Earnings call transcript: Newpark Resources Q4 2024 reveals strong growth

Newpark Resources (NYSE:NPKI) (NPK), with a market capitalization of $71.43 million, reported robust financial results for Q4 2024, showcasing significant revenue and earnings growth. The company experienced a 24% year-over-year increase in quarterly revenue, reaching $58 million, and a 35% rise in adjusted EBITDA. Despite these positive results, the stock price saw a slight decline of 3.13% to $3.20. According to InvestingPro analysis, the stock appears to be trading above its Fair Value.

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Key Takeaways

• Q4 2024 revenue grew 24% year-over-year to $58 million.
• Adjusted EBITDA increased by 35% compared to the previous year.
• The utility sector contributed approximately 60% of 2024 revenues.
• The company continues to expand its rental fleet and geographic footprint.
• Stock price dropped 3.13% following the earnings release.

Company Performance

Newpark Resources demonstrated strong performance in Q4 2024, with a notable 24% increase in revenue compared to the same quarter last year. The company attributes this growth to its focus on the DuraBase composite matting system, which has gained significant market share in the U.S. The utility sector remains a key revenue driver, contributing 60% of the total revenue for the year.

Financial Highlights

• Revenue: $58 million, up 24% year-over-year
• Full Year Revenue: Increased 5% year-over-year
• Q4 Gross Margin: 39.2%, the strongest in two years
• Adjusted EBITDA Q4: $17.1 million, a 35% increase year-over-year
• Full Year Adjusted EBITDA: 12% growth
• Adjusted Diluted EPS: 35% improvement

Outlook & Guidance

Looking ahead to 2025, Newpark Resources has provided revenue guidance of $230-$250 million and adjusted EBITDA guidance of $60-$70 million. The company plans to continue expanding its rental business and geographic presence. InvestingPro’s Financial Health Score rates the company as ’FAIR’, suggesting moderate stability in its expansion plans. Capital expenditures are expected to range between $35 million and $40 million, supporting fleet expansion and market penetration.

Executive Commentary

CEO Matthew Lannigan highlighted the company’s market position, stating, "We estimate composite matting share of The U.S. Market to be almost 20%." He also emphasized the strategic focus on shareholder value creation. CFO Greg Piantic noted the company’s financial flexibility, saying, "We have a lot of flexibility right now," which suggests potential for organic investment and share buybacks.

Risks and Challenges

• Market Competition: The company faces competition from traditional timber matting products.
• Economic Conditions: Macro-economic pressures could affect demand in key sectors.
• Supply Chain Issues: Potential disruptions could impact product availability and costs.

Newpark Resources continues to leverage its strong position in the composite matting market, with a focus on innovation and expansion, despite facing challenges in a competitive and dynamic market environment.

Full transcript - Next (LON:NXT) Re SIIQ SpA (NR) Q4 2024:

Jamie, Conference Operator: Good morning, everyone. My name is Jamie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Newpark Resources Fourth Quarter and Full Year twenty twenty four Results Conference Call. Today’s call is being recorded and will be available for replay beginning at 12:30PM Eastern Standard Time. The recording can be accessed by dialing (800) 839-5629 for domestic or (402) 220-2556 for international.

All lines are currently muted and after the prepared remarks, there will be a live question and answer session. It is now my pleasure to turn the floor over to Greg Piantic, Chief Financial Officer of Newpark Resources. Please go ahead.

Greg Piantic, Chief Financial Officer, Newpark Resources: Thank you, operator. I’d like to welcome everyone to the NPK International year end twenty twenty four conference call. Joining me today is Matthew Lannigan, our President and Chief Executive Officer. Before handing over to Matthew, I’d like to highlight that today’s discussion contains forward looking statements regarding future business and financial expectations. Actual results may differ significantly from those projected in today’s forward looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC.

Except as required by law, we undertake no obligation to update our forward looking statements. Our comments on today’s call may also include certain non GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures are included in our quarterly earnings release, which can be found on our corporate website. There will be a replay of today’s call and it will be available by webcast within the Investor Relations section of our website, npki.com. Please note that the information disclosed on today’s call is current as of 02/27/2025.

At the conclusion of our prepared remarks, we will open the line for questions. And with that, I’d like to turn the call over to our President and CEO, Matthew Leneghan.

Matthew Lannigan, President and Chief Executive Officer, Newpark Resources: Thanks, Greg, and welcome to everyone joining us on today’s call. I’ll begin with commentary for our fourth quarter and full year 2024 performance, followed by our outlook and strategic priorities for 2025. Following the third quarter, the transitory pause in our key customer projects, rental activity accelerated meaningfully entering the fourth quarter, consistent with our expectations resulting in a strong finish to the year for our business. Fourth quarter revenue increased 24% year over year to $58,000,000 supported by broad based growth across all our revenue streams. Rental revenues increased by 28% year over year, reaching a new single quarter record supported by growing demand across our core utilities, transmission and critical infrastructure customers.

Gross margin increased by nearly 500 basis points to 39.2%, the strongest level in two years, while adjusted EBITDA improved to $17,100,000 in the fourth quarter, an increase of 35% versus the prior year and doubling sequentially. These improvements were driven by a combination of higher revenue, a stronger sales mix and improved operating leverage. For the full year, total revenue increased by 5% year over year, which included a 7% increase in rental revenue and a 24% increase in product sales, somewhat offset by a 15% decline in service revenues. Breaking our full year revenue details down further, our commercial priorities in 2024 focused on targeting the highest value rental and service opportunities to drive long term profitable growth and are driving broader market adoption of our Jura based composite matting solution. Our focus on returns resulted in us moving away from a number of service intensive projects that failed to meet our required return thresholds, impacting our 2024 service revenues by more than $10,000,000 Importantly, this enabled our team to concentrate their efforts on high impact relationships and projects that value our unique integrated solutions model that should deliver ongoing benefits in 2025 and beyond.

We were also encouraged that our record level of product sales illustrates the success of our strategy to displace traditional timber matting as customers increasingly recognize the superior quality and economic value of the DuraBase composite matting system. With our focus on these priorities and result in improved sales mix, we delivered a 12% adjusted EBITDA growth for the year, 160 basis points of adjusted EBITDA margin expansion and a 35% improvement in our adjusted diluted earnings per share. Given continued positive demand across our served markets, we maintained our commitment to invest in the expansion of our rental fleet, investing a net $33,000,000 in 2024, including $10,000,000 in the fourth quarter, strengthening our customer responsiveness and ability to serve the needs of the largest critical infrastructure projects. We also feel that recent actions taken by the federal government as the new administration implements its realigned strategic priorities will have a muted impact on our business as the secular megatrends underpinning investment in critical infrastructure remain robust. Therefore, we expect that our continued focus and discipline will deliver meaningful growth and expansion of our return on invested capital in the years to come.

And with that, I’ll turn the call over to

Greg Piantic, Chief Financial Officer, Newpark Resources: Greg for his prepared remarks. Thanks, Matthew. I’ll begin with a more detailed discussion of our fourth quarter results, then provide an update on our outlook for 2025 and capital allocation priorities. Fourth quarter revenues came in fairly in line with our expectations as activity rebounded sharply from the acute seasonal slowdown in Q3 resulting in a strong finish to the year. Total (EPA:TTEF) rental and services revenues improved 29% sequentially from the seasonally softer Q3 and 17% year over year to $42,000,000 in the fourth quarter.

Revenues from product sales also improved 33% sequentially and 45% year over year coming in at $16,000,000 for the fourth quarter. As Matthew referenced earlier, our full year revenue improved 5% year over year with higher product sales and rental revenues somewhat offset by lower service revenues. Rental revenues increased 7% versus prior year reflecting increased rental volume offset by a modest reduction in pricing. As we engage in larger scale customer projects with longer durations, we found that the benefits of stronger asset utilization and cost efficiencies allows us to flex on price while still meeting or exceeding our return thresholds. As Matthew touched on, service revenues were down 15% compared to last year reflecting our focus on returns in 2024.

Revenues from product sales improved 24% year over year to a record $72,000,000 in 2024. By industry, our revenue growth was predominantly driven by our expansion within the utility sector, while pipeline, oil and gas and other sectors declined. The utility sector contributed roughly 60 of our 2024 revenues, including 55% of rental and service revenues and two thirds of our product sales. In terms of gross profit, the fourth quarter improved $10,000,000 sequentially and $7,000,000 year over year, largely reflecting the higher revenues along with the effects of the operating leverage and stronger sales mix. Additionally, the sequential comparison includes an estimated $1,300,000 benefit from the Q3 unplanned downtime event at our manufacturing facility.

As Matthew touched on, the gross margin of 39.2% in the fourth quarter reflects our strongest quarterly result since Q4 of twenty twenty two. SG and A expenses were $10,700,000 in the fourth quarter, down 3% from prior quarter and increasing 5% year over year. While the fourth quarter included increases as we absorb certain fixed infrastructure costs that were historically carried by fluids along with the elevated severance expense, these increases were primarily offset by lower incentive compensation. As a percentage of revenues, the fourth quarter SG and A was 18.6% of revenues reflecting a meaningful improvement from 24.9% in the prior quarter and 22.1% in the prior Q4. FX losses provided a modest headwind to the fourth quarter, primarily driven by the U.

S. Dollar to British pound currency fluctuations. Fourth quarter FX loss was $700,000 as compared to a 600,000 gain in the prior quarter and a $700,000 gain in the fourth quarter of the prior year. Income tax expense was $2,900,000 in the fourth quarter reflecting an effective tax rate for the quarter of 26%, which includes the benefit from additional releases of valuation allowances following the sale of the fluids business. For the full year 2024, after adjusting for the $16,000,000 of tax items described in our earnings release, our effective tax rate was 32%.

Adjusted EPS from continuing operations was $0.08 per diluted share in the fourth quarter compared to breakeven in the third quarter and $0.06 in the fourth quarter of last year. Given the rebound in fourth quarter revenues, operating cash flow used $4,000,000 in the fourth quarter, which included $20,000,000 of cash used to fund the revenue driven growth in receivables. Additionally, net CapEx used $12,000,000 in the fourth quarter, which included $10,000,000 invested in matting fleet expansion in response to the recent surge in rental demand. As Matthew touched on for the full year 2024, we invested net CapEx of $33,000,000 in our rental fleet expanding the fleet size by approximately 13% from the end of twenty twenty three. We ended the year with total cash of $18,000,000 and total debt of $8,000,000 for a net cash position of $10,000,000 Additionally, we have $66,000,000 of availability under our U.

S. ABL facility, which currently has no outstanding borrowings. At the end of the year, we have roughly $18,000,000 of net assets related to the fluid sale, including the net working capital true up and a $5,000,000 interest bearing note receivable. Also, as we discussed last quarter, we have significant U. S.

Federal net operating loss and other credit carry forward tax benefits that we expect will limit our cash tax obligations over the next few years. In terms of our industry reclassification process, we have regularly engaged with S and P over the past five months to provide the information necessary to complete their review, but we were informed in January that they are awaiting the filing of our twenty twenty four Form 10 ks in order to complete the process. With the 10 ks filing expected this week, we are hopeful that the review and appropriate reclassification will be completed prior to our first quarter twenty twenty five conference call. Now turning to our business outlook. As Matthew touched on, our customers continue to remain highly constructive on the near term and longer term outlook for utilities and critical infrastructure spending.

For the full year 2025, we anticipate total revenues in the $230,000,000 to $250,000,000 range and adjusted EBITDA in the $60,000,000 to $70,000,000 range with net CapEx of $35,000,000 to $40,000,000 which includes roughly $8,000,000 to $10,000,000 of maintenance capital. As for the near term outlook, we see Q1 shaping up to be fairly similar to Q4 as customer projects and quoting activity remain robust both on the rental and product sales side. Our efforts to streamline our SG and A will continue throughout 2025 as our support obligations to fluids ramp down in the coming months. We will continue to work to offset absorbed fixed infrastructure costs that were historically carried by fluids of our overhead structure for the simplified business model. In terms of our capital allocation strategy, we continue to prioritize investments into the organic growth of our rental fleet.

We expect to continue to pace our rental fleet capital investments based upon our longer term view of the rental market penetration and growth opportunities. Beyond our organic investments in the rental fleet, we expect our free cash flow generation will be primarily used to build liquidity or through a return of capital to shareholders through our programmatic share repurchase program. It’s also worth noting that in the coming months, we expect to evaluate alternative revolving credit facilities that can provide us with greater liquidity to support our strategic growth plan. And with that, I’d like to turn the call back over to Matthew for

Matthew Lannigan, President and Chief Executive Officer, Newpark Resources: his concluding remarks. Thanks, Greg. As we enter 2025, our strategy remains focused on three foundational elements to drive long term shareholder value creation through scale enhancement, operating efficiency and return of capital optimization. Our primary focus will be the acceleration of revenue growth through the expansion of our high return rental business, which includes a combination of geographic expansion in underserved growth territories, primarily within The U. S, while also expanding customer market share within our currently served market.

We have diligently expanded our sales team over the last six quarters and are encouraged with the progress being made. Our quota volumes across all regions continues to grow while our award rate is also reflecting the work our team is doing to better understand our customers’ needs. We are encouraged with the progress we are making as both the largest U. S. Based manufacturer and rental fleet operator of composite matting and the growing market acknowledgment that the DuraBase system offers a superior solution to traditional timber products.

We estimate composite manning share of The U. S. Market to be almost 20%, which marks significant progress displacing traditional timber products over the last decade and that focus in our service industries on superior functionality and environmental stewardship will continue to drive adoption beyond current levels. Therefore, we will continue to prioritize investment to support the scale up of our specialty rental and service offerings. Our second focus area will be on driving further organizational operational efficiencies.

Over the last two years, our teams have demonstrated a strong commitment to efficiency improvements and operating cost optimization across every aspect of our business. With a simplified business model post the fluids divestiture, we continue to evaluate and execute actions intended to actions intended to streamline the organization and our cost structure as we target SG and A as a percentage of revenue to reach mid teens range by early twenty twenty six as outlined in our Q3 twenty twenty four earnings call. While our support of the divested fluids business through a transition service arrangement will provide some limitations on our timing, we continue to work in parallel to drive our post TSA organizational design and cost structure. And our final priority will be the thoughtful allocation of capital beyond our organic requirements to optimize return of capital for shareholders. With a strong balance sheet and a disciplined approach, we will carefully evaluate strategic inorganic opportunities that increase our value and relevance to customers in key critical infrastructure markets, while enhancing return on capital deployed.

We’ll also look to balance these opportunities against our programmatic return of capital program. In 2024, due to the timing of the fluids business sale process and other events, we were unable to execute on our share repurchase program. However, we remain committed to balancing our capital deployment via programmatic share repurchases. As we enter 2025, we have $50,000,000 of share repurchase authorization. In closing, I want to thank our shareholders for their ongoing support, our employees for their dedication to the business including their commitment to safety and compliance and our customers for their ongoing partnerships.

And with that, we’ll open the call for questions.

Jamie, Conference Operator: Thank We’ll hear first from Aaron Spahala with Craig Hallum. Please go ahead.

Aaron Spahala, Analyst, Craig Hallum: Yes. Good morning, Matthew and Greg. Thanks for taking the questions. First on the guidance for revenue, maybe a little bit wider range than we’ve seen in the past. Can you just talk a little bit on the puts and takes there and just how you’re thinking about the split between products and rentals, anything on the cadence as we progress through the year there?

Greg Piantic, Chief Financial Officer, Newpark Resources: Yes. No real change expected on the mix. I think in terms of the wider range, I think it comes that comes back to what uncertainties with customer spend, the timing of projects, etcetera, things that are outside of our control. And that’s really I think the cause for it. It’s really no change in our overall outlook obviously the center point being of the range being at that 10% mark that’s very consistent with the discussions that we’ve had in the past.

So, yes, really nothing more to it than that.

Aaron Spahala, Analyst, Craig Hallum: All right. Thanks for that. And then on the EBITDA margin guidance, kind of high 20s at the midpoint. Can you just kind of talk about how you’re thinking about some of the improvements in SG and A and kind of the offset between kind of growth and margins there?

Greg Piantic, Chief Financial Officer, Newpark Resources: Yes, I think first of all with SG and A, I think as we flow through 2025, we do have a headwind that we talked about of the absorbed costs and really most of that is in the IT infrastructure. That’s where you have the majority of the costs that are more fixed in nature that we’re working our way through. We had talked about the ERP conversion. So we do expect that will kind of tick up a little bit here in Q1 and then work its way down as we progress and then as we talked about by early twenty twenty six being in that mid teens range. In terms of the incremental margins overall, you look at the range that we provided and it really shows kind of a consistent flow through in the mid-30s to low 40s percent is really where that range frames up in terms of the incremental margin on that revenue range and that’s very consistent with what we’ve seen historically.

As we’ve gone through here in Q4 in particular, you see really the value of that rental element. You see the strong flow through that you get as you grow the rental side and that obviously remains focus for us.

Aaron Spahala, Analyst, Craig Hallum: All right. And then maybe one last if I could just on free cash flow, given some of the events in the fourth quarter, just how you’re thinking that trends in 2025 with some of the kind of fluids receivables and things like that?

Greg Piantic, Chief Financial Officer, Newpark Resources: Yes. Obviously, fluids, you got upper teens there that will work its way through the system. I think the majority of that is handled here early in the year within the first quarter or the next few months. Beyond that, working capital isn’t a big deal as we’ve talked about it in the past. It’s really your receivables is the only balance that flows there with the overall revenue growth.

So it really becomes a discussion. And the other thing is the cash tax is very limited because of the tax shield that we have there. So really it’s a story of EBITDA and CapEx. That CapEx we gave the guide of $35,000,000 to $40,000,000 that’s very well aligned with what we did here in in 2024. And as we’ve stated that got us 13% growth in the fleet size.

We see that as similar. I think the CapEx decisions that we make you’re kind of balancing your outlook that both near and longer term outlook for demand and then also managing into that the manufacturing efficiency, the efficiency of your production line. So I think those are the things that will contribute to it.

Aaron Spahala, Analyst, Craig Hallum: It. Understood. Thanks for taking the questions. I’ll turn it over.

Jamie, Conference Operator: We’ll hear next from Sameer Yossi with H. C. Wainwright. Please go ahead.

Sameer Yossi, Analyst, H.C. Wainwright: Great. Thanks, Matt and Greg for taking my questions. And congratulations on all the progress over the last few quarters. Good work there. Just in terms of your customer concentration going forward, I know you mentioned utilities are around 65%, but is there any one particular or two one or two customers that form like a bulk of your expected revenues?

Greg Piantic, Chief Financial Officer, Newpark Resources: Yes, I’ll take that one, Sameer. Look, I think at any given quarter, particularly when you look

Matthew Lannigan, President and Chief Executive Officer, Newpark Resources: at direct sales and some of the magnitude of those orders, you may have a large customer in that particular segment. When you look at the broader base of rental, we have strong repeating relationships that are meaningful, but we find that those over time tend to switch each other out with different set of customers being in that population. So I don’t know that we have any very particular strong concentration on any given customer.

Greg Piantic, Chief Financial Officer, Newpark Resources: Yes. We had talked this year in part on that direct sales side. We had the very large order in Q2 that we had talked about and that being predominantly one customer. So there’s definitely was a bit of a concentration there. But the nature of the sales, the product sales that we see year to year, it really has a different mix of customers year to year.

It’s not as though you have a very consistent pattern year over year there.

Sameer Yossi, Analyst, H.C. Wainwright: Good, good to know. That’s helpful. You have I guess part of the question may already be had been answered because of your $66,000,000 ABL, but I was just wondering you have CapEx of $35,000,000 to $40,000,000 and as well as you’re planning the buyback or at least you reminded us that it’s on the books. How do you see like cash flow management going forward?

Greg Piantic, Chief Financial Officer, Newpark Resources: I think it’s really just a matter obviously, we’re in a very strong position from liquidity. So we have a lot of flexibility right now. We do see that we have the ability to work Allstreams, Allstreams being the organic investment continuing to feed that fleet as needed on the organic growth. We like the returns that we get there. We do see space there for the share buybacks and continuing to return some portion of free cash flow in that way.

And then at the same time it also comes back to continuing to evaluate the market for inorganic opportunities that we can utilize to accelerate. So again with the amount of liquidity we have, we had talked a little bit about the plan here to replace our credit facility to give us even more liquidity. It provides us a lot of flexibility.

Sameer Yossi, Analyst, H.C. Wainwright: Understood. And one last one and maybe this is a follow-up on Aaron’s (NYSE:AAN) question from before. In terms of the expected adjusted EBITDA as a percent of revenue, are you seeing pricing pressure that despite your cost efficiencies on SG and A, your EBITDA is sort of flat year over year as a percent of revenue?

Greg Piantic, Chief Financial Officer, Newpark Resources: Yes, I mean, I think what we’d point out there is

Matthew Lannigan, President and Chief Executive Officer, Newpark Resources: we’ve been talking for multiple quarters over our desire to get more larger scale, longer duration projects. I think they and we’ve talked about the fact that they will come at a more competitive price point, but that will flow through in asset utilization for us. So beyond what we’re seeing there as we continue to penetrate in those areas successfully, I’d describe pricing as no different from any other year. There’s pockets and times where it’s very competitive and there’s other times where it’s very rational. So I think that’s the main driver there for me.

Sameer Yossi, Analyst, H.C. Wainwright: Understood. Thanks a lot for taking my questions. I’ll take other questions offline.

Jamie, Conference Operator: And ladies and gentlemen, that will conclude today’s question and answer session. I’d like to turn the floor back over to management for any additional or closing comments.

Greg Piantic, Chief Financial Officer, Newpark Resources: Sure. Thanks for joining us on our call today. And should you have any questions or requests, please reach out to us using our email at investorsnpki dot com. And we look forward to hosting you again next quarter. Thank you.

Jamie, Conference Operator: Thank you. Again, ladies and gentlemen, that will conclude today’s NPK International Inc. Fourth quarter and full year twenty twenty four results conference call. Thank you for your participation. You may disconnect at this time and have a wonderful rest of your day.

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