NPK International Inc.

Previous wording

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, 2023. 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.”

Current wording

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, 2024. Our first quarter represents the three-month period ended March 31. 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.”

Previous wording

Our Industrial Solutions segment provides temporary worksite access solutions, including the rental of our recyclable composite matting systems, along with related site construction and services to customers in various markets including power transmission, oil and natural gas exploration and production (“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 first nine months of 2024, 65% of revenues were derived from rental and service activities while 35% of revenues were derived from the sale of our manufactured worksite access products.

Current wording

NPK International Inc. (“NPK,” the “Company,” “we,” “our,” or “us”) is a temporary worksite access solutions company that manufactures, sells, and rents recyclable composite matting products, along with a full suite of services, including planning, logistics, and site restoration. In the first quarter of 2025, 67% of our revenues were generated from the rental of our recyclable composite matting systems, along with related site construction and services to customers in various markets including power transmission, oil and natural gas exploration and production, pipeline, renewable energy, petrochemical, construction and other industries within the United States and United Kingdom. The remaining 33% of our first quarter of 2025 revenues were generated from the sale of our manufactured recyclable composite mats to customers around the world, with power transmission being the primary end-market.

Previous wording

On September 13, 2024, we completed the sale of the equity interests in one of our subsidiaries which held substantially all of the Company’s Fluids Systems segment (“Sale Transaction”) to SCF Partners, a leading private equity firm serving the global energy industry (the “Purchaser”). The results of operations of the Fluids Systems segment are reported in discontinued operations in the condensed consolidated statements of operations. All results and information in the consolidated financial statements are presented for our continuing operations and exclude Fluids Systems unless otherwise noted specifically as discontinued operations. See Note 2 for additional information.

Current wording

We previously operated a Fluids Systems business, which was historically reported as a separate operating segment, that provided drilling and completion fluids products and related technical services to customers for oil, natural gas, and geothermal projects primarily in Europe, the Middle East and Africa, and North America, as well as certain countries in Asia Pacific. On September 13, 2024, we completed the sale of substantially all of the Company’s Fluids Systems segment (the “Sale Transaction”) to SCF Partners, a leading private equity firm serving the global energy industry (the “Purchaser”). The results of operations of Fluids Systems are reported in discontinued operations in the consolidated statements of operations. All results and information in the consolidated financial statements and related notes are presented for our continuing operations and exclude Fluids Systems unless otherwise noted specifically as discontinued operations. See Note 2 for additional information.

Previous wording

•Accelerate Industrial Solutions Growth – We have prioritized 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. During the first nine months of 2024, approximately $24 million of capital expenditures were directed to the expansion of our mat rental fleet.

Current wording

•Accelerate Organic Growth – We seek to accelerate revenue growth through the expansion of our rental business, which includes a combination of geographic expansion to new growth territories, primarily within the U.S., while also expanding customer market share within currently-served markets, and/or expanding our offering into adjacent products or services that are valued by our customers and leverage our core competencies. We prioritize investment capital to support this objective, where over the past several years, we have seen the strong market adoption of our specialty rental products and differentiated service offering. During the first quarter of 2025, we made net investments of $8 million in the expansion of our rental fleet, expanding the rental fleet by approximately 2%. Rental and service revenues increased $8 million, or 23%, year-over-year for the first quarter of 2025.

Previous wording

•Drive Operational Efficiency – We plan to maintain our focus on efficiency improvements and operating cost optimization across every aspect of our business. With a simplified business model and enhanced focus on balance sheet optimization, we seek to improve returns and consistency in cash flow generation. In addition, we continue to evaluate and execute actions intended to streamline the organization and our cost structure, driving improvements in profitability. During the first nine months of 2024, we continued to take actions to streamline our overhead structure, which has contributed to a $5.5 million year-over-year reduction in selling, general and administrative expenses (“SG&A”) for the first nine months of 2024, while incurring $0.6 million of severance costs. SG&A as a percentage of revenues was 22.1% for the first nine months of 2024 compared to 25.3% for the first nine months of 2023. Further, with the recent completion of the sale of the Fluids Systems business, we expect to further streamline overhead costs, with the goal of driving SG&A as a percentage of revenue to a mid-teens range by early 2026.

Current wording

•Drive Operational Efficiency – We are focused on efficiency improvements and operating cost optimization across every aspect of our business. With a simplified business model, we continue to evaluate and execute actions intended to streamline the organization and our cost structure, driving improvements in profitability, with the goal of driving SG&A as a percentage of revenue to a mid-teens range by early 2026. SG&A as a percentage of revenues was 18.1% for the first quarter of 2025 compared to 23.6% for the first quarter of 2024.

Previous wording

•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. Following completion of the Sale Transaction, we have $43 million of cash and total debt of $14 million as of September 30, 2024. In February 2024, our Board of Directors replaced our existing share repurchase program with a new program for repurchases of common stock up to $50.0 million. For the first nine months of 2024, our share repurchase program was restricted due to the Fluids Systems sale process.

Current wording

•Enhance Return on Capital – We are committed to maintaining a strong balance sheet, prioritizing organic investment to expand our rental business while evaluating accretive inorganic growth opportunities to accelerate growth and returning excess cash generation via programmatic share repurchases. In February 2024, our Board of Directors replaced our prior share repurchase program with a new program for repurchases of common stock up to $50.0 million. In 2024, our share repurchase program was restricted due to the Fluids Systems sale process. During the first quarter of 2025, we utilized $11 million to repurchase 1.8 million of our outstanding shares (2%) under our repurchase program. In April 2025, we used $1.2 million to repurchase 0.2 million shares under the repurchase program. On April 30, 2025, our Board of Directors increased the remaining authorization under the repurchase program to $100.0 million.

Previous wording

Summarized results of operations for the third quarter of 2024 compared to the third quarter of 2023 are as follows:

Current wording

Summarized results of operations for the first quarter of 2025 compared to the first quarter of 2024 are as follows:

Previous wording

Revenues decreased 1% to $160.0 million for the first nine months of 2024, compared to $161.2 million for the first nine months of 2023. Rental and service revenues decreased $10.4 million (9%) for the first nine months of 2024. Rental revenues increased $0.5 million (1%) primarily due to higher rental volume partially offset by lower pricing. Service revenues decreased $10.9 million (21%), primarily attributable to the timing and mix of service included within customer rental projects. Product sales revenues increased $9.2 million (20%) for the first nine months of 2024, which we believe reflects an increasing customer preference for manufactured composite matting products relative to timber-based products that have historically been used for temporary worksite access. The majority of the first nine months 2024 and 2023 revenues are derived from customers in the power transmission sector.

Current wording

Revenues increased 32% to $64.8 million for the first quarter of 2025, compared to $49.0 million for the first quarter of 2024, including a 55% increase in product sales revenues and a 23% increase in rental and service revenues. Rental revenues increased $6.9 million (32%), primarily due to higher rental volume driven by our organic growth efforts, slightly offset by lower pricing. Service revenues increased $1.3 million (10%), primarily attributable to the increased level of customer rental projects. Product sales revenues increased $7.6 million (55%), reflecting both an increasing customer adoption of manufactured composite matting products relative to timber-based products that continue to be the primary solution used for temporary worksite access, as well as timing of customer projects. The majority of the 2025 and 2024 revenues were derived from customers in the power transmission sector.

Previous wording

Other operating (income) loss, net primarily includes gains associated with the sale of assets. In addition, the first nine months of 2024 includes a $0.6 million gain related to a legal settlement.

Current wording

Other operating (income) loss, net, includes gains and losses on sales of assets. The first quarter of 2024 included a $0.6 million gain related to a legal settlement.

Previous wording

Foreign currency exchange was a $0.6 million gain for the third quarter of 2024 compared to a $0.5 million loss for the third quarter of 2023 and reflects the impact of currency translation on assets and liabilities (including intercompany balances) that are denominated in currencies other than functional currencies, principally related to our U.K. operations.

Current wording

Foreign currency exchange for the first quarter of 2025 and 2024 reflects the impact of currency translation on assets and liabilities (including intercompany balances) that are denominated in currencies other than functional currencies, principally related to our U.K. operations.

Previous wording

Interest expense was $2.6 million for the first nine months of 2024 compared to $3.2 million for the first nine months of 2023. The decrease in interest expense is primarily due to a decrease in average debt outstanding. The third quarter of 2024 includes a $0.5 million non-cash write off of debt issuance costs associated with our September 2024 ABL Facility amendment. Discontinued operations also includes an allocation of interest expense on corporate debt. Such interest expense totaled $1.4 million and $1.9 million for the first nine months of 2024 and 2023, respectively.

Current wording

Interest income, net was minimal for the first quarter of 2025 compared to $0.8 million of interest expense for the first quarter of 2024. The decrease in interest expense is primarily due to a decrease in average debt outstanding.

Previous wording

The benefit for income taxes from continuing operations was $14.0 million for the third quarter of 2024 compared to a provision for income taxes from continuing operations of $2.1 million for the third quarter of 2023. The third quarter of 2024 includes a $14.6 million benefit primarily related to the release of valuation allowances on U.S. net operating losses and tax credit carryforwards that are now expected to be realized following the sale of the Fluids Systems business.

Current wording

Provision for income taxes from continuing operations

Previous wording

Income (loss) from discontinued operations

Current wording

Income (loss) from discontinued operations, net of tax

Previous wording

Income (loss) from discontinued operations was related to the former Fluids Systems segment, which was sold in the third quarter of 2024. The loss from discontinued operations for the third quarter of 2024 includes the loss on sale of the segment of $195.7 million. See Note 2 for additional information.

Current wording

Income (loss) from discontinued operations, net of tax reflects the former Fluids Systems segment, which was sold in the third quarter of 2024. See Note 2 for additional information.

Previous wording

Net cash provided by operating activities was $42.3 million for the first nine months of 2024 compared to $63.8 million for the first nine months of 2023. Operating cash flow for the first nine months of 2023 benefited from the wind down of working capital associated with the fourth quarter 2022 divestiture transactions. During the first nine months of 2024, net income adjusted for non-cash items provided cash of $39.0 million and changes in working capital provided cash of $3.3 million.

Current wording

Net cash provided by operating activities was $8.8 million for the first quarter of 2025 compared to $12.0 million for the first quarter of 2024. Net income adjusted for non-cash items provided cash of $19.2 million in the first quarter of 2025, compared to $13.7 million in 2024, while changes in working capital used cash of $10.3 million in first quarter of 2025, compared to $1.7 million in 2024.

Previous wording

Net cash provided by investing activities was $23.1 million for the first nine months of 2024, which includes $48.5 million in initial net proceeds from the sale of the Fluids Systems business. These proceeds were partially offset by capital expenditures of $29.9 million in the first nine months of 2024, the substantial majority of which were directed to expanding our mat rental fleet.

Current wording

Net cash provided by investing activities was $5.4 million for the first quarter of 2025, which includes $10.7 million in additional proceeds from the sale of the Fluids Systems business partially offset by $10.0 million in capital expenditures. The substantial majority of our capital expenditures for the first quarter of 2025 and 2024 were directed to expanding our mat rental fleet. In addition, we received $1.8 million in proceeds from the sale of assets in the first quarter of 2025, which includes the sale of used mats from our mat rental fleet. Net cash used in investing activities was $12.7 million for the first quarter of 2024 primarily related to capital expenditures.

Previous wording

Following completion of the Sale Transaction in September 2024, substantially all of our $42.9 million of cash on hand at September 30, 2024 resides in the U.S. We primarily manage our liquidity utilizing cash on hand and availability under our Amended ABL Facility and other existing financing arrangements.

Current wording

Substantially all our $20.8 million of cash on hand at March 31, 2025 resides in the U.S. We primarily manage our liquidity utilizing cash on hand and availability under our Amended ABL Facility and other existing financing arrangements.

Previous wording

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 cash on hand, the projected availability under our Amended ABL Facility and other existing financing arrangements, and cash generated by operations to be adequate to fund our current operations during the next 12 months.

Current wording

We expect future working capital requirements for our operations will generally fluctuate directionally with revenues, and 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 capital expenditures in 2025 to be $35 million to $40 million, with spending primarily focused on the expansion of our mat rental fleet to further support the utilities market penetration. We also expect to use a portion of our existing liquidity to return value to our shareholders and pursue our long-term strategic initiatives. We expect cash on hand and cash generated by operations, as well as the projected availability under our Amended ABL Facility and other existing financing arrangements, to be adequate to fund our current operations during the next 12 months.

Previous wording

Asset-Based Loan Facility. In October 2017, we entered into a U.S. asset-based revolving credit agreement, which was amended in March 2019, amended and restated in May 2022, and further amended and restated in September 2024 (the “Amended ABL Facility”). The Amended ABL Facility provides financing of up to $100.0 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). The BSBY rate will be replaced with Term SOFR (Secured Overnight Financing Rate) beginning in November 2024.

Current wording

Asset-Based Loan Facility. In October 2017, we entered into a U.S. asset-based revolving credit agreement, which was amended in March 2019, amended and restated in May 2022, and further amended and restated in September 2024 (the “Amended ABL Facility”). The Amended ABL Facility provides financing of up to $100.0 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, was 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). The BSBY rates were replaced with Term SOFR (Secured Overnight Financing Rate) beginning in November 2024.

Previous wording

As of September 30, 2024, our total availability under the Amended ABL Facility was $58.3 million, with no outstanding borrowings and $2.0 million was used for outstanding letters of credit, resulting in remaining availability of $56.3 million.

Current wording

As of March 31, 2025, our total availability under the Amended ABL Facility was $68.1 million, with no outstanding borrowings and $2.0 million was used for outstanding letters of credit, resulting in remaining availability of $66.1 million.

Previous wording

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

Current wording

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.

Previous wording

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%.

Current wording

Under the terms of the Amended ABL Facility, we may elect to borrow at a variable interest rate based on either, (1) the Term SOFR 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) Term SOFR 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 Term SOFR 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%.

Previous wording

As of September 30, 2024, 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, and the applicable commitment fee on the unused portion of the Amended ABL Facility was 0.375% per annum.

Current wording

As of March 31, 2025, the applicable margin for borrowings under the Amended ABL Facility was 1.50% with respect to Term SOFR borrowings and 0.50% with respect to base rate borrowings, and the applicable commitment fee on the unused portion of the Amended ABL Facility was 0.375% per annum.

Previous wording

The September 2024 amendment, among other things, (i) released Newpark Drilling Fluids from its obligations as a borrower under the Credit Agreement, (ii) reduced the aggregate commitments under the Credit Agreement from $175 million to $100 million, (iii) reduced the aggregate letter of credit sublimit under the Credit Agreement from $15 million to $10 million, (iv) provided that the financial covenant requiring the Consolidated Leverage Ratio (as defined in the Credit Agreement) to be less than or equal to 4.00 to 1.00 is tested for each fiscal quarter (beginning the fiscal quarter ending June 30, 2024), instead of being tested only when availability under the Credit Agreement is below 40% of the borrowing base, (v) consented to the Sale Transaction and (vi) decreased certain other thresholds proportionally with the decreased commitments under the Credit Agreement. The Amended ABL Facility also requires a minimum fixed charge coverage ratio of 1.00 to 1.00 for the most recently completed four fiscal quarters.

Current wording

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) a maximum consolidated leverage ratio of 4.00 to 1.00 as of the last day of the most recently completed fiscal quarter.

Previous wording

We also maintain finance leases primarily related to transportation equipment. During the first nine months of 2024, we entered $3.5 million of new finance lease liabilities in exchange for leased assets.

Current wording

Other Financing Arrangements. We maintain finance leases primarily related to transportation equipment. During the first quarter of 2025, we entered into $1.2 million of new finance lease liabilities in exchange for leased assets.

Previous wording

In addition, at September 30, 2024, we had $5.4 million in outstanding letters of credit, performance bonds, and other guarantees for which certain of the letters of credit are collateralized by $0.5 million in restricted cash.

Current wording

In addition, at March 31, 2025, we had $5.9 million in outstanding letters of credit, performance bonds, and other guarantees.

Previous wording

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, 2023. Except as disclosed below, our critical accounting estimates and policies have not materially changed since December 31, 2023.

Current wording

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, 2024. Our critical accounting estimates and policies have not materially changed since December 31, 2024.