Newpark Resources, Inc. (NYSE:NR) Q2 2022 Results Conference Call August 3, 2022 10:00 AM ET Company Participants Ken Dennard - Dennard Lascar IR Matthew Lanigan - President and CEO Gregg Piontek - CFO Operator Greetings, and welcome to the Newpark Resources Second Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ken Dennard with Dennard Lascar Investor Relations. Ken Dennard Thank you, operator, and goo ...

PART I FINANCIAL INFORMATION Presents the unaudited condensed consolidated financial statements, management's discussion, market risks, and controls for the period ended June 30, 2022 [Financial Statements](index=4&type=section&id=ITEM%201.%20Financial%20Statements) Presents unaudited condensed consolidated financial statements for Q2 and H1 2022, detailing revenue growth, net loss, and an impairment charge [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Details the company's financial position, showing an increase in total assets driven by inventories and a rise in liabilities due to long-term debt | (In thousands) | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total current assets** | $420,931 | $388,512 | | **Total assets** | $765,924 | $752,886 | | **Total current liabilities** | $156,265 | $150,392 | | **Total liabilities** | $315,173 | $290,500 | | **Total stockholders' equity** | $450,751 | $462,386 | - Total assets increased to **$765.9 million** as of June 30, 2022, from **$752.9 million** at year-end 2021, primarily driven by a significant increase in inventories from **$155.3 million to $190.2 million**[14](index=14&type=chunk) - Total liabilities rose to **$315.2 million** from **$290.5 million**, largely due to an increase in long-term debt to **$122.0 million** from **$95.6 million**[14](index=14&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Reports increased revenues for Q2 and H1 2022, alongside an increased operating loss and net loss, impacted by a significant impairment charge | (In thousands, except per share data) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | **Revenues** | $194,144 | $142,249 | $370,582 | $283,421 | | **Operating loss** | $(6,217) | $(3,247) | $(5,250) | $(2,703) | | **Impairment** | $7,905 | — | $7,905 | — | | **Net loss** | $(7,752) | $(5,998) | $(5,231) | $(11,360) | | **Net loss per share - diluted** | $(0.08) | $(0.07) | $(0.06) | $(0.12) | - Revenues for Q2 2022 increased by **36.5%** year-over-year to **$194.1 million**. For the first half of 2022, revenues grew **30.8%** to **$370.6 million**[15](index=15&type=chunk) - The company recorded a **$7.9 million** impairment charge in Q2 2022, leading to an increased operating loss of **$6.2 million** for the quarter compared to **$3.2 million** in Q2 2021[15](index=15&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Outlines cash flows, noting a significant shift to net cash used in operating activities for H1 2022, primarily due to inventory increases | (In thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | **Net cash provided by (used in) operating activities** | $(23,011) | $25,837 | | **Net cash used in investing activities** | $(7,572) | $(1,269) | | **Net cash provided by (used in) financing activities** | $27,022 | $(13,310) | - Net cash used in operating activities was **$23.0 million** for the first half of 2022, a significant shift from the **$25.8 million** provided by operations in the same period of 2021. This was primarily due to a **$38.7 million** increase in inventories[18](index=18&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed disclosures on segment operations, the exit of the Industrial Blending business, and amendments to the ABL facility - The company operates through three segments: Fluids Systems, Industrial Solutions, and Industrial Blending. In February 2022, the Board approved a plan to exit the Industrial Blending operations and explore strategic options for the U.S. mineral grinding business within the Fluids Systems segment[23](index=23&type=chunk)[24](index=24&type=chunk) - In May 2022, the company amended and restated its ABL Facility, increasing potential financing up to **$175.0 million** and extending the term to May 2027. As of June 30, 2022, **$110.0 million** was drawn, with **$43.9 million** remaining available[37](index=37&type=chunk)[38](index=38&type=chunk) | (In thousands) | Q2 2022 Revenues | Q2 2021 Revenues | H1 2022 Revenues | H1 2021 Revenues | | :--- | :--- | :--- | :--- | :--- | | **Fluids Systems** | $145,261 | $97,093 | $286,275 | $184,942 | | **Industrial Solutions** | $48,883 | $43,287 | $84,307 | $92,057 | | **Industrial Blending** | — | $1,869 | — | $6,422 | | **Total revenues** | $194,144 | $142,249 | $370,582 | $283,421 | - A **$7.9 million** impairment charge was recognized in June 2022 related to the long-lived assets of the exited Industrial Blending business, resulting in an operating loss of **$8.9 million** for that segment in Q2 2022[54](index=54&type=chunk)[56](index=56&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Discusses the company's strategic shift to industrial markets, Fluids Systems revenue growth, and the impact of impairment and inflation on profitability [Overview and Strategy](index=18&type=section&id=Overview%20and%20Strategy) Outlines the company's long-term strategy for end-market diversification, Industrial Solutions growth, and the planned exit of Industrial Blending operations - The company's long-term strategy focuses on end-market diversification to reduce dependency on the volatile E&P industry and providing products that enhance environmental sustainability[63](index=63&type=chunk) - The Industrial Solutions segment is the primary driver of operating income and the main focus for growth investments, particularly in power transmission and other industrial markets[62](index=62&type=chunk)[67](index=67&type=chunk) - In February 2022, the company's Board approved a plan to exit the Industrial Blending operations and explore strategic options, including a potential sale, for its U.S. mineral grinding business[68](index=68&type=chunk)[77](index=77&type=chunk) [Results of Operations](index=22&type=section&id=Results%20of%20Operations) Analyzes consolidated and segment financial performance, highlighting Fluids Systems revenue growth and the impact of an impairment charge on profitability Consolidated Results - Q2 2022 vs Q2 2021 | (In thousands) | Q2 2022 | Q2 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Revenues** | $194,144 | $142,249 | $51,895 | 36% | | **Operating loss** | $(6,217) | $(3,247) | $(2,970) | (91)% | | **Net loss** | $(7,752) | $(5,998) | $(1,754) | 29% | Consolidated Results - H1 2022 vs H1 2021 | (In thousands) | H1 2022 | H1 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Revenues** | $370,582 | $283,421 | $87,161 | 31% | | **Operating loss** | $(5,250) | $(2,703) | $(2,547) | (94)% | | **Net loss** | $(5,231) | $(11,360) | $6,129 | 54% | - Fluids Systems revenue grew **50%** in Q2 2022 YoY, driven by a **58%** increase in the North American rig count. Operating income improved to **$0.4 million** from a loss of **$6.5 million** in Q2 2021[90](index=90&type=chunk)[91](index=91&type=chunk)[93](index=93&type=chunk) - Industrial Solutions revenue increased **13%** in Q2 2022 YoY, but operating income decreased from **$11.3 million** to **$9.8 million** due to lower pricing on large rental projects and raw material cost inflation[90](index=90&type=chunk)[95](index=95&type=chunk) - The Industrial Blending segment recorded a **$7.9 million** non-cash impairment charge in Q2 2022 related to the sale of assets from the exited business[85](index=85&type=chunk)[96](index=96&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) Reviews the company's cash flow, capital expenditures, debt, and available liquidity, including anticipated proceeds from strategic divestitures - Net cash used in operating activities was **$23.0 million** for H1 2022, compared to **$25.8 million** provided in H1 2021, primarily due to an increase in inventories to support higher revenues and manage supply chain issues[119](index=119&type=chunk) - Capital expenditures for 2022 are expected to be between **$20 million and $25 million**, focused on expanding the mat rental fleet for the utilities market[122](index=122&type=chunk) - As of June 30, 2022, the company had **$43.9 million** in remaining availability under its Amended ABL Facility[127](index=127&type=chunk) - The company anticipates generating over **$70 million** in net cash proceeds from the divestiture of its U.S. mineral grinding business and the sale of assets from its exited Industrial Blending operations[124](index=124&type=chunk) Capitalization Summary | (In thousands) | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total debt** | $144,459 | $114,803 | | **Stockholder's equity** | $450,751 | $462,386 | | **Total capitalization** | $595,210 | $577,189 | | **Total debt to capitalization** | 24.3% | 19.9% | [Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Addresses the company's exposure to market risks, including interest rate fluctuations on variable-rate debt and foreign currency exchange rate volatility - As of June 30, 2022, the company had **$120.4 million** in variable-rate debt. A **100 basis-point** increase in short-term interest rates would increase annual pre-tax interest expense by approximately **$1.2 million**[145](index=145&type=chunk) - The company faces foreign currency exchange risks from operations conducted in EMEA, Canada, Asia Pacific, and Latin America, with principal exposures in currencies such as the Euro, Canadian dollar, and British pound[146](index=146&type=chunk) [Controls and Procedures](index=33&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Confirms the effectiveness of the company's disclosure controls and procedures as of June 30, 2022, with no material changes to internal controls - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[147](index=147&type=chunk) - There were no changes in internal control over financial reporting during the quarter ended June 30, 2022, that materially affected, or are reasonably likely to materially affect, internal controls[148](index=148&type=chunk) PART II OTHER INFORMATION Covers legal proceedings, risk factors, equity security sales, and required exhibits for the reporting period [Legal Proceedings](index=34&type=section&id=ITEM%201.%20Legal%20Proceedings) States the company is involved in routine legal matters, with no anticipated material adverse impact on its consolidated financial statements - Management does not expect any loss from litigation or other proceedings, beyond amounts accrued or covered by insurance, to have a material adverse impact on the company's financial statements[150](index=150&type=chunk) [Risk Factors](index=34&type=section&id=ITEM%201A.%20Risk%20Factors) Confirms no material changes to the company's previously disclosed risk factors since the last annual and quarterly reports - No material changes to the company's risk factors have occurred since the disclosures in the 2021 Form 10-K and the Q1 2022 Form 10-Q[151](index=151&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Details the company's securities repurchase program, noting no open market repurchases during Q2 2022, but shares acquired for tax purposes - As of June 30, 2022, **$23.8 million** remained available for repurchases under the company's securities repurchase program[155](index=155&type=chunk) - No shares of common stock were repurchased under the program during the three months ended June 30, 2022[156](index=156&type=chunk) [Exhibits](index=36&type=section&id=ITEM%206.%20Exhibits) Lists all exhibits filed with the Quarterly Report on Form 10-Q, including required certifications

Financial Data and Key Metrics Changes - Consolidated revenues decreased 2% sequentially to $176 million in Q1 2022, primarily due to a pullback in Industrial Solutions direct sales, offset by growth in Fluids Systems [14] - Reported EBITDA for Q1 was $11.4 million, with contributions of $11.2 million from Industrial Solutions and $7.4 million from Fluid Systems [15] - Interest expense declined by 41% to $1.2 million in Q1 following the maturity of convertible bonds [23] Business Line Data and Key Metrics Changes - Industrial Solutions segment revenues were $35 million with an operating income of $5.5 million, impacted by a $900,000 operating loss from the wind down of industrial blending operations [16] - Fluid Systems revenues improved 10% sequentially to $141 million, with U.S. land revenues increasing 10% to $68 million [19] - Rental and service revenues in Industrial Solutions increased by 8% sequentially to $31 million, driven by power transmission and industrial markets [17] Market Data and Key Metrics Changes - Revenues from North America land improved by 73% year-over-year, while Gulf of Mexico revenues declined by $5 million [21] - International revenues increased by 74% year-over-year, benefiting from improved customer activity across EMEA and Asia-Pacific markets [21] - In Canada, revenues increased 34% sequentially, marking the strongest quarter in four years [20] Company Strategy and Development Direction - The company is exploring the divestiture of its U.S. mineral grinding business to transform its Fluids business into a capital-light model [11] - The company anticipates completing a joint venture in Saudi Arabia in the second half of the year [12] - The focus remains on enhancing cash generation and returning value to shareholders through share repurchases and investments in high-return growth opportunities [39] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about the improving market conditions and the strength of long-term fundamentals across major energy sectors [29] - The geopolitical landscape is driving a renewed desire for energy security, influencing market activity levels [8] - Despite challenges from supply chain issues and inflation, the company expects strong growth in Q2, particularly in rental and service revenues [30] Other Important Information - The company completed an amendment to its U.S. asset-based loan facility, extending it until 2027 and providing additional liquidity [13] - Corporate office expenses were $7.9 million in Q1, reflecting a year-over-year increase due to legal and professional spending [22] Q&A Session Summary Question: What type of RFP activity is being seen around International Fluids contracts? - Management noted that there is typical RFP flow and expressed encouragement regarding the processes, particularly in the European community focusing on energy security [41][42]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number: 001-02960 Newpark Resources, Inc. (Exact name of registrant as specified in its charter) Delaware 72-1123385 (State or o ...

PART I [Business Overview](index=5&type=section&id=ITEM%201.%20Business) Newpark Resources, Inc operates through Industrial Solutions and Fluids Systems segments, focusing on end-market diversification and sustainable products - Newpark Resources, Inc operates through two reportable segments: **Industrial Solutions** and **Fluids Systems**, providing environmentally-sensitive products, rentals, and services across multiple industries[21](index=21&type=chunk)[126](index=126&type=chunk)[245](index=245&type=chunk) - The company's long-term strategy includes **end-market diversification** to reduce dependency on the volatile E&P industry and a focus on providing products that enhance environmental sustainability[28](index=28&type=chunk)[128](index=128&type=chunk) - In February 2022, management approved plans to **wind down Industrial Blending operations** and explore strategic options for the U.S. mineral grinding business[28](index=28&type=chunk)[31](index=31&type=chunk)[36](index=36&type=chunk)[130](index=130&type=chunk)[138](index=138&type=chunk) [General Company Information](index=5&type=section&id=General) - Newpark Resources, Inc was organized in 1932 as a Nevada corporation and changed its state of incorporation to Delaware in 1991[22](index=22&type=chunk)[244](index=244&type=chunk) - The principal executive offices are located at 9320 Lakeside Boulevard, Suite 100, The Woodlands, Texas 77381[22](index=22&type=chunk) - The company's website, www.newpark.com, provides access to annual, quarterly, and current reports, proxy statements, and other SEC filings[22](index=22&type=chunk) [Industry Fundamentals and Market Dynamics](index=5&type=section&id=Industry%20Fundamentals) - Demand for Industrial Solutions products and services is driven by infrastructure construction and maintenance, particularly in power transmission, E&P, pipeline, renewable energy, petrochemical, and construction industries, including investments supporting energy transition[23](index=23&type=chunk) - Fluids Systems operating results are dependent on oil and natural gas drilling activity levels, which are influenced by commodity pricing, inventory levels, product demand, and regulatory restrictions, leading to cyclical and volatile market impacts[24](index=24&type=chunk)[131](index=131&type=chunk)[247](index=247&type=chunk) - The COVID-19 pandemic significantly impacted business in 2020, causing customer delays and project disruptions, though international Fluids Systems revenues gradually recovered in 2021, approaching pre-COVID levels by the fourth quarter[23](index=23&type=chunk)[26](index=26&type=chunk)[27](index=27&type=chunk)[129](index=129&type=chunk)[134](index=134&type=chunk) North American Rig Count (2019-2021) | Year | U.S. Rig Count | Canada Rig Count | North America Rig Count | | :--- | :--- | :--- | :--- | | 2019 | 943 | 134 | 1,077 | | 2020 | 433 | 89 | 522 | | 2021 | 475 | 131 | 606 | [Company Strategy](index=6&type=section&id=Strategy) - A key strategic priority is **end-market diversification**, focusing on growth in power transmission, pipeline, renewable energy, and construction markets to reduce dependency on the volatile E&P industry and improve cash flow stability[28](index=28&type=chunk)[128](index=128&type=chunk) - The company is committed to providing environmentally-sensitive products, including recyclable DURA-BASE® matting systems (reducing deforestation and CO2 emissions) and high-performance water-based drilling fluids (Evolution®, DeepDrill®, TerraTherm, Transition)[28](index=28&type=chunk) - Ongoing portfolio reviews have led to a plan to **wind down Industrial Blending operations** and explore strategic options for the U.S. mineral grinding business, aiming to emphasize markets with strong returns and long-term viability[28](index=28&type=chunk)[138](index=138&type=chunk) [Reportable Segments Details](index=7&type=section&id=Reportable%20Segments) [Industrial Solutions Segment](index=7&type=section&id=Industrial%20Solutions) - The Industrial Solutions segment provides temporary worksite access solutions, including rental and sale of recyclable composite matting systems (DURA-BASE®) and related site services, primarily in the United States and Europe[21](index=21&type=chunk)[30](index=30&type=chunk)[245](index=245&type=chunk) - This segment serves diverse markets such as power transmission, E&P, pipeline, renewable energy, petrochemical, and construction, with **power transmission being the primary end-market** for mat sales[21](index=21&type=chunk)[30](index=30&type=chunk)[34](index=34&type=chunk) - In 2021, approximately **61% of segment revenues** were derived from the 20 largest customers, with the largest customer representing 10%, and 90% of revenues generated domestically[34](index=34&type=chunk) [Fluids Systems Segment](index=8&type=section&id=Fluids%20Systems) - The Fluids Systems segment offers customized drilling, completion, and stimulation fluids products and technical services for oil, natural gas, and geothermal projects, primarily in North America, EMEA, Asia Pacific, and Latin America[21](index=21&type=chunk)[35](index=35&type=chunk)[245](index=245&type=chunk) - The segment also includes industrial mineral grinding operations for barite, a critical raw material for drilling fluids, supporting U.S. activities and selling products to third parties[21](index=21&type=chunk)[36](index=36&type=chunk) - In 2021, approximately **48% of segment revenues** came from the 20 largest customers, with no single customer exceeding 10%, and 54% of revenues generated domestically[39](index=39&type=chunk) [Human Capital](index=9&type=section&id=Human%20Capital) - The company is committed to providing a diverse and inclusive environment, recognizing its people as its greatest asset for long-term sustainability and business strategy implementation[41](index=41&type=chunk) - As of December 31, 2021, the company employed approximately **1,565 full and part-time personnel** across more than 20 countries, with none represented by labor unions[42](index=42&type=chunk) - Newpark reinforces its commitment to Core Values of safety, integrity, respect, excellence, and accountability through various company-culture initiatives[42](index=42&type=chunk) [Governmental Regulations](index=9&type=section&id=Governmental%20Regulations) - The business is exposed to regulatory risks from various industries, including governmental regulations related to the oil and natural gas industry, as well as environmental, health, and safety regulations[43](index=43&type=chunk) - Procedures are implemented to ensure compliance and reduce risk, including specified handling guidelines, ongoing employee training, monitoring, insurance coverage, and a corporate-wide Health, Safety, and Environmental Management System (HSEMS)[44](index=44&type=chunk) [Risk Factors](index=10&type=section&id=ITEM%201A.%20Risk%20Factors) The company faces significant risks from industry volatility, indebtedness, regulations, and general business challenges that could impact financial results - The company's success is dependent on its ability to anticipate and effectively manage a variety of risks, which, individually or combined, could **materially adversely affect results of operations or financial condition**[45](index=45&type=chunk) - Risks are grouped into Business and Industry, Indebtedness, Legal and Regulatory, Financial, and General categories, with many risks affecting multiple categories[46](index=46&type=chunk) [Business and Industry Risks](index=10&type=section&id=Business%20and%20Industry%20Risks) - The **COVID-19 pandemic** significantly reduced economic activity, adversely affecting demand and prices for oil and natural gas, leading to reduced demand for the company's products and services, project delays, and supply chain disruptions[47](index=47&type=chunk)[48](index=48&type=chunk)[51](index=51&type=chunk) - The company derives a significant portion of revenues from the worldwide oil and natural gas industry, making it **highly susceptible to volatility** in demand, supply, and prices of hydrocarbons, which are influenced by global economic growth, energy transition, and geopolitical factors[50](index=50&type=chunk)[51](index=51&type=chunk)[53](index=53&type=chunk)[54](index=54&type=chunk)[55](index=55&type=chunk) - **Customer concentration is a risk**, with 39% of 2021 consolidated revenues from the 20 largest customers and 65% from U.S. operations, including $250 million from the E&P market, making the company vulnerable to spending reductions or loss of key customers[58](index=58&type=chunk) - International operations (**35% of 2021 consolidated revenues**) are subject to risks including complex foreign laws, regulatory changes, political instability, currency fluctuations, and health emergencies[61](index=61&type=chunk)[62](index=62&type=chunk)[64](index=64&type=chunk) - The company faces significant health, safety, and environmental risks inherent in the oil and natural gas and electrical utility industries, with potential for personal injury, death, property damage, or environmental harm, and insurance/indemnification may not be sufficient[63](index=63&type=chunk)[65](index=65&type=chunk) - The ability to obtain raw materials (e.g., HDPE for mats, barite for fluids) is critical, and **supply chain disruptions**, price increases, or inability to pass costs to customers could materially affect business and results of operations[70](index=70&type=chunk)[71](index=71&type=chunk)[72](index=72&type=chunk) [Indebtedness Risks](index=15&type=section&id=Indebtedness%20Risks) - The company's future success depends on **continued access to borrowed funds**, which is subject to credit market conditions and lenders' willingness to finance companies exposed to the oil and natural gas industry[84](index=84&type=chunk) - **Compliance with debt covenants**, particularly under the $200 million ABL Facility, is crucial; failure to meet requirements could lead to default, acceleration of debt, and adverse effects on financial condition[87](index=87&type=chunk)[88](index=88&type=chunk) - Borrowing availability under the ABL Facility is calculated based on eligible U.S. accounts receivable, inventory, and composite mats, subject to financial covenants like a minimum consolidated fixed charge coverage ratio[86](index=86&type=chunk)[191](index=191&type=chunk)[302](index=302&type=chunk) [Legal and Regulatory Risks](index=16&type=section&id=Legal%20and%20Regulatory%20Risks) - The company is responsible for complying with numerous federal, state, local, and foreign environmental laws and regulations, with non-compliance potentially resulting in fines, penalties, cleanup costs, or operational suspensions[90](index=90&type=chunk) - Existing or future **climate change legislation** and environmental activism, aimed at limiting greenhouse gas emissions and promoting alternative energy, could increase costs, restrict oil and natural gas exploration, or reduce demand for fossil fuels, materially affecting operations and profitability[91](index=91&type=chunk)[92](index=92&type=chunk) - As a global business, the company is subject to complex laws and regulations, including anti-bribery, anti-corruption, sanctions, tax, employment, and data privacy laws, with non-compliance potentially leading to significant fines, sanctions, and reputational damage[94](index=94&type=chunk) [Financial Risks](index=17&type=section&id=Financial%20Risks) - Liability insurance is subject to coverage limitations, including self-insured retentions, exclusions, and policy limits, and the ability to obtain coverage on reasonable terms is uncertain, potentially leading to material adverse effects from uninsured claims or cost increases[95](index=95&type=chunk) - Future effective tax rates could be adversely affected by **changes in domestic and international tax laws**, their interpretation, or the valuation of deferred tax assets and liabilities, with potential legislative proposals (e.g., global minimum tax) possibly increasing the effective tax rate[96](index=96&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk) [General Risks](index=18&type=section&id=General%20Risks) - The company's reliance on management information systems and IT infrastructure exposes it to **cybersecurity threats** and business system disruptions, which could lead to data misuse, operational disruptions, reputational harm, and litigation, despite investments in security technology[99](index=99&type=chunk)[100](index=100&type=chunk) - Ongoing restructuring activities, including plans to wind down Industrial Blending and explore options for U.S. mineral grinding, may not achieve expected results and could lead to future charges or asset impairments[101](index=101&type=chunk)[102](index=102&type=chunk) - Campaigns by **activist stockholders** can be costly and time-consuming, diverting management and Board attention and potentially adversely affecting results of operations and financial condition[103](index=103&type=chunk) - Failure to comply with NYSE continued listing standards, such as maintaining a minimum stock price, could result in **delisting**, negatively impacting stock liquidity, market price, and ability to raise equity financing[104](index=104&type=chunk)[105](index=105&type=chunk) [Unresolved Staff Comments](index=20&type=section&id=ITEM%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments to report for the period - The company has no unresolved staff comments[108](index=108&type=chunk) [Properties](index=20&type=section&id=ITEM%202.%20Properties) The company's properties include owned and leased facilities across its segments, primarily in the U.S. and U.K - The Fluids Systems segment owns a 103,000 square foot facility in Katy, Texas, housing its divisional headquarters and technology center, and leases industrial space in Fourchon, Louisiana for drilling and completion fluids operations[110](index=110&type=chunk) - The Fluids Systems segment also operates four specialty mineral grinding facilities in the U.S. and owns or leases various global facilities and warehouses[110](index=110&type=chunk) - The Industrial Solutions segment owns a 93,000 square foot facility in Carencro, Louisiana for manufacturing and its technology center, and owns or leases various facilities in the U.S. and U.K. for field operations[111](index=111&type=chunk) - An industrial blending facility and distribution warehouse in Conroe, Texas, owned by the Industrial Solutions segment, is planned for sale[111](index=111&type=chunk) [Legal Proceedings](index=20&type=section&id=ITEM%203.%20Legal%20Proceedings) The company is involved in routine litigation and claims with no anticipated material adverse financial impact - The company is involved in litigation and other claims in the ordinary course of business[112](index=112&type=chunk)[383](index=383&type=chunk) - Management does not expect any loss from such proceedings, in excess of accrued amounts or insurance coverage, to have a material adverse impact on consolidated financial statements[112](index=112&type=chunk)[383](index=383&type=chunk) [Mine Safety Disclosures](index=20&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) Information regarding mine safety violations is provided in Exhibit 95.1 of this Annual Report on Form 10-K - Information concerning mine safety violations and other regulatory matters is included in Exhibit 95.1 of this Annual Report on Form 10-K[113](index=113&type=chunk) PART II [Market for Common Equity, Stockholder Matters & Equity Purchases](index=21&type=section&id=ITEM%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's stock trades on the NYSE, with no recent dividends paid and an active securities repurchase program - The company's common stock is traded on the New York Stock Exchange under the symbol "NR"[116](index=116&type=chunk) - As of February 1, 2022, there were **1,155 stockholders of record**[116](index=116&type=chunk) - The company has **not paid dividends** in the last three fiscal years and does not intend to in the foreseeable future, partly due to limitations from its ABL Facility[117](index=117&type=chunk) - A securities repurchase program, authorized for **$100.0 million**, had **$23.8 million remaining** as of December 31, 2021[121](index=121&type=chunk)[122](index=122&type=chunk) [Common Equity Market and Stockholder Information](index=21&type=section&id=Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters) - The company's common stock is traded on the New York Stock Exchange under the symbol "NR"[116](index=116&type=chunk) - As of February 1, 2022, there were 1,155 stockholders of record[116](index=116&type=chunk) - The company has not paid any dividends during the three most recent fiscal years or any subsequent interim period, and does not intend to pay any cash dividends in the foreseeable future, due to ABL Facility covenants[117](index=117&type=chunk) [Issuer Purchases of Equity Securities](index=22&type=section&id=Issuer%20Purchases%20of%20Equity%20Securities) - During 2021, the company purchased an aggregate of **419,114 shares** surrendered in lieu of taxes under vesting of restricted stock awards, which are held as treasury stock[120](index=120&type=chunk)[337](index=337&type=chunk) - The Board of Directors authorized changes to the securities repurchase program in November 2018, increasing the authorized amount to **$100.0 million** for common stock and Convertible Notes[121](index=121&type=chunk)[338](index=338&type=chunk) - As of December 31, 2021, **$23.8 million remained** under the repurchase program[122](index=122&type=chunk)[339](index=339&type=chunk) - During 2021, **$28.3 million of Convertible Notes were repurchased** in the open market under the program for a total cost of $28.1 million; no common stock was repurchased under the program in 2021[123](index=123&type=chunk)[340](index=340&type=chunk)[341](index=341&type=chunk) Issuer Repurchases of Common Stock (Q4 2021) | Period | Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | October 2021 | — | — | | November 2021 | 3,043 | $2.72 | | December 2021 | 1,424 | $2.70 | | **Total** | **4,467** | | [[Reserved]](index=22&type=section&id=ITEM%206.%20%5BReserved%5D) This item is reserved and contains no information - Item 6 is reserved and contains no information[124](index=124&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=ITEM%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) A 2021 revenue increase was driven by segment growth, though a net loss persisted amid strategic operational changes and capital investments - Revenues increased **25% to $614.8 million** in 2021 compared to $492.6 million in 2020, driven by growth in North America's Industrial Solutions and Fluids Systems segments[140](index=140&type=chunk)[141](index=141&type=chunk) - The operating loss significantly improved by **89%** from $(78.6) million in 2020 to **$(8.8) million** in 2021[140](index=140&type=chunk) - The company is implementing strategic actions, including winding down Industrial Blending operations and exploring options for its U.S. mineral grinding business, to enhance liquidity and focus on higher-returning businesses[130](index=130&type=chunk)[138](index=138&type=chunk)[187](index=187&type=chunk) [Overview of Operations and Financial Performance](index=23&type=section&id=Overview) - The Industrial Solutions segment generated **32% of consolidated revenues** and **$40 million of operating income** in 2021, with 80% of total capital expenditures directed to this segment to support growth in power transmission and other industrial markets[127](index=127&type=chunk)[128](index=128&type=chunk) - Industrial Solutions segment revenues from power transmission and other industrial markets increased by **$47 million (43%) to $157 million** in 2021, while E&P customer revenues decreased by $53 million (59%) to $37 million since 2019[129](index=129&type=chunk) - The Fluids Systems segment generated **68% of consolidated revenues** but incurred a **$19 million operating loss** in 2021, with results highly dependent on volatile oil and natural gas drilling activity[131](index=131&type=chunk) - In 2020, the company implemented cost reduction programs, including a **30% reduction in its global employee base** (approximately 650 employees), and recognized **$29.2 million in charges**, primarily in Fluids Systems[135](index=135&type=chunk)[136](index=136&type=chunk) - In 2021, the company recognized **$5.5 million in charges**, primarily related to self-insured costs from Hurricane Ida damage to its Fourchon, Louisiana Fluids Systems operating base, facility exit, and severance costs[137](index=137&type=chunk) North American Rig Count (2019-2021) | Year | U.S. Rig Count | Canada Rig Count | North America Rig Count | | :--- | :--- | :--- | :--- | | 2019 | 943 | 134 | 1,077 | | 2020 | 433 | 89 | 522 | | 2021 | 475 | 131 | 606 | [Financial Performance: 2021 vs. 2020](index=26&type=section&id=Year%20Ended%20December%2031%2C%202021%20Compared%20to%20Year%20Ended%20December%2031%2C%202020) [Consolidated Results of Operations (2021 vs. 2020)](index=26&type=section&id=Consolidated%20Results%20of%20Operations%202021%20vs%202020) - Revenues increased by **$122.2 million (25%)** in 2021, driven by a $97.9 million (28%) increase in North America (Industrial Solutions growth in power transmission, Fluids Systems rig count improvement) and a $24.3 million (17%) increase internationally[141](index=141&type=chunk) - Cost of revenues increased by 12%, primarily due to higher revenues, partially offset by cost reduction programs; 2021 included $3.0 million in charges (facility exit, severance), while 2020 included $14.1 million in charges (inventory write-downs, severance, facility exit)[142](index=142&type=chunk) - Selling, general and administrative expenses increased by $7.8 million (9%) due to higher performance-based incentives, stock-based compensation, and personnel costs, but decreased as a percentage of revenues from 17.6% in 2020 to 15.4% in 2021[143](index=143&type=chunk) - The provision for income taxes was **$7.3 million in 2021 despite a pretax loss**, mainly reflecting tax expense from international operations where U.S. loss tax benefits could not be recognized[150](index=150&type=chunk) Consolidated Results of Operations (2021 vs. 2020) | (In thousands) | 2021 | 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $614,781 | $492,625 | $122,156 | 25 % | | Cost of revenues | $529,552 | $473,258 | $56,294 | 12 % | | Selling, general and administrative expenses | $94,445 | $86,604 | $7,841 | 9 % | | Operating loss | $(8,825) | $(78,634) | $69,809 | 89 % | | Loss before income taxes | $(18,233) | $(92,579) | $74,346 | 80 % | | Net loss | $(25,526) | $(80,696) | $55,170 | 68 % | [Operating Segment Results (2021 vs. 2020)](index=28&type=section&id=Operating%20Segment%20Results%202021%20vs%202020) - Fluids Systems revenues increased **19% to $420.8 million**, with North America up 21% (U.S. land markets up $51.7 million, Canada up $23.2 million) and international up 14% due to higher activity post-COVID-19[153](index=153&type=chunk)[154](index=154&type=chunk) - Industrial Solutions revenues increased **41% to $194.0 million**, driven by a 129% increase in product sales ($37.6 million) and a 17% increase in rental and service revenues ($17.1 million), reflecting growth in power transmission and other industrial markets[157](index=157&type=chunk)[158](index=158&type=chunk) - Fluids Systems operating loss improved by **$47.4 million to $(19.0) million**, benefiting from revenue growth and cost reductions, despite $5.5 million in charges related to Hurricane Ida, facility exit, and severance[156](index=156&type=chunk) - Industrial Solutions operating income increased to **$39.7 million from $13.5 million**, primarily attributable to the segment's revenue growth[159](index=159&type=chunk) Operating Segment Performance (2021 vs. 2020) | (In thousands) | 2021 Revenues | 2020 Revenues | Change ($) | Change (%) | 2021 Op. Income (Loss) | 2020 Op. Income (Loss) | Change ($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Fluids Systems | $420,789 | $354,608 | $66,181 | 19 % | $(19,012) | $(66,403) | $47,391 | | Industrial Solutions | $193,992 | $138,017 | $55,975 | 41 % | $39,733 | $13,459 | $26,274 | | Corporate office | - | - | - | - | $(29,546) | $(25,690) | $(3,856) | | **Total** | **$614,781** | **$492,625** | **$122,156** | **25 %** | **$(8,825)** | **$(78,634)** | **$69,809** | [Financial Performance: 2020 vs. 2019](index=30&type=section&id=Year%20Ended%20December%2031%2C%202020%20Compared%20to%20Year%20Ended%20December%2031%2C%202019) [Consolidated Results of Operations (2020 vs. 2019)](index=30&type=section&id=Consolidated%20Results%20of%20Operations%202020%20vs%202019) - Revenues decreased **40% ($327.5 million)** in 2020, primarily due to a $263.8 million (43%) decrease in North America (52% reduction in rig count) and a $63.7 million (31%) decrease in international operations (COVID-19 and lower oil prices)[163](index=163&type=chunk) - Cost of revenues decreased 31% ($211.5 million) in line with the revenue decline, with 2020 including $14.1 million in charges (inventory write-downs, severance, facility exit) compared to $6.8 million in 2019[164](index=164&type=chunk) - Selling, general and administrative expenses decreased $26.8 million (24%) due to reduced personnel costs and lower legal spending, though as a percentage of revenues, it increased from 13.8% in 2019 to 17.6% in 2020[165](index=165&type=chunk) - The company recognized **$14.7 million in impairments and other charges** in 2020, including $11.7 million for foreign currency translation losses related to the Brazil subsidiary liquidation and $3.0 million for fixed asset abandonment[167](index=167&type=chunk) - The benefit for income taxes was $11.9 million in 2020, reflecting an effective tax benefit rate of 13%, primarily due to the Brazil liquidation charges and the geographic composition of pretax loss[171](index=171&type=chunk) Consolidated Results of Operations (2020 vs. 2019) | (In thousands) | 2020 | 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $492,625 | $820,119 | $(327,494) | (40)% | | Cost of revenues | $473,258 | $684,738 | $(211,480) | (31)% | | Selling, general and administrative expenses | $86,604 | $113,394 | $(26,790) | (24)% | | Operating income (loss) | $(78,634) | $10,395 | $(89,029) | NM | | Income (loss) before income taxes | $(92,579) | $(3,158) | $(89,421) | NM | | Net loss | $(80,696) | $(12,946) | $(67,750) | NM | [Operating Segment Results (2020 vs. 2019)](index=32&type=section&id=Operating%20Segment%20Results%202020%20vs%202019) - Fluids Systems revenues decreased **43% to $354.6 million**, with North America down 47% (U.S. land markets down $200.3 million due to a 54% decline in U.S. rig count) and international down 34% due to COVID-19 disruptions and lower oil prices[174](index=174&type=chunk)[175](index=175&type=chunk) - Industrial Solutions revenues decreased **31% to $138.0 million**, primarily due to a 29% decrease in rental and service revenues from E&P customers, partially offset by a $1.6 million increase from non-E&P markets[178](index=178&type=chunk) - Fluids Systems incurred an operating loss of **$(66.4) million**, a $70.2 million decline from 2019, primarily due to revenue decreases, despite cost reduction programs and including $28.6 million in charges[176](index=176&type=chunk)[177](index=177&type=chunk) - Industrial Solutions operating income decreased to **$13.5 million from $47.5 million**, mainly attributable to the change in revenues[179](index=179&type=chunk) Operating Segment Performance (2020 vs. 2019) | (In thousands) | 2020 Revenues | 2019 Revenues | Change ($) | Change (%) | 2020 Op. Income (Loss) | 2019 Op. Income (Loss) | Change ($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Fluids Systems | $354,608 | $620,317 | $(265,709) | (43)% | $(66,403) | $3,814 | $(70,217) | | Industrial Solutions | $138,017 | $199,802 | $(61,785) | (31)% | $13,459 | $47,466 | $(34,007) | | Corporate office | - | - | - | - | $(25,690) | $(40,885) | $15,195 | | **Total** | **$492,625** | **$820,119** | **$(327,494)** | **(40)%** | **$(78,634)** | **$10,395** | **$(89,029)** | [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) - Net cash used in operating activities was **$3.0 million in 2021**, a significant shift from $55.8 million provided in 2020, primarily due to a net increase in working capital driven by increased receivables from higher revenues[182](index=182&type=chunk) - Net cash used in investing activities was **$17.5 million in 2021**, including $21.8 million in capital expenditures (mostly for Industrial Solutions' mat rental fleet) and $13.4 million for the Lentzcaping acquisition, partially offset by $16.0 million from asset sales[183](index=183&type=chunk) - Net cash provided by financing activities was **$21.4 million in 2021**, primarily from $77.6 million in net borrowings on the ABL Facility and foreign lines of credit, and $8.1 million from a U.K. term loan, partially offset by $66.7 million for Convertible Notes repurchases and repayment[184](index=184&type=chunk) - The company expects available cash on-hand, cash generated by operations, and availability under the ABL Facility to be adequate to fund current operations for the next 12 months, with future capital expenditures focused on industrial end-market opportunities[186](index=186&type=chunk) [Capitalization Structure](index=35&type=section&id=Capitalization) Capitalization (Dec 31, 2021 vs. 2020) | (In thousands) | December 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Convertible Notes | $0 | $66,912 | | ABL Facility | $86,500 | $19,100 | | Other debt | $28,491 | $5,371 | | Unamortized discount and debt issuance costs | $(188) | $(4,221) | | **Total debt** | **$114,803** | **$87,162** | | Stockholders' equity | $462,386 | $488,032 | | **Total capitalization** | **$577,189** | **$575,194** | | Total debt to capitalization | 19.9 % | 15.2 % | [Asset-Based Loan Facility (ABL)](index=35&type=section&id=Asset-Based%20Loan%20Facility) - The ABL Facility provides financing of up to **$200.0 million** (inclusive of letters of credit), with a maximum capacity of $275.0 million, and terminates in March 2024[189](index=189&type=chunk)[298](index=298&type=chunk) - As of December 31, 2021, total availability under the ABL Facility was **$116.3 million**, with $86.5 million drawn and $28.7 million remaining[190](index=190&type=chunk)[299](index=299&type=chunk) - Borrowing availability is based on eligible U.S. accounts receivable, inventory, and composite mats, subject to maintaining a minimum consolidated fixed charge coverage ratio of 1.5 to 1.0 and at least $1.0 million of operating income for the Site and Access Solutions business[191](index=191&type=chunk)[302](index=302&type=chunk) [Other Debt Obligations](index=35&type=section&id=Other%20Debt) - In August 2021, the company completed sale-leaseback transactions for vehicles and equipment, resulting in **$7.9 million net proceeds** and $6.7 million in financing obligations outstanding at December 31, 2021, with a weighted average annual interest rate of 5.4%[194](index=194&type=chunk)[305](index=305&type=chunk) - A U.K. subsidiary entered a **£6.0 million (approximately $8.3 million) term loan facility** in February 2021, maturing in February 2024, with $6.1 million outstanding at December 31, 2021[195](index=195&type=chunk)[306](index=306&type=chunk) - Foreign subsidiaries maintain local credit arrangements, with **$11.8 million outstanding** at December 31, 2021, up from $3.5 million at December 31, 2020[196](index=196&type=chunk)[307](index=307&type=chunk) [Off-Balance Sheet Arrangements](index=36&type=section&id=Off-Balance%20Sheet%20Arrangements) - The company does not have any special purpose entities[197](index=197&type=chunk)[384](index=384&type=chunk) - As of December 31, 2021, the company had **$45.3 million in outstanding letters of credit**, performance bonds, and other guarantees, with certain letters of credit collateralized by $5.4 million in restricted cash[197](index=197&type=chunk)[384](index=384&type=chunk) - These off-balance sheet arrangements are not expected to have a material effect on the company's financial statements[197](index=197&type=chunk)[384](index=384&type=chunk) [Contractual Obligations and Commitments](index=37&type=section&id=Contractual%20Obligations) - Obligations due in less than one year are expected to be paid from available cash, cash generated by operations, and estimated availability under the ABL Facility and other existing financing arrangements[200](index=200&type=chunk) - The specific timing of settlement for certain long-term obligations, such as expected tax payments, asset retirement obligations, and uncertain tax positions, cannot be reasonably estimated[200](index=200&type=chunk) Summary of Contractual Obligations (Dec 31, 2021) | (In thousands) | 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | ABL Facility | $0 | $0 | $86,500 | $0 | $0 | $0 | $86,500 | | Other debt | $15,334 | $2,031 | $2,715 | $0 | $0 | $0 | $20,080 | | Financing obligation | $3,436 | $2,359 | $1,090 | $169 | $0 | $0 | $7,054 | | Finance lease liabilities | $722 | $587 | $325 | $156 | $2 | $0 | $1,792 | | Operating lease liabilities | $7,678 | $5,066 | $3,629 | $2,999 | $2,951 | $11,763 | $34,086 | | Trade accounts payable and accrued liabilities | $124,688 | $0 | $0 | $0 | $0 | $0 | $124,688 | | Other long-term liabilities | $0 | $1,680 | $1,651 | $0 | $0 | $7,013 | $10,344 | | Performance bond obligations | $9,356 | $7,754 | $16,941 | $566 | $0 | $1,727 | $36,344 | | Letter of credit commitments | $7,060 | $91 | $157 | $1,383 | $0 | $235 | $8,926 | | **Total contractual obligations** | **$168,274** | **$19,568** | **$113,008** | **$5,273** | **$2,953** | **$20,738** | **$329,814** | [Critical Accounting Policies and Estimates](index=38&type=section&id=Critical%20Accounting%20Policies) [Critical Accounting Estimates](index=38&type=section&id=Critical%20Accounting%20Estimates) - The preparation of financial statements requires management to make significant estimates and assumptions, including estimated cash flows and fair values for impairments of long-lived assets and valuation allowances for deferred tax assets[201](index=201&type=chunk)[246](index=246&type=chunk) - Actual results may differ materially from these estimates, which are based on historical experience and future expectations[201](index=201&type=chunk) [Impairment of Long-lived Assets](index=38&type=section&id=Impairment%20of%20Long-lived%20Assets) - Property, plant and equipment and finite-lived intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable, based on undiscounted future net cash flows[203](index=203&type=chunk)[256](index=256&type=chunk) - In December 2021, a review of Industrial Blending assets determined no impairment was required, but a subsequent plan to exit the business in February 2022 is expected to result in **$4 million to $8 million in pre-tax impairment charges in Q1 2022**[204](index=204&type=chunk)[207](index=207&type=chunk) - Goodwill, totaling **$47.3 million** at December 31, 2021 (all in Industrial Solutions), is tested annually as of November 1, with no impairment required in the 2021 annual review[209](index=209&type=chunk)[210](index=210&type=chunk)[288](index=288&type=chunk) - In 2019, an **$11.4 million non-cash impairment charge** was recognized to write-off all goodwill related to the Fluids Systems reporting unit due to declining drilling activities and market softness[167](index=167&type=chunk)[290](index=290&type=chunk) [Income Taxes](index=39&type=section&id=Income%20Taxes) - Deferred tax assets totaled **$70.2 million** at December 31, 2021, primarily related to U.S. federal net operating loss carryforwards[211](index=211&type=chunk)[327](index=327&type=chunk) - A valuation allowance of **$38.4 million** was established at December 31, 2021, primarily for net operating loss carryforwards in certain U.S. federal, state, and foreign jurisdictions, as well as foreign tax credits, due to uncertainty of realization[211](index=211&type=chunk)[328](index=328&type=chunk) - The company is subject to examination of its income tax returns by U.S. and foreign tax authorities and assesses potential exposure for uncertain tax positions[212](index=212&type=chunk)[213](index=213&type=chunk)[329](index=329&type=chunk)[330](index=330&type=chunk) [New Accounting Pronouncements](index=39&type=section&id=New%20Accounting%20Pronouncements) - Refer to Note 1 in Item 8, "Financial Statements and Supplementary Data" for a discussion of new accounting pronouncements[214](index=214&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=40&type=section&id=ITEM%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks from changes in interest rates and foreign currency exchange rates - The company is exposed to market risk from changes in interest rates and foreign currency exchange rates[216](index=216&type=chunk) [Interest Rate Risk](index=40&type=section&id=Interest%20Rate%20Risk) - At December 31, 2021, the company had **$115.0 million in total principal outstanding** under financing arrangements subject to variable interest rates, including $86.5 million from the ABL Facility and $6.0 million from a U.K. term loan[217](index=217&type=chunk) - The weighted average interest rate for the ABL Facility was **1.6%** and for the U.K. term loan was **3.4%** at December 31, 2021[217](index=217&type=chunk) - A **100 basis-point increase** in short-term interest rates would have increased annual pre-tax interest expense by **$0.9 million**, based on the variable rate debt balance at December 31, 2021[217](index=217&type=chunk) [Foreign Currency Risk](index=40&type=section&id=Foreign%20Currency%20Risk) - The company has foreign currency exchange risks associated with its principal foreign operations in EMEA, Canada, Asia Pacific, and Latin America, which are conducted in local currencies such as European euros, Canadian dollars, and British pounds[218](index=218&type=chunk) - Historically, the company has not used off-balance sheet financial hedging instruments to manage foreign currency risks[218](index=218&type=chunk) [Financial Statements and Supplementary Data](index=41&type=section&id=ITEM%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements and the independent auditor's report - The section includes the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Comprehensive Income (Loss), Consolidated Statements of Stockholders' Equity, Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements[421](index=421&type=chunk) [Report of Independent Registered Public Accounting Firm](index=41&type=section&id=REPORT%20OF%20INDEPENDENT%20REGISTERED%20PUBLIC%20ACCOUNTING%20FIRM) - Deloitte & Touche LLP issued an **unqualified opinion** on the consolidated financial statements for the years ended December 31, 2021, 2020, and 2019, stating they present fairly, in all material respects, the financial position and results of operations[222](index=222&type=chunk) - The firm also expressed an **unqualified opinion** on the effectiveness of the company's internal control over financial reporting as of December 31, 2021[223](index=223&type=chunk) - A critical audit matter identified was the evaluation of **long-lived asset impairment for the Industrial Blending asset group**, due to the materiality of property, plant and equipment and the complexity of management's assumptions for future cash flows[227](index=227&type=chunk)[228](index=228&type=chunk)[229](index=229&type=chunk) [Consolidated Financial Statements](index=43&type=section&id=Consolidated%20Financial%20Statements) Consolidated Balance Sheets (Dec 31, 2021 vs. 2020) | (In thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Total current assets | $388,512 | $328,180 | | Property, plant and equipment, net | $260,256 | $277,696 | | Goodwill | $47,283 | $42,444 | | Other intangible assets, net | $24,959 | $25,428 | | Total assets | $752,886 | $709,192 | | Total current liabilities | $150,392 | $153,658 | | Long-term debt, less current portion | $95,593 | $19,690 | | Total liabilities | $290,500 | $221,160 | | Total stockholders' equity | $462,386 | $488,032 | Consolidated Statements of Operations (Years Ended Dec 31) | (In thousands, except per share data) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Total revenues | $614,781 | $492,625 | $820,119 | | Operating income (loss) | $(8,825) | $(78,634) | $10,395 | | Net loss | $(25,526) | $(80,696) | $(12,946) | | Net loss per common share - basic | $(0.28) | $(0.89) | $(0.14) | | Net loss per common share - diluted | $(0.28) | $(0.89) | $(0.14) | Consolidated Statements of Cash Flows (Years Ended Dec 31) | (In thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(3,013) | $55,791 | $72,286 | | Net cash used in investing activities | $(17,475) | $(3,395) | $(49,764) | | Net cash provided by (used in) financing activities | $21,408 | $(77,941) | $(29,526) | | Cash, cash equivalents, and restricted cash at end of year | $29,489 | $30,348 | $56,863 | [Notes to Consolidated Financial Statements](index=48&type=section&id=NOTES%20TO%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) [Note 1: Summary of Significant Accounting Policies](index=48&type=section&id=Note%201%20%E2%80%94%20Summary%20of%20Significant%20Accounting%20Policies) - The company's financial statements are prepared in accordance with U.S. GAAP, requiring management to make significant estimates and assumptions, particularly for impairments of long-lived assets and deferred tax assets[246](index=246&type=chunk) - The company adopted new accounting guidance for credit losses as of January 1, 2020, resulting in a net reduction of **$0.7 million to opening retained earnings** to reflect the cumulative effect of adoption[249](index=249&type=chunk)[273](index=273&type=chunk) - The functional currency for substantially all international subsidiaries is their respective local currency, with foreign currency translation adjustments reflected in accumulated other comprehensive loss until liquidation[267](index=267&type=chunk) - The substantial liquidation of the Brazil subsidiary in the fourth quarter of 2020 resulted in an **$11.7 million non-cash charge** for the reclassification of cumulative foreign currency translation losses[136](index=136&type=chunk)[268](index=268&type=chunk) [Note 2: Business Combinations](index=52&type=section&id=Note%202%20%E2%80%94%20Business%20Combinations) - In December 2021, the company acquired certain assets and assumed liabilities of Lentzcaping, Inc. and Lentzcaping, LLC for **$13.5 million**, net of cash acquired, funded by the ABL Facility[277](index=277&type=chunk) - The Lentzcaping acquisition resulted in the recognition of **$3.3 million in other intangible assets** (customer relationships, tradename) and a $2.1 million intangible liability, with **$4.9 million recorded as goodwill**[278](index=278&type=chunk)[280](index=280&type=chunk) - In October 2019, the company acquired Cleansorb Limited, a U.K.-based provider of specialty chemicals, for **$18.7 million**, net of cash acquired, expanding its completion fluids technology portfolio[280](index=280&type=chunk) [Note 3: Inventories](index=53&type=section&id=Note%203%20%E2%80%94%20Inventories) - Raw materials for Fluids Systems primarily consist of barite, chemicals, and other additives, while Industrial Solutions raw materials include resins, chemicals for mats and cleaning products[283](index=283&type=chunk) - Fluids Systems segment cost of revenues for 2020 included **$10.3 million of charges for inventory write-downs**, primarily due to reductions in carrying values to net realizable value[284](index=284&type=chunk) Inventories (Dec 31, 2021 vs. 2020) | (In thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Raw materials: Fluids Systems | $119,242 | $98,974 | | Raw materials: Industrial Solutions | $4,939 | $6,315 | | Blended fluids systems components | $27,793 | $31,744 | | Finished goods — mats | $3,367 | $10,824 | | **Total inventories** | **$155,341** | **$147,857** | [Note 4: Property, Plant and Equipment](index=53&type=section&id=Note%204%20%E2%80%94%20Property%2C%20Plant%20and%20Equipment) - Depreciation expense was **$38.5 million in 2021**, $40.9 million in 2020, and $42.8 million in 2019[285](index=285&type=chunk) - The Fluids Systems segment included a **$3.0 million impairment charge in 2020**, attributable to the abandonment of certain property, plant and equipment[285](index=285&type=chunk) Property, Plant and Equipment, Net (Dec 31, 2021 vs. 2020) | (In thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Land | $11,820 | $11,901 | | Buildings and improvements | $118,395 | $122,961 | | Machinery and equipment | $282,258 | $285,678 | | Computer hardware and software | $48,389 | $46,801 | | Furniture and fixtures | $5,879 | $5,955 | | Construction in progress | $8,194 | $6,958 | | Less accumulated depreciation | $(287,046) | $(268,862) | | Composite mats (rental fleet) | $135,975 | $126,617 | | Less accumulated depreciation - composite mats | $(63,608) | $(60,313) | | **Property, plant and equipment, net** | **$260,256** | **$277,696** | [Note 5: Goodwill and Other Intangible Assets](index=54&type=section&id=Note%205%20%E2%80%94%20Goodwill%20and%20Other%20Intangible%20Assets) - The company completed its annual goodwill impairment evaluation as of November 1, 2021, and determined that **no impairment was required** for the Industrial Solutions segment[288](index=288&type=chunk)[289](index=289&type=chunk)[290](index=290&type=chunk) - In 2019, an **$11.4 million non-cash impairment charge** was recognized to write-off all goodwill related to the Fluids Systems reporting unit due to declining drilling activities and projected market softness[290](index=290&type=chunk) - Total amortization expense related to other intangible assets was **$3.7 million in 2021**, $4.5 million in 2020, and $4.4 million in 2019[292](index=292&type=chunk) Goodwill Carrying Amount by Segment (Dec 31) | (In thousands) | Fluids Systems | Industrial Solutions | Total | | :--- | :--- | :--- | :--- | | Balance at December 31, 2019 | $0 | $42,332 | $42,332 | | Effects of foreign currency | $0 | $112 | $112 | | Balance at December 31, 2020 | $0 | $42,444 | $42,444 | | Acquisition | $0 | $4,871 | $4,871 | | Effects of foreign currency | $0 | $(32) | $(32) | | **Balance at December 31, 2021** | **$0** | **$47,283** | **$47,283** | Other Intangible Assets, Net (Dec 31, 2021) | (In thousands) | Gross Carrying Amount | Accumulated Amortization | Other Intangible Assets, Net | | :--- | :--- | :--- | :--- | | Technology related | $20,315 | $(9,201) | $11,114 | | Customer related | $37,176 | $(23,843) | $13,333 | | Permits and licenses | $512 | $0 | $512 | | **Total intangible assets** | **$58,003** | **$(33,044)** | **$24,959** | [Note 6: Financing Arrangements](index=55&type=section&id=Note%206%20%E2%80%94%20Financing%20Arrangements) - The **$100.0 million Convertible Notes**, issued in December 2016, matured on December 1, 2021, with the remaining $38.6 million repaid at maturity[296](index=296&type=chunk)[297](index=297&type=chunk) - The ABL Facility, with a **$200.0 million capacity** and terminating in March 2024, had **$86.5 million drawn** and $28.7 million remaining availability as of December 31, 2021[298](index=298&type=chunk)[299](index=299&type=chunk) - Other debt includes $6.7 million in financing obligations from sale-leaseback transactions and a $6.1 million U.K. term loan outstanding at December 31, 2021[305](index=305&type=chunk)[306](index=306&type=chunk) Financing Arrangements (Dec 31, 2021 vs. 2020) | (In thousands) | 2021 Principal Amount | 2021 Total Debt | 2020 Principal Amount | 2020 Total Debt | | :--- | :--- | :--- | :--- | :--- | | Convertible Notes | $0 | $0 | $66,912 | $62,691 | | ABL Facility | $86,500 | $86,500 | $19,100 | $19,100 | | Term loan | $6,094 | $5,984 | $0 | $0 | | Financing obligation | $6,688 | $6,610 | $0 | $0 | | Other debt | $15,709 | $15,709 | $5,371 | $5,371 | | **Total debt** | **$114,991** | **$114,803** | **$91,383** | **$87,162** | [Note 7: Fair Value of Financial Instruments and Credit Risk](index=56&type=section&id=Note%207%20%E2%80%94%20Fair%20Value%20of%20Financial%20Instruments%20and%20Concentrations%20of%20Credit%20Risk) - The carrying values of most financial instruments, including cash, receivables, and payables, approximated their fair values at December 31, 2021 and 2020, with the exception of Convertible Notes at December 31, 2020, which had an estimated fair value of $61.1 million[309](index=309&type=chunk) - The company's financial instruments are subject to concentrations of credit risk, primarily from cash and trade accounts receivable, with a significant portion of revenues derived from customers in the energy industry[310](index=310&type=chunk)[311](index=311&type=chunk) - For 2021, **39% of consolidated revenues** came from the 20 largest customers, with no single customer accounting for more than 10% of consolidated revenues[311](index=311&type=chunk) Receivables, Net (Dec 31, 2021 vs. 2020) | (In thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Gross trade receivables | $185,065 | $133,717 | | Allowance for credit losses | $(4,587) | $(5,024) | | Net trade receivables | $180,478 | $128,693 | | Income tax receivables | $4,167 | $6,545 | | Other receivables | $9,651 | $5,807 | | **Total receivables, net** | **$194,296** | **$141,045** | Changes in Allowance for Credit Losses (2019-2021) | (In thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Balance at beginning of year | $5,024 | $6,007 | $10,034 | | Cumulative effect of accounting change | $0 | $959 | $0 | | Credit loss expense | $664 | $1,427 | $1,792 | | Write-offs, net of recoveries | $(1,101) | $(3,369) | $(5,819) | | **Balance at end of year** | **$4,587** | **$5,024** | **$6,007** | [Note 8: Leases](index=58&type=section&id=Note%208%20%E2%80%94%20Leases) - Total operating lease expenses were **$24.4 million in 2021**, $25.8 million in 2020, and $30.1 million in 2019[317](index=317&type=chunk) - The weighted-average remaining lease term for operating leases was **7.1 years** and for finance leases was **2.8 years** at December 31, 2021[320](index=320&type=chunk) Lease Assets and Liabilities (Dec 31, 2021 vs. 2020) | (In thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Operating lease assets | $27,569 | $30,969 | | Finance lease assets | $1,709 | $942 | | **Total lease assets** | **$29,278** | **$31,911** | | Current operating lease liabilities | $6,494 | $6,888 | | Current finance lease liabilities | $682 | $353 | | Noncurrent operating lease liabilities | $22,352 | $25,068 | | Noncurrent finance lease liabilities | $1,041 | $590 | | **Total lease liabilities** | **$30,569** | **$32,899** | Maturity of Lease Liabilities (Dec 31, 2021) | (In thousands) | Operating Leases | Finance Leases | Total | | :--- | :--- | :--- | :--- | | 2022 | $7,678 | $722 | $8,400 | | 2023 | $5,066 | $587 | $5,653 | | 2024 | $3,629 | $325 | $3,954 | | 2025 | $2,999 | $156 | $3,155 | | 2026 | $2,951 | $2 | $2,953 | | Thereafter | $11,763 | $0 | $11,763 | | **Total lease payments** | **$34,086** | **$1,792** | **$35,878** | [Note 9: Income Taxes](index=59&type=section&id=Note%209%20%E2%80%94%20Income%20Taxes) - The provision for income taxes was **$7.3 million in 2021 despite a pretax loss**, primarily due to earnings from international operations where U.S. loss tax benefits could not be recognized[322](index=322&type=chunk) - The company has U.S. federal net operating loss carryforwards of approximately **$100.9 million** that do not expire, and state NOLs of **$208.0 million**, with $147.8 million not expiring[327](index=327&type=chunk) - A valuation allowance of **$38.4 million** was recorded at December 31, 2021, primarily against certain U.S. federal, state, and foreign NOL carryforwards and foreign tax credits, as their realization is not more likely than not[328](index=328&type=chunk) Provision (Benefit) for Income Taxes (Years Ended Dec 31) | (In thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Current | $8,502 | $6,967 | $14,038 | | Deferred | $(1,209) | $(18,850) | $(4,250) | | **Total provision (benefit)** | **$7,293** | **$(11,883)** | **$9,788** | Deferred Tax Assets and Liabilities (Dec 31, 2021 vs. 2020) | (In thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Total deferred tax assets | $70,155 | $56,356 | | Valuation allowance | $(38,406) | $(26,250) | | **Total deferred tax assets, net of allowances** | **$31,749** | **$30,106** | | Total deferred tax liabilities | $(41,252) | $(41,768) | | **Total net deferred tax liabilities** | **$(9,503)** | **$(11,662)** | [Note 10: Capital Stock](index=63&type=section&id=Note%2010%20%E2%80%94%20Capital%20Stock) - As of December 31, 2021, **16,981,147 shares of common stock** were held as treasury stock[335](index=335&type=chunk) - The company's securities repurchase program, authorized for **$100.0 million**, had **$23.8 million remaining** as of December 31, 2021[338](index=338&type=chunk)[339](index=339&type=chunk) - During 2021, **$28.3 million of Convertible Notes were repurchased** under the program for $28.1 million; no common stock was repurchased under the program in 2021[340](index=340&type=chunk)[341](index=341&type=chunk) Common Stock Outstanding (In thousands of shares) | Year | Outstanding, beginning of year | Outstanding, end of year | | :--- | :--- | :--- | | 2019 | 106,363 | 106,697 | | 2020 | 106,697 | 107,588 | | 2021 | 107,588 | 109,331 | [Note 11: Earnings Per Share](index=64&type=section&id=Note%2011%20%E2%80%94%20Earnings%20Per%20Share) - All potentially dilutive stock options and restricted stock awards were excluded from diluted net loss per share calculations for 2021, 2020, and 2019 because their inclusion would have been **anti-dilutive** due to the net losses incurred[344](index=344&type=chunk) Net Loss Per Common Share (Years Ended Dec 31) | (In thousands, except per share data) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net loss - basic and diluted | $(25,526) | $(80,696) | $(12,946) | | Weighted average common shares outstanding - basic | 91,460 | 90,198 | 89,782 | | Weighted average common shares outstanding - diluted | 91,460 | 90,198 | 89,782 | | **Net loss per common share - basic** | **$(0.28)** | **$(0.89)** | **$(0.14)** | | **Net loss per common share - diluted** | **$(0.28)** | **$(0.89)** | **$(0.14)** | [Note 12: Stock-Based Compensation and Other Benefit Plans](index=64&type=section&id=Note%2012%20%E2%80%94%20Stock-Based%20Compensation%20and%20Other%20Benefit%20Plans) - The 2014 Non-Employee Directors' Restricted Stock Plan and the 2015 Employee Equity Incentive Plan authorize various equity-based compensation grants, with 146,527 and 1,673,140 shares remaining available for grant, respectively, at December 31, 2021[346](index=346&type=chunk)[348](index=348&type=chunk) - Total compensation cost recognized for restricted stock awards and units was **$7.7 million in 2021**, $6.3 million in 2020, and $9.8 million in 2019, with **$8.7 million in unrecognized cost remaining** at December 31, 2021[357](index=357&type=chunk) - Cash-based awards, including time-based and performance-based awards, resulted in a total liability of **$5.7 million** at December 31, 2021, up from $4.0 million in 2020[358](index=358&type=chunk)[362](index=362&type=chunk) - Company cash contributions to the 401(k) Plan were **$2.2 million in 2021**, $1.2 million in 2020, and $4.3 million in 2019, with matching contributions temporarily eliminated in April 2020 and reinstituted in Q2 2021[363](index=363&type=chunk) [Note 13: Segment and Related Information](index=67&type=section&id=Note%2013%20%E2%80%94%20Segment%20and%20Related%20Information) - In 2021, the Fluids Systems segment incurred **$5.5 million in hurricane-related, facility exit, and severance costs**, partially offset by a $0.8 million gain from an insurance settlement[369](index=369&type=chunk) - In 2020, the company recognized **$29.2 million in total charges**, primarily related to the Brazil exit, inventory write-downs, severance costs, and fixed asset impairments, with $28.6 million in the Fluids Systems segment[374](index=374&type=chunk) Summarized Financial Information by Segment (Years Ended Dec 31) | (In thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | **Revenues:** | | | | | Fluids Systems | $420,789 | $354,608 | $620,317 | | Industrial Solutions | $193,992 | $138,017 | $199,802 | | **Total revenues** | **$614,781** | **$492,625** | **$820,119** | | **Operating income (loss):** | | | | | Fluids Systems | $(19,012) | $(66,403) | $3,814 | | Industrial Solutions | $39,733 | $13,459 | $47,466 | | Corporate office | $(29,546) | $(25,690) | $(40,885) | | **Total operating income (loss)** | **$(8,825)** | **$(78,634)** | **$10,395** | | **Capital expenditures:** | | | | | Fluids Systems | $3,644 | $6,237 | $18,416 | | Industrial Solutions | $17,402 | $7,831 | $23,535 | | Corporate office | $747 | $1,726 | $2,855 | | **Total capital expenditures** | **$21,793** | **$15,794** | **$44,806** | Revenues by Geographic Location (Years Ended Dec 31) | (In thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | United States | $402,246 | $327,598 | $578,698 | | Canada | $48,007 | $24,762 | $37,496 | | EMEA | $151,228 | $128,362 | $183,124 | | Asia Pacific | $7,629 | $6,561 | $15,273 | | Latin America | $5,671 | $5,342 | $5,528 | | **Total revenues** | **$614,781** | **$492,625** | **$820,119** | [Note 14: Supplemental Cash Flow and Other Information](index=70&type=section&id=Note%2014%20%E2%80%94%20Supplemental%20Cash%20Flow%20and%20Other%20Information) - Accruals for employee incentives and other compensation-related expenses were **$23.1 million** at December 31, 2021, compared to $16.4 million at December 31, 2020[381](index=381&type=chunk) Cash Paid for Income Taxes and Interest (Years Ended Dec 31) | (in thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Income taxes (net of refunds) | $6,912 | $6,350 | $12,165 | | Interest | $5,339 | $6,054 | $8,718 | Cash, Cash Equivalents, and Restricted Cash (Dec 31) | (in thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $24,088 | $24,197 | $48,672 | | Restricted cash | $5,401 | $6,151 | $8,191 | | **Total** | **$29,489** | **$30,348** | **$56,863** | [Note 15: Commitments and Contingencies](index=71&type=section&id=Note%2015%20%E2%80%94%20Commitments%20and%20Contingencies) - The company is involved in litigation and other claims in the ordinary course of business, but management does not expect any material adverse impact on consolidated financial statements beyond amounts accrued or covered by insurance[383](index=383&type=chunk) - As of December 31, 2021, the company had **$45.3 million in outstanding letters of credit**, performance bonds, and other guarantees, with $5.4 million in restricted cash collateralizing certain letters of credit[384](index=384&type=chunk) - The company is self-insured for health claims (up to $250,000 per incident) and for certain workers' compensation, auto, and general liability claims (up to $750,000), maintaining accrued liabilities for the uninsured portions[385](index=385&type=chunk) - Accrued asset retirement obligations were **$1.1 million** at December 31, 2021, primarily related to required expenditures for owned and leased facilities[386](index=386&type=chunk) [Note 16: Subsequent Events](index=71&type=section&id=Note%2016%20%E2%80%94%20Subsequent%20Events) - In January 2022, the company completed the restructuring of certain international subsidiary legal entities in Europe, expecting to recognize an income tax benefit of approximately **$3 million in Q1 2022**[387](index=387&type=chunk) - In February 2022, management approved a plan to exit Industrial Blending operations by Q2 2022 and sell related assets, expecting pre-tax impairment charges of **$4 million to $8 million in Q1 2022**[389](index=389&type=chunk) - The Board of Directors also approved management's plan to explore strategic options for the U.S. mineral grinding business, which contributed **$36 million in third-party revenues in 2021**[390](index=390&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=72&type=section&id=ITEM%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) There are no changes in or disagreements with accountants on accounting and financial disclosure to report - There are no changes in and disagreements with accountants on accounting and financial disclosure[391](index=391&type=chunk) [Controls and Procedures](index=72&type=section&id=ITEM%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of year-end - Management, with the participation of the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of December 31, 2021, and concluded they were effective[392](index=392&type=chunk) - There were no changes in internal control over financial reporting during the quarter ended December 31, 2021, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[393](index=393&type=chunk) - Management concluded that internal control over financial reporting was effective as of December 31, 2021, based on criteria set forth by COSO, and this effectiveness was audited by Deloitte & Touche LLP, who issued an unqualified opinion[396](index=396&type=chunk)[397](index=397&type=chunk)[400](index=400&type=chunk) [Evaluation of Disclosure Controls and Procedures](index=72&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - The Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the company's disclosure controls and procedures as of December 31, 2021, and concluded they were effective[392](index=392&type=chunk) [Changes in Internal Control Over Financial Reporting](index=72&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) - There were no changes in the company's internal control over financial reporting during the quarter ended December 31, 2021, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[393](index=393&type=chunk) [Management's Report on Internal Control Over Financial Reporting](index=72&type=section&id=Management's%20Report%20on%20Internal%20Control%20Over%20Financial%20Reporting) - Management is responsible for establishing and maintaining adequate internal control over financial reporting, designed to provide reasonable assurance regarding the reliability of financial reporting[394](index=394&type=chunk) - Based on an evaluation using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2021[396](index=396&type=chunk) - The effectiveness of internal control over financial reporting as of December 31, 2021, was audited by Deloitte & Touche LLP, who issued an unqualified opinion[397](index=397&type=chunk)[400](index

Financial Data and Key Metrics Changes - Consolidated revenues increased 18% sequentially to $180 million in Q4 2021, with reported EBITDA of $10.5 million, including $1.8 million of charges [26][44] - The reported net loss in Q4 was $0.04 per share, an improvement from a net loss of $0.11 per share in Q3 and a loss of $0.20 per share in Q4 of the previous year [45] - Cash flow from operating activities was a net cash usage of $17 million, primarily due to a $35 million increase in receivables [46] Business Line Data and Key Metrics Changes - The industrial solutions segment generated $52 million in revenues for Q4, reflecting an 18% sequential improvement, with $14 million of EBITDA [27][30] - Fluid systems segment revenues improved 18% sequentially to $128 million, with U.S. land revenues increasing 21% to $62 million [28][35] - International revenues for fluid systems increased 21% sequentially to $45 million, driven by activities in North Africa [28][39] Market Data and Key Metrics Changes - North American land revenues improved by 21% sequentially, significantly outpacing the 13% improvement in market rig count [35] - Canadian revenues increased 21% sequentially to $70 million, with operations not experiencing the typical slowdown during the holiday season [36] - International revenues returned to the upper-$40 million range in Q1 2022, aligning with pre-COVID levels [56] Company Strategy and Development Direction - The company aims to reshape its fluids business into a more agile and capital-light model, focusing on higher returning growth markets [10][12] - Expansion into sustainable technology and service solutions is a priority, leveraging existing manufacturing capabilities [11][15] - The company is pursuing strategic options for its mineral grinding business to unlock liquidity for higher returning opportunities [22][24] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the improving outlook for 2022 and the strength of long-term fundamentals across major energy sectors [50] - The industrial solutions segment is expected to see sequential growth in rental and service revenues in Q1 and Q2 2022 [51] - The fluid systems segment is anticipated to remain profitable, with modest revenue growth expected in Q1 [54] Other Important Information - Corporate office expenses increased to $9.3 million in Q4, primarily due to elevated incentive expenses and legal costs [40] - The company ended the year with a total debt balance of $115 million and a cash balance of $24 million, resulting in a 20% debt to capital ratio [48][49] - The company plans to maintain a capital-light model, with limited capital investments in the fluids business [59] Q&A Session Summary Question: Expansion of manufacturing beyond core matting - Management indicated that the expansion relates to repurposing and recycling post-industrial materials, with further updates to come [66][67] Question: Outlook for mat sales - Management noted that timing slips in international markets are pushing some sales from Q1 to Q2, but project flow remains typical [68][69] Question: Exiting the mineral grinding business - Management emphasized the importance of protecting existing businesses with supply agreements during the exit process [70][71] Question: Drill ship mechanical issues - Management confirmed that the issues have been corrected and normal activity is expected to resume in February [78] Question: North American fluids market growth - Management stated that early Q1 activity levels are consistent with expectations, with an increase in activity anticipated [80][81] Question: M&A expenses in Q4 - Management clarified that expenses were related to the acquisition in the mats business and the joint venture in Saudi Arabia [84]

Financial Data and Key Metrics Changes - Consolidated revenues improved 7% sequentially to $152 million, including an 11% improvement in Fluids Systems [7][10] - Consolidated third quarter EBITDA generation was $4 million, which includes $4 million of charges associated with Hurricane Ida and restructuring costs [7][10] - Reported net loss in the third quarter was $0.11 per share, compared to a net loss of $0.07 per share in the second quarter [21][22] Business Line Data and Key Metrics Changes - Industrial Solutions segment revenues declined 3% sequentially to $44 million, with a $5 million decline in rental and service revenues offset by a $4 million increase in product sales [12][14] - Fluids Systems segment revenues improved 11% sequentially to $108 million, primarily driven by improvements in Canada and other international markets [15][16] - Year-to-date site access revenues from power transmission and other industrial markets reached $108 million, on pace for nearly $115 million for the full year, a 25% improvement from the previous high mark [9] Market Data and Key Metrics Changes - U.S. revenues in Fluids Systems remained in line with prior quarter, with modest improvements in land activity offset by a $2 million weather-related decline in the Gulf of Mexico [10][15] - International revenues improved 6% sequentially to $37 million, with expansion in Asia Pacific being the primary driver [10][16] - North America land revenues nearly doubled year-over-year, while Gulf of Mexico revenues decreased modestly [17] Company Strategy and Development Direction - The company is focused on reshaping its U.S. Fluids business and expanding its presence in the power transmission market [7][9] - There is an ongoing effort to rationalize inventories and streamline the organization in response to smaller market structures [59] - The company plans to resume returning value to shareholders in 2022 through share repurchases after addressing capital needs for growth [39][66] Management's Comments on Operating Environment and Future Outlook - Management remains encouraged by improving market dynamics in the oil and gas sector despite ongoing challenges from inflationary pressures and supply chain issues [27][28] - The company anticipates continued strength in the longer-term fundamentals across all major energy sectors, with expectations for revenue growth in 2022 [36][38] - Management highlighted the importance of maintaining a commitment to safety and compliance while focusing on innovation and sustainable products [48][49] Other Important Information - SG&A costs were $24 million in the third quarter, reflecting a $1 million increase from the prior quarter [18][19] - The company ended the third quarter with a total debt balance of $94 million and a cash balance of $31 million, resulting in a modest 17% debt-to-capital ratio [25][26] - The CEO announced plans to retire, with Matthew Lanigan set to succeed him, emphasizing continuity in leadership and strategy [41][42] Q&A Session Summary Question: Update on restructuring efforts in the U.S. Fluids business - Management is rationalizing inventories and streamlining the organization to adapt to smaller market structures [59] Question: Outlook for 2022 regarding power transmission and industrial markets - There is significant investment in grid resilience and renewables, which serves as a tailwind, while supply chain issues present headwinds [60][64] Question: Plans for share repurchases post-convertible bond maturity - The company plans to utilize free cash flow for share repurchases while also considering capital investments for growth [66]

PART I FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=ITEM%201.%20Financial%20Statements) The company's unaudited financials show increased assets, improved net loss, and positive operating cash flow for the period [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets grew slightly to $721.1 million, while stockholders' equity decreased to $465.7 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Total current assets** | $359,869 | $328,180 | | **Total assets** | $721,112 | $709,192 | | **Total current liabilities** | $136,178 | $153,658 | | **Long-term debt** | $71,869 | $19,690 | | **Total liabilities** | $255,399 | $221,160 | | **Total stockholders' equity** | $465,713 | $488,032 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Revenue growth in Q3 and the first nine months of 2021 led to significantly reduced operating and net losses year-over-year Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | **Revenues** | $151,797 | $96,424 | $435,218 | $362,920 | | **Operating loss** | $(6,063) | $(25,692) | $(8,766) | $(62,117) | | **Net loss** | $(10,485) | $(23,870) | $(21,845) | $(62,262) | | **Net loss per share - diluted** | $(0.11) | $(0.26) | $(0.24) | $(0.69) | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations was $13.7 million, a decrease from the prior year, with cash used for investments and provided by financing Cash Flow Summary for Nine Months Ended September 30 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $13,670 | $40,293 | | **Net cash used in investing activities** | $(7,288) | $(4,112) | | **Net cash provided by (used in) financing activities** | $1,817 | $(60,880) | | **Net increase (decrease) in cash** | $6,850 | $(26,509) | [Notes to Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) The company operates through Fluids Systems and Industrial Solutions segments, with the latter driving significant revenue growth - The company operates through two reportable segments: Fluids Systems, serving E&P customers, and Industrial Solutions, which provides matting systems and industrial blending services to diverse markets like power transmission, E&P, and renewable energy[23](index=23&type=chunk) - As of September 30, 2021, the company had **$38.6 million principal of Convertible Notes outstanding**, maturing December 1, 2021, which it intends to settle using its ABL Facility[38](index=38&type=chunk)[42](index=42&type=chunk) - In Q3 2021, the Fluids Systems segment incurred **$2.6 million in hurricane-related costs** from Hurricane Ida impacting its Fourchon, Louisiana facility[61](index=61&type=chunk) Segment Revenues and Operating Income (Loss) for Nine Months Ended Sep 30 (in thousands) | Segment | Revenues 2021 | Revenues 2020 | Operating Income (Loss) 2021 | Operating Income (Loss) 2020 | | :--- | :--- | :--- | :--- | :--- | | **Fluids Systems** | $292,897 | $275,178 | $(19,944) | $(46,284) | | **Industrial Solutions** | $142,321 | $87,742 | $31,376 | $3,928 | | **Corporate office** | N/A | N/A | $(20,198) | $(19,761) | | **Total** | $435,218 | $362,920 | $(8,766) | $(62,117) | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Improved results are attributed to market recovery, with strong performance in the Industrial Solutions segment driving profitability [Overview](index=18&type=section&id=Overview) The company's strategy focuses on end-market diversification amid a recovering market, following significant 2020 cost reductions - The company's long-term strategy focuses on end-market diversification away from the volatile E&P industry and providing environmentally sustainable products like the DURA-BASE® matting system and Evolution® water-based fluids[68](index=68&type=chunk) - In response to the 2020 market downturn, the company implemented cost reduction programs, recognizing **$18.0 million in charges** in the first nine months of 2020[72](index=72&type=chunk) North American Rig Count Comparison | Period | 2021 | 2020 | Change (%) | | :--- | :--- | :--- | :--- | | **Q3 Average** | 647 | 301 | 115% | | **Nine Months Average** | 565 | 566 | 0% | [Results of Operations - Third Quarter 2021 vs 2020](index=21&type=section&id=Results%20of%20Operations%20-%20Third%20Quarter%202021%20vs%202020) Consolidated revenues increased 57% in Q3 2021, significantly narrowing the operating loss, led by the Industrial Solutions segment - The Industrial Solutions segment's Q3 revenue grew **53% year-over-year**, driven by a **141% increase in product sales** and a **22% increase in rental and service revenues** as projects delayed by COVID-19 resumed[95](index=95&type=chunk) Consolidated Results - Q3 2021 vs Q3 2020 (in thousands) | Metric | Q3 2021 | Q3 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Revenues** | $151,797 | $96,424 | $55,373 | 57% | | **Operating loss** | $(6,063) | $(25,692) | $19,629 | 76% | | **Net loss** | $(10,485) | $(23,870) | $13,385 | 56% | Segment Operating Results - Q3 2021 vs Q3 2020 (in thousands) | Segment | Revenues 2021 | Revenues 2020 | Operating Income (Loss) 2021 | Operating Income (Loss) 2020 | | :--- | :--- | :--- | :--- | :--- | | **Fluids Systems** | $107,955 | $67,711 | $(6,646) | $(18,957) | | **Industrial Solutions** | $43,842 | $28,713 | $8,103 | $(139) | [Results of Operations - First Nine Months 2021 vs 2020](index=25&type=section&id=Results%20of%20Operations%20-%20First%20Nine%20Months%202021%20vs%202020) For the first nine months, revenues grew 20% and the operating loss narrowed substantially, driven by Industrial Solutions' profitability - The Industrial Solutions segment's revenue for the first nine months **grew 62% year-over-year**, with product sales up **192%** and rental/service revenues up **24%**[114](index=114&type=chunk) Consolidated Results - First Nine Months 2021 vs 2020 (in thousands) | Metric | Nine Months 2021 | Nine Months 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Revenues** | $435,218 | $362,920 | $72,298 | 20% | | **Operating loss** | $(8,766) | $(62,117) | $53,351 | 86% | | **Net loss** | $(21,845) | $(62,262) | $40,417 | 65% | Segment Operating Results - First Nine Months 2021 vs 2020 (in thousands) | Segment | Revenues 2021 | Revenues 2020 | Operating Income (Loss) 2021 | Operating Income (Loss) 2020 | | :--- | :--- | :--- | :--- | :--- | | **Fluids Systems** | $292,897 | $275,178 | $(19,944) | $(46,284) | | **Industrial Solutions** | $142,321 | $87,742 | $31,376 | $3,928 | [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains adequate liquidity with $13.7 million in operating cash flow and plans to repay its Convertible Notes in December - Net cash from operations was **$13.7 million** for the first nine months of 2021, with capital expenditures of **$19.1 million** directed mainly to the Industrial Solutions segment[119](index=119&type=chunk)[120](index=120&type=chunk) - The company plans to repay its Convertible Notes at maturity in December 2021 using its ABL Facility, which had **$41.7 million of remaining availability**[122](index=122&type=chunk)[129](index=129&type=chunk) Capitalization Summary (in thousands) | Component | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Total debt** | $93,744 | $87,162 | | **Stockholders' equity** | $465,713 | $488,032 | | **Total capitalization** | $559,457 | $575,194 | | **Total debt to capitalization** | 16.8% | 15.2% | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to interest rate risk on its variable-rate debt and foreign currency exchange risk from international operations - The company has interest rate risk on its variable-rate debt; a **1% increase in rates** would increase annual pre-tax interest expense by approximately **$0.3 million**[142](index=142&type=chunk) - The company faces foreign currency exchange risk from its operations in EMEA, Canada, Asia Pacific, and Latin America, but does not use financial hedging instruments[143](index=143&type=chunk) [Item 4. Controls and Procedures](index=32&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were **effective as of September 30, 2021**[144](index=144&type=chunk) - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[145](index=145&type=chunk) PART II OTHER INFORMATION [Item 1. Legal Proceedings](index=33&type=section&id=ITEM%201.%20Legal%20Proceedings) Ongoing legal proceedings are not expected to have a material adverse impact on the company's consolidated financial statements - Management believes that any potential losses from ongoing litigation, beyond amounts accrued or covered by insurance, will not materially and adversely impact the company's financial statements[147](index=147&type=chunk) [Item 1A. Risk Factors](index=33&type=section&id=ITEM%201A.%20Risk%20Factors) The company faces significant risks from supply chain disruptions and price volatility for key raw materials like HDPE and barite - The company faces risks from supply chain disruptions and price increases for essential raw materials, which could adversely affect operations if costs cannot be passed on to customers[149](index=149&type=chunk) - The Industrial Solutions business depends on high-density polyethylene (HDPE), and the Fluids Systems business depends on barite from foreign sources like China and India[150](index=150&type=chunk)[151](index=151&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=33&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased $10.0 million of its Convertible Notes in Q3 2021, with $23.8 million remaining under its repurchase program - In Q3 2021, the company repurchased **$10.0 million of its Convertible Notes** for a total cost of $10.0 million[155](index=155&type=chunk) - As of September 30, 2021, the company had **$23.8 million remaining** under its $100.0 million securities repurchase program[154](index=154&type=chunk) [Item 6. Exhibits](index=35&type=section&id=ITEM%206.%20Exhibits) This section lists exhibits filed with the report, including management certifications and interactive data files - The report includes several exhibits, such as amendments to employment agreements, certifications pursuant to the Sarbanes-Oxley Act, and interactive data files (XBRL)[160](index=160&type=chunk)[161](index=161&type=chunk)

Financial Data and Key Metrics Changes - Consolidated revenues improved 1% sequentially to $142 million, with a 28% increase in international Fluid Systems and a 15% improvement in Industrial Solutions rental and service revenues [6][9][15] - Second quarter EBITDA generation was $7 million [6] - Net loss in the second quarter was $0.07 per share, compared to a net loss of $0.06 per share in the first quarter and a net loss of $0.29 per share in the second quarter of the previous year [20] Business Line Data and Key Metrics Changes - Industrial Solutions segment revenues declined 15% sequentially to $45 million, with rental and service revenues improving 15% sequentially to $33 million [7][13] - Fluids Systems segment revenues improved 11% sequentially to $97 million, with U.S. land revenues increasing 24% sequentially [9][15] - International revenues in the Fluids segment improved 28% sequentially to $35 million, benefiting from project start-ups [9][15] Market Data and Key Metrics Changes - U.S. land revenues increased by $21 million or 74% year-over-year, significantly outpacing the 16% increase in market rig count [17] - International revenues improved $6 million or 22% year-over-year, benefiting from new project startups and recovery in several European markets [17] Company Strategy and Development Direction - The company is focused on expanding and diversifying the Industrial Solutions business, particularly in the power transmission market, which contributed 35% of first half revenues [30][32] - The company aims to reshape its cost structure to generate profitable growth and provide an acceptable return on capital [11][29] - The company is optimistic about the long-term market fundamentals in key industries, despite ongoing challenges such as cost inflation and COVID variants [29][30] Management's Comments on Operating Environment and Future Outlook - Management expressed encouragement regarding the improving longer-term fundamentals in both business segments, while acknowledging significant inflationary pressures on raw materials and transportation [23][29] - The company expects Q3 revenues for the Industrial Solutions segment to pull back modestly to roughly $40 million, with operating margins declining into the low to mid-teens [25] - In Fluids Systems, international markets are expected to recover through the second half of 2021, with revenues anticipated to grow by a low-teens percentage in Q3 [26] Other Important Information - SG&A costs were $23 million in the second quarter, reflecting a $2 million increase from both the prior quarter and the second quarter of last year [18] - The company ended the second quarter with a total debt balance of $78 million and a cash balance of $35 million, resulting in a modest 14% debt-to-capital ratio [22] Q&A Session Summary Question: Can you help me better understand the unfavorable sales mix in the U.S. market? - Management noted an unusually high amount of liquid oil-based mud in the product mix, which is expected to normalize in Q3, negatively impacting margins [36] Question: Is breakeven EBITDA possible in Fluids in Q3? - Management indicated that top line growth should be enough to achieve EBITDA positive in Q3, with a return to positive income expected in Q4 [40] Question: Where is cost inflation most acute? - Management highlighted that raw material price increases and transportation costs are significant challenges, with proactive discussions ongoing to pass costs onto customers [41][43] Question: Looking to 2022, is there reason to expect continued growth in the utility sector? - Management expressed confidence in structural growth in the utility sector, driven by energy transition trends [46] Question: What was the CapEx designated for in Q1, and what is the outlook for future CapEx? - Management clarified that Q1 CapEx was heavily concentrated in the mat business to meet demand, but expects limited CapEx in the near term [49] Question: Can you provide an update on completion and stimulation fluid penetration efforts? - Management reported solid progress in stimulation fluids, with successful trials and expanding customer footprints in various regions [50][52]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number: 001-02960 Newpark Resources, Inc. (Exact name of registrant as specified in its charter) Delaware 72-1123385 (State or ot ...