Newpark Resources(NR) - 2021 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements The company's unaudited financials show increased assets, improved net loss, and positive operating cash flow for the period Condensed Consolidated Balance Sheets 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 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 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 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] - 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][42] - In Q3 2021, the Fluids Systems segment incurred $2.6 million in hurricane-related costs from Hurricane Ida impacting its Fourchon, Louisiana facility[61] 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 Improved results are attributed to market recovery, with strong performance in the Industrial Solutions segment driving profitability 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] - In response to the 2020 market downturn, the company implemented cost reduction programs, recognizing $18.0 million in charges in the first nine months of 2020[72] North American Rig Count Comparison | Period | 2021 | 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Q3 Average | 647 | 301 | 115% | | Nine Months Average | 565 | 566 | 0% | Results of Operations - Third Quarter 2021 vs 2020 Consolidated revenues increased 57% in Q3 2021, significantly narrowing the operating loss, led by the Industrial Solutions segment - The Industrial Solutions segment's Q3 revenue grew 53% year-over-year, driven by a 141% increase in product sales and a 22% increase in rental and service revenues as projects delayed by COVID-19 resumed[95] Consolidated Results - Q3 2021 vs Q3 2020 (in thousands) | Metric | Q3 2021 | Q3 2020 | Change ($) | 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 | $(139) | Results of Operations - First Nine Months 2021 vs 2020 For the first nine months, revenues grew 20% and the operating loss narrowed substantially, driven by Industrial Solutions' profitability - The Industrial Solutions segment's revenue for the first nine months grew 62% year-over-year, with product sales up 192% and rental/service revenues up 24%[114] Consolidated Results - First Nine Months 2021 vs 2020 (in thousands) | Metric | Nine Months 2021 | Nine Months 2020 | Change ($) | 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 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][120] - 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][129] 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 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] - 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] Item 4. Controls and Procedures 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] - 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] PART II OTHER INFORMATION Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] - 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][151] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] - As of September 30, 2021, the company had $23.8 million remaining under its $100.0 million securities repurchase program[154] Item 6. Exhibits 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][161]