NPK International Inc (NPKI) 2024 Q4 法說會逐字稿

Please stand by.

We're about to begin.

Good morning, everyone.

My name is Jamie and I will be your conference operator today.

At this time, I would like to welcome everyone to the NPK International Inc., formerly Newpark Resources, Inc 4th quarter and full year 2024 results conference call.

(Operator Instructions)

It is now my pleasure to turn the floor over to Gregg S. Piontek, Chief Financial Officer of New Park Resources.

Please go ahead.

Thank you, operator.

I'd like to welcome everyone to the NPK International year 2024 conference call.

Joining me today is Matthew Lanigan, our President and Chief Executive Officer.

Before handing over to Matthew, I'd like to highlight that today's discussion contains forward-looking statements regarding future business and financial expectations.

Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties.

Including the risks described in our periodic reports filed with the SEC.

Except as required by law, we undertake no obligation to update our forward-looking statements.

Our comments on today's call may also include certain non-gap financial measures.

Additional details and reconciliations to the most directly comparable GAAP financial measures are included in our quarterly earnings release, which can be found on our corporate website.

There will be a replay of today's call, and it will be available by Webcast within the investor relations section of our website NPKI.com.

Please note that the information disclosed on today's call is current as of February 27, 2025.

At the conclusion of our prepared remarks, we will open the line for questions.

And with that, I'd like to turn the call over to our President and the CEO, Matthew Lanigan.

Thanks Greg, and welcome to everyone joining us on today's call.

I'll begin with commentary for our fourth quarter and full year 2024 performance, followed by our outlook and strategic priorities for 2025.

Following the 3rd quarter transitory pause in a key customer projects, rental activity accelerated meaningfully entering the 4th quarter, consistent with our expectations, resulting in a strong finish to the year for our business.

Fourth quarter revenue increased 24% year over year $58 million supported by broad-based growth across all our revenue streams.

Rental revenues increased by 28% year over year, reaching a new single quarter record, supported by a growing demand across our core utilities, transmission, and critical infrastructures.

Gross margin increased by nearly 500 basis points to 39.2%, the strongest level in two years, while adjusted EA improved to $17.1 million in the fourth quarter, an increase of 35% versus the prior year and doubling sequentially.

These improvements were driven by a combination of higher revenue, a stronger sales mix, and improved operating leverage.

For the full year, total revenue increased by 5% year over year, which included a 7% increase in rental revenue and a 24% increase in product sales.

Some were offset by a 15% decline in service revenues.

Breaking our full year revenue details down further, our commercial priorities in 2024 focused on targeting the highest value rental and service opportunities to drive long-term profitable growth and on driving broader market adoption of our Dura-based composite solution.

Our returns resulted in us moving away from a number of service intensive projects that failed to meet our required return thresholds, impacting our 2024 service revenues by more than $10 million.

Importantly, this enabled our team to concentrate their efforts on high impact relationships and projects that our unique integrated solutions model that should deliver ongoing benefits in 2025 and beyond.

We are also encouraged that our record level of product sales illustrates the success of our strategy to displace traditional timber matting as customers increasingly recognize the superior quality and economic value of the dura-based composite matting system.

With our prior and result in improved sales mix, we delivered a 12% adjusted growth for the year, 10 points adjusted margin expansion and a 35% improvement in our adjusted diluted earnings per share.

Given continued.

Expansion dollars including $10 million unresponsive and structure projects.

We also feel that recent actions taken by the federal government as the new administration implements its reigned strategic priorities will have a muted impact on our business as the secular mega trends underpinning investment in critical infrastructure remain robust.

Therefore, we expect that our continued focus and discipline will deliver meaningful growth and expansion of a return on invested capital in the years to come.

And with that, I'll call Greg for his prepared remarks.

Thanks, Matthew.

I'll begin with a more detailed discussion of our fourth quarter results, then provide an update on our outlook for 2025 and capital allocation priorities.

Fourth quarter revenues came in fairly in line with our expectations, as activity rebounded sharply from the acute seasonal slowdown in Q3, resulting in a strong finish to the year.

Total rental and services revenues improved 29% sequentially from the seasonally softer Q3 and 17% year over year to $42 million in the fourth quarter.

Revenues from product sales also improved 33% sequentially and 45% year over year, coming in at $16 million for the fourth quarter.

As Matthew referenced earlier, our full-year revenue improved 5% year to year, with higher product sales and rental revenues somewhat offset by lower service revenues.

Rental revenues increased 7% versus prior year, reflecting increased rental volume offset by a modest reduction in pricing.

As we engage in larger scale customer projects with longer durations, we've found that the benefits of stronger asset utilization and cost efficiencies allows us to flex on price while still meeting or exceeding our return thresholds.

As Matthew touched on, service revenues were down 15% compared to last year, reflecting our focus on returns in 2024.

Revenues from product sales improved 24% year over year to a record $72 million in 2024 By industry, our revenue growth was predominantly driven by our expansion within the utility sector, while pipeline, oil and gas, and other sectors declined.

The utility sector contributed roughly 60% of our 2024 revenues, including 55% of rental and service revenues and 2/3 of our product sales in terms of gross profit, the fourth quarter improved $10 million sequentially and $7 million year over year, largely reflecting the higher revenues along with the effects of the operating leverage, and stronger sales mix.

Additionally, the sequential comparison includes an estimated $1.3 million dollar benefit from the Q3 unplanned downtime event at our manufacturing facility.

As Matthew touched on, the gross margin of 39.2% in the fourth quarter reflects our strongest quarterly result since Q4 of 2022.

SG&A expenses were $10.7 million in the fourth quarter, down 3% from prior quarter, and increasing 5% year over year.

Well, the 4th quarter included increases as we absorbed certain fixed infrastructure costs that were historically carried by fluids, along with the elevated severance expense, these increases were primarily offset by lower incentive compensation.

As a percentage of revenues, the fourth quarter, SG&A was 18.6% of revenues, reflecting a meaningful improvement from 24.9% in the prior quarter and 22.1% in the prior Q4.

FX losses provided a modest headwind to the fourth quarter, primarily driven by the US dollar to British pound currency fluctuations.

Fourth quarter FX loss was $700,000 as compared to a $600,000 gain in the prior quarter and a $700,000 gain in the fourth quarter of the prior year.

Income tax expense was $2.9 million in the fourth quarter, reflecting an effective tax rate for the quarter of 26%, which includes the benefit from additional releases of valuation allowances following the sale of the fluids business.

For the full year 2024, after adjusting for the $16 million of tax items described in our earnings release, our effective tax rate was 32%.

Adjusted EPS from continuing operations was $0.08 per diluted share in the 4th quarter compared to break even in the 3rd quarter and $0.06 in the 4th quarter of last year.

Given the rebound in fourth quarter revenues, operating cash flow used $4 million in the fourth quarter, which included $20 million of cash used to fund the revenue-driven growth in receivables.

Additionally, Netca A used $12 million in the fourth quarter, which included $10 million invested in matting fleet expansion in response to the recent surge in rental demand.

As Matthew touched on for the full year 2024, we invested a net CapEx of $33 million in our rental fleet, expanding the fleet size by approximately 13% from the end of 2023.

We ended the year with total cash of $18 million and total debt of $8 million for a net cash position of $10 million.

Additionally, we have $66 million of availability under our US ABL facility, which currently has no outstanding borrowings.

At the end of the year, we have roughly $18 million of net assets related to the fluid sale, including the net working capital true-up and a $5 million interest-bearing note receivable.

Also, as we discussed last quarter, we have significant US federal net operating loss and other credit carry-forward tax benefits that we expect will limit our cash tax obligations over the next few years.

In terms of our industry reclassification process, we have regularly engaged with S&P over the past 5 months to provide the information necessary to complete their review, but we were informed in January that they are awaiting the filing of our 2024 Form 10k in order to complete the process.

With the 10k filing expected this week, we are hopeful that the review and appropriate reclassification will be completed prior to our first quarter 2025 conference call.

Now turning to our business outlook, as Matthew touched on, our customers continue to remain highly constructive on the near-term and longer term outlook for utilities and critical infrastructure spending.

For the full year 2025, we anticipate total revenues in the $230 to $250 million dollar range and adjusted to IEDA in the $60 to $70 million dollar range with net CapEx of $35 to $40 million which includes roughly $8 to $10 million of maintenance capital.

As for the near-term outlook, we see Q1 shaping up to be fairly similar to Q4, as customer projects and quoting activity remain robust both on the rental and product sales side.

Our efforts to streamline our SGNA will continue throughout 2025, as their support obligations to fluids ramp down in the coming months.

We will continue to work to offset absorbed fixed infrastructure costs that were historically carried by fluids as we seek to optimize all facets of our overhead structure for the simplified business model.

In terms of our capital allocation strategy, we continue to prioritize investments into the organic growth of our rental fleet.

We expect to continue to pace our rental fleet capital investments based upon our longer-term view of the rental market penetration and growth opportunities.

Beyond our organic investments in the rental fleet, we expect our free cash flow generation will be primarily used to build liquidity or through a return of capital to shareholders through a programmatic share repurchase program.

It's also worth noting that in the coming months we expect to evaluate alternative revolving credit facilities that can provide us with greater liquidity to support our strategic growth plan.

And with that, I'd like to turn the call back over to Matthew for his concluding remarks.

Thanks, Greg.

As we enter 2025, our strategy remains focused on three foundational elements to drive long-term shareholder value creation through scale enhancement, operating efficiency, and return of capital optimization.

Our primary focus will be the acceleration of revenue growth through the expansion of our high return rental business, which includes a combination of geographic expansion in underserved growth territories primarily within the US, while also expanding customer market share within our currently served market.

We have diligently expanded our sales team over the last 6 quarters and are encouraged with the progress being made.

Our quota volumes across all regions continues to grow while our award rate is also reflecting the work our team is doing to better understand our customers' needs.

We're encouraged with the progress we are making as both the largest US based manufacturer and rental fleet operator of composite matting, and the growing market acknowledgement that the Dura-based system offers a superior solution to traditional timber products.

We estimate composite Manning's share of the US markets to be almost 20%, which marks significant progress displacing traditional timber products over the last decade, and that focus in our industries on superior functionality and environmental stewardship will continue to drive adoption beyond current levels.

Therefore, we will continue to prioritize investment to support the scale up of our specialty rental and service offerings.

Our second focus area will be on driving further organizational operational efficiencies.

Over the last 2 years, our teams have demonstrated a strong commitment to efficiency improvements and operating cost optimization across every aspect of our business.

With a simplified business model post the fluid divestiture, we continue to evaluate and execute actions intended to streamline the organization and our cost structure as we target SGA as a percentage of revenue to reach mid-teens range by early 2026, as outlined in our Q3 2024 earnings call.

While our support of the divested fluids business through a transition service arrangement will provide some limitations on our timing, we continue to work in parallel to drive our post TSA organizational design and cost structure.

And our final priority will be the thoughtful allocation of capital beyond our organic requirements to optimize return of the capital for shareholders.

With a strong balance sheet and a disciplined approach, we will carefully evaluate strategic inorganic opportunities that our relevance to customers in critical infrastructure markets while enhancing return on capital deployed.

We will also look to these opportunities against our programmatic program.

In 2024, due to the timing of the fluids business sale process and other events, we were unable to execute on our repurchase program.

However, we remain committed to balancing our capital deployment via programmatic share repurchases as we enter 2025, we have $50 million of share repurchase authorization.

In closing, I want to thank our shareholders for their ongoing support, our employees for their dedication to the business, including their commitment to safety and compliance, and our customers for their ongoing partnerships.

And with that, we'll open the call for questions.

Thank you.

(Operator Instructions)

We'll hear first from Aaron Spychalla with Craig-Hallum.

Please go ahead.

Yeah, good morning, Matthew and Greg.

Thanks for taking the questions.

First on the guidance for revenue, maybe a little bit wider range than we've seen in the past.

Can you just talk a little bit on the puts and takes there and just how you're thinking about the split between products and rentals, anything on the cadence as we progress through the year there.

Yeah, no real change expected on the mix.

I think in terms of the wider range, i think it comes that comes back to what we saw in 2024.

You do have some uncertainties with customer spend, the timing of projects, etc. Things that are outside of our control, and that's really, I think the cause for it, really don't change in our overall outlook, obviously the.

The centre point being of the range being at that 10% mark that's, very consistent with the discussions that we've had in the past, so, yeah, really nothing more to it than that.

Alright, thanks for that.

And then on the margin guidance, kind of high 20s at the midpoint, can you just kind of talk about, how you're thinking about some of the improvements in SG&A and kind of the offset between kind of growth and margins there.

Yeah, I think, first of all, with SGA, I think, as we flow through 2025, we do have the headwind that we talked about of the absorbed costs and really most of that is in the IT infrastructure.

That's where you have most of the costs that are more fixed in nature that we're working our way through.

We had talked about the ERP conversion.

So, we do expect that will kind of tick up a little bit here in Q1 and then work its way down.

As we progress and then as we talked about by early 2026 being in that mid 10s range in terms of the incremental margins, over.

You look at the range that we provided, and it really shows kind of a consistent flow through, in the, mid 30s to low 40s is really where that range frames up in terms of the incremental margin on that revenue range, and that's very consistent with what we've seen historically.

As we've gone through here in Q4, you see really the value of that rental element.

You see the strong flow through that you get as you grow the rental side, and that obviously remains focus for us.

All right, and then maybe one last if I could just on free cash flow, given some of the events in the 4th quarter, just how you're thinking that trends in 2025 with some of the kind of fluids receivables and things like that.

Yeah, obviously fluids you've got, upper teams there that will work its way through the system.

I think that the majority of that is handled here early in the year, the next, within the first quarter in the next few months.

Beyond that, working capital isn't a big deal, as we've talked about it in the past.

It's really your receivables is the only balance that fluxes there with the overall revenue growth.

So, it really becomes a discussion and the other thing I'd add is the cash tax is very limited because of the tax shield that we have there.

So really it's a story of EAt and cappex.

That cap we gave the guide of 35 to 40 that's very well aligned with what we did here in In 2024.

And as we stated, that got us 13% growth in the fleet size.

We see that as similar, and I think the CapEx decisions that we make, you're kind of balancing your outlook, the both near and longer-term outlook for demand, and then also managing into that the manufacturing efficiency, the efficiency of your production line.

So, I think those are the things that will contribute to it.

Understood.

Thanks for taking the questions.

I'll turn it over.

(Operator Instructions)

We'll hear next from Samir Yoshi with HD Wainwright.

Please go ahead.

Great, thanks, Matthew, and Greg for taking my questions, and congratulations on all the progress of the last, few quarters.

Good work there.

Just in terms of your customer concentration going forward, I know you mentioned utilities are around 65%, but is there any one particular one or two customers that form like a bulk of your expected revenues?

Yeah, I'll take that.

Look, I think at any given quarter, particularly when you look at direct sales and some of the magnitude of those orders, you may have, a large.

Particular segment.

When you look at the broad base of rental, we have strong repeating relationships that are meaningful, but we find that those over time tend to each other.

With different set of customers being in that population, so I don't know that we have any very particular strong concentration on any given customer.

Yeah.

We had talked this year in Direct sales side, we had a very large order in Q2 that we had talked about that being predominantly one customer.

So there there's was a bit of a concentration there, but the nature of the sales, the product sales that we see year to year, it really has a different mix of customers year to year, not as though you have a very consistent pattern here every year there.

Good to know.

That's helpful.

You have, I guess part of the question may already have been answered because of your 66 million ADL, but I was just wondering, you have CapEx of 35 million to 40 million and as well as you're planning to buy back or at least it you reminded us that it's on the books, how do you see, like cash flow management going forward?

I think it's really just a matter, obviously we're in a very strong position from liquidity, so we have a lot of flexibility right now.

We do see that we have the ability to work all streams being the organic investment, continuing to feed that fleet as needed on the organic growth.

We'd like the returns that we get there.

We do see space there for the share buybacks and continuing to return some portion of free cash flow in that way.

And then at the same time it also comes back to continuing to evaluate the market for inorganic opportunities that we can utilize to accelerate.

So again, with the amount of liquidity we had talked a little bit about the plan here to replace our credit facility to give us even more liquidity.

It provides us a lot of flexibility.

Understood.

And one last one, and maybe this is a follow up on Aaron's question from before, in terms of the expected with the percent of revenue.

Are you seeing pricing pressure, that despite your cost efficiencies on the GAA is sort of flat here over in the percent of revenue.

Yeah.

I would point out there is we've been talking for multiple quarters over our desire to get more larger scale longer duration projects.

I think we've talked about the fact that they will come at a more competitive price point but that will flow through in asset utilization for us.

As we continue to penetrate in those areas successfully, I've described pricing as no different from any other year.

There's pockets and times where it's very competitive and there's other times where it's very rational, so I think that's the main driver there for me.

Understood.

Thanks a lot for taking my questions.

I'll take other questions offline.

(Operator Instructions)

ladies and gentlemen, that will conclude today's question and answer session.

I'd like to turn the floor back over to management for any additional or closing comments.

Sure, thanks for joining us on our call today, and should you have any questions or requests, please reach out to us using our email at investors@np.com and we look forward to hosting you again next quarter.

Thank you.

Thank you.

(Operator Instructions)

Again, ladies and gentlemen, that will conclude today's NPK International Inc. 4th quarter and full year 2024 results conference call.

Thank you for your participation.

You may disconnect at this time and have a wonderful rest of your day.