Business context and reporting period
The filing is Newpark Resources, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 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 and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $201.7 million | $104.6 million | $543.4 million | $334.4 million |
| Operating income (loss) | $9.9 million | $(15.1) million | $21.6 million | $(49.0) million |
| Net income (loss) | $2.7 million | $(13.5) million | $3.3 million | $(40.7) million |
| Diluted earnings (loss) per share | $0.03 | $(0.16) | $0.04 | $(0.49) |
| Operating cash flow | Not separately provided for the quarter | $15.8 million | $29.9 million |
- Revenue increased 93% in Q3 and 62% for the first nine months. Approximate gross margin rose to 18.4% in Q3 from 5.0%; for the nine months, it was 18.5% versus 6.2%.
- At September 30, cash and cash equivalents were $64.7 million; current assets were $595.9 million and current liabilities $220.3 million. Cash included $60.7 million held by international subsidiaries that Newpark intended to keep permanently reinvested abroad. Separately, $93.0 million of restricted cash was included in prepaid expenses and other current assets.
- Total debt carrying value was $224.8 million, including $83.3 million of 2017 Convertible Notes, $76.2 million carrying value of 2021 Convertible Notes, and $63.5 million drawn on the ABL Facility. Debt-to-capitalization was 30.1% at quarter-end; pro forma for the subsequent repayment of the 2017 Notes, it was 21.3%.
- Operating cash flow fell from $29.9 million to $15.8 million, principally due to working-capital use, including increased receivables. Capital expenditures were $21.9 million for the nine months. Net cash used in investing was $105.3 million, largely reflecting an $85.7 million increase in restricted cash; financing activities provided $64.0 million.
Material changes versus the prior comparable period
- Both segments returned to operating profitability. Fluids Systems revenue rose 87% in Q3 and 60% for the nine months; its nine-month operating result improved by $56.3 million. Mats and Integrated Services revenue rose 126% in Q3 and 78% for the nine months, with nine-month operating income increasing to $28.8 million from $8.6 million.
- North American activity and market share gains drove much of the revenue recovery. Average North American rig count increased 92% in Q3 and 80% for the first nine months versus 2016.
- Interest expense increased 69% in Q3 and 42% for the nine months, primarily reflecting non-cash amortization of the 2021 Notes’ debt discount and lower capitalized interest.
- SG&A increased, including performance-based compensation and higher strategic-planning and legal costs, but declined as a share of revenue: 13.5% in Q3 versus 20.8%, and 14.6% for the nine months versus 19.9%.
Outlook, commentary, risks and unusual items
- Management expected Q4 2017 North American drilling activity to remain above 2016 levels, subject to commodity-price levels and stability; it expected 2017 capital expenditures of approximately $30 million. Management considered available cash, operating cash generation and ABL availability adequate for the next 12 months and the planned cash portion of the WSG acquisition.
- In October, Newpark agreed to acquire Well Service Group and Utility Access Solutions for approximately $75 million, subject to working-capital adjustments, with approximately $43 million cash and $32 million common equity. Closing was expected in November 2017. The businesses generated about $50 million in revenue for the nine months ended September 30, 2017.
- The $83.3 million principal amount of 2017 Convertible Notes matured October 1 and was fully repaid October 2 using cash placed in escrow. In October, Newpark also amended its ABL facility: capacity increased from $90 million to $150 million, rates and fees were reduced, and availability was $86.4 million as of October 31. Facility maturity extends to October 2022 subject to conditions related to the 2021 Notes.
- Key risks include cyclical oil and gas activity and commodity prices, contract renewals and scheduled 2018 contract conclusions (including Sonatrach and Petrobras), and foreign-currency exposure. The filing reported no material changes to the prior annual report’s risk factors.
- Newpark is disputing Ecoserv’s claims related to the 2014 sale of its Environmental Services business. Ecoserv claims approximately $20 million in damages; $8 million remains in escrow. Newpark recorded no liability because a loss was not considered probable and the amount could not be reasonably estimated.
- The IRS proposed approximately $3.9 million of tax due relating to a 2015 deduction. Newpark disputed the assessment and was pursuing the tax appeals process.
Important facts for investors to verify
- Confirm the registrant identity and ticker relationship, given the metadata and filing-name discrepancy.
- Track whether stronger drilling activity and segment margins persist, especially if commodity prices or rig counts weaken.
- Verify completion, final consideration and financing of the WSG and Utility Access Solutions acquisition, including the equity issuance.
- Review liquidity after repayment of the 2017 Notes and borrowing under the amended ABL, along with any borrowing-base or covenant constraints.
- Monitor the Ecoserv litigation, escrow recovery, and IRS appeal; neither potential outcome is resolved in this filing.