Newpark Resources(NR) - 2022 Q4 - Annual Report

Part I Business Newpark Resources operates through Industrial Solutions and Fluids Systems, with Industrial Solutions driving profitability, focusing on energy transition and sustainable products - The company operates through two main reportable segments: Industrial Solutions and Fluids Systems. A third segment, Industrial Blending, was exited in 2022[21] - The Industrial Solutions segment provides temporary worksite access solutions, primarily through the rental and sale of recyclable composite matting systems. Key markets include power transmission, E&P, and renewable energy[22] - The Fluids Systems segment supplies drilling, completion, and stimulation fluids for oil, natural gas, and geothermal projects globally. In Q4 2022, the company exited its U.S. mineral grinding business and Gulf of Mexico fluids operations within this segment[23] - The company's long-term strategy emphasizes expansion in energy transition end-markets (like power transmission and geothermal), providing environmentally sustainable products (e.g., recyclable DURA-BASE® mats and water-based fluids), and returning capital to shareholders through share repurchases[31][32] - As of December 31, 2022, the company employed approximately 1,540 personnel across more than 20 countries, with over half residing outside the United States. None of the employees are represented by labor unions[45] Risk Factors The company faces significant risks tied to the volatile oil and natural gas industry, impacting revenue, alongside operational, financial, and regulatory challenges - A significant portion of revenues comes from the oil and natural gas industry, making the company vulnerable to reduced customer spending, which is influenced by energy prices, hydrocarbon demand, and regulatory developments[51] - International operations, which generated 34% of 2022 consolidated revenues, are subject to risks including complex foreign laws, political instability, currency fluctuations, and trade barriers. Algeria is noted as a significant international market, representing 7% of 2022 revenues and holding 24% of the total cash balance[68][69] - The business is dependent on the availability and price of key raw materials. The Industrial Solutions segment relies on high-density polyethylene (HDPE), while the Fluids Systems segment depends on barite. Both have experienced cost increases and potential supply constraints[80][81][82] - The company's Amended ABL Facility has covenants that, if breached, could lead to default and acceleration of debt. Compliance depends on generating sufficient cash flow, which is subject to industry volatility[100][103] - Environmental laws and regulations, particularly those related to climate change and greenhouse gas emissions, could increase costs or reduce demand for fossil fuels, adversely affecting customer activity and demand for the company's products and services[105][106] - Strategic divestitures completed in 2022, including the Excalibar U.S. mineral grinding business and Gulf of Mexico operations, carry risks such as operational difficulties, disputes with purchasers, and potential negative impacts on future cash flows if remaining businesses underperform[121][123][124] Unresolved Staff Comments The company reports that it has no unresolved staff comments - None[130] Properties The company owns and leases various global facilities, including key owned properties in Katy, Texas, and Carencro, Louisiana - The company owns a facility in Katy, Texas, which houses division headquarters, a technology center for the Fluids Systems segment, and is partially leased to third parties[131] - The Industrial Solutions segment owns a 93,000 sq. ft. manufacturing and technology facility on 34 acres in Carencro, Louisiana[133] - Following the exit from Gulf of Mexico operations in Q4 2022, the company entered into a seven-year sublease for its drilling fluids shorebase and blending facility in Fourchon, Louisiana[132] Legal Proceedings The company is involved in ordinary course litigation, with management expecting no material adverse impact on financial statements - The company is involved in litigation from private party actions and governmental proceedings in the ordinary course of business[135] - Management does not expect any loss from litigation, beyond amounts accrued or covered by insurance, to have a material adverse impact on the company's financial statements[135] Mine Safety Disclosures Mine safety disclosures, as required by the Dodd-Frank Act, are included in Exhibit 95.1 of the Annual Report - Required mine safety disclosures are provided in Exhibit 95.1 of this Form 10-K[136] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the NYSE under "NR", with no dividends paid or planned, and significant share repurchases in Q4 2022 - The company's common stock is traded on the New York Stock Exchange under the symbol "NR"[139] - The company has not paid dividends in the last three fiscal years and does not intend to pay cash dividends in the foreseeable future. The Amended ABL Facility also limits dividend payments[140] Share Repurchases (Q4 2022) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | October 2022 | — | $ — | | November 2022 | 1,632,078 | $ 3.96 | | December 2022 | 2,807,024 | $ 3.94 | | Total Q4 2022 | 4,439,102 | | - In Q4 2022, the company repurchased 4,437,885 shares for $17.5 million under its repurchase program, leaving $6.2 million available as of year-end. In February 2023, the Board increased the repurchase authorization to $50.0 million[144] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2022, consolidated revenues increased 33% to $815.6 million, driven by Fluids Systems, while operating loss was impacted by $37.3 million in impairment charges from strategic exits Results of Operations For 2022, revenues grew 33% to $815.6 million, primarily from Fluids Systems, while the consolidated operating loss was stable at $9.0 million due to impairment charges Consolidated Revenues and Operating Income (Loss) (In thousands) | (In thousands) | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $815,594 | $614,781 | 33% | | Fluids Systems | $622,601 | $420,789 | 48% | | Industrial Solutions | $192,993 | $185,171 | 4% | | Operating income (loss) | ($9,034) | ($8,825) | (2)% | | Fluids Systems | ($15,566) | ($19,012) | 18% | | Industrial Solutions | $43,899 | $42,117 | 4% | - The 2022 operating loss includes $37.3 million in impairment charges related to the exit of the Gulf of Mexico operations ($29.4 million) and the Industrial Blending segment ($7.9 million)[175] - Fluids Systems North America revenue increased 51% in 2022, driven by a 52% increase in the U.S. rig count. International revenue grew 42%, reflecting recovery from prior-year COVID-19 disruptions[182][183] - Industrial Solutions rental and service revenues increased 13% in 2022 due to market penetration in the power transmission sector, while product sales decreased 12% from a strong 2021[185] Liquidity and Capital Resources The company's liquidity is primarily from its $175 million ABL facility, with net cash used in operations due to working capital increases, offset by significant divestiture proceeds - Net cash used in operating activities was $25.0 million in 2022, compared to $3.0 million in 2021, primarily due to a $79.1 million use of cash for working capital to support revenue growth[211] - Net cash provided by investing activities was $46.2 million in 2022, mainly from $71.3 million in proceeds from divestitures. Capital expenditures were $28.3 million, with 83% directed to the Industrial Solutions segment[212][151] - Net cash used in financing activities was $24.9 million in 2022, which included $17.6 million for share repurchases[213] Capitalization (In thousands) | (In thousands) | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total debt | $114,115 | $114,803 | | Stockholders' equity | $423,028 | $462,386 | | Total capitalization | $537,143 | $577,189 | | Total debt to capitalization | 21.2% | 19.9% | - As of December 31, 2022, the Amended ABL Facility had $80.3 million drawn, $3.3 million used for letters of credit, and remaining availability of $84.0 million[219] Critical Accounting Policies The company's critical accounting policies involve significant management estimates for asset impairment and deferred tax asset valuation allowances, leading to substantial charges in 2022 - Significant estimates are required for impairment testing of long-lived assets, goodwill, and intangible assets, as well as for determining valuation allowances for deferred tax assets[236] - In 2022, the company recognized a $7.9 million impairment charge on the Conroe, Texas blending facility and a $21.5 million impairment charge on long-lived assets related to the exit of Gulf of Mexico operations[239][240] - The annual goodwill impairment test as of November 1, 2022, for the Industrial Solutions reporting unit (which holds all $47.1 million of goodwill) concluded that its fair value was significantly more than its carrying value, so no impairment was recorded[241] - As of December 31, 2022, the company had a valuation allowance of $47.3 million against deferred tax assets of $71.9 million, primarily related to U.S. and foreign net operating loss carryforwards and foreign tax credits[242] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate risk on its variable-rate debt and foreign currency exchange risk from international operations, without using hedging instruments - The company is exposed to interest rate risk on its $114.2 million of variable-rate debt. A hypothetical 100 basis-point increase in short-term rates would increase annual pre-tax interest expense by about $1.0 million[248] - Foreign currency exchange risk exists due to operations in EMEA, Canada, Asia Pacific, and Latin America. The company does not historically use financial hedging instruments to manage this risk[249] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for the three years ended December 31, 2022, along with the independent auditor's unqualified opinion Consolidated Balance Sheets (In thousands) | (In thousands) | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total current assets | $425,966 | $388,512 | | Property, plant and equipment, net | $193,099 | $260,256 | | Goodwill | $47,110 | $47,283 | | Total assets | $714,875 | $752,886 | | Total current liabilities | $162,942 | $150,392 | | Long-term debt, less current portion | $91,677 | $95,593 | | Total liabilities | $291,847 | $290,500 | | Total stockholders' equity | $423,028 | $462,386 | Consolidated Statements of Operations (In thousands, except per share data) | (In thousands, except per share data) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total revenues | $815,594 | $614,781 | $492,625 | | Operating loss | ($9,034) | ($8,825) | ($78,634) | | Net loss | ($20,834) | ($25,526) | ($80,696) | | Net loss per common share - diluted | ($0.22) | ($0.28) | ($0.89) | Consolidated Statements of Cash Flows (In thousands) | (In thousands) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | ($25,021) | ($3,013) | $55,791 | | Net cash provided by (used in) investing activities | $46,230 | ($17,475) | ($3,395) | | Net cash provided by (used in) financing activities | ($24,930) | $21,408 | ($77,941) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[409] Controls and Procedures Management concluded the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes in Q4 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[410] - There were no material changes in internal control over financial reporting during the quarter ended December 31, 2022[411] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022, based on the COSO framework[414] Other Information The company reports no other information for this item - None[425] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the company's 2023 Annual Meeting Proxy Statement - Information regarding directors and executive officers is incorporated by reference from the 2023 Annual Meeting Proxy Statement[428] - The company has adopted a Code of Ethics for Senior Officers and Directors and a Code of Business Ethics and Conduct, which are available on its website[430] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2023 Annual Meeting Proxy Statement - Information regarding executive compensation is incorporated by reference from the 2023 Annual Meeting Proxy Statement[431] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and equity compensation plans is incorporated by reference from the company's 2023 Annual Meeting Proxy Statement - Information regarding security ownership and equity compensation plans is incorporated by reference from the 2023 Annual Meeting Proxy Statement[432] Certain Relationships and Related Transactions, and Director Independence Information on related person transactions and director independence is incorporated by reference from the company's 2023 Annual Meeting Proxy Statement - Information regarding related transactions and director independence is incorporated by reference from the 2023 Annual Meeting Proxy Statement[433] Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the company's 2023 Annual Meeting Proxy Statement - Information regarding principal accountant fees and services is incorporated by reference from the 2023 Annual Meeting Proxy Statement. The independent registered public accounting firm is Deloitte & Touche LLP[434] Part IV Exhibit and Financial Statement Schedules This section lists the financial statements and exhibits filed as part of the Annual Report, with consolidated financial statements in Item 8 and other schedules omitted - This section lists the financial statements and exhibits filed with the Form 10-K[437] - All financial statement schedules have been omitted because they are not required or are inapplicable[440] Form 10-K Summary The company reports no Form 10-K summary - None[447]