Newpark Resources, Inc. (NR) Q4 2022 Earnings Call Transcript

Newpark Resources, Inc. (NYSE:NR) Q4 2022 Earnings Conference Call February 17, 2023 9:30 AM ET

Company Participants

Matthew Lanigan - President and CEO

Gregg Piontek - CFO

Ken Dennard - Dennard Lascar, IR

Conference Call Participants

Bill Dezellem - Tieton Capital Management

Operator

Greetings. Welcome to Newpark Resources 4th fourth and full-year 2022 net convention call. [Operator Instructions] As a reminder, this convention is being recorded.

It is now my pleasance to present your host, Mr. Ken Dennard. Thank you, sir. You whitethorn begin.

Ken Dennard

Thank you, operator, and bully morning, everyone. We admit you joining america for nan Newpark Resources convention telephone and webcast to reappraisal 4th and full-year 4th 2022 results. Participating from nan institution successful today's telephone are Matthew Lanigan, Newpark's President and Chief Executive Officer; and Gregg Piontek, Chief Financial Officer. Following my remarks, guidance will supply a high-level commentary connected nan financial specifications of nan 4th fourth results and near-term outlook, earlier opening nan telephone for Q&A.

Before I move nan telephone complete to management, I person a fewer housekeeping items to tally through. There'll beryllium a replay of today's call. It will beryllium disposable connected nan company's website astatine newpark.com. There will besides beryllium a recorded replay telephonically until March 3, 2023, and that accusation connected really to entree is included successful yesterday's release. Please note, nan accusation reported connected this telephone speaks only arsenic of today, February 17, 2023, and therefore, you are advised that time-sensitive accusation whitethorn nary longer beryllium meticulous astatine nan clip of immoderate replay listening aliases transcript reading. In addition, nan comments made by guidance during nan convention telephone whitethorn incorporate forward-looking statements wrong nan meaning of nan United States national securities laws. These forward-looking statements bespeak nan existent views of Newpark's management. However, various risks, uncertainties, and contingencies could origin Newpark's existent results, performance, aliases achievements, to disagree materially from those expressed successful nan statements made by management. The listener aliases scholar is encouraged to publication nan yearly study connected Form 10-K, quarterly reports connected Form 10-Q, and existent reports connected Form 8-K, to understand definite of those risks, uncertainties, and contingencies. The comments coming whitethorn besides see definite non-GAAP financial measures. Additional specifications and reconciliation to nan astir comparable GAAP financial measures are included successful nan quarterly net release, which tin beryllium recovered connected nan Newpark website.

And now, pinch that down maine now, I'd for illustration to move nan telephone complete to Newpark's President and CEO, Mr. Matthew Lanigan. Matthew?

Matthew Lanigan

Good morning, everyone. The 4th fourth provided a beardown decorativeness to 2022 for nan company, pinch nan successful closure of our cardinal strategical divestitures and coagulated operating performances crossed our ongoing business segments. As we stated earlier past year, we had 3 superior objectives for 2022. One, monetize our investments successful asset-heavy, low-returning business units. Two, trim indebtedness levels. And three, repositioned nan institution for stronger returns and much accordant free rate travel generation. These structural actions heighten our elasticity to accelerate finance successful precocious returning opportunities, while besides allowing america to reengage successful our stock repurchase program, returning a information of rate procreation to our shareholders. In Q4, we delivered connected each 3 objectives, generating $80 cardinal of rate from divestitures, investing $9 cardinal of maturation superior successful our Mat fleet, utilizing $18 cardinal to acquisition astir 5% of our outstanding shares, and exiting nan twelvemonth pinch nett indebtedness astatine astir 1 times our EBITDA tally rate. With these transactions mostly down us, Newpark is simply a simpler business, pinch each our served markets enjoying very supportive fundamentals, and we are good positioned for a stronger 2023 capacity arsenic a result.

In position of 4th fourth operational performance, consolidated revenues grew 2% sequentially to $225 million, driven by double-digit maturation successful our business segment, while adjusted EBITDA improved 9% sequentially to $21 million. The continuing spot of nan electrical inferior infrastructure marketplace was a peculiar highlight, wherever robust request and favorable upwind conditions led to very beardown utilization and improving pricing dynamics crossed our US operations. Total conception revenues came successful astatine $57 million, generating an exceptional operating separator of 31%, and adjusted EBITDA of $23 million. I americium very pleased that our squad delivered sequential maturation successful revenues and operating income, while continuing to make coagulated rate flows. The consistency of our returns and rate flows validates our unsocial worth proposition successful nan marketplace and our prioritization of superior to nan description of our geographic footprint wherever we spot a meaningful runway for continued growth. In Fluid Systems, while location were galore moving parts during nan quarter, our ongoing North American onshore and world business units grew 4% sequentially, delivering $148 cardinal of revenues and a 5.2% operating margin, mostly successful statement pinch our expectations. With nan completion of nan divestitures, we stay assured that our served markets are underpinned by a beardown finance upcycle, peculiarly successful cardinal world markets wherever we are good placed to benefit. To further fortify our position during nan cycle, we will support a rigorous attraction connected superior subject and separator betterment crossed our Fluids portfolio, limiting strategical superior investments to markets that show coagulated returns. Our 4th fourth intelligibly demonstrates that our efforts to streamline and simplify our business and our ongoing attraction connected improving returns to return advantage of robust marketplace fundamentals successful some segments, are delivering. We judge that we are good positioned moving guardant to equilibrium finance successful profitable maturation opportunities, while besides returning worth to shareholders via stock repurchases.

And now, I'd for illustration to manus nan telephone complete to Gregg to supply much colour connected nan specifics of nan financials for nan quarter. Gregg?

Gregg Piontek

Thanks Matthew, and bully morning, everyone. I'll commencement pinch nan specifics of nan conception and consolidated financial results for nan quarter, earlier providing an update connected our near-term outlook. As Matthew touched on, nan sequential betterment successful 4th fourth results were mostly driven by spot successful request from nan inferior and business sectors. Total Industrial Solutions revenues accrued 12%, some sequentially and year-over-year, posting 4th fourth gross of $57 million, representing our strongest quarterly consequence successful 4 years. The 4th fourth maturation benefited from nan robust request from inferior infrastructure projects, including a favorable gross operation and improved pricing dynamics, resulting successful an exceptionally beardown 31% operating margin. Rental and work revenues improved 22% sequentially and 39% year-over-year to $40 million, including a quarterly grounds from nan utilities and business sectors. Product income contributed $17 cardinal of revenues successful nan 4th quarter. So, this was little than we typically spot successful Q4, arsenic respective inferior customers unexpectedly diverted superior to acquisition items delayed by proviso concatenation disruptions earlier successful nan year. For nan afloat year, Industrial Solutions generated $193 cardinal of revenues, a 4% summation from 2021, which included a 13% betterment successful rental and services. Product income pulled backmost 12% year-over-year, reflecting nan proviso concatenation disruptions and inferior customer spending patterns, arsenic good arsenic nan anterior twelvemonth benefiting from nan surge of activity successful nan aftermath of COVID shutdowns successful 2020. Adjusted EBITDA improved 8% year-over-year, coming successful astatine $66 cardinal for nan afloat twelvemonth 2022, a 34% adjusted EBITDA margin.

In Fluid Systems, while our 4th fourth was analyzable by nan effects of nan aggregate divestitures, nan conception generated $168 cardinal of revenues and adjusted EBITDA of $7.4 cardinal successful nan 4th quarter, aliases a 4.4% adjusted EBITDA margin. This consequence was weighed down by our divested business units, which contributed a mixed $20 cardinal of revenues, and a $2.9 cardinal operating nonaccomplishment to nan 4th quarter. Our ongoing Fluids operations delivered 4% sequential maturation successful revenues, posting $148 cardinal of revenue, and $7.7 cardinal of operating income, aliases a 5.2% operating margin. The 4% sequential gross betterment was driven chiefly by increases crossed astir US onshore regions, including a fistful of projects that knowledgeable elevated downhole losses, arsenic good arsenic maturation successful cardinal markets successful Africa. These increases were somewhat offset by nan emblematic extremity of twelvemonth slowdown successful Canada, arsenic good arsenic a diminution successful Cyprus, arsenic our customer has paused their deepwater drilling programme while they measure their successful earthy state discovery. Despite nan simplification successful Cyprus, it's worthy highlighting that our EMEA region posted nan strongest gross 4th successful astir 5 years.

In position of operating separator from ongoing activities, nan 5.2% this 4th reflects a humble pullback from nan 3rd 4th publication of 5.5%, arsenic nan affirmative effect of nan stronger revenues and US pricing actions, were offset by income operation and timing of definite expenses successful nan EMEA region. While nan divestitures successful Fluids are cardinal to enhancing our early profitability and rate procreation profile, nan astir notable effect is seen successful our nett superior employed, which declined by astir $40 cardinal successful nan 4th quarter. In addition, we person statement of show to different $40 cardinal simplification successful nan coming months done nan wind-down of moving superior retained from nan divestitures, on pinch nan betterment of DSOs successful nan US, which were elevated successful Q4 owed to delayed customer costs cycles connected a fistful of ample projects. As this moving superior levels retired successful nan coming months, we expect our Fluid Systems nett superior employed to scope a simplification of much than $200 million, aliases astir 50% arsenic compared to our 2019 exit rate, which highlights nan effect of nan galore actions taken successful driving a capital-light exemplary and improved shareholder returns.

SG&A expenses accrued modestly connected a sequential basis, but continued to amended arsenic a percent of revenues, declining from 14.9% successful nan 4th fourth of past year, and 11% successful nan erstwhile quarter, to 10.9% of revenues successful nan 4th quarter. The changes successful SG&A spending, some connected a year-over-year and sequential basis, are mostly driven by nan firm office. While firm expenses person declined $2 cardinal year-over-year, nan $700,000 sequential summation successful Q4 was chiefly attributable to a higher performance-based incentives. Interest disbursal accrued some connected a year-over-year and sequential basis, mostly reflective of nan crisp increases successful benchmark borrowing rates passim nan 2nd half of 2022. And though our indebtedness levels were meaningfully reduced done nan 4th fourth divestitures, these transactions were completed later successful nan quarter, reducing their effect connected 4th fourth liking expense. As of nan extremity of nan year, nan borrowing complaint connected our US ABL facility, which represents astir 70% of our full outstanding debt, stood astatine 5.9%.

Tax disbursal was $4 cardinal successful nan quarter, reflecting a 30% effective taxation rate. Adjusted EPS improved 27% sequentially to $0.07 per diluted stock successful nan 4th quarter, reflecting nan stronger operational performance. As Matthew touched on, we repurchased $4.4 cardinal aliases astir 5% of our outstanding shares during nan quarter, ending nan twelvemonth pinch 89.7 cardinal shares outstanding.

In position of rate flow, we generated astir $80 cardinal of rate from nan divestiture transactions and associated wind-down of moving capital, which funded $47 cardinal of indebtedness reductions, $18 cardinal of stock repurchases, and $11 cardinal successful superior expenditures during nan 4th quarter. Free rate travel from our ongoing operations was modestly antagonistic successful nan quarter, owed chiefly to elevated receivable DSOs successful our US Fluids business, which we expect to reverse successful Q1.

Now turning to our near-term operational outlook. We stay encouraged by nan beardown fundamentals for utilities infrastructure spending, arsenic good arsenic nan lipid and state sector, arsenic we look to 2023. And pinch nan divestiture transactions completed, we participate nan twelvemonth pinch a much agile, capital-light Fluids business, operating successful much focused and predictable extremity markets, pinch a greater expertise to supply stronger returns connected finance and accordant free rate travel generation. For Industrial Solutions, we are encouraged by nan continued spot that we are seeing successful nan opportunity pipeline, some connected rentals and nonstop sales, which positions america good for coagulated maturation successful 2023. In Q1, we expect to present astir 40% year-over-year growth, reflecting coagulated improvements successful rental task measurement and pricing, arsenic good arsenic stronger nonstop income demand. We expect full conception revenues for nan 4th fourth to travel successful astir nan $50 cardinal level, pinch nan sequential alteration chiefly driven by nan emblematic seasonal shape successful nonstop sales. Based upon our pipeline of scheduled rental projects, we expect rental and work revenues to stay adjacent nan $40 cardinal level achieved successful Q4, which highlights nan spot and stableness of utilities infrastructure task activity. We expect our first 4th conception operating separator to beryllium successful nan debased 20s range, reasonably successful statement pinch nan afloat twelvemonth 2022 result.

In Fluids, pinch nan divestitures now completed, we expect revenues to propulsion backmost astir 20%, pinch operating income remaining adjacent nan Q4 reported level. In summation to nan $20 cardinal of 4th fourth gross eliminated done nan divestitures, we besides expect US onshore revenues to normalize pursuing nan elevated Q4 result, partially offset by nan seasonal uptick successful Canada. Also, we expect our EMEA region to normalize somewhat pursuing nan stronger gross publication successful Q4, driven by timing of customer activities successful Africa and parts of Eastern Europe. We expect these gross declines to transportation nan emblematic detrimental margins, which we expect will propulsion nan full conception operating separator beneath nan 5% people successful Q1. Looking beyond Q1, we expect to spot our world separator floor plan to retrieve from nan caller softness, chiefly driven by improvements successful task and income mix. Also, while customer activity successful Cyprus has paused for evaluation, we expect nan adjacent shape of improvement will ramp up successful nan 2nd half of 2023.

Rounding retired nan P&L, we expect firm expenses to stay adjacent nan $7 cardinal people successful Q1, while liking disbursal declines modestly, and nan effective taxation complaint remains adjacent nan 30% level. We expect beardown free rate travel procreation successful nan first quarter, chiefly benefiting from nan continued coagulated EBITDA generation, and meaningful reductions successful moving capital, including nan wind-down associated pinch our caller divestitures, while CapEx is expected to diminution from Q4 levels. To that point, our ABL borrowings successful nan first half of Q1 person declined by astir $15 cardinal since nan commencement of nan year.

And pinch that, I'd for illustration to move nan telephone backmost complete to Matthew for his concluding remarks.

Matthew Lanigan

Thanks, Gregg. As we entered 2023 pinch a much agile, capital-light, and simplified business, our attraction will intensify astir operational execution to thrust enhanced returns and free rate travel generation, arsenic we thief our customers do nan same. We achieved each of our cardinal objectives laid retired early past year, and are very pleased pinch nan business translator that has taken spot to date. Our Industrial Solutions business delivered 13% maturation successful rental and work revenues successful 2022, driven by our continued occurrence expanding stock successful nan multi-billion dollar inferior infrastructure market, while besides improving our EBITDA separator year-over-year. And arsenic Gregg touched on, our Fluids business enters 2023 successful a overmuch stronger position, pinch a meaningfully smaller superior footprint, much focused and predictable extremity markets, and a greater expertise to supply stronger returns connected finance and accordant free rate travel generations.

Our priorities for 2023 are clear. Firstly, pinch nan meaningful organizational distraction of divestitures down us, we'll attraction connected ratio improvements and operating costs optimization crossed each facet of our world operational footprint. With our simplified business exemplary and enhanced attraction connected equilibrium expanse optimization, we'll thrust betterment successful returns and consistency successful free rate travel generation. Secondly, we'll proceed to prioritize finance superior successful nan maturation of our business rental and services business, wherever complete nan past 3 years, we've seen nan beardown marketplace take of our specialty rental products and differentiated work offering present a 13% CAGR successful revenues. Funding our continued description and supporting nan utilities infrastructure marketplace remains our highest superior privilege arsenic we look to build upon nan $66 cardinal of Industrial Solutions EBITDA generated successful 2022. Within our Fluids portfolio, our CapEx needs are modest, pinch investments focused chiefly connected information aliases productivity improvements, wherever we activity clear strategical opportunities, arsenic our accent remains connected return betterment crossed nan portfolio. And finally, we are committed to returning excess rate procreation to our shareholders. With leverage now wrong our target range, we scheme to continually measure our rate travel procreation and nan foreseeable needs of nan business, pinch a desire to return a important information of our free rate travel to shareholders done nan execution of our stock acquisition program.

And pinch that, I'd for illustration to adjacent by thanking our shareholders for investing successful us, and thanking our labor for their difficult activity and their continued attraction connected safety. We'll now return your questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions]

Ken Dennard

Hey, Sherry, this is Ken. We sewage a mates of questions online done nan email, truthful I'll spell up and inquire those first and while you're queuing up nan adjacent questions. Matthew, nan first mobility is, you've achieved coagulated maturation complaint pinch your utilities infrastructure marketplace penetration successful caller years. How should we deliberation astir nan maturation complaint successful years to travel and nan full addressable marketplace size?

Matthew Lanigan

Thanks, Ken. Look, I deliberation if you look astatine our capacity successful caller years, we've seen debased double-digit CAGR crossed that portion of nan business. And that was successful nan business wherever we were somewhat constrained pinch immoderate of nan issues that nan Fluids business was going done pinch everything going connected successful those markets. I deliberation now that we're done our divestitures and spot immoderate smoother sailing there, we'd expect to spot our maturation complaint proceed to fortify going forward. In position of nan full addressable market, I deliberation we've called retired a number of times, we spot that marketplace arsenic astir about a $3 cardinal market, respective times larger successful nan T&D abstraction than successful nan lipid and state space. So, while it's difficult to get an nonstop number, I deliberation that would benignant of bracket it reasonably appropriately.

Thank you, Sherry.

Ken Dennard

Operator

Our first mobility is from Bill Dezellem pinch Tieton Capital. Please proceed.

Bill Dezellem

Thank you. A mates of different questions. First of all, comparative to nan Mat business, would you talk your capacity utilization, some astatine nan works level and pinch your rental fleet, please?

Matthew Lanigan

Hey, thanks, Bill. It's Matthew. Look, they're benignant of figures that we don't really benignant of publicize excessively overmuch for competitory reasons. I deliberation what I'd reply is, our utilization has been healthy. We called retired successful 4th fourth that nan fleet utilization was healthy, and we are continuing to put CapEx into that, which would people propose that we spot immoderate unit connected that, that we're going to alleviate done fleet description . And connected nan works broadside of things, we've sewage capacity to work each of our customer and fleet needs astatine this point.

Gregg Piontek

Yes, and nan rental fleet utilization, we evidently spot variability quarter-to-quarter arsenic ample projects travel successful and travel disconnected and you person a spot of seasonality, but adjacent to opportunity that Q4, we saw a batch of things align, and nan utilization of our wide fleet was astir apt moving toward nan apical extremity of what's achievable.

Bill Dezellem

And your comfortableness pinch nan capacity astatine nan works to support up pinch nan request that you spot there, really would you qualify that? And really nan tone of nan mobility is conscionable reasoning astir early CapEx for nan plant.

Matthew Lanigan

Yes, look, I deliberation astatine this point, Bill, it's adjacent to say, we're comfortable. And arsenic we look forward, we're not needfully predicting immoderate ample superior expenditures location successful nan contiguous term.

Gregg Piontek

Yes, I mean, if we look nan request for meaningful CapEx, that would beryllium a beautiful high-grade problem situation to person pinch nan business, so.

Bill Dezellem

Excellent. That is appreciated. And past my adjacent mobility is astir apt a spot antagonistic to nan measurement astir group would building nan question, but comparative to your free rate travel returning and done stock buyback, would you talk really you deliberation astir that comparative to, I'll telephone it hoarding nan rate for early acquisitions? And so, possibly I'll springiness you an opportunity to talk nan acquisition strategy and really that would fresh successful comparative to nan free rate travel being returned to shareholders via stock buyback that you referenced successful nan opening remarks.

Gregg Piontek

Yes, I conjecture I'll commencement there. I deliberation it starts pinch nan target indebtedness level. And again, there's - it's beautiful clear successful our minds that we request to person a disciplined attack to returning immoderate information of our profitability to nan shareholders, providing return of capital. You cognize it is simply a bully mobility connected nan acquisitions. You look astatine nan longer-term opportunities, and I would deliberation that if location were a very sizable, transformative type of opportunity, it's astir apt going to person an equity component. And successful bid to person an equity component, rather frankly, you person to person a reasonable worth connected your equity. And so, that's benignant of really we position this. And so, again, erstwhile we look astatine this and we look astatine our existent situation, we deliberation that returning superior to shareholders is yet what leads to worth creation.

Bill Dezellem

That's helpful. Thank you.

Ken Dennard

Thanks, Bill. We had different email that had a mobility that says, arsenic you've completed nan caller divestitures successful Fluids, what lipid and state markets are your superior attraction going forward?

Matthew Lanigan

Yes. Thanks, Ken. I'll jump connected that one. Look, I deliberation arsenic we break it down, North American onshore is an charismatic market. It's a smaller marketplace today, but arsenic you look astatine nan customer discipline, I deliberation it's going to beryllium a much unchangeable market. That is adjuvant to america successful position of moving superior fluctuations. So, that's a marketplace that we're going to proceed to look astatine to optimize. And past it's really EMEA. I deliberation nan European proviso dynamics has dramatically shifted. It's providing immoderate beardown tailwinds to that region and our history successful Europe, North Africa, and nan Middle East position arsenic good successful those markets, and we'll proceed to attraction there.

Ken Dennard

Thank you, Matthew. We’ve sewage nary further questions successful nan queue. Do you want to wrap it up pinch immoderate last comments?

Matthew Lanigan

Sure. I conscionable wanted to convey everyone erstwhile again for joining america successful nan telephone and for your liking successful Newpark, and we'll talk to you again adjacent quarter.

Operator

Thank you. This will reason today's conference. You whitethorn disconnect your lines astatine this time, and convey you for your participation.