Business context and reporting period
Newpark Resources, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2021. Newpark supplies drilling and fluids products and services through Fluids Systems, and composite matting rentals, products, services, and industrial blending through Industrial Solutions. The filing is for Newpark Resources, Inc.; the supplied request metadata names NPK International Inc.
Financial performance and position
- Second quarter: Revenue was $142.2 million, up 40% from $101.9 million. Operating loss was $3.2 million, versus $30.5 million; net loss was $6.0 million, or $0.07 per share, versus $26.2 million, or $0.29 per share.
- First half: Revenue was $283.4 million, up 6% from $266.5 million. Operating loss was $2.7 million, versus $36.4 million; net loss was $11.4 million, or $0.12 per share, versus $38.4 million, or $0.43 per share. The 2020 comparison included substantial inventory, severance, and facility-exit charges.
- Segments: Second-quarter Fluids Systems revenue rose 30% to $97.1 million, but the segment recorded a $6.5 million operating loss. Industrial Solutions revenue rose 66% to $45.2 million and operating income was $10.1 million, including a $1.0 million legal-settlement gain. For the first half, Fluids Systems revenue fell 11% to $184.9 million and operating loss was $13.3 million; Industrial Solutions revenue increased 67% to $98.5 million and operating income was $23.3 million.
- Cash flow: First-half operating cash flow was $25.8 million, compared with $25.0 million. Investing activities used $1.3 million, including $10.5 million of capital expenditures and $9.2 million of asset-sale proceeds. Financing activities used $13.3 million. Cash and cash equivalents were $35.1 million at June 30; cash including restricted cash was $41.0 million.
- Liquidity and debt: Total debt was $77.8 million, down from $87.2 million at year-end 2020; debt to total capitalization was 14.0%, versus 15.2%. The ABL Facility had $14.0 million drawn and $70.5 million remaining availability at June 30, excluding mat-related availability then unavailable under the borrowing calculation. By August 2, after the company met specified requirements, it reported $107.9 million total availability, including $24.4 million attributable to eligible rental mats.
- Other metrics: Total assets were $709.5 million and stockholders’ equity was $476.2 million at June 30. First-half selling, general and administrative expense was $43.9 million, or 15.5% of revenue, versus $45.6 million, or 17.1%.
Material changes versus the prior comparable period
Revenue growth was driven by recovery and expansion in Industrial Solutions, particularly power transmission and other industrial markets, and by a second-quarter rebound in North American drilling activity. First-half Fluids Systems revenue nevertheless declined, reflecting lower rig counts than in the first half of 2020 and COVID-related international disruptions. Profitability improved materially as 2020 impairment and restructuring charges subsided, cost-reduction measures took effect, and Industrial Solutions grew. First-half interest expense declined to $4.6 million from $6.1 million, primarily due to lower debt balances. The first-half 2021 tax provision was $3.4 million despite a pretax loss; the company said U.S. loss-related tax benefits could not currently be recognized.
Outlook, risks, contingencies, and unusual items
- Management expected market activity to improve during 2021 but said COVID-19 variants, economic uncertainty, and related restrictions made the timing and pace difficult to predict. International disruptions and project delays were expected to persist in the near term.
- Management described power transmission and other industrial markets as strategic growth areas and expected robust power-transmission activity in coming years. It anticipated near-term working-capital needs could rise with revenue, capital spending to remain fairly limited and focused on industrial expansion, and available cash, operating cash flow, and ABL availability to fund operations and the Convertible Notes repayment over the next 12 months.
- The $48.6 million principal amount of 4% Convertible Notes outstanding at June 30 matures December 1, 2021. Newpark intended to use ABL borrowings to repay them and stated it had satisfied the facility requirements for that purpose; it planned to establish a borrowing-capacity reserve before September 1 to address the facility’s springing-maturity provision. No holders had converted as of August 2.
- ABL availability depends on borrowing-base assets, reserves, and financial covenants; a decline in availability below $22.5 million triggers a minimum fixed-charge coverage covenant. The company also disclosed $45.4 million of letters of credit, performance bonds, and other guarantees, with some letters of credit collateralized by $5.9 million of restricted cash.
- Other notable items include $18.1 million spent repurchasing Convertible Notes in the first half and a $0.8 million loss on extinguishment; the $1.0 million Industrial Solutions legal-settlement gain; and restoration of certain employee salaries and retirement benefits, with further salary restorations beginning in July 2021. Management noted potential future cost-reduction charges or asset impairments if activity does not improve over the longer term.
- The filing identifies oil and gas price and activity volatility, COVID-19 impacts, foreign-exchange and interest-rate exposure, and cybersecurity threats as risks. Newpark said cybersecurity incidents had occurred but none had been material to date. Management reported no material litigation loss expected beyond amounts accrued or insured, and no legal proceedings were listed in Part II.
Important facts for investors to verify
- Whether the December 2021 Convertible Notes are repaid as planned and whether ABL availability and covenant compliance remain adequate after reserving borrowing capacity.
- Whether growth and profitability in Industrial Solutions, especially power transmission, are sustained and offset continuing weakness in Fluids Systems.
- How COVID-related international activity delays, oil-and-gas market conditions, and working-capital requirements affect operating cash flow and liquidity.
- Whether asset-sale proceeds, capital expenditures, and any further note repurchases develop as management anticipated.
- The effects of the first-half legal-settlement gain, restructuring charges, tax treatment of U.S. losses, and any future impairments on reported results.