Business context and reporting period
This is Newpark Resources, Inc.’s unaudited Form 10-Q for the three and six months ended June 30, 2017. The request metadata names NPK International Inc., but the filing identifies Newpark Resources, Inc. as the registrant. Newpark supplies products and services primarily to the oil and gas industry through Fluids Systems and Mats and Integrated Services.
Financial performance
| Metric | Q2 2017 | Q2 2016 | First half 2017 | First half 2016 |
|---|---|---|---|---|
| Revenue | $183.0 million | $115.3 million | $341.7 million | $229.9 million |
| Gross profit / margin | $34.6 million / 18.9% | $12.5 million / 10.9% | $63.7 million / 18.6% | $15.5 million / 6.7% |
| Operating income (loss) | $8.0 million | $(15.1) million | $11.7 million | $(34.0) million |
| Net income (loss) | $1.6 million | $(13.9) million | $0.6 million | $(27.2) million |
| Operating cash flow | Not stated quarterly | Not stated quarterly | $22.3 million | $19.8 million |
Revenue rose 59% in Q2 and 49% in the first half. North American revenue growth drove the improvement, reflecting higher rig counts, market-share gains and greater customer spending per well. International revenue declined 12% in Q2 and 5% in the first half, partly because the Uruguay project had ended. SG&A was $26.6 million in Q2 and $52.0 million in the first half; as a share of revenue, it declined to 14.6% and 15.2%, respectively. Interest expense was $3.4 million for Q2 and $6.7 million for the first half. The first-half tax provision was $3.5 million, compared with an $8.8 million benefit in 2016.
Financial position and liquidity
At June 30, 2017, cash and cash equivalents were $68.2 million, total debt carrying value was $161.0 million (principal of $186.0 million), and total stockholders’ equity was $514.3 million. Current assets were $505.4 million and current liabilities were $208.0 million. First-half cash flow included $45.2 million used in investing activities, including $29.8 million of increased restricted cash and $16.6 million of capital expenditures. Cash declined $19.6 million from year-end 2016. Management expected cash, operating cash generation and remaining ABL availability to fund operations for the next 12 months.
The $83.3 million principal amount of 4% convertible notes due October 1, 2017 was supported by $30.1 million deposited in escrow and $54.9 million of ABL availability designated for repayment. Net remaining ABL availability was $35.1 million; no ABL borrowings were outstanding. The $100 million principal amount of 4% convertible notes due 2021 had a $75.1 million carrying value after discount and issuance costs. Total debt to capitalization was 23.8%.
Material changes, outlook and risks
- Fluids Systems revenue increased 57% in Q2 and 47% in the first half; segment operating results returned to profit. Mats and Integrated Services revenue rose 69% and 57%, respectively, and segment operating income improved. Q2 consolidated operating income also benefited from the absence of $6.9 million of prior-year impairments.
- Management reported its strongest North American revenue and operating results in two years and expected average 2017 drilling activity to be meaningfully above 2016. It cautioned that results remain sensitive to volatile commodity prices, customer demand and pricing. Management forecast 2017 capital expenditures of $20–25 million.
- The Ecoserv dispute over the 2014 sale of the Environmental Services business was scheduled for trial in August 2017. Ecoserv claimed approximately $20 million in damages; Newpark disputed the claims and had recorded no liability because a loss was not considered probable and could not be reasonably estimated. The $8.0 million escrow remained disputed.
- The IRS proposed approximately $3.9 million of tax due by disallowing a deduction on Newpark’s 2015 return. The company intended to contest the assessment; its response was due in August 2017. Other tax examinations and foreign tax disputes were also disclosed.
- Oil and gas activity and commodity-price volatility are key business risks. The filing reported no material changes to the risk factors in the 2016 Form 10-K. Disclosure controls were assessed as effective at quarter-end.
Important facts for investors to verify
- Confirm the registrant identity: the supplied filing is for Newpark Resources, Inc., not NPK International Inc.
- Track repayment of the October 2017 notes and whether the escrow and reserved ABL capacity were sufficient and available as planned.
- Review subsequent developments in the Ecoserv litigation and the IRS tax assessment, including any financial-statement effects.
- Assess whether North American activity, customer demand and margins supported management’s outlook and capital expenditure expectations.
- Distinguish cash from restricted cash: $30.1 million was escrowed for the notes, and total restricted cash was $37.1 million at quarter-end.