Newpark Resources, Inc. — Q2 2020 Form 10-Q
The supplied filing is for Newpark Resources, Inc. (NYSE: NR), not a company identified as NPK International Inc. It covers the quarter and six months ended June 30, 2020; amounts below are U.S. dollars.
Financial performance
| Metric | Q2 2020 | Q2 2019 | First half 2020 | First half 2019 |
|---|---|---|---|---|
| Revenue | $101.9 million | $216.4 million | $266.5 million | $427.9 million |
| Operating income (loss) | $(30.5) million | $10.9 million | $(36.4) million | $16.6 million |
| Net income (loss) | $(26.2) million | $4.3 million | $(38.4) million | $5.6 million |
| Net loss per diluted share | $(0.29) | $0.05 | $(0.43) | $0.06 |
- Revenue fell 53% in Q2 and 38% in the first half year over year. The declines reflected reduced oilfield activity and COVID-19-related disruptions and delays.
- Gross margin, calculated from reported revenue and cost of revenues, was approximately negative 10.1% in Q2 and 3.0% for the first half, versus 17.8% and 17.5%, respectively, in 2019. Operating margin was negative 29.9% in Q2 and negative 13.7% for the first half.
- First-half operating cash flow was $25.0 million, down from $34.2 million. Working-capital changes provided $38.9 million; net loss adjusted for noncash items used $13.9 million. Capital expenditures were $10.7 million; cash used in investing was $2.7 million and cash used in financing was $26.1 million.
- At June 30, cash and cash equivalents were $42.9 million, plus $7.4 million restricted cash. Current assets were $381.2 million and current liabilities $96.1 million.
- Total debt was $135.8 million carrying value, including $66.9 million principal on 4.0% convertible notes and $64.0 million drawn on the asset-based revolving credit facility (ABL). Debt to capitalization was 21.1%, compared with 22.6% at year-end 2019. ABL remaining availability was $68.9 million at June 30; the company reported $52.5 million as of August 3.
Changes, operating actions, and unusual items
- Fluids Systems revenue fell 57% in Q2 and 38% for the first half. The segment reported operating losses of $25.1 million and $27.3 million, respectively. Mats and Integrated Services revenue fell 38% in both periods; segment operating income was $1.0 million in Q2 and $4.1 million for the first half.
- The company attributed the downturn to the oil-price collapse, the pandemic, and reduced customer activity. Average North American rig count declined 61% in Q2 and 39% in the first half versus the comparable 2019 periods.
- First-half charges for inventory write-downs, severance, and facility exits totaled $13.3 million, including $9.0 million of inventory write-downs. The company reduced its global workforce by approximately 550 employees (25%) during the first half and cut costs, reduced its operating footprint, and suspended noncritical capital spending.
- During the first half, Newpark repurchased $33.1 million principal amount of convertible notes for $29.1 million, recognizing a $0.4 million gain. The notes mature December 2021; the ABL has a springing maturity in September 2021 if specified note repayment or funding conditions are not met.
- The company decided in late 2019 to wind down Brazil operations. At June 30, $11.8 million of accumulated translation losses remained; a charge would be recognized when the subsidiary is substantially liquidated. Two claims remained from a 2018 Texas facility fire; the company said its insurer advised that the claims were insured. Management did not expect litigation losses beyond accrued or insured amounts to have a material adverse effect.
Outlook and key risks
- Management estimated 2020 capital expenditures of approximately $15 million and said cash, operating cash generation, working-capital reductions, and ABL availability should fund current operations for the next 12 months.
- Management said activity could improve from current levels during the remainder of 2020, but the timing and pace of recovery were difficult to predict. EMEA disruptions and project delays were expected to affect international activity into Q4, with gradual recovery anticipated late 2020 into early 2021.
- The company warned that it might not meet the minimum fixed-charge coverage ratio needed to include eligible rental mats in ABL borrowing availability beginning in Q4 2020. Losing that borrowing-base value could reduce liquidity; discussions with the lead bank were underway, with no assurance of a favorable waiver or amendment.
- Other risks include continued weak oil and gas activity, pandemic-related customer delays and restrictions, fixed operating costs, possible additional restructuring or impairment charges, and foreign-exchange exposure. Management reported no impairment was required in its first-half reviews of goodwill or other reviewed long-lived assets.
Investor verification points
- Confirm the filing entity and ticker: the supplied 10-Q is Newpark Resources, Inc. (NR), despite the request metadata naming NPK International Inc.
- Track ABL availability, eligible rental-mat borrowing capacity, covenant compliance, and the convertible notes’ 2021 maturity and springing-maturity provisions.
- Assess whether revenue and margins recover, especially in Fluids Systems, and whether cost reductions offset the business’s fixed-cost burden.
- Verify progress and any subsequent charges from Brazil’s wind-down, remaining fire-related claims, and the company’s liquidity and capital-spending outlook.