Newpark Resources Reports Third Quarter 2018 Results


THE WOODLANDS, Texas, Oct. 25, 2018 /PRNewswire/ -- Newpark Resources, Inc. (NYSE: NR) today announced results for its third quarter ended September 30, 2018. Total revenues for the third quarter of 2018 were $235.3 million compared to $236.3 million for the second quarter of 2018 and $201.7 million for the third quarter of 2017. Net income for the third quarter of 2018 was $3.6 million, or $0.04 per diluted share, compared to $10.8 million, or $0.12 per diluted share, for the second quarter of 2018, and $2.7 million, or $0.03 per diluted share, for the third quarter of 2017. Third quarter 2018 results include the impact of the following:

  • $1.8 million of pre-tax charges in the Corporate office ( $1.8 million after-tax) associated with the retirement and transition of our Senior Vice President, General Counsel and Chief Administrative Officer, primarily reflecting the impact of modifications to certain outstanding stock-based and other incentive awards;
  • $1.1 million of pre-tax charges in the Brazil Fluids Systems business ( $1.1 million after-tax), primarily related to severance costs associated with our planned workforce reductions in the fourth quarter of 2018 in connection with the completion of the current contract with Petrobras, which is scheduled to conclude in December 2018;
  • $0.8 million of pre-tax charges in the U.S. Fluids Systems business ( $0.6 million after-tax), associated with the July 2018 fire at our Kenedy, Texas drilling fluids facility; and
  • $0.6 million of non-capitalizable expenses in the U.S. Fluids Systems business ( $0.5 million after-tax), related to the upgrade and conversion of a drilling fluids facility into a completion fluids facility, which is expected to be operational by the end of 2018. Located in the Port of Fourchon, this adjacent facility complements our primary Gulf of Mexico deepwater shorebase and supports our product line expansion.

Combined, the impact of the above items resulted in a $4.3 million reduction in operating income and a $4.0 million reduction in net income ( $0.04 per diluted share).

Paul Howes, Newpark's President and Chief Executive Officer, stated, "We're pleased to report that both segments are continuing to make meaningful strides in the execution of our long-term strategy, although our Fluids Systems segment experienced some softness in the quarter. In addition, we began to repatriate excess cash from our foreign subsidiaries in the quarter, which facilitated a reduction in our outstanding debt.

"In Fluids Systems, third quarter revenues for the segment came in at $181 million, a 1% sequential improvement. North America revenues improved by 7% sequentially, as improvement in the North America land markets were partially offset by a sequential reduction in Gulf of Mexico activities. We successfully completed our second Kronos deepwater project with Shell Oil in the quarter and have since been awarded two additional wells, which are scheduled to be drilled over the next two quarters. Despite the continued progress in our deepwater market penetration efforts, we experienced project delays with other offshore customers, which negatively impacted the Gulf of Mexico revenue contribution for the quarter. Eastern Hemisphere revenues declined by $5 million sequentially from the near-record level achieved last quarter, reflecting the anticipated reductions in Romania, Kuwait and Australia.

"Following the strong margin improvement in the prior quarter, our Fluids Systems operating margin declined to 5% in the third quarter, reflecting the impact of the $2.5 million of charges in the quarter, as well as the timing of certain expenses, including elevated bad debt charges related to revenues from prior years in our foreign operations," added Howes. "With the scheduled completion of the current Petrobras contract in December 2018, we expect a reduction in our Latin America revenues going forward, but only a minimal impact to operating income. Meanwhile, we're continuing to make organizational investments to support our total fluids strategy, which are crucial to our efforts to capitalize on our capabilities, infrastructure, and strong position to expand our total addressable market and improve our long-term Fluids Systems segment profitability.

"In the Mats & Integrated Services segment, we continue to see the benefits from our market diversification strategy, which provides meaningful growth opportunities and added stability, as reflected by the balanced contribution across both E&P and non-E&P markets. Third quarter mats revenues came in at $54 million, modestly ahead of our expectations. The seasonal decline in the utility transmission rental market was as anticipated, with the impact in this end-market somewhat offset by the continued market penetration in pressure pumping applications, where we believe our systems provide a superior work surface for gravity-fed sand systems," added Howes. "With the increasing momentum more broadly across both E&P and non-E&P markets, as well as weather-driven demand in the southern U.S, we feel confident that fourth quarter revenues for the segment will grow beyond the levels achieved in recent quarters."

Segment Results

The Fluids Systems segment generated revenues of $181.0 million for the third quarter of 2018 compared to $179.7 million for the second quarter of 2018 and $166.7 million for the third quarter of 2017. Segment operating income was $8.3 million for the third quarter of 2018 compared to $13.3 million for the second quarter of 2018 and $7.9 million for the third quarter of 2017. Operating income for the third quarter of 2018 includes $1.1 million of charges in Brazil primarily related to severance costs associated with our planned workforce reductions in the fourth quarter of 2018 in connection with the scheduled completion of the current contract with Petrobras, $0.8 million of charges associated with the July 2018 fire at our Kenedy, Texas drilling fluids facility, and $0.6 million of non-capitalizable expenses related to the upgrade and conversion of a drilling fluids facility into a completion fluids facility.

The Mats and Integrated Services segment generated revenues of $54.4 million for the third quarter of 2018 compared to $56.5 million for the second quarter of 2018 and $34.9 million for the third quarter of 2017. Segment operating income was $12.9 million for the third quarter of 2018 compared to $14.9 million for the second quarter of 2018 and $10.9 million for the third quarter of 2017.

Conference Call

Newpark has scheduled a conference call to discuss third quarter 2018 results and near-term operational outlook, which will be broadcast live over the Internet, on Friday, October 26, 2018 at 10:00 a.m. Eastern Time / 9:00 a.m. Central Time. To participate in the call, dial 412-902-0030 and ask for the Newpark Resources call at least 10 minutes prior to the start time, or access it live over the Internet at www.newpark.com. For those who cannot listen to the live call, a replay will be available through November 9, 2018 and may be accessed by dialing 201-612-7415 and using pass code 13683325#. Also, an archive of the webcast will be available shortly after the call at www.newpark.com for 90 days.

Newpark Resources, Inc. is a worldwide provider of value-added fluids and chemistry solutions in the oilfield, and engineered worksite and access solutions used in various commercial markets. For more information, visit our website at www.newpark.com.

This news release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. All statements that address expectations or projections about the future, including Newpark's strategy for growth, product development, market position, expected expenditures and future financial results are forward-looking statements. Words such as "will," "may," "could," "would," "should," "anticipates," "believes," "estimates," "expects," "plans," "intends," and similar expressions are intended to identify these forward-looking statements but are not the exclusive means of identifying them. These statements are not guarantees of future performance and involve a number of risks, uncertainties and assumptions. Many factors, including those discussed more fully elsewhere in this release and in documents filed with the Securities and Exchange Commission by Newpark, particularly its Annual Report on Form 10-K for the year ended December 31, 2017, as well as others, could cause results to differ materially from those expressed in, or implied by, these statements. These risk factors include, but are not limited to, risks related to the worldwide oil and natural gas industry, our customer concentration and reliance on the U.S. exploration and production market, risks related to our international operations, our ability to replace existing contracts, the cost and continued availability of borrowed funds including noncompliance with debt covenants, operating hazards present in the oil and natural gas industry, our ability to execute our business strategy and make successful business acquisitions and capital investments, the availability of raw materials or the impact of tariffs on the cost of such raw materials, the availability of skilled personnel, our market competition, our ability to expand our product and service offerings and enter new customer markets with our existing products, compliance with legal and regulatory matters, including envir onmental regulations, the availability of insurance and the risks and limitations of our insurance coverage, the ongoing impact of the U.S. Tax Cuts and Jobs Act and the refinement of provisional estimates, potential impairments of long-lived intangible assets, technological developments in our industry, risks related to severe weather, particularly in the U.S. Gulf Coast, cybersecurity breaches or business system disruptions and risks related to the fluctuations in the market value of our common stock. Newpark's filings with the Securities and Exchange Commission can be obtained at no charge at www.sec.gov, as well as through our website at www.newpark.com. We assume no obligation to update, amend or clarify publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by securities laws. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this news release might not occur.

Newpark Resources, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

 
   

Three Months Ended

 

Nine Months Ended

(In thousands, except per share data)

 

September
30,
2018

 

June 30,
2018

 

September
30,
2017

 

September
30,
2018

 

September
30,
2017

Revenues

 

$

235,329

   

$

236,262

   

$

201,663

   

$

698,884

   

$

543,374

 

Cost of revenues

 

194,730

   

188,480

   

164,587

   

569,665

   

442,608

 

Selling, general and administrative expenses

 

29,820

   

28,708

   

27,270

   

85,482

   

79,297

 

Other operating (income) loss, net

 

725

   

(69)

   

(76)

   

702

   

(127)

 

Operating income

 

10,054

   

19,143

   

9,882

   

43,035

   

21,596

 
                     

Foreign currency exchange (gain) loss

 

(89)

   

458

   

174

   

594

   

1,100

 

Interest expense, net

 

3,668

   

3,691

   

3,586

   

10,659

   

10,245

 

Income from operations before income taxes

 

6,475

   

14,994

   

6,122

   

31,782

   

10,251

 
                     

Provision for income taxes

 

2,831

   

4,148

   

3,469

   

10,070

   

6,949

 

Net income

 

$

3,644

   

$

10,846

   

$

2,653

   

$

21,712

   

$

3,302

 
                     
                     

Calculation of EPS:

                   

Net income - basic and diluted

 

$

3,644

   

$

10,846

   

$

2,653

   

$

21,712

   

$

3,302

 
                     

Weighted average common shares outstanding - basic

 

90,526

   

89,703

   

85,426

   

89,779

   

84,749

 

Dilutive effect of stock options and restricted stock awards

 

2,151

   

2,823

   

2,251

   

2,535

   

2,545

 

Dilutive effect of 2021 Convertible Notes

 

905

   

1,265

   

   

727

   

 

Weighted average common shares outstanding - diluted

 

93,582

   

93,791

   

87,677

   

93,041

   

87,294

 
                     

Income per common share - basic

 

$

0.04

   

$

0.12

   

$

0.03

   

$

0.24

   

$

0.04

 

Income per common share - diluted

 

$

0.04

   

$

0.12

   

$

0.03

   

$

0.23

   

$

0.04

 

 

Newpark Resources, Inc.

Operating Segment Results

(Unaudited)

 
   

Three Months Ended

 

Nine Months Ended

(In thousands)

 

September
30,
2018

 

June 30,
2018

 

September
30,
2017

 

September
30,
2018

 

September
30,
2017

Revenues

                   

Fluids systems

 

$

180,970

   

$

179,738

   

$

166,726

   

$

538,087

   

$

453,399

 

Mats and integrated services

 

54,359

   

56,524

   

34,937

   

160,797

   

89,975

 

Total revenues

 

$

235,329

   

$

236,262

   

$

201,663

   

$

698,884

   

$

543,374

 
                     

Operating income (loss)

                   

Fluids systems

 

$

8,288

   

$

13,327

   

$

7,930

   

$

32,092

   

$

20,145

 

Mats and integrated services

 

12,925

   

14,853

   

10,941

   

39,864

   

28,762

 

Corporate office

 

(11,159)

   

(9,037)

   

(8,989)

   

(28,921)

   

(27,311)

 

Operating income

 

$

10,054

   

$

19,143

   

$

9,882

   

$

43,035

   

$

21,596

 
                     

Segment operating margin

                   

Fluids systems

 

4.6

%

 

7.4

%

 

4.8

%

 

6.0

%

 

4.4

%

Mats and integrated services

 

23.8

%

 

26.3

%

 

31.3

%

 

24.8

%

 

32.0

%

 

Newpark Resources, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

 

(In thousands, except share data)

September 30,
2018

 

December 31,
2017

ASSETS

     

Cash and cash equivalents

$

52,243

   

$

56,352

 

Receivables, net

264,014

   

265,866

 

Inventories

202,707

   

165,336

 

Prepaid expenses and other current assets

18,016

   

17,483

 

Total current assets

536,980

   

505,037

 
       

Property, plant and equipment, net

313,989

   

315,320

 

Goodwill

44,015

   

43,620

 

Other intangible assets, net

26,424

   

30,004

 

Deferred tax assets

4,024

   

4,753

 

Other assets

2,889

   

3,982

 

Total assets

$

928,321

   

$

902,716

 
       

LIABILITIES AND STOCKHOLDERS' EQUITY

     

Current debt

$

6,453

   

$

1,518

 

Accounts payable

93,783

   

88,648

 

Accrued liabilities

44,730

   

68,248

 

Total current liabilities

144,966

   

158,414

 
       

Long-term debt, less current portion

181,945

   

158,957

 

Deferred tax liabilities

33,347

   

31,580

 

Other noncurrent liabilities

7,912

   

6,285

 

Total liabilities

368,170

   

355,236

 
       

Common stock, $0.01 par value (200,000,000 shares authorized and 106,324,356 and 104,571,839 shares issued, respectively)

1,063

   

1,046

 

Paid-in capital

615,351

   

603,849

 

Accumulated other comprehensive loss

(64,767)

   

(53,219)

 

Retained earnings

138,233

   

123,375

 

Treasury stock, at cost (15,524,613 and 15,366,504 shares, respectively)

(129,729)

   

(127,571)

 

Total stockholders' equity

560,151

   

547,480

 

Total liabilities and stockholders' equity

$

928,321

   

$

902,716

 

 

Newpark Resources, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 
 

Nine Months Ended September 30,

(In thousands)

2018

 

2017

Cash flows from operating activities:

     

Net income

$

21,712

   

$

3,302

 

Adjustments to reconcile net income to net cash provided by operations:

     

Depreciation and amortization

34,346

   

28,998

 

Stock-based compensation expense

8,497

   

8,458

 

Provision for deferred income taxes

(2,149)

   

(3,489)

 

Net provision for doubtful accounts

2,708

   

1,386

 

Gain on sale of assets

(552)

   

(4,896)

 

Amortization of original issue discount and debt issuance costs

4,075

   

4,068

 

Change in assets and liabilities:

     

Increase in receivables

(16,531)

   

(73,512)

 

Increase in inventories

(34,829)

   

(17,348)

 

Increase in other assets

(1,476)

   

(1,621)

 

Increase in accounts payable

7,106

   

17,996

 

Increase (decrease) in accrued liabilities and other

(2,791)

   

52,421

 

Net cash provided by operating activities

20,116

   

15,763

 
       

Cash flows from investing activities:

     

Capital expenditures

(32,814)

   

(21,888)

 

Refund of proceeds from sale of a business

(13,974)

   

 

Proceeds from sale of property, plant and equipment

1,477

   

2,233

 

  Business acquisitions, net of cash acquired

(249)

   

 

Net cash used in investing activities

(45,560)

   

(19,655)

 
       

Cash flows from financing activities:

     

Borrowings on lines of credit

275,801

   

84,900

 

Payments on lines of credit

(254,116)

   

(21,400)

 

Debt issuance costs

(149)

   

(342)

 

Proceeds from employee stock plans

3,813

   

2,107

 

Purchases of treasury stock

(3,811)

   

(2,761)

 

  Other financing activities

2,140

   

1,487

 

Net cash provided by financing activities

23,678

   

63,991

 
       

Effect of exchange rate changes on cash

(3,798)

   

2,371

 
       

Net increase in cash, cash equivalents, and restricted cash

(5,564)

   

62,470

 

Cash, cash equivalents, and restricted cash at beginning of period

65,460

   

95,299

 

Cash, cash equivalents, and restricted cash at end of period

$

59,896

   

$

157,769

 

 

Newpark Resources, Inc.
Non-GAAP Reconciliations
(Unaudited)

To help understand the Company's financial performance, the Company has supplemented its financial results that it provides in accordance with generally accepted accounting principles ("GAAP") with non-GAAP financial measures. Such financial measures include earnings before interest, taxes, depreciation and amortization ("EBITDA"), EBITDA Margin, Net Debt and the Ratio of Net Debt to Capital.

We believe these non-GAAP financial measures are frequently used by investors, securities analysts and other parties in the evaluation of our performance and/or that of other companies in our industry. In addition, management uses these measures to evaluate operating performance, and our incentive compensation plan measures performance based on our consolidated EBITDA, along with other factors. The methods we use to produce these non-GAAP financial measures may differ from methods used by other companies. These measures should be considered in addition to, not as a substitute for, financial measures prepared in accordance with GAAP.

Consolidated

Three Months Ended

 

Nine Months Ended

(In thousands)

September 30,
2018

 

June 30,
 2018

 

September 30,
2017

 

September 30,
2018

 

September 30,
2017

Net income (GAAP) (1)

$

3,644

   

$

10,846

   

$

2,653

   

$

21,712

   

$

3,302

 

Interest expense, net

3,668

   

3,691

   

3,586

   

10,659

   

10,245

 

Provision for income taxes

2,831

   

4,148

   

3,469

   

10,070

   

6,949

 

Depreciation and amortization

11,591

   

11,484

   

9,754

   

34,346

   

28,998

 

EBITDA (non-GAAP) (1)

$

21,734

   

$

30,169

   

$

19,462

   

$

76,787

   

$

49,494

 
   

(1)

Net income and EBITDA for the three months and nine months ended September 30, 2018 include a corporate office charge of $1.8 million associated with the retirement and transition of our Senior Vice President, General Counsel and Chief Administrative Officer, $1.1 million of charges in Brazil primarily related to severance costs associated with our planned workforce reductions in the fourth quarter of 2018 in connection with the scheduled completion of the current contract with Petrobras, $0.8 million of charges associated with the July 2018 fire at our Kenedy, Texas drilling fluids facility, and $0.6 million of non-capitalizable expenses related to the upgrade and conversion of a drilling fluids facility into a completion fluids facility.

 

Fluids Systems

Three Months Ended

 

Nine Months Ended

(In thousands)

September 30,
2018

 

June 30,
2018

 

September 30,
2017

 

September 30,
2018

 

September 30,
2017

Operating income (GAAP) (1)

$

8,288

   

$

13,327

   

$

7,930

   

$

32,092

   

$

20,145

 

Depreciation and amortization

5,178

   

5,317

   

5,540

   

15,785

   

16,221

 

EBITDA (non-GAAP) (1)

13,466

   

18,644

   

13,470

   

47,877

   

36,366

 

Revenues

180,970

   

179,738

   

166,726

   

538,087

   

453,399

 

Operating Margin (GAAP)

4.6

%

 

7.4

%

 

4.8

%

 

6.0

%

 

4.4

%

EBITDA Margin (non-GAAP)

7.4

%

 

10.4

%

 

8.1

%

 

8.9

%

 

8.0

%

   

(1)

Operating income and EBITDA for the three months and nine months ended September 30, 2018 include $1.1 million of charges in Brazil primarily related to severance costs associated with our planned workforce reductions in the fourth quarter of 2018 in connection with the scheduled completion of the current contract with Petrobras, $0.8 million of charges associated with the July 2018 fire at our Kenedy, Texas drilling fluids facility, and $0.6 million of non-capitalizable expenses related to the upgrade and conversion of a drilling fluids facility into a completion fluids facility.

 

Newpark Resources, Inc.

Non-GAAP Reconciliations (Continued)

(Unaudited)

 

Mats and Integrated Services

Three Months Ended

 

Nine Months Ended

(In thousands)

September 30,
2018

 

June 30,
2018

 

September 30,
2017

 

September 30,
2018

 

September 30,
2017

Operating income (GAAP)

$

12,925

   

$

14,853

   

$

10,941

   

$

39,864

   

$

28,762

 

Depreciation and amortization

5,427

   

5,248

   

3,401

   

15,788

   

10,414

 

EBITDA (non-GAAP)

18,352

   

20,101

   

14,342

   

55,652

   

39,176

 

Revenues

54,359

   

56,524

   

34,937

   

160,797

   

89,975

 

Operating Margin (GAAP)

23.8

%

 

26.3

%

 

31.3

%

 

24.8

%

 

32.0

%

EBITDA Margin (non-GAAP)

33.8

%

 

35.6

%

 

41.1

%

 

34.6

%

 

43.5

%

Ratio of Net Debt to Capital

The following table reconciles the Company's ratio of total debt to capital calculated in accordance with GAAP to the non-GAAP financial measure of the Company's ratio of net debt to capital:

(In thousands)

September 30, 2018

 

December 31, 2017

Current debt

$

6,453

   

$

1,518

 

Long-term debt, less current portion

181,945

   

158,957

 

Total Debt

188,398

   

160,475

 

Total stockholders' equity

560,151

   

547,480

 

Total Capital

$

748,549

   

$

707,955

 
       

Ratio of Total Debt to Capital

25.2

%

 

22.7

%

       
       

Total Debt

$

188,398

   

$

160,475

 

Less: cash and cash equivalents

(52,243)

   

(56,352)

 

Net Debt

136,155

   

104,123

 

Total stockholders' equity

560,151

   

547,480

 

Total Capital, Net of Cash

$

696,306

   

$

651,603

 
       

Ratio of Net Debt to Capital

19.6

%

 

16.0

%

 

Contacts:

Gregg Piontek

 

Senior Vice President and Chief Financial Officer  

 

Newpark Resources, Inc.

 

gpiontek@newpark.com  

 

281-362-6800