Newpark Resources(NR) - 2023 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2023, including Balance Sheets, Statements of Operations, Comprehensive Income, Stockholders' Equity, and Cash Flows, with notes on accounting policies, segment performance, and strategic changes Condensed Consolidated Balance Sheet Highlights (Unaudited) | (In thousands) | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $378,093 | $425,966 | | Total assets | $662,035 | $714,875 | | Total current liabilities | $153,056 | $162,942 | | Total liabilities | $248,068 | $291,847 | | Total stockholders' equity | $413,967 | $423,028 | Condensed Consolidated Statements of Operations Highlights (Unaudited) | (In thousands, except per share data) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $198,498 | $219,853 | $581,784 | $590,435 | | Operating income (loss) | $13,247 | $(21,310) | $29,268 | $(26,560) | | Net income (loss) | $7,670 | $(24,595) | $14,992 | $(29,826) | | Net income (loss) per share - diluted | $0.09 | $(0.26) | $0.17 | $(0.32) | Condensed Consolidated Statements of Cash Flows Highlights (Unaudited) | (In thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $63,842 | $(28,093) | | Net cash provided by (used in) investing activities | $2,173 | $(15,223) | | Net cash provided by (used in) financing activities | $(62,168) | $39,823 | - The company operates through two primary segments: Fluids Systems for drilling and completion fluids, and Industrial Solutions for worksite access solutions, having exited Industrial Blending in 2022[23][24] - In June 2023, the company initiated a strategic review for its Fluids Systems division, launching a formal sale process in September 2023, expected to conclude by mid-2024[57] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's performance, emphasizing the strategic shift to the higher-margin Industrial Solutions segment, detailing Q3 and nine-month results, strategic divestitures, and improved liquidity driven by strong operating cash flow, debt reduction, and share repurchases - The Industrial Solutions segment drives operating income and capital investment, while the Fluids Systems segment undergoes significant strategic changes, including divestitures and a formal sale process initiated in September 2023[61][72] - Key 2023 priorities include accelerating Industrial Solutions growth, enhancing operational excellence for cash flow improvement, and prioritizing shareholder returns via debt reduction and share repurchases[63][64] - For the first nine months of 2023, the company generated $63.8 million in operating cash flow, used $34.1 million for debt repayments, and repurchased $26.0 million of its shares[63][64][119] Results of Operations In Q3 2023, revenues decreased 10% to $198.5 million, with operating income turning positive to $13.2 million from a $21.3 million loss in Q3 2022, while nine-month revenues slightly decreased 1% to $581.8 million, and operating income significantly improved to $29.3 million from a $26.6 million loss Consolidated Results: Q3 2023 vs. Q3 2022 | (In thousands) | Q3 2023 | Q3 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $198,498 | $219,853 | (10)% | | Operating income (loss) | $13,247 | $(21,310) | NM | | Net income (loss) | $7,670 | $(24,595) | NM | Consolidated Results: Nine Months 2023 vs. Nine Months 2022 | (In thousands) | Nine Months 2023 | Nine Months 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $581,784 | $590,435 | (1)% | | Operating income (loss) | $29,268 | $(26,560) | NM | | Net income (loss) | $14,992 | $(29,826) | NM | Operating Segment Results In Q3 2023, Fluids Systems revenue decreased 16% to $141.2 million with operating income recovering to $7.6 million, while Industrial Solutions revenue grew 12% to $57.3 million with operating income up 43% to $14.3 million, and for the first nine months, Industrial Solutions revenue increased 19% to $161.2 million with operating income rising to $41.6 million Segment Revenues & Operating Income (Loss) - Q3 2023 | Segment | Revenues (in thousands) | Operating Income (Loss) (in thousands) | Operating Margin (%) | | :--- | :--- | :--- | :--- | | Fluids Systems | $141,236 | $7,573 | 5.4% | | Industrial Solutions | $57,262 | $14,336 | 25.0% | Segment Revenues & Operating Income (Loss) - First Nine Months 2023 | Segment | Revenues (in thousands) | Operating Income (Loss) (in thousands) | Operating Margin (%) | | :--- | :--- | :--- | :--- | | Fluids Systems | $420,591 | $13,004 | 3.1% | | Industrial Solutions | $161,193 | $41,593 | 25.8% | - Fluids Systems' North America Q3 revenue decreased 41% year-over-year due to divestitures and a 15% decline in U.S. rig count, while international revenue increased 35% driven by higher activity in Europe and Africa[92][93] - Industrial Solutions' Q3 rental and service revenues increased 16% year-over-year, driven by continued market penetration in the U.S. power transmission sector[95] Liquidity and Capital Resources The company's liquidity strengthened, with net cash from operations reaching $63.8 million in the first nine months of 2023, a significant turnaround from a $28.1 million use of cash in the prior year, driven by improved earnings and working capital benefits from 2022 divestitures, reducing total debt from $114.1 million to $85.7 million and lowering its total debt to capitalization ratio from 21.2% to 17.2% - Net cash from operating activities was $63.8 million for the first nine months of 2023, a significant improvement from a $28.1 million use in the prior year, largely due to working capital wind-down from 2022 divestitures[119] - In the first nine months of 2023, the company made net debt repayments of $34.1 million and repurchased $26.0 million of its shares[121] Capitalization Summary | (In thousands) | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total debt | $85,714 | $114,115 | | Total stockholders' equity | $413,967 | $423,028 | | Total capitalization | $499,681 | $537,143 | | Total debt to capitalization | 17.2% | 21.2% | - As of September 30, 2023, the company had $68.4 million in remaining availability under its Amended ABL Facility[127] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from variable interest rates on its debt and foreign currency fluctuations in international operations, where a 100 basis-point interest rate increase would raise annual pre-tax interest expense by approximately $0.7 million - The company has $85.8 million in principal debt outstanding, largely subject to variable interest rates, where a hypothetical 100 basis-point increase in short-term rates would raise annual pre-tax interest expense by $0.7 million[141] - Principal foreign currency exchange risks are associated with operations in EMEA, Canada, and Asia Pacific, involving currencies like the euro, Canadian dollar, and British pound[142] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[143] - No material changes occurred in internal control over financial reporting during the quarter ended September 30, 2023[144] PART II OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings in the ordinary course of business, but management does not anticipate any outcomes that would materially adversely impact its consolidated financial statements - Management does not expect any loss from litigation or other proceedings to have a material adverse impact on the company's consolidated financial statements[146] Risk Factors This section updates the company's risk factors, specifically addressing the potential adverse effects of ongoing conflicts in Europe and the Middle East, which could impact business through sanctions, supply chain disruptions, regional instability, and heighten existing risks like commodity price volatility and cybersecurity threats - The company identifies that current conflicts in Europe and the Middle East may adversely affect its business and operations, despite lacking direct operations in conflict zones[148] - These conflicts could heighten other risks, including volatility of oil and gas prices, customer spending, raw material availability, and cybersecurity breaches[149] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased over 1 million shares of common stock for $6.0 million during Q3 2023, with the Board increasing the total repurchase authorization to $50.0 million in February 2023, leaving $24.1 million available as of September 30, 2023 Share Repurchases - Q3 2023 | Period | Total Number of Shares Purchased (Shares) | Average Price Paid Per Share ($) | | :--- | :--- | :--- | | July 2023 | 17,425 | $5.26 | | August 2023 | 500,219 | $5.58 | | September 2023 | 547,996 | $6.16 | | Total | 1,065,640 | | - In February 2023, the Board increased the share repurchase program authorization to $50.0 million, with $24.1 million remaining available as of September 30, 2023[151][152] - Subsequent to the quarter end, in October 2023, an additional 0.9 million shares were repurchased for $6.0 million[153] Defaults Upon Senior Securities The company reports no defaults upon senior securities during the period - No defaults upon senior securities were reported[155] Mine Safety Disclosures This section is not applicable to the company - This disclosure is not applicable to the company[156] Other Information During the third quarter of 2023, no director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangement - No director or officer adopted or terminated any Rule 10b5-1 trading arrangement during the quarter ended September 30, 2023[157] Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including CEO and CFO certifications and Inline XBRL documents - The exhibits filed with the report include certifications from the CEO and CFO pursuant to the Sarbanes-Oxley Act of 2002 and various XBRL data files[159][160]