# NPK International Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [NPK International Inc.](/companies/npki.md) (CIK 71829)
- Form: 10-Q
- Filed: 2023-11-01
- Accepted by EDGAR: Nov 1, 2023, 12:29 ET
- Period: 2023-09-30
- Accession: 0000071829-23-000142
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/71829/000007182923000142/nr-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/71829/000007182923000142/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $198.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $581.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $159.1m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $474.0m | us-gaap:CostOfGoodsAndServicesSold |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $26.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $77.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $13.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $29.3m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $4.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $8.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $7.7m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $15.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.09 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.17 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.09 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.17 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 88,034,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 88,683,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $63.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $20.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $28.2m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $26.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $378.1m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $662.0m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $153.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $248.1m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $60.9m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $24.8m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $414.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 48,171 characters.

The following discussion of our financial condition, results of operations, liquidity, and capital resources should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in this report as well as our Annual Report on Form 10-K for the year ended December 31, 2022. Our third quarter represents the three-month period ended September 30 and our first nine months represents the nine-month period ended September 30. Unless otherwise noted, all currency amounts are stated in U.S. dollars. The reference to a “Note” herein refers to the accompanying Notes to Unaudited Condensed Consolidated Financial Statements contained in Item 1 “Financial Statements.”

### Business Overview

Newpark Resources, Inc. (the “Company,” “we,” “our,” or “us”) is a geographically diversified supplier providing environmentally-sensitive products, as well as rentals and services to customers across multiple industries. We currently operate our business through two reportable segments: Industrial Solutions and Fluids Systems, as described further below. In addition, we had a third reportable segment, Industrial Blending, which was exited in 2022.

While the Fluids Systems segment has historically been the primary driver of revenues, the Industrial Solutions segment has for several years been the primary driver of operating income, cash flows, and financial returns. Industrial Solutions also represents our primary focus for capital investments. The relative revenues, operating income, and capital expenditures for the Industrial Solutions and Fluids Systems segments for the first nine months of 2023 are as follows (amounts in millions):

\* Fluids Systems segment operating income for the first nine months of 2023 includes $8.6 million in net charges for certain impairments, facility exit and severance costs as described further below.

### 2023 Priorities

Following the completion of several divestiture transactions in the fourth quarter of 2022 (as described further below), the following priorities have been established for 2023:

- *Accelerate Industrial Solutions Growth –* We plan to continue to prioritize investment capital in the growth of our Industrial Solutions business, where over the past several years, we have seen the strong market adoption of our specialty rental products and differentiated service offering. For the first nine months of 2023, Industrial Solutions segment revenues were $161.2 million, reflecting a 19% increase from the first nine months of 2022. The substantial majority of the increase in revenues is attributable to our continued expansion in the power transmission sector.
- *Operational Excellence –* We plan to increase our focus on efficiency improvements and operating cost optimization across every aspect of our global footprint. With our simplified business model and enhanced focus on balance sheet optimization, we seek to improve returns and consistency in cash flow generation. During the first nine months of 2023, we generated $63.8 million of operating cash flow, which was partially driven by the effects of the 2022 divestitures in Fluids Systems as described further below. In 2023, we initiated certain organizational changes, which are expected to provide annualized recurring cost savings of approximately $6 million, with the benefits beginning to be realized in the second quarter of 2023.

In June 2023, we announced that we initiated a review of strategic alternatives for the long-term positioning of the Fluids Systems division. We have retained Lazard to serve as our exclusive financial advisor in connection with the strategic review. As part of the strategic review, we will continue to evaluate under-performing areas within our business and anticipate additional actions may be necessary to optimize our operational footprint and invested capital within the Fluids Systems segment. See further information below.

- *Prioritize Return of Capital –* We are committed to maintaining a strong balance sheet, using excess cash generation to reduce our debt and return value to our shareholders. During the first nine months of 2023, we utilized $34 million of

cash generation for debt repayments and another $26 million to repurchase 5.6 million (6%) of our outstanding shares under our repurchase program.

### Segment Overview

*Industrial Solutions –* Our Industrial Solutions segment provides temporary worksite access solutions, including the rental of our manufactured recyclable composite matting systems, along with related site construction and services to customers in various markets including power transmission, E&P, pipeline, renewable energy, petrochemical, construction and other industries, primarily in the United States and United Kingdom. We also sell our manufactured recyclable composite mats to customers around the world, with power transmission being the primary end-market. For the Industrial Solutions segment, approximately 75% of first nine months 2023 revenues were derived from power transmission and other industrial markets.

Our Industrial Solutions segment has been the primary source of operating income and cash generation for us in recent years, as illustrated above, and has also been the primary focus for growth investments. The growth of the business in the power transmission and other industrial markets remains a strategic priority for us due to the relative stability of such markets compared to E&P, as well as the magnitude of growth opportunity in these markets, including the potential positive impact from the energy transition and future legislation and regulations related to greenhouse gas emissions and climate change. We expect customer activity, particularly in the power transmission sector, will remain robust in the coming years, driven in part by the impacts of the U.S. energy transition and the increasing investment in grid reliance initiatives.

*Fluids Systems –* Our Fluids Systems segment provides drilling and completion fluids products and related technical services to customers for oil, natural gas, and geothermal projects primarily in North America and Europe, the Middle East and Africa (“EMEA”), as well as certain countries in Asia Pacific. Over the past few years, our primary focus within Fluids Systems has been the transformation into a more agile and simplified business focused on key markets, while monetizing assets in underperforming or sub-scale markets and reducing our invested capital. As of September 30, 2023, the net assets of the Fluids Systems segment were $234 million, which reflects a $51 million reduction in net assets from December 31, 2022.

Our Fluids Systems operating results remain dependent on oil and natural gas drilling activity levels in the markets we serve and the nature of the drilling operations, which governs the revenue potential of each well. Drilling activity levels depend on a variety of factors, including oil and natural gas commodity pricing, inventory levels, product demand, and regulatory restrictions. Rig count data remains the most widely accepted indicator of drilling activity. Average North American rig count data for the third quarter and first nine months of 2023 as compared to the same periods of 2022 is as follows:

|  | Third Quarter 2023 2022 | 2023 vs 2022 Count% |
| --- | ---: | ---: |
| U.S. Rig Count | 649 761 | (112) (15)% |
| Canada Rig Count | 188 199 | (11) (6)% |
| North America Rig Count | 837 960 | (123) (13)% |
|  | **First Nine Months** | **2023 vs 2022** |
|  | **2023** **2022** | **Count%** |
| U.S. Rig Count | 709 706 | 3 —% |
| Canada Rig Count | 175 170 | 5 3% |
| North America Rig Count | 884 876 | 8 1% |

Source: Baker Hughes Company

Oil and natural gas prices and activity are cyclical and volatile, and this market volatility has a significant impact on our Fluids Systems operating results. We anticipate that market activity in the U.S. will remain fairly stable in the near-term, as many of our customers maintain strong capital discipline and prioritize cash flow generation over growth. The Canada rig count reflects normal seasonality for this market, with the highest rig count levels generally observed in the first quarter of each year, prior to Spring break-up. Outside of North America, drilling activity is generally more stable as this drilling activity is based on longer-term economic projections and multi-year drilling programs, which typically reduces the impact of short-term changes in commodity prices on overall drilling activity. Further, the combination of geopolitical events and elevated oil prices are causing several markets to increase drilling activity levels, to help ensure reliable energy supply in the coming years, while reducing their dependency on Russia-sourced oil and natural gas. Consequently, the outlook for several markets within the EMEA region continues to strengthen, with growth in activity expected over the next few years.

*Industrial Blending –* Our Industrial Blending segment began operations in 2020 and supported industrial end-markets, including the production of disinfectants and industrial cleaning products. In the first quarter of 2022, we completed the wind down of the Industrial Blending business, and in November 2022 we completed the sale of the industrial blending assets.

### 2023 Strategic Actions

The following strategic actions were taken in 2023.

#### Review of Strategic Alternatives for Fluids Systems Business

As described above, we initiated a review of strategic alternatives for the long-term positioning of the Fluids Systems division in June 2023. In September 2023, we launched a formal sale process for substantially all the Fluids Systems business as part of this strategic review. While the sale process remains in the early stages, we anticipate substantially completing the process in the first half of 2024, although it is not certain that any such transaction will be consummated. As of September 30, 2023, the Fluids Systems business had approximately $234 million of net assets, including approximately $196 million of net working capital.

As we continue to evaluate strategic alternatives for our Fluids Systems portfolio, we may incur future charges related to these efforts or potential asset impairments, which may negatively impact our future results.

#### Exit of Stimulation Chemicals Product Line

In 2023, we made the decision to exit the stimulation chemicals product line. The Fluids Systems segment operating results for the first nine months of 2023 includes $1.6 million of total charges (included in impairments and other charges) for inventory write-downs to reduce the carrying values of certain inventory related to the exit of our stimulation chemicals product line to their net realizable value. As of September 30, 2023, we had $2.2 million of inventory remaining related to the stimulation chemicals product line.

#### Exit of Offshore Australia Operations

In 2023, we made the decision to exit certain operations for offshore Australia. The Fluids Systems segment operating results for the first nine months of 2023 includes $1.2 million of total charges (included in impairments and other charges) for inventory write-downs to reduce the carrying values of certain inventory related to the exit of our offshore Australia operations to their net realizable value as well as impairments related to the long-lived assets previously used in the now exited business. As of September 30, 2023, we had $0.4 million of assets related to our offshore Australia operations. We expect to incur certain exit related costs of approximately $1 million as we substantially complete the exit of our offshore Australia operations in 2023.

#### Exit of Chile Operations

We completed our customer contract in Chile in 2023 and are in the process of winding down our in-country operations. As of September 30, 2023, we had $1.8 million of net assets and $0.8 million of accumulated translation losses related to our subsidiary in Chile. As we monetize these assets in 2023, we will reclassify the translation losses and recognize a charge to income at such time when we have substantially liquidated our subsidiary in Chile.

### 2022 Strategic Actions

The following strategic actions were taken in 2022.

#### Exit of Industrial Blending Segment and Sale of Conroe, Texas Blending Facility

In the first quarter of 2022, we exited our Industrial Blending operations. In November 2022, we completed the sale of the industrial blending assets and received cash proceeds of approximately $14 million.

#### Sale of Excalibar U.S. Mineral Grinding Business

In November 2022, we completed the sale of substantially all the long-lived assets, inventory, and operations of our Excalibar U.S. mineral grinding business (“Excalibar”), which was reported within our Fluids Systems segment, to Cimbar Resources, INC. (“Cimbar”), and received cash proceeds (after purchase price adjustments) of approximately $51 million. The Company retained certain assets and liabilities, including accounts receivable and accounts payable, the wind down of which was substantially completed in the first quarter of 2023. Such working capital provided approximately $10 million of cash generation in the fourth quarter of 2022 and approximately $6 million of additional cash generation in the first quarter of 2023. In connection with the sale, the Company and Cimbar have entered into a long-term barite supply agreement for certain regions of our U.S. drilling fluids business, with an initial term of four years following the closing of the transaction.

#### Exit of Gulf of Mexico Operations

In December 2022, we completed the sale of substantially all assets associated with our Gulf of Mexico completion fluids operations. Separately, we entered into a seven-year arrangement to sublease our Fourchon, LA drilling fluids shorebase and blending facility to a leading global energy services provider. As part of this arrangement, substantially all of our Gulf of Mexico drilling fluids inventory has been sold to the lessee as consumed. These transactions provided cash generation of approximately $6 million in the fourth quarter of 2022 and approximately $28 million in the first nine months of 2023. Fluids Systems segment operating income for the first nine months of 2023 includes $4.6 million in net charges related to the exit of our Gulf of Mexico operations, which was substantially completed during the second quarter of 2023.

Summarized operating results of the business units exited in 2022 are shown in the following table:

*(In thousands)*

| Revenues | Third Quarter 2023 | 2022 | First Nine Months 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Excalibar | $— | $17,623 | $— | $44,068 |
| Gulf of Mexico | — | 8,591 | — | 18,697 |
| **Total revenues** | $— | $26,214 | $— | $62,765 |
| **Operating income (loss)** |  |  |  |  |
| Excalibar | $— | $888 | $— | $2,538 |
| Gulf of Mexico | (358) | (32,931) | (4,776) | (39,191) |
| **Total operating income (loss)** | $(358) | $(32,043) | $(4,776) | $(36,653) |

Summarized net assets remaining from the business units exited in 2022 are shown in the following table:

*(In thousands)*

|  | December 31, 2022 |
| --- | ---: |
| Receivables, net | $27,798 |
| Inventories | 5,805 |
| Accounts payable | (2,060) |
| Accrued liabilities | (311) |
| Total net assets | $31,232 |

During 2023, we have substantially settled the above net assets related to the now exited Excalibar business and Gulf of Mexico operations.

### Third Quarter of 2023 Compared to Third Quarter of 2022

### Consolidated Results of Operations

Summarized results of operations for the third quarter of 2023 compared to the third quarter of 2022 are as follows:

*(In thousands)*

|  | Third Quarter 2023 | 2022 | 2023 vs 2022 $% |  |
| --- | ---: | ---: | ---: | --- |
| Revenues | $198,498 | $219,853 | $(21,355) | (10)% |
| Cost of revenues | 159,133 | 187,884 | (28,751) | (15)% |
| Selling, general and administrative expenses | 26,821 | 24,207 | 2,614 | 11% |
| Other operating income, net | (703) | (345) | (358) | NM |
| Impairments and other charges | — | 29,417 | (29,417) | NM |
| Operating income (loss) | 13,247 | (21,310) | 34,557 | NM |
| Foreign currency exchange gain | (445) | (1,424) | 979 | 69% |
| Interest expense, net | 2,027 | 1,875 | 152 | 8% |
| Income (loss) before income taxes | 11,665 | (21,761) | 33,426 | NM |
| Provision for income taxes | 3,995 | 2,834 | 1,161 | NM |
| Net income (loss) | $7,670 | $(24,595) | $32,265 | NM |

### Revenues

Revenues decreased 10% to $198.5 million for the third quarter of 2023, compared to $219.9 million for the third quarter of 2022. This $21.4 million decrease in revenues includes a $41.0 million (25%) decrease in North America, comprised of a $46.8 million decrease in the Fluids Systems segment partially offset by a $5.8 million increase in the Industrial Solutions segment. In our Fluids Systems segment, revenues from North America operations decreased primarily due to a $26.2 million impact from the divested business units, as well as lower U.S. activity. In our Industrial Solutions segment, revenues from North America operations increased primarily due to an increase in rental and services revenues. Revenues from our international operations increased by $19.6 million (34%), driven primarily by higher activity in Europe and Africa. Additional information regarding the change in revenues is provided within the operating segment results below.

### Cost of revenues

Cost of revenues decreased 15% to $159.1 million for the third quarter of 2023, compared to $187.9 million for the third quarter of 2022 which included $27.9 million of cost of revenues from divested business units. This $28.8 million decrease was primarily driven by the 10% decrease in revenues described above, partially offset by the impact of segment mix, with Industrial Solutions representing a higher proportion of revenues for the third quarter of 2023, as compared to the prior year.

### Selling, general and administrative expenses

Selling, general and administrative expenses increased $2.6 million to $26.8 million for the third quarter of 2023, compared to $24.2 million for the third quarter of 2022. This increase was primarily driven by a $1.9 million charge to reflect higher projected long-term management incentives driven by our relative total shareholder return versus our peer group, as well as $0.5 million of third quarter 2023 expenses related to strategic planning projects, and $0.5 million of severance costs associated with restructuring actions. Selling, general and administrative expenses as a percentage of revenues was 13.5% for the third quarter of 2023 compared to 11.0% for the third quarter of 2022. Consolidated selling, general and administrative expenses included $0.4 million of costs related to divested business units for the third quarter of 2022.

### Impairments and other charges

The Fluids Systems segment includes $29.4 million of total non-cash impairment charges in the third quarter of 2022 related to the long-lived assets and inventory associated with the exit of our Gulf of Mexico operations.

### Foreign currency exchange

Foreign currency exchange was a $0.4 million gain for the third quarter of 2023 compared to a $1.4 million gain for the third quarter of 2022, and reflects the impact of currency translation for assets and liabilities (including intercompany balances) that are denominated in currencies other than functional currencies.

### Interest expense, net

Interest expense was $2.0 million for the third quarter of 2023 compared to $1.9 million for the third quarter of 2022. The increase in interest expense was primarily due to an increase in benchmark borrowing rates partially offset by a decrease in average debt outstanding.

### Provision for income taxes

The provision for income taxes was $4.0 million for the third quarter of 2023. The 2023 provision for income taxes primarily reflects the impact from the geographic composition of our earnings. The provision for income taxes was $2.8 million for the third quarter of 2022, despite reporting a pretax loss for the period, as we were unable to recognize a tax benefit for the $29.4 million of impairment charges and reflecting the impact of the geographic composition of our earnings.

### Operating Segment Results

Summarized financial information for our reportable segments is shown in the following table (net of inter-segment transfers):

*(In thousands)*

| Revenues | Third Quarter 2023 | 2022 | 2023 vs 2022 $% |  |
| --- | ---: | ---: | ---: | ---: |
| Fluids Systems | $141,236 | $168,621 | $(27,385) | (16)% |
| Industrial Solutions | 57,262 | 51,232 | 6,030 | 12% |
| Industrial Blending | — | — | — | —% |
| **Total revenues** | $198,498 | $219,853 | $(21,355) | (10)% |
| **Operating income (loss)** |  |  |  |  |
| Fluids Systems | $7,573 | $(24,193) | $31,766 |  |
| Industrial Solutions | 14,336 | 10,036 | 4,300 |  |
| Industrial Blending | — | (526) | 526 |  |
| Corporate office | (8,662) | (6,627) | (2,035) |  |
| **Total operating income (loss)** | $13,247 | $(21,310) | $34,557 |  |
| **Segment operating margin** |  |  |  |  |
| Fluids Systems | 5.4% | (14.3)% |  |  |
| Industrial Solutions | 25.0% | 19.6% |  |  |

### Fluids Systems

### Revenues

Total revenues for this segment consisted of the following:

*(In thousands)*

|  | Third Quarter 2023 | 2022 | 2023 vs 2022 $% |  |
| --- | ---: | ---: | ---: | ---: |
| United States | $49,685 | $98,431 | $(48,746) | (50)% |
| Canada | 17,404 | 15,452 | 1,952 | 13% |
| **Total North America** | 67,089 | 113,883 | (46,794) | (41)% |
| EMEA | 68,274 | 47,633 | 20,641 | 43% |
| Other | 5,873 | 7,105 | (1,232) | (17)% |
| **Total International** | 74,147 | 54,738 | 19,409 | 35% |
| **Total Fluids Systems revenues** | $141,236 | $168,621 | $(27,385) | (16)% |

North America revenues decreased 41% to $67.1 million for the third quarter of 2023, compared to $113.9 million for the third quarter of 2022, primarily related to the divested business units as well as a decline in U.S. land activity. For the third quarter of 2022, U.S. revenues included $17.6 million from the U.S. mineral grinding business and $8.6 million from offshore Gulf of Mexico, which were exited in 2022. Revenues from U.S. land decreased $22.5 million, primarily as a result of the 15% decline in U.S. rig count as well as lower market share. Canada revenues increased $2.0 million driven primarily by an increase in market share, which typically fluctuates based on customer mix and timing of projects.

International revenues increased 35% to $74.1 million for the third quarter of 2023, compared to $54.7 million for the third quarter of 2022. The increase was primarily driven by higher customer drilling activity and elevated product consumption per rig in Europe and Africa.

### Operating income (loss)

The Fluids Systems segment generated operating income of $7.6 million for the third quarter of 2023 compared to an operating loss of $24.2 million for the third quarter of 2022. The third quarter of 2022 included $29.4 million of total non-cash impairment charges as well as $2.6 million of operating losses related to the divested business units. Excluding these items, the operating income is relatively unchanged, primarily reflecting the impact of the improved profitability on revenue growth in EMEA, offset by the effects of the decrease in U.S. revenues.

### Industrial Solutions

### Revenues

Total revenues for this segment consisted of the following:

*(In thousands)*

|  | Third Quarter 2023 | 2022 | 2023 vs 2022 $% |  |
| --- | ---: | ---: | ---: | ---: |
| Rental and service revenues | $38,065 | $32,926 | $5,139 | 16% |
| Product sales revenues | 19,197 | 18,306 | 891 | 5% |
| **Total Industrial Solutions revenues** | $57,262 | $51,232 | $6,030 | 12% |

Rental and service revenues increased by $5.1 million from the third quarter of 2022, driven by our continued market penetration of the power transmission sector in the U.S., reflecting growth in rental volume along with higher associated service revenues. Revenues from product sales, which typically fluctuate based on the timing of customer projects and orders, increased by $0.9 million from the third quarter of 2022, reflecting strong demand from various sectors, including utilities.

### Operating income

The Industrial Solutions segment generated operating income of $14.3 million for the third quarter of 2023, compared to $10.0 million for the third quarter of 2022, the increase being primarily attributable to incremental profitability associated with revenue growth, including the effects of improved operating cost leverage from increased rental and service activity.

### Corporate Office

Corporate office expenses increased $2.0 million to $8.7 million for the third quarter of 2023, compared to $6.6 million for the third quarter of 2022. This increase was primarily driven by a $1.5 million charge to reflect higher projected long-term management incentives driven by our relative total shareholder return versus our peer group, as well as $0.5 million of third quarter 2023 expenses related to strategic planning projects, and $0.3 million of severance costs associated with restructuring actions.

### First Nine Months of 2023 Compared to First Nine Months of 2022

### Consolidated Results of Operations

Summarized results of operations for the first nine months of 2023 compared to the first nine months of 2022 are as follows:

*(In thousands)*

|  | First Nine Months 2023 | 2022 | 2023 vs 2022 $% |  |
| --- | ---: | ---: | ---: | --- |
| Revenues | $581,784 | $590,435 | $(8,651) | (1)% |
| Cost of revenues | 474,041 | 507,078 | (33,037) | (7)% |
| Selling, general and administrative expenses | 77,807 | 72,970 | 4,837 | 7% |
| Other operating income, net | (2,148) | (375) | (1,773) | NM |
| Impairments and other charges | 2,816 | 37,322 | (34,506) | NM |
| Operating income (loss) | 29,268 | (26,560) | 55,828 | NM |
| Foreign currency exchange gain | (228) | (1,943) | 1,715 | 88% |
| Interest expense, net | 6,262 | 4,719 | 1,543 | 33% |
| Income (loss) before income taxes | 23,234 | (29,336) | 52,570 | NM |
| Provision for income taxes | 8,242 | 490 | 7,752 | NM |
| Net income (loss) | $14,992 | $(29,826) | $44,818 | NM |

### Revenues

Revenues decreased 1% to $581.8 million for the first nine months of 2023, compared to $590.4 million for the first nine months of 2022. The $8.7 million decrease in revenues includes a $53.5 million (12%) decrease in North America partially offset by a $44.8 million (28%) increase from our international operations, driven by higher activity in Europe and Africa. The decrease in North America is comprised of a $78.0 million decrease in the Fluids Systems segment partially offset by a $24.5 million increase in the Industrial Solutions segment. In our Fluids Systems segment, revenues from North America operations decreased primarily due to a $62.8 million impact from the divested business units, as well as lower U.S. activity. In our Industrial Solutions segment, revenues from North America operations increased primarily due to an increase in rental and services revenues, as well as higher product sales, including sales to support power transmission projects. Additional information regarding the change in revenues is provided within the operating segment results below.

### Cost of revenues

Cost of revenues decreased 7% to $474.0 million for the first nine months of 2023, compared to $507.1 million for the first nine months of 2022 which included $68.0 million of cost of revenues from divested business units. The $33.0 million decrease in cost of revenues was primarily driven by the impact of segment mix, with Industrial Solutions representing a higher proportion of revenues for the first nine months of 2023, as compared to the prior year, as well as the 1% decrease in revenues described above.

### Selling, general and administrative expenses

Selling, general and administrative expenses increased $4.8 million to $77.8 million for the first nine months of 2023, compared to $73.0 million for the first nine months of 2022. This increase was primarily driven by $2.2 million in higher projected long-term management incentives driven by our relative total shareholder return versus our peer group, as well as a $1.9 million increase in severance costs, and a $1.5 million increase in expenses related to strategic planning projects. Selling, general and administrative expenses as a percentage of revenues was 13.4% for the first nine months of 2023 compared to 12.4% for the first nine months of 2022. Consolidated selling, general and administrative expenses included $1.4 million of costs related to divested business units for the first nine months of 2022.

### Other operating income, net

Other operating income, net for the first nine months of 2023 includes gains associated with the sale of assets, including assets previously used in divested businesses.

### Impairments and other charges

The Fluids Systems segment includes $2.8 million of non-cash charges in the first nine months of 2023 for inventory write-downs and asset impairments.

For the first nine months of 2022, the Fluids Systems segment included $29.4 million of total non-cash impairment charges related to the long-lived assets and inventory associated with the exit of our Gulf of Mexico operations. In addition, the Industrial Blending segment included a $7.9 million non-cash impairment charge for the first nine months of 2022 related to the process to sell the assets previously used in this now exited business.

### Foreign currency exchange

Foreign currency exchange was a $0.2 million gain for the first nine months of 2023 compared to a $1.9 million gain for the first nine months of 2022, and reflects the impact of currency translation for assets and liabilities (including intercompany balances) that are denominated in currencies other than functional currencies.

### Interest expense, net

Interest expense was $6.3 million for the first nine months of 2023 compared to $4.7 million for the first nine months of 2022. The increase in interest expense is primarily due to an increase in benchmark borrowing rates partially offset by a decrease in average debt outstanding.

### Provision for income taxes

The provision for income taxes was $8.2 million for the first nine months of 2023, reflecting an effective tax rate of 35%. The 2023 provision for income taxes reflects the impact from the geographic composition of our earnings and was unfavorably impacted by losses in certain international jurisdictions in which we are unable to recognize a related tax benefit, partially offset by the benefit associated with a partial valuation allowance release to recognize a portion of previously unbenefited net operating losses. The provision for income taxes was $0.5 million for the first nine months of 2022, which includes an income tax benefit of $3.1 million related to the restructuring of certain subsidiary legal entities within Europe, as the undistributed earnings for an international subsidiary are no longer subject to certain taxes upon future distribution. The provision for income taxes in the first nine months of 2022 reflects the impact from the geographic composition of our earnings and was unfavorably impacted as we are unable to recognize a tax benefit related to the $37.3 million in total impairment charges.

### Operating Segment Results

Summarized financial information for our reportable segments is shown in the following table (net of inter-segment transfers):

*(In thousands)*

| Revenues | First Nine Months 2023 | 2022 | 2023 vs 2022 $% |  |
| --- | ---: | ---: | ---: | ---: |
| Fluids Systems | $420,591 | $454,896 | $(34,305) | (8)% |
| Industrial Solutions | 161,193 | 135,539 | 25,654 | 19% |
| Industrial Blending | — | — | — | —% |
| **Total revenues** | $581,784 | $590,435 | $(8,651) | (1)% |
| **Operating income (loss)** |  |  |  |  |
| Fluids Systems | $13,004 | $(20,394) | $33,398 |  |
| Industrial Solutions | 41,593 | 26,148 | 15,445 |  |
| Industrial Blending | — | (10,324) | 10,324 |  |
| Corporate office | (25,329) | (21,990) | (3,339) |  |
| **Total operating loss** | $29,268 | $(26,560) | $55,828 |  |
| **Segment operating margin** |  |  |  |  |
| Fluids Systems | 3.1% | (4.5)% |  |  |
| Industrial Solutions | 25.8% | 19.3% |  |  |

### Fluids Systems

### Revenues

Total revenues for this segment consisted of the following:

*(In thousands)*

|  | First Nine Months 2023 | 2022 | 2023 vs 2022 $% |  |
| --- | ---: | ---: | ---: | ---: |
| United States | $178,538 | $254,629 | $(76,091) | (30)% |
| Canada | 47,168 | 49,031 | (1,863) | (4)% |
| **Total North America** | 225,706 | 303,660 | (77,954) | (26)% |
| EMEA | 181,764 | 134,678 | 47,086 | 35% |
| Other | 13,121 | 16,558 | (3,437) | (21)% |
| **Total International** | 194,885 | 151,236 | 43,649 | 29% |
| **Total Fluids Systems revenues** | $420,591 | $454,896 | $(34,305) | (8)% |

North America revenues decreased 26% to $225.7 million for the first nine months of 2023, compared to $303.7 million for the first nine months of 2022, primarily related to the divested business units as well as a decline in U.S. land activity. For the first nine months of 2022, U.S. revenues included $44.1 million from the U.S. mineral grinding business and $18.7 million from offshore Gulf of Mexico, which were exited in 2022. Revenues from U.S. land decreased $13.1 million, primarily as a result of lower market share. In addition, Canada decreased $1.9 million driven primarily by a decline in market share, which typically fluctuates based on customer mix and timing of projects.

International revenues increased 29% to $194.9 million for the first nine months of 2023, compared to $151.2 million for the first nine months of 2022. The increase was primarily driven by higher customer activity and elevated product consumption per rig in Europe and Africa.

### Operating income (loss)

The Fluids Systems segment generated operating income of $13.0 million for the first nine months of 2023 compared to an operating loss of $20.4 million incurred for the first nine months of 2022, which included $29.4 million of total non-cash impairment charges. The first nine months of 2023 includes $8.6 million in total charges including $5.8 million of net facility exit costs in the Gulf of Mexico and severance costs, as well as $2.8 million of impairments and other charges. The first nine months of 2022 included operating losses of $7.2 million related to the divested business units. Excluding these items, the $5.4 million improvement in operating income primarily reflects the impact of the increase in revenues in EMEA and benefits of cost reduction efforts in the U.S., partially offset by the decrease in U.S. revenues.

### Industrial Solutions

### Revenues

Total revenues for this segment consisted of the following:

*(In thousands)*

|  | First Nine Months 2023 | 2022 | 2023 vs 2022 $% |  |
| --- | ---: | ---: | ---: | ---: |
| Rental and service revenues | $114,374 | $94,271 | $20,103 | 21% |
| Product sales revenues | 46,819 | 41,268 | 5,551 | 13% |
| **Total Industrial Solutions revenues** | $161,193 | $135,539 | $25,654 | 19% |

Rental and service revenues increased by 21% from the first nine months of 2022, driven by our continued market penetration of the power transmission sector in the U.S., reflecting higher service revenues, growth in rental volume, and improved pricing. Revenues from product sales, which typically fluctuate based on the timing of customer projects and orders, increased by $5.6 million from the first nine months of 2022, reflecting strong demand from various sectors, including utilities.

### Operating income

The Industrial Solutions segment generated operating income of $41.6 million for the first nine months of 2023 compared to $26.1 million for the first nine months of 2022, the increase being primarily attributable to incremental profitability associated with revenue growth, including the effects of improved operating cost leverage from increased manufacturing, rental, and service activity.

### Industrial Blending

We completed the wind down of the Industrial Blending business in the first quarter of 2022 and completed the sale of the industrial blending and warehouse facility and related equipment located in Conroe, Texas in the fourth quarter of 2022. The Industrial Blending operating loss for the first nine months of 2022 included a $7.9 million non-cash charge for the impairment of the long-lived assets as well as exit and other costs related to the process to sell these assets.

### Corporate Office

Corporate office expenses increased $3.3 million to $25.3 million for the first nine months of 2023, compared to $22.0 million for the first nine months of 2022. The first nine months of 2023 includes approximately $2.2 million of expenses related to strategic planning projects and $1.2 million of severance costs, while the first nine months of 2022 included $1.1 million associated with shareholder matters and acquisition and divestiture efforts. This increase was also driven by $1.8 million in higher projected long-term management incentives driven by our relative total shareholder return versus our peer group.

### Liquidity and Capital Resources

Net cash provided by operating activities was $63.8 million for the first nine months of 2023 compared to net cash used in operating activities of $28.1 million for the first nine months of 2022. During the first nine months of 2023, net income adjusted for non-cash items provided cash of $44.3 million and changes in working capital provided cash of $19.5 million, which is primarily related to the wind down of working capital associated with the fourth quarter 2022 divestiture transactions.

Net cash provided by investing activities was $2.2 million for the first nine months of 2023, including $19.4 million in proceeds received related to our fourth quarter of 2022 divestitures, as well as $3.0 million in proceeds from the sale of assets, which includes the sale of used mats from our Industrial Solutions rental fleet. These proceeds were partially offset by capital expenditures of $20.1 million in the first nine months of 2023, the substantial majority of which was directed to supporting our Industrial Solutions segment growth in the power transmission sector.

Net cash used in financing activities was $62.2 million for the first nine months of 2023, which includes $34.1 million in net repayments on our Amended ABL Facility and other financing arrangements and $26.0 million in share purchases under our repurchase program.

Substantially all our $26.6 million of cash on hand at September 30, 2023 resides in our international subsidiaries. We primarily manage our liquidity utilizing availability under our Amended ABL Facility and other existing financing arrangements. Under our Amended ABL Facility, we manage daily cash requirements by utilizing borrowings or repayments under this revolving credit facility, while maintaining minimal cash on hand in the U.S.

We expect total availability under the Amended ABL Facility to fluctuate directionally based on the level of eligible U.S. accounts receivable, inventory, and composite mats included in the rental fleet. We expect the projected availability under our Amended ABL Facility and other existing financing arrangements, cash generated by operations, and available cash on-hand in our international subsidiaries to be adequate to fund our current operations during the next 12 months.

We anticipate that future working capital requirements for our operations will generally fluctuate directionally with revenues. We expect capital expenditures in 2023 will remain fairly in line with 2022 levels, with spending heavily focused on the expansion of our mat rental fleet to further support the utilities market penetration. In October 2023, we used $6.0 million for share repurchases under our repurchase program. As of October 31, 2023, our total borrowing availability under the Amended ABL Facility was $115.3 million, of which $50.0 million was drawn and $4.0 million was used for outstanding letters of credit, resulting in remaining availability of $61.3 million.

Our capitalization is as follows:

*(In thousands)*

|  | September 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Amended ABL Facility | $48,000 | $80,300 |
| Other debt | 37,788 | 33,949 |
| Unamortized discount and debt issuance costs | (74) | (134) |
| Total debt | $85,714 | $114,115 |
| Stockholders’ equity | 413,967 | 423,028 |
| Total capitalization | $499,681 | $537,143 |
| Total debt to capitalization | 17.2% | 21.2% |

***Asset-Based Loan Facility.*** In October 2017, we entered into a U.S. asset-based revolving credit agreement, which was amended in March 2019 and amended and restated in May 2022 (the “Amended ABL Facility”). The Amended ABL Facility provides financing of up to $175.0 million available for borrowings (inclusive of letters of credit), which can be increased up to $250.0 million, subject to certain conditions. The Amended ABL Facility has a five-year term expiring May 2027, is based on a Bloomberg Short-Term Bank Yield Index (“BSBY”) pricing grid, and includes a mechanism to incorporate a sustainability-linked pricing framework with the consent of the required lenders (as defined in the Amended ABL Facility).

As of September 30, 2023, our total availability under the Amended ABL Facility was $120.4 million, of which $48.0 million was drawn and $4.0 million was used for outstanding letters of credit, resulting in remaining availability of $68.4 million.

Borrowing availability under the Amended ABL Facility is calculated based on eligible U.S. accounts receivable, inventory and composite mats included in the rental fleet, net of reserves and subject to limits on certain of the assets included in the borrowing base calculation. To the extent pledged by the borrowers, the borrowing base calculation also includes the amount of eligible pledged cash. The administrative agent may establish reserves in accordance with the Amended ABL Facility, in part based on appraisals of the asset base, and other limits in its discretion, which could reduce the amounts otherwise available under the Amended ABL Facility.

Under the terms of the Amended ABL Facility, we may elect to borrow at a variable interest rate based on either, (1) the BSBY rate (subject to a floor of zero) or (2) the base rate (subject to a floor of zero), equal to the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate of Bank of America, N.A., and (c) BSBY for a one-month interest period plus 1.00%, plus, in each case, an applicable margin per annum. The applicable margin ranges from 1.50% to 2.00% per annum for BSBY borrowings, and 0.50% to 1.00% per annum for base rate borrowings, based on the consolidated leverage ratio (as defined in the Amended ABL Facility) as of the last day of the most recent fiscal quarter. We are also required to pay a commitment fee equal to (i) 0.375% per annum at any time the average daily unused portion of the commitments is greater than 50% and (ii) 0.25% per annum at any time the average daily unused portion of the commitments is less than 50%.

As of September 30, 2023, the applicable margin for borrowings under the Amended ABL Facility was 1.50% with respect to BSBY borrowings and 0.50% with respect to base rate borrowings. As of September 30, 2023, the weighted average interest rate for the Amended ABL Facility was 6.9% and the applicable commitment fee on the unused portion of the Amended ABL Facility was 0.375% per annum.

The Amended ABL Facility is a senior secured obligation of the Company and certain of our U.S. subsidiaries constituting borrowers thereunder, secured by a first priority lien on substantially all of the personal property and certain real property of the borrowers, including a first priority lien on certain equity interests of direct or indirect domestic subsidiaries of the borrowers and certain equity interests issued by certain foreign subsidiaries of the borrowers.

The Amended ABL Facility contains customary representations, warranties and covenants that, among other things, and subject to certain specified circumstances and exceptions, restrict or limit the ability of the borrowers and certain of their subsidiaries to incur indebtedness (including guarantees), grant liens, make investments, pay dividends or distributions with respect to capital stock and make other restricted payments, make prepayments on certain indebtedness, engage in mergers or other fundamental changes, dispose of property, and change the nature of their business.

The Amended ABL Facility requires compliance with the following financial covenants: (i) a minimum fixed charge coverage ratio of 1.00 to 1.00 for the most recently completed four fiscal quarters and (ii) while a leverage covenant trigger period (as defined in the Amended ABL Facility) is in effect, a maximum consolidated leverage ratio of 4.00 to 1.00 as of the last day of the most recently completed fiscal quarter.

The Amended ABL Facility includes customary events of default including non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations or warranties, cross-default to other material indebtedness, bankruptcy and insolvency events, invalidity or impairment of security interests or invalidity of loan documents, certain ERISA events, unsatisfied or unstayed judgments and change of control.

***Other Financing Arrangements.*** Certain of our foreign subsidiaries maintain local credit arrangements consisting primarily of lines of credit or overdraft facilities which are generally renewed on an annual basis. We utilize local financing arrangements in our foreign operations in order to provide short-term local liquidity needs. In addition, in April 2022, a U.K. subsidiary entered a £7.0 million term loan and a £2.0 million revolving credit facility. Both the term loan and revolving credit facility mature in April 2025 and bear interest at a rate of Sterling Overnight Index Average plus a margin of 3.25% per year. As of September 30, 2023, the interest rate for the U.K. facilities was 8.4%. The term loan is payable in quarterly installments of £350,000 plus interest beginning June 2022 and a £2.8 million payment due at maturity. We also maintain finance leases primarily related to transportation equipment.

In addition, at September 30, 2023, we had $46.8 million in outstanding letters of credit, performance bonds, and other guarantees for which certain of the letters of credit are collateralized by $1.8 million in restricted cash.

### Critical Accounting Estimates and Policies

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), which requires management to make estimates and assumptions that affect the reported amounts and disclosures. Significant estimates used in preparing our consolidated financial statements include estimated cash flows and fair values used for impairments of long-lived assets, including goodwill and other intangibles, and valuation allowances for deferred tax assets. Our estimates are based on historical experience and on our future expectations that we believe to be reasonable. The combination of these factors forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from our current estimates and those differences may be material.

For additional discussion of our critical accounting estimates and policies, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2022. Our critical accounting estimates and policies have not materially changed since December 31, 2022.

## Market risk

As filed, 1,645 characters.

We are exposed to market risk from changes in interest rates and changes in foreign currency exchange rates. A discussion of our primary market risk exposure in financial instruments is presented below.

### Interest Rate Risk

At September 30, 2023, we had total principal amounts outstanding under financing arrangements of $85.8 million, including $48.0 million of borrowings under our Amended ABL Facility, $7.9 million of borrowings under a U.K. term loan and credit facility, and $9.8 million under certain other international credit facilities, which are subject to variable interest rates as determined by the respective debt agreements. The weighted average interest rates at September 30, 2023 for the Amended ABL Facility, U.K. debt, and other international credit facilities was 6.9%, 8.4%, and 9.4%, respectively. Based on the balance of variable rate debt at September 30, 2023, a 100 basis-point increase in short-term interest rates would have increased annual pre-tax interest expense by $0.7 million.

### Foreign Currency Risk

Our principal foreign operations are conducted in certain areas of EMEA, Canada, and Asia Pacific. We have foreign currency exchange risks associated with these operations, which are conducted principally in the foreign currency of the jurisdictions in which we operate including European euros, Canadian dollars, Kuwaiti dinar, Algerian dinar, Romanian leu, British pounds, and Australian dollars. Historically, we have not used off-balance sheet financial hedging instruments to manage foreign currency risks when we enter into a transaction denominated in a currency other than our local currencies.

## Controls and procedures

As filed, 895 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2023, the end of the period covered by this quarterly report.

### Changes in Internal Control Over Financial Reporting

There were no changes in internal control over financial reporting during the quarter ended September 30, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 1,676 characters.

Set forth below are changes during the period ended September 30, 2023 to our “Risk Factors” as discussed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 and updated in Part II, Item 1A of our Quarterly Report on Form 10-Q for the period ended June 30, 2023.

### Risks Related to the Ongoing Conflicts in Europe and the Middle East

Given the nature of our business and our global operations, the current conflicts in Europe and the Middle East may adversely affect our business and results of operations. Although we do not have any operations in Russia, Ukraine, the Gaza Strip or Israel, the broader consequences of these conflicts, which may include: sanctions, embargoes, supply chain disruptions, regional instability, and geopolitical shifts; and the extent of the conflicts’ effect on our business and results of operations as well as the global economy, cannot be predicted.

The ongoing conflicts may also have the effect of heightening many of the other risks specified in our Risk Factors or disclosed in our public filings, any of which could materially and adversely affect our business and results of operations. Such risks include, but are not limited to, the volatility of oil and natural gas prices that can adversely affect demand for our products and services; our customers’ activity levels, spending for our products and services, and their ability to pay amounts owed us that could be impacted by the ability of our customers to access equity or credit markets; the price and availability of raw materials; the cost and continued availability of borrowed funds; and cybersecurity breaches or business system disruptions.

Filed Nov 1, 2023.
Source: SEC EDGAR, the filing index for accession 0000071829-23-000142. Last ingested by Listed: Nov 3, 2026, 23:02 ET. No prices; not investment advice.