance costs as well as $800,000 of strategic planning and M and A costs included in the corporate office expense. After consideration of these two items, the remaining second quarter SG and A totaled $23,800,000 including corporate office costs of $7,100,000 Interest expense held relatively flat sequentially at $2,100,000 for the 2nd quarter, reflecting the net effect of increased borrowing rates offset by lower overall debt balances. Tax expense was $2,100,000 in the quarter, reflecting a 56% effective tax rate for the quarter and 37% year to date. Speaker 300:14:00Our tax rate in the Q2 was negatively impacted by elevated losses in certain foreign jurisdictions for which we are unable to recognize the benefit. Adjusted EPS was $0.08 per diluted share in the Q2, a substantial increase from $0.01 per diluted share in the Q2 of last year, reflecting improved profitability within both segments along with a 7% decline in our shares outstanding. In terms of cash flow, we had another solid quarter of generation following our exceptionally strong Q1 results benefiting from the fluids divestitures. Operating cash flow was $7,000,000 for the 2nd quarter, impacted by a $13,000,000 decline in accounts payable as payables naturally decline ahead of receivables as revenues decline. Free cash flow was slightly positive for the 2nd quarter with another $11,000,000 generated in the quarter from the fluids divestitures. Speaker 300:15:00As Matthew highlighted, we used $7,000,000 to fund our net CapEx with the vast majority once again directed toward the expansion of our rental fleet. We also use $6,000,000 to reduce debt and $5,000,000 to fund share repurchases. Let's now turn to the near term business outlook. Our view on the respective markets and the opportunity remains largely unchanged. For Industrial Solutions, we continue to see strong fundamentals for utility and critical infrastructure spending, which we expect will provide a multiyear tailwind to support our growth plans. Speaker 300:15:38Although the typical summer seasonality and extremely hot and dry weather currently impacting much of the U. S. Has some potential to impact near term projects as loading on the power grid remains elevated to meet demand. In fluid systems, while the U. S. Speaker 300:15:55Market outlook remains somewhat challenged in the near term, we continue to feel confident in the mid and longer term outlook Canada and Eastern Hemisphere markets as we continue to transform and position the business for future success. We anticipate Q3 Industrial Solutions revenue to improve sequentially to a range of $52,000,000 to $58,000,000 primarily benefiting from the timing of product sales activity, including the effect of Q2 product orders that were delivered in early Q3. Within our Fluid Systems segment, we anticipate Q3 revenue to decline sequentially to a range of $120,000,000 to $130,000,000 primarily reflecting a decline in the U. S. And a pullback from the record quarter in the Eastern Hemisphere, partially offset by a seasonal recovery in Canada. Speaker 300:16:46We anticipate total EBITDA in the range of 17 to $22,000,000 and interest expense of $2,000,000 while the effective tax rate should be near the 30% level for the Q3. In terms of cash flow, we've seen a solid start to the Q3 with borrowings under our ABL facility declining $8,000,000 in July. We expect free cash flow generation in the range of $15,000,000 to $25,000,000 in the 3rd quarter, benefiting from solid EBITDA generation and reductions in net working capital, primarily within the U. S. Fluids business. Speaker 300:17:25Beyond our continued organic growth investments in Industrial Solutions, we expect our 3rd quarter cash generation to primarily used to further reduce our debt, providing greater flexibility to accelerate our growth plans or return value to shareholders through our share repurchase program. And with that, I'd like to turn the call back over to Matthew for his concluding remarks. Speaker 200:17:48Thanks, Greg. Throughout the first half of the year, I'm very pleased with the progress we've made to drive organic commercial growth across the enterprise, while continuing to build a more efficient competitive business. Industrial Solutions, which remains our core platform for growth longer term, continue to deliver significant year over year growth in revenue, EBITDA and Margin Realization in the first half of the year. In Fluid Systems, Eastern Hemisphere delivered significant year over year growth revenue offsetting declines in North American land markets with the segment realizing significant improvement in adjusted margins and reducing While our recent decision to explore strategic alternatives for the fluids business was not taken lightly, it does mark a significant milestone towards simplifying our go forward structure and positioning us to unlock value for shareholders. As we explore future alternatives for the fluids business, it remains a world class operation that continues to benefit from strong execution and market outlook, particularly within our Eastern Hemisphere and Canadian markets. Speaker 200:19:06To that point, In the 2023 Drilling Fluid Supply Performance Report recently issued by Kimberlite, Newpark once again On the leading global fluids providers, showcasing the underlying value of the business to our global customers and the strong brand recognition Newpark has built for Technology and Service Excellence. As we continue to thoughtfully harvest cash from the lower returning areas of our business and to redeploy it towards our Industrial Solutions platform. We are on track to have the net assets of the industrial business exceed those in our fluids by the end of Q3 of this year, signaling yet another important milestone in our journey to transform from being an oilfield services company to a leading industrial solutions brand. With our continued expansion in the multi $1,000,000,000 global work site access market. We remain optimistic about near term growth prospects for our business and anticipate the segment will surpass $80,000,000 of annualized EBITDA in the second half of twenty twenty three. Speaker 200:20:10I'm exceptionally proud of our teams across the organization for their unwavering professionalism and commitment to our customers consistent with the high performance culture we've developed at Newpark. In closing, I want to thank our shareholders for their ongoing support, our employees for their dedication to the business, including their commitment to safety and compliance and our customers for their ongoing partnership. And with that, I'll open the call for questions. Operator00:20:39Thank Our first question will come from Bill Dezellem with Titan Capital. Your line is now open. Speaker 400:21:07Thank you. I have a group of questions. I'd like to start with the Industrial Business. There was a reference in the press release to the service revenues being up 40%. Would you discuss what these services are, please? Speaker 200:21:23Yes, Bill. Happy to do so. It's Matthew. Yes, look, the services is a sort of broad bucket that will include the transportation in and out of site. They'll also Include any installation and removal of the mats as well as ancillary services that we're being called on to do more of as customers appreciate Our service quality and our safety performance, they're asking us when we're on-site to broaden the basket of services that we offer and Where we can do that at a value added benefit to both parties, we continue to expand that. Speaker 200:21:54I guess you're seeing that With the service revenue growth outpacing rental revenue growth this quarter. Speaker 400:22:02Okay. I'm going to circle back to that, but a couple of questions Relative to the strategic alternatives, Would you discuss in a bit more detail kind of the review that's taking place and a timeline that you might anticipate having Some resolution whatever direction that ends up in? Speaker 200:22:29Yes, sure. I mean, I think with respect to timeline, I think this will just follow a typical process there where you'd expect this to be resolved over the next few quarters would be Kind of our expectation here, Bill. I might need you to expand on the review process. Speaker 400:22:51So is there really anything under consideration other than an outright sale to another party? Speaker 200:23:01Yes, I think we've been clear that we're going to be open minded to whatever opportunities come forward there, Bill. So it's probably a little Premature to box ourselves into one line of thinking at this point. Speaker 300:23:14Yes. I think that that's Probably what you would consider as the most logical, but ultimately this comes up to value, what creates the greatest value for our shareholders and that's What will guide our decisions. Speaker 400:23:29Great. That's helpful. Thank you both for that. And then if the fluids business was sold, How do you foresee deploying the cash that would come from that activity? Speaker 300:23:44Well, I think it Starts with obviously, yes, that would generate a significant amount of cash. Obviously, it builds a lot of dry powder. It gives you some flexibility there to Accelerate your growth plans and I think that's really where that next step is looking at how do we further accelerate. Obviously, we Very differentiated product. We're gaining share. Speaker 300:24:08We still have a lot of runway with it, but we would naturally explore how can we accelerate that growth Speaker 400:24:17Okay. That actually I like I said, I wanted to come back to the industrial business and that might be the perfect segue. I think it was the 3rd paragraph in the press release You made the comment while the composite mat technology and related support solutions remain one of our core value propositions, Our vision is to expand the high margin or high value platform of site and access products, specifically Rental Solutions to further embed you as a Tier 1 supplier and partner into the Energy and Industrial Markets. That phrasing could be interpreted many different ways. So maybe you could tie in your last comment and try to pull all that together And what it is you're really trying to communicate there? Speaker 400:25:15Because I don't want to go the wrong direction with that statement. Speaker 200:25:19Thanks, Bill. I'll answer that question. Look, there's really 2 parts of it. Firstly, as we look out and see the market dynamics going on right now, they're being Very supportive to long term growth in demand, be it through the grid modernization, renewable tie ins or general maintenance to support electrification efforts. We feel like continuing to invest in our fleet and the geographic expansion of our rental and service offering To be where that growth is and where our customers want us to be is our number one priority there. Speaker 200:25:50I think we've touched on that in the past. Our Bantions in the Northeast and Southeast over recent quarters are starting to show the benefits of that focus. Secondarily to that is that as we continue to and I touched on this earlier, as we continue to demonstrate our strong reliability and safety performance on-site, we're Often asked to provide additional services while we're on the right of way by our customers. And where these are value added and we can get The appropriate shared benefit between ourselves and the customers, we're doing more of it. And these are things like Stormwater prevention pollution planning sort of other right of way kind of maintenance activities that we're asked to perform that provide that little bit extra there. Speaker 200:26:37So the more we do that, the more we embed ourselves as a trusted partner with our customers. So really it's really an organic play to your strength kind of approach at this point, Bill. So hopefully that answers the question. Speaker 400:26:51Okay. No, that's a great Starting point. So really that comment was intended to talk about the organic opportunities. And And I think, Greg, you were saying relative to the significant cash that would be generated if the fluid business was sold That would be an opportunity for acquisition focused. Would you talk maybe how What areas the acquisitions would likely be appropriate and most value added In terms of bolting on to the current industrial segment and how that would look over time, maybe what you're trying to create there with time? Speaker 200:27:35Yes. Bill, I'll kind of jump in. Look, I think that the most near term focus would be to continue to grow scale in what we do. We see ourselves as Still a low market share where consolidation in that space in an area that we understand with a margin profile that we like with proven execution would remain our primary focus in the near term. Beyond that, I think it's a little premature to talk about Exactly what that shape might take, but obviously we'd be very mindful to making sure that We do is accretive to the strong performance that we've been demonstrating. Speaker 300:28:15Yes. And yes, just to kind of round that out, obviously, we have a Very disruptive product. How can we accelerate the growth rate with that product? But as Matthew touches on, It's got to be accretive and if not, well then your best use of cash is to ultimately return of capital to shareholders, but We think there's Speaker 200:28:37a lot to explore here. Speaker 400:28:40Great. Thank you both. Speaker 300:28:42Thank you. Thanks, Bill. Operator00:28:46Thank you. And this does conclude. We do have a follow-up from Bill Dezellem. Your line is now open. Speaker 400:29:10All right. Actually, I'll ask at least one more here. So there was the reference in the press release to $2,800,000 to exit additional fluid operations. Was that the Australia operations that you referenced in the opening remarks? Speaker 300:29:30So you had 2 pieces to it. You did have Australia in there and then the other one was there was a charge associated with the stimulation chemical exit that we had talked about on the make all. And again, that just kind of goes back to what we had been saying of Continuing to evaluate areas of the business that are underperforming and lack a clear path and taking the necessary Speaker 400:29:55Great. And then a couple more here. So you had 11,000,000 of cash benefit from the Fluid divestitures. What did that come from? Speaker 300:30:11That was primarily the rundown of the collections associated with the Gulf of Mexico exit. If you recall, part of that, We allowed for the sale of our inventory over a few quarters. And so it was the monetization of that primarily. Speaker 400:30:30Okay. That's helpful. And then lastly, the industrial revenues were flat sequentially, But the operating income grew $3,000,000 sequentially. Was that mix or was there something else that was leading to that Stellar operating income performance. Speaker 300:30:51Yes. As mentioned in my comments, you do have a few pieces On a year over year basis, pricing was stronger than it was a year ago. The other thing that you are seeing some benefits of raw material Costs are improving from a year ago and also just the overall operating cost leverage that you're getting as you grow at the manufacturing level, at the field operational level, etcetera. So it was kind of a combination of all those factors. Speaker 400:31:22And Greg, some of those factors you just mentioned were versus a year ago, and I was really focused specifically on Q2 versus Q1. Speaker 300:31:30Got it. Sorry. So on Q2 versus Q1, actually you do have some of those same factors that are in there. The one thing that Kind of comes out of that equation Q2, Q1 is really the pricing side of it on the rental side was fairly flat. But We mentioned the service element, service margins, now that does fluctuate period to period. Speaker 300:31:52That was stronger in Q2 than it was in Q1. So but other than that, it's pretty much the same. Speaker 400:32:00And then to what degree does the mix of sales, MAP sales Not a skew the margins. Speaker 300:32:10It doesn't really skew it significantly because when you think about it What is the bigger driver is when you have big mix shifts between rental and service, because when you look at our margins Of the three lines, rental is the strongest. You have the sales that are in the middle and service tends to be at the lowest end. You put R and S Together and the incremental profit margin profile of the R and S work is typically fairly in line with the direct sales So it doesn't really skew it significantly. Speaker 400:32:44Thank you both again. Speaker 300:32:46All right. Thank you. Operator00:32:50Thank you. This concludes today's question and answer session. I'll now turn the program back over to Mr. Crotty for any additional or closing remarks. Speaker 100:32:58Thanks, Katie. That will conclude our call for today. We look forward to hosting everybody on our Q3 conference call. But in the meantime, if anybody should have any Questions or requests, please don't hesitate in reaching out to me using our email investorsnewpark.com. Operator00:33:18Thank you, ladies and gentlemen. This concludes today's event. You may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallNewpark Resources Q2 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Newpark Resources Earnings HeadlinesTwo new option listings and two option delistings on December 19thDecember 20, 2024 | markets.businessinsider.comNewpark Resources Focuses on Specialty Rental ServicesDecember 5, 2024 | markets.businessinsider.comCrypto’s crashing…but we’re still profitingMost traders are panicking right now. Bitcoin’s dropping. Altcoins are bleeding. The stock market’s a mess. The news is screaming fear. But while most traders watch their portfolios tank…April 21, 2025 | Crypto Swap Profits (Ad)Newpark Resources management to meet with Craig-HallumDecember 2, 2024 | tipranks.comNewpark Resources reports Q3 EPS ($1.99) vs 9c last yearNovember 9, 2024 | markets.businessinsider.comNewpark Resources Inc (NR) Q3 2024 Earnings Call Highlights: Navigating Challenges with ...November 9, 2024 | finance.yahoo.comSee More Newpark Resources Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Newpark Resources? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Newpark Resources and other key companies, straight to your email. Email Address About Newpark ResourcesNewpark Resources (NYSE:NR) provides products, rentals, and services primarily to the oil and natural gas exploration and production (E&P) industry. It operates through two segments, Fluids Systems and Industrial Solutions. The Fluids Systems segment provides drilling, completion, and stimulation fluids products and related technical services to customers primarily in the North America, Europe, the Middle East, and Africa, as well as other countries in the Asia Pacific and Latin America. The Industrial Solutions segment offers composite matting system rentals utilized for temporary worksite access; related site construction and services to customers in various markets, including power transmission, E&P, pipeline, renewable energy, petrochemical, construction, and other industries primarily in the United States and Europe; recyclable composite mats to customers worldwide; and access road construction, site planning and preparation, environmental protection, erosion control, and site restoration services. The company was incorporated in 1932 and is headquartered in The Woodlands, Texas.View Newpark Resources ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Archer Aviation Unveils NYC Network Ahead of Key Earnings Report3 Reasons to Like the Look of Amazon Ahead of EarningsTesla Stock Eyes Breakout With Earnings on DeckJohnson & Johnson Earnings Were More Good Than Bad—Time to Buy? 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There are 5 speakers on the call. Operator00:00:00Good morning. My name is Katie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Newpark Resources Second Quarter 2023 Earnings Conference Call. Today's call is being recorded and will be available for replay beginning at 12:30 pm Eastern Standard Time. The recording can be accessed by dialing 800-934 3,336 Domestic OR 402220114 8 International. Operator00:00:33All lines are currently muted and after the prepared remarks, there will be a live question and answer cell from the queue at any time by pressing star 2. We do ask that you please pick up your handset for optimal sound quality. It is now my pleasure to turn the floor over to Rob Crotty, Vice President of Investor Relations, Strategy and Corporate Development. Please go ahead, sir. Speaker 100:01:07Thank you, operator. On behalf of the entire team at Newpark Resources, I'd like to welcome you to our Q2 2023 results conference call. Leading the call today are Matthew Landigen, our President and Chief Executive Officer and Greg Piontek, our Chief Financial Officer. Today's discussion contains forward looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC. Speaker 100:01:44Except as required by law, we undertake no obligations update our forward looking statements. Our comments on today's call may also include certain non GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures are included in our quarterly earnings release, which can be found on our corporate website. There will be a replay of today's call and it will be available by webcast within our Investor Relations section of our website at newpark.com. Please note that the information disclosed on today's call is current as of August 2, 2023. Speaker 100:02:21At the conclusion of our prepared remarks, we'll open the line for questions. With that, I'd like to turn over the call to our President and CEO, Matthew Lanigan. Speaker 200:02:31Thank you, Rob, and welcome to everyone joining us on today's call. During the Q2, we continue to execute on our business transformation strategy, demonstrating meaningful progress around our commercial growth, operational excellence and capital allocation priorities, while continuing to build an industrial solutions platform equipped to drive long term value creation for our shareholders. We delivered the 2nd quarter net income of $1,700,000 or $0.02 per diluted share on revenues of $183,300,000 with net income improving $9,500,000 on a year over year basis in the period. Adjusted EBITDA increased 49% year over year to $19,800,000 in the 2nd quarter, while adjusted EBITDA margin increased nearly 400 basis points to 10.8% in the period. Adjusted EPS came in at $0.08 per diluted share, increasing from $0.01 per diluted share in the prior second quarter. Speaker 200:03:33We generated positive free cash flow and continued to monetize our fluids divestitures in the Q2, which contributed to a modest reduction of debt and the return of capital to shareholders through continued repurchases of our equity in the open market. The timing of working capital changes in Q2 also sets up well for a reacceleration of free cash flow generation in Q3 from the collection of receivables. Let's now begin with the progress update on our commercial growth in the Q2. Within our Industrial Solutions segment, our actions to drive Sustained profitable growth have yielded encouraging results. On a trailing 12 month basis through the Q2, Industrial Solutions Segment revenue and adjusted EBITDA have increased by 20% 41% respectively, driven by our continued penetration of utility projects, improved pricing along with raw material sourcing and operating cost efficiencies. Speaker 200:04:32Importantly, We continue to have a significant pipeline scheduled rental projects and product sales opportunities, which positions the business well heading into the second half of the year. Across the Industrial Solutions business, we've continued to prioritize investment to support the expansion of our higher margin specialty rental and service offering. During the Q2, we invested $7,000,000 to expand our rental fleet, notably roughly 2,500,000 was related to the deployment of our new Durabase 800 Series mat, which fully integrates with our existing Durabase mat format and offers a nearly 15% reduction in weight, driving further efficiency in transportation costs and associated carbon emissions without impacting product performance. We believe our continued organic investment in fleet will equip us to drive sustained double digit annualized revenue growth as we capitalize on accelerating demand in the utilities and critical infrastructure markets we serve. Within our Fluids segment, the 2nd quarter was highlighted by yet another record performance from our Eastern Hemisphere team, which generated $65,000,000 in revenue and surpassed the U. Speaker 200:05:42S. In terms of fluid systems revenue contribution. At the same time, we've continued to take steps to harvest cash from the Fluids segment, reducing our net capital employed by $20,000,000 in the 2nd quarter with reductions coming primarily from the US. Moving now to a progress update on our recent efforts to drive operating cost optimization and efficiency improvements across our global footprint. As outlined in Q1 call, we've taken decisive actions to reduce layers of redundancy across our organization, while building an increasingly durable competitive business structure positioned for profitable growth throughout the cycle. Speaker 200:06:22In 2023, We've taken actions to remove $6,000,000 in annualized fixed overhead costs across both corporate and fluids consistent with our cost optimization initiatives. In addition to these cost reduction efforts, we've also continued to closely examine the areas of the business that do not meet the required return thresholds. During the Q2, we incurred $5,000,000 in charges related to the substantial completion of our exit of the Gulf of Mexico, as well as asset impairments related to the previously discussed decision to wind down our U. S. Stimulation Chemicals business along with the recent decision to shut our The exit of the Dampier facility in the second half of the year. Speaker 200:07:11Further, on June 20, we issued a press release announcing that Newpark exploring strategic alternatives for the long term positioning of our fluid systems division. While we've made significant progress improving the operating performance of our fluids business during the last year. We believe that now is the appropriate time to explore synergistic opportunities for the business. We remain committed to exploring all viable options that are in the best interest of the Fluid System business and our shareholders. We are confident that in pursuing this course of action, we will enhance the competitive positioning of the fluids business and unlock inherent value in our 2 divisions for our shareholders, while also positioning our Industrial Solutions business for accelerated growth, Transforming Newpark into a scaled industrial rental and service company. Speaker 200:07:58Should we successfully divest the Fluids business, we believe this would create opportunity to further simplify our overhead structure and drive a meaningful SG and A reduction within the remaining organization. As a reminder, we do not intend to disclose developments with respect to the progress of our evaluation of any strategic options until such a time as the Board of Directors has approved a transaction or we otherwise deem disclosure required or appropriate. Finally, turning to a discussion of our capital allocation priorities. We remain committed to maintaining conservative well capitalized balance sheet, one that prioritizes maintaining a conservative net leverage profile while providing for organic fleet investment to support growing demand within our critical utilities and infrastructure markets and positioning the company for creative acquisitions to accelerate our growth plans together with return of capital through SARE repurchases. With that, I'll turn the call over to Greg for his prepared remarks. Speaker 300:08:57Thanks, Matthew, and good morning, everyone. I'll begin my remarks with a summary of consolidated and segment level results for the Q2 followed by an update on our near term outlook for the business entering the Q3. Our second quarter results were generally in line with the expectations shared on our Q1 call in May, highlighted by solid rental and service revenue growth, continued margin expansion, positive cash flow generation, Continued momentum within our Industrial Solutions business and another record revenue quarter for the EMEA region of our fluids Industrial Solutions segment revenues were $48,000,000 in the 2nd quarter With rental and service revenues representing 83% of the segment revenue. Rental and service revenue was $40,000,000 for the 2nd quarter, a 32% year over year improvement. Growth in rental and service revenues reflects continued organic growth within our core utility infrastructure markets, which remain healthy. Speaker 300:10:09Product sales activity pulled back to $8,000,000 for the 2nd quarter based on typical quarterly fluctuations in order timing. Though first half twenty twenty three product sales are up 20% year over year, supported by strong demand from the utility sector. Industrial Solutions segment profitability remained strong in the 2nd quarter as reflected by the segment adjusted EBITDA margin of 37.7 percent, a 660 basis point year over year improvement. Improved segment margin realization reflects growth in higher margin rental volumes and continued price discipline, along with improved operating cost leverage, including strong manufacturing and fleet utilization. The food systems segment generated revenue of $135,000,000 in the 2nd quarter, representing a decline of 7% versus the prior year period. Speaker 300:11:09Segment adjusted EBITDA margin improved 3 50 basis points to 6.5% in the second quarter. As Matthew touched on, the Fluids segment incurred $5,000,000 of charges in the During the Q2, we reduced our net capital employed in the Fluid Systems business by $20,000,000 or 8%, reflecting the ongoing monetization of receivables, inventories and excess PP and E as well as the effect of the asset impairments. Our international fluids operations delivered $65,000,000 of revenues in the Q2, reflecting 16% sequential improvement and a 33% year over year growth benefiting from strong customer activity across most of the Eastern Hemisphere. Revenues in Canada declined 46% sequentially and 8% year over year to $10,000,000 in the Q2, relatively in line with expectations and overall market activity, reflecting the effects of the seasonal spring breakup as well as the effects of the wildfires on the Canadian market. $50,000,000 reflecting lower market activity and lower market share as we maintain our focus on pricing discipline. Speaker 300:12:42As of the end of the Q2, the fluids business has a little over $200,000,000 of net working capital consisting primarily of inventory and receivables, which represents roughly 85% of the segment's net capital employed. SG and A expenses increase in both a sequential and a year over year basis, primarily reflecting the costs associated with our 2nd quarter overhead restructuring efforts discussed on our May call as well as our strategic planning activities. 2nd quarter SG and Included $1,000,000 of severance costs as well as $800,000 of strategic planning and M and A costs included in the corporate office expense. After consideration of these two items, the remaining second quarter SG and A totaled $23,800,000 including corporate office costs of $7,100,000 Interest expense held relatively flat sequentially at $2,100,000 for the 2nd quarter, reflecting the net effect of increased borrowing rates offset by lower overall debt balances. Tax expense was $2,100,000 in the quarter, reflecting a 56% effective tax rate for the quarter and 37% year to date. Speaker 300:14:00Our tax rate in the Q2 was negatively impacted by elevated losses in certain foreign jurisdictions for which we are unable to recognize the benefit. Adjusted EPS was $0.08 per diluted share in the Q2, a substantial increase from $0.01 per diluted share in the Q2 of last year, reflecting improved profitability within both segments along with a 7% decline in our shares outstanding. In terms of cash flow, we had another solid quarter of generation following our exceptionally strong Q1 results benefiting from the fluids divestitures. Operating cash flow was $7,000,000 for the 2nd quarter, impacted by a $13,000,000 decline in accounts payable as payables naturally decline ahead of receivables as revenues decline. Free cash flow was slightly positive for the 2nd quarter with another $11,000,000 generated in the quarter from the fluids divestitures. Speaker 300:15:00As Matthew highlighted, we used $7,000,000 to fund our net CapEx with the vast majority once again directed toward the expansion of our rental fleet. We also use $6,000,000 to reduce debt and $5,000,000 to fund share repurchases. Let's now turn to the near term business outlook. Our view on the respective markets and the opportunity remains largely unchanged. For Industrial Solutions, we continue to see strong fundamentals for utility and critical infrastructure spending, which we expect will provide a multiyear tailwind to support our growth plans. Speaker 300:15:38Although the typical summer seasonality and extremely hot and dry weather currently impacting much of the U. S. Has some potential to impact near term projects as loading on the power grid remains elevated to meet demand. In fluid systems, while the U. S. Speaker 300:15:55Market outlook remains somewhat challenged in the near term, we continue to feel confident in the mid and longer term outlook Canada and Eastern Hemisphere markets as we continue to transform and position the business for future success. We anticipate Q3 Industrial Solutions revenue to improve sequentially to a range of $52,000,000 to $58,000,000 primarily benefiting from the timing of product sales activity, including the effect of Q2 product orders that were delivered in early Q3. Within our Fluid Systems segment, we anticipate Q3 revenue to decline sequentially to a range of $120,000,000 to $130,000,000 primarily reflecting a decline in the U. S. And a pullback from the record quarter in the Eastern Hemisphere, partially offset by a seasonal recovery in Canada. Speaker 300:16:46We anticipate total EBITDA in the range of 17 to $22,000,000 and interest expense of $2,000,000 while the effective tax rate should be near the 30% level for the Q3. In terms of cash flow, we've seen a solid start to the Q3 with borrowings under our ABL facility declining $8,000,000 in July. We expect free cash flow generation in the range of $15,000,000 to $25,000,000 in the 3rd quarter, benefiting from solid EBITDA generation and reductions in net working capital, primarily within the U. S. Fluids business. Speaker 300:17:25Beyond our continued organic growth investments in Industrial Solutions, we expect our 3rd quarter cash generation to primarily used to further reduce our debt, providing greater flexibility to accelerate our growth plans or return value to shareholders through our share repurchase program. And with that, I'd like to turn the call back over to Matthew for his concluding remarks. Speaker 200:17:48Thanks, Greg. Throughout the first half of the year, I'm very pleased with the progress we've made to drive organic commercial growth across the enterprise, while continuing to build a more efficient competitive business. Industrial Solutions, which remains our core platform for growth longer term, continue to deliver significant year over year growth in revenue, EBITDA and Margin Realization in the first half of the year. In Fluid Systems, Eastern Hemisphere delivered significant year over year growth revenue offsetting declines in North American land markets with the segment realizing significant improvement in adjusted margins and reducing While our recent decision to explore strategic alternatives for the fluids business was not taken lightly, it does mark a significant milestone towards simplifying our go forward structure and positioning us to unlock value for shareholders. As we explore future alternatives for the fluids business, it remains a world class operation that continues to benefit from strong execution and market outlook, particularly within our Eastern Hemisphere and Canadian markets. Speaker 200:19:06To that point, In the 2023 Drilling Fluid Supply Performance Report recently issued by Kimberlite, Newpark once again On the leading global fluids providers, showcasing the underlying value of the business to our global customers and the strong brand recognition Newpark has built for Technology and Service Excellence. As we continue to thoughtfully harvest cash from the lower returning areas of our business and to redeploy it towards our Industrial Solutions platform. We are on track to have the net assets of the industrial business exceed those in our fluids by the end of Q3 of this year, signaling yet another important milestone in our journey to transform from being an oilfield services company to a leading industrial solutions brand. With our continued expansion in the multi $1,000,000,000 global work site access market. We remain optimistic about near term growth prospects for our business and anticipate the segment will surpass $80,000,000 of annualized EBITDA in the second half of twenty twenty three. Speaker 200:20:10I'm exceptionally proud of our teams across the organization for their unwavering professionalism and commitment to our customers consistent with the high performance culture we've developed at Newpark. In closing, I want to thank our shareholders for their ongoing support, our employees for their dedication to the business, including their commitment to safety and compliance and our customers for their ongoing partnership. And with that, I'll open the call for questions. Operator00:20:39Thank Our first question will come from Bill Dezellem with Titan Capital. Your line is now open. Speaker 400:21:07Thank you. I have a group of questions. I'd like to start with the Industrial Business. There was a reference in the press release to the service revenues being up 40%. Would you discuss what these services are, please? Speaker 200:21:23Yes, Bill. Happy to do so. It's Matthew. Yes, look, the services is a sort of broad bucket that will include the transportation in and out of site. They'll also Include any installation and removal of the mats as well as ancillary services that we're being called on to do more of as customers appreciate Our service quality and our safety performance, they're asking us when we're on-site to broaden the basket of services that we offer and Where we can do that at a value added benefit to both parties, we continue to expand that. Speaker 200:21:54I guess you're seeing that With the service revenue growth outpacing rental revenue growth this quarter. Speaker 400:22:02Okay. I'm going to circle back to that, but a couple of questions Relative to the strategic alternatives, Would you discuss in a bit more detail kind of the review that's taking place and a timeline that you might anticipate having Some resolution whatever direction that ends up in? Speaker 200:22:29Yes, sure. I mean, I think with respect to timeline, I think this will just follow a typical process there where you'd expect this to be resolved over the next few quarters would be Kind of our expectation here, Bill. I might need you to expand on the review process. Speaker 400:22:51So is there really anything under consideration other than an outright sale to another party? Speaker 200:23:01Yes, I think we've been clear that we're going to be open minded to whatever opportunities come forward there, Bill. So it's probably a little Premature to box ourselves into one line of thinking at this point. Speaker 300:23:14Yes. I think that that's Probably what you would consider as the most logical, but ultimately this comes up to value, what creates the greatest value for our shareholders and that's What will guide our decisions. Speaker 400:23:29Great. That's helpful. Thank you both for that. And then if the fluids business was sold, How do you foresee deploying the cash that would come from that activity? Speaker 300:23:44Well, I think it Starts with obviously, yes, that would generate a significant amount of cash. Obviously, it builds a lot of dry powder. It gives you some flexibility there to Accelerate your growth plans and I think that's really where that next step is looking at how do we further accelerate. Obviously, we Very differentiated product. We're gaining share. Speaker 300:24:08We still have a lot of runway with it, but we would naturally explore how can we accelerate that growth Speaker 400:24:17Okay. That actually I like I said, I wanted to come back to the industrial business and that might be the perfect segue. I think it was the 3rd paragraph in the press release You made the comment while the composite mat technology and related support solutions remain one of our core value propositions, Our vision is to expand the high margin or high value platform of site and access products, specifically Rental Solutions to further embed you as a Tier 1 supplier and partner into the Energy and Industrial Markets. That phrasing could be interpreted many different ways. So maybe you could tie in your last comment and try to pull all that together And what it is you're really trying to communicate there? Speaker 400:25:15Because I don't want to go the wrong direction with that statement. Speaker 200:25:19Thanks, Bill. I'll answer that question. Look, there's really 2 parts of it. Firstly, as we look out and see the market dynamics going on right now, they're being Very supportive to long term growth in demand, be it through the grid modernization, renewable tie ins or general maintenance to support electrification efforts. We feel like continuing to invest in our fleet and the geographic expansion of our rental and service offering To be where that growth is and where our customers want us to be is our number one priority there. Speaker 200:25:50I think we've touched on that in the past. Our Bantions in the Northeast and Southeast over recent quarters are starting to show the benefits of that focus. Secondarily to that is that as we continue to and I touched on this earlier, as we continue to demonstrate our strong reliability and safety performance on-site, we're Often asked to provide additional services while we're on the right of way by our customers. And where these are value added and we can get The appropriate shared benefit between ourselves and the customers, we're doing more of it. And these are things like Stormwater prevention pollution planning sort of other right of way kind of maintenance activities that we're asked to perform that provide that little bit extra there. Speaker 200:26:37So the more we do that, the more we embed ourselves as a trusted partner with our customers. So really it's really an organic play to your strength kind of approach at this point, Bill. So hopefully that answers the question. Speaker 400:26:51Okay. No, that's a great Starting point. So really that comment was intended to talk about the organic opportunities. And And I think, Greg, you were saying relative to the significant cash that would be generated if the fluid business was sold That would be an opportunity for acquisition focused. Would you talk maybe how What areas the acquisitions would likely be appropriate and most value added In terms of bolting on to the current industrial segment and how that would look over time, maybe what you're trying to create there with time? Speaker 200:27:35Yes. Bill, I'll kind of jump in. Look, I think that the most near term focus would be to continue to grow scale in what we do. We see ourselves as Still a low market share where consolidation in that space in an area that we understand with a margin profile that we like with proven execution would remain our primary focus in the near term. Beyond that, I think it's a little premature to talk about Exactly what that shape might take, but obviously we'd be very mindful to making sure that We do is accretive to the strong performance that we've been demonstrating. Speaker 300:28:15Yes. And yes, just to kind of round that out, obviously, we have a Very disruptive product. How can we accelerate the growth rate with that product? But as Matthew touches on, It's got to be accretive and if not, well then your best use of cash is to ultimately return of capital to shareholders, but We think there's Speaker 200:28:37a lot to explore here. Speaker 400:28:40Great. Thank you both. Speaker 300:28:42Thank you. Thanks, Bill. Operator00:28:46Thank you. And this does conclude. We do have a follow-up from Bill Dezellem. Your line is now open. Speaker 400:29:10All right. Actually, I'll ask at least one more here. So there was the reference in the press release to $2,800,000 to exit additional fluid operations. Was that the Australia operations that you referenced in the opening remarks? Speaker 300:29:30So you had 2 pieces to it. You did have Australia in there and then the other one was there was a charge associated with the stimulation chemical exit that we had talked about on the make all. And again, that just kind of goes back to what we had been saying of Continuing to evaluate areas of the business that are underperforming and lack a clear path and taking the necessary Speaker 400:29:55Great. And then a couple more here. So you had 11,000,000 of cash benefit from the Fluid divestitures. What did that come from? Speaker 300:30:11That was primarily the rundown of the collections associated with the Gulf of Mexico exit. If you recall, part of that, We allowed for the sale of our inventory over a few quarters. And so it was the monetization of that primarily. Speaker 400:30:30Okay. That's helpful. And then lastly, the industrial revenues were flat sequentially, But the operating income grew $3,000,000 sequentially. Was that mix or was there something else that was leading to that Stellar operating income performance. Speaker 300:30:51Yes. As mentioned in my comments, you do have a few pieces On a year over year basis, pricing was stronger than it was a year ago. The other thing that you are seeing some benefits of raw material Costs are improving from a year ago and also just the overall operating cost leverage that you're getting as you grow at the manufacturing level, at the field operational level, etcetera. So it was kind of a combination of all those factors. Speaker 400:31:22And Greg, some of those factors you just mentioned were versus a year ago, and I was really focused specifically on Q2 versus Q1. Speaker 300:31:30Got it. Sorry. So on Q2 versus Q1, actually you do have some of those same factors that are in there. The one thing that Kind of comes out of that equation Q2, Q1 is really the pricing side of it on the rental side was fairly flat. But We mentioned the service element, service margins, now that does fluctuate period to period. Speaker 300:31:52That was stronger in Q2 than it was in Q1. So but other than that, it's pretty much the same. Speaker 400:32:00And then to what degree does the mix of sales, MAP sales Not a skew the margins. Speaker 300:32:10It doesn't really skew it significantly because when you think about it What is the bigger driver is when you have big mix shifts between rental and service, because when you look at our margins Of the three lines, rental is the strongest. You have the sales that are in the middle and service tends to be at the lowest end. You put R and S Together and the incremental profit margin profile of the R and S work is typically fairly in line with the direct sales So it doesn't really skew it significantly. Speaker 400:32:44Thank you both again. Speaker 300:32:46All right. Thank you. Operator00:32:50Thank you. This concludes today's question and answer session. I'll now turn the program back over to Mr. Crotty for any additional or closing remarks. Speaker 100:32:58Thanks, Katie. That will conclude our call for today. We look forward to hosting everybody on our Q3 conference call. But in the meantime, if anybody should have any Questions or requests, please don't hesitate in reaching out to me using our email investorsnewpark.com. Operator00:33:18Thank you, ladies and gentlemen. This concludes today's event. You may now disconnect.Read morePowered by