Business context and reporting period
Issuer: Newpark Resources, Inc. (NYSE: NR). The supplied filing is Newpark’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2021; this differs from the request metadata naming NPK International Inc. Newpark provides drilling fluids and related services through Fluids Systems, and composite mat rentals, products and services through Industrial Solutions.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $151.8 million | $96.4 million | $435.2 million | $362.9 million |
| Operating loss | $6.1 million | $25.7 million | $8.8 million | $62.1 million |
| Net loss | $10.5 million | $23.9 million | $21.8 million | $62.3 million |
| Net loss per diluted share | $0.11 | $0.26 | $0.24 | $0.69 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $13.7 million | $40.3 million |
Q3 revenue rose 57% year over year; nine-month revenue rose 20%. Industrial Solutions generated nine-month revenue of $142.3 million and operating income of $31.4 million, compared with $87.7 million and $3.9 million in 2020. Fluids Systems revenue was $292.9 million, up 6%, but the segment recorded a $19.9 million operating loss. Reported segment operating margins for the first nine months were 22.0% for Industrial Solutions and negative 6.8% for Fluids Systems.
For the first nine months, gross profit calculated as revenue less cost of revenues was $58.8 million (13.5% of revenue), versus $5.2 million (1.4%) in 2020. SG&A was $67.8 million, or 15.6% of revenue, compared with $66.2 million, or 18.2%, in 2020. The company reported income tax expense of $5.4 million despite a pretax loss, primarily because it could not recognize tax benefits on U.S. losses.
Balance sheet, cash flow and liquidity
At September 30, 2021, cash and cash equivalents were $31.2 million ($37.2 million including restricted cash), current assets were $359.9 million and current liabilities were $136.2 million. Total debt was $93.7 million, versus $87.2 million at year-end 2020; total debt to capitalization was 16.8%, up from 15.2%. Stockholders’ equity was $465.7 million.
Nine-month operating cash flow was $13.7 million. Investing activities used $7.3 million, including $19.1 million of capital expenditures, partly offset by asset-sale proceeds. Financing activities provided $1.8 million, including debt proceeds and $28.1 million spent repurchasing convertible notes. ABL availability was $41.7 million after borrowings, reserves for convertible-note settlement and letters of credit. Management said cash, operating cash flow and expected ABL availability would be adequate for operations over the next 12 months and repayment of the 2021 notes.
Material changes and unusual items
- Revenue and results improved substantially from the pandemic-affected 2020 comparison period. North American activity and Industrial Solutions’ power-transmission business were important drivers; international Fluids Systems revenue remained broadly flat for the nine-month period.
- Industrial Solutions’ growth reflected resumed projects and purchases, increased power-transmission activity, and product sales; the segment’s nine-month revenue from power transmission and other industrial markets was about $117 million.
- Hurricane Ida caused damage at the Fourchon, Louisiana operating base. Newpark recorded $2.6 million of costs, substantially representing its insurance retention; claims had not been finalized by September 30.
- Other 2021 items included $1.7 million of Fluids Systems facility-exit and other costs, $1.2 million of segment severance costs, an $0.8 million insurance-settlement gain related to a 2018 facility fire, and a $1.0 million legal-settlement gain in Industrial Solutions.
- The company repurchased $28.3 million principal amount of convertible notes for $28.1 million during the first nine months and recorded a $1.0 million extinguishment loss. $38.6 million principal remained outstanding, maturing December 1, 2021; management intended to repay it using ABL borrowings.
Outlook, risks and contingencies
Management anticipated continued improvement in market activity but said the timing and pace were difficult to predict amid COVID-19 variants, economic uncertainty, supply-chain disruptions and legislative changes affecting U.S. oil and gas. It expected robust power-transmission activity in coming years and planned to focus capital investments on industrial-market expansion. Management also cautioned that persistent weakness in oil and gas activity could prompt further restructuring costs or asset impairments.
Key disclosed risks include raw-material availability and pricing (notably HDPE and barite), freight and broader supply-chain constraints, oil and gas market volatility, pandemic-related operating disruption, currency and interest-rate exposure, and ABL borrowing-base and covenant limitations. The company disclosed ordinary-course litigation and claims but did not expect uninsured or unaccrued losses to materially affect its financial statements. Disclosure controls were reported effective as of quarter-end.
Important facts for investors to verify
- Whether the December 2021 convertible-note maturity was repaid as planned, and the resulting debt, interest expense and ABL usage.
- Final Hurricane Ida insurance recoveries, business-interruption proceeds and any additional costs beyond the estimates recorded.
- Whether Industrial Solutions’ unusually strong growth and margins are sustainable, particularly in power transmission and product sales.
- Fluids Systems’ path to profitability and the effect of activity levels, restructuring and raw-material costs.
- Current ABL availability, borrowing-base eligibility, covenant headroom and access to cash held in international subsidiaries.