UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended March 31, 2024
or
For the transition period from __________ to __________
Commission File Number: 001-02960
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
(281 ) 362-6800
(Registrant’s telephone number, including area code)
| Not Applicable | ||
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | ☑ | ||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
As of May 1, 2024, a total of 85,201,652 shares of common stock, $0.01 par value per share, were outstanding.
NEWPARK RESOURCES, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED
MARCH 31, 2024
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, as amended. We also may provide oral or written forward-looking statements in other materials we release to the public. 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 forward-looking statements reflect the current views of our management as of the filing date of this Quarterly Report on Form 10-Q; however, various risks, uncertainties, contingencies, and other factors, some of which are beyond our control, are difficult to predict and could cause our actual results, performance, or achievements to differ materially from those expressed in, or implied by, these statements.
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 Quarterly Report on Form 10-Q might not occur.
For further information regarding these and other factors, risks, and uncertainties that could cause actual results to differ, we refer you to the risk factors set forth in Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023.
1
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
Newpark Resources, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
| (In thousands, except share data) | March 31, 2024 | December 31, 2023 | |||||||||
| ASSETS | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Receivables, net of allowance of $ | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Operating lease assets | |||||||||||
| Goodwill | |||||||||||
| Other intangible assets, net | |||||||||||
| Deferred tax assets | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current debt | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Accrued liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt, less current portion | |||||||||||
| Noncurrent operating lease liabilities | |||||||||||
| Deferred tax liabilities | |||||||||||
| Other noncurrent liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 9) | |||||||||||
Common stock, $ | |||||||||||
| Paid-in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Retained earnings | |||||||||||
Treasury stock, at cost ( | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
2
Newpark Resources, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| (In thousands, except per share data) | 2024 | 2023 | |||||||||
| Revenues | $ | $ | |||||||||
| Cost of revenues | |||||||||||
| Selling, general and administrative expenses | |||||||||||
| Other operating (income) loss, net | ( | ( | |||||||||
| Operating income | |||||||||||
| Foreign currency exchange (gain) loss | ( | ||||||||||
| Interest expense, net | |||||||||||
| Income before income taxes | |||||||||||
| Provision for income taxes | |||||||||||
| Net income | $ | $ | |||||||||
| Net income per common share - basic: | $ | $ | |||||||||
| Net income per common share - diluted: | $ | $ | |||||||||
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
3
Newpark Resources, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| (In thousands) | 2024 | 2023 | |||||||||
| Net income | $ | $ | |||||||||
Foreign currency translation adjustments (net of tax benefit of $ | ( | ||||||||||
| Comprehensive income | $ | $ | |||||||||
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
4
Newpark Resources, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
| (In thousands) | Common Stock | Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Treasury Stock | Total | |||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Employee stock options, restricted stock and employee stock purchase plan | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Treasury shares purchased at cost | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Foreign currency translation, net of tax | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Employee stock options, restricted stock and employee stock purchase plan | — | ( | — | ||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Treasury shares purchased at cost | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Foreign currency translation, net of tax | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
5
Newpark Resources, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| (In thousands) | 2024 | 2023 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operations: | |||||||||||
| Depreciation and amortization | |||||||||||
| Stock-based compensation expense | |||||||||||
| Provision for deferred income taxes | ( | ( | |||||||||
| Credit loss expense | |||||||||||
| Gain on sale of assets | ( | ( | |||||||||
| Gain on insurance recovery | ( | ||||||||||
| Amortization of original issue discount and debt issuance costs | |||||||||||
| Change in assets and liabilities: | |||||||||||
| (Increase) decrease in receivables | ( | ||||||||||
| (Increase) decrease in inventories | ( | ||||||||||
| Decrease in other assets | |||||||||||
| Decrease in accounts payable | ( | ( | |||||||||
| Decrease in accrued liabilities and other | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Proceeds from divestitures | |||||||||||
| Proceeds from sale of property, plant and equipment | |||||||||||
| Net cash provided by (used in) investing activities | ( | ||||||||||
| Cash flows from financing activities: | |||||||||||
| Borrowings on lines of credit | |||||||||||
| Payments on lines of credit | ( | ( | |||||||||
| Purchases of treasury stock | ( | ||||||||||
| Proceeds from employee stock plans | |||||||||||
| Other financing activities | ( | ( | |||||||||
| Net cash provided by (used in) financing activities | ( | ||||||||||
| Effect of exchange rate changes on cash | ( | ||||||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | ( | ||||||||||
| Cash, cash equivalents, and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | $ | |||||||||
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
6
NEWPARK RESOURCES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Basis of Presentation and Significant Accounting Policies
Newpark Resources, Inc. is a geographically diversified supplier providing environmentally-sensitive products, as well as rentals and services to customers across multiple industries. The accompanying unaudited condensed consolidated financial statements of Newpark Resources, Inc. and our wholly-owned subsidiaries, which we collectively refer to as the “Company,” “we,” “our,” or “us,” have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the Securities and Exchange Commission, and do not include all information and footnotes required by the accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023. Our fiscal year end is December 31 and our first quarter represents the three-month period ended March 31. The results of operations for the first quarter of 2024 are not necessarily indicative of the results to be expected for the entire year. Unless otherwise noted, all currency amounts are stated in U.S. dollars.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary to present fairly our financial position as of March 31, 2024 and our results of operations and cash flows for the first quarter of 2024 and 2023. All adjustments are of a normal recurring nature. Our balance sheet at December 31, 2023 is derived from the audited consolidated financial statements at that date.
We currently operate our business through two reportable segments: Fluids Systems and Industrial Solutions.
•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 Europe, the Middle East and Africa (“EMEA”), North America, as well as certain countries in Asia Pacific.
Over the past few years, our primary focus within the Fluids Systems segment 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, particularly in the U.S. In 2023, we exited our stimulation chemicals product line, certain operations for offshore Australia and our operations in Chile. In September 2023, we launched a formal sale process for substantially all the Fluids Systems business. See Note 2 for additional information.
•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.
7
New Accounting Pronouncements
Standards Not Yet Adopted
Segment Reporting. In November 2023, the Financial Accounting Standards Board (“FASB”) issued new guidance which is intended to improve reportable segment disclosure requirements through enhanced disclosures. The amendments require disclosure of significant segment expenses regularly provided to the chief operating decision maker (CODM) as well as other segment items, extend certain annual disclosures to interim periods, clarify the applicability to single reportable segment entities, permit more than one measure of profit or loss to be reported under certain conditions, and require disclosure of the title and position of the CODM. This guidance will be effective for us for the year ending December 31, 2024. We are currently evaluating the impact of the new guidance on our consolidated financial statements and related disclosures.
Income Taxes: Improvements to Income Tax Disclosures. In December 2023, the FASB issued new guidance which is intended to enhance the transparency and decision usefulness of income tax disclosures. This guidance will be effective for us in the first quarter of 2025. We are currently evaluating the impact of the new guidance on our consolidated financial statements and related disclosures.
Note 2 – Divestitures and Other Exit Activities
We regularly review our global portfolio of business activities, evaluating changes in the outlook for our served markets and customer priorities, while identifying opportunities for value-creating options in our portfolio. As part of these reviews, we have taken the following strategic actions.
Review of Strategic Alternatives for Fluids Systems Business
We initiated a review of strategic alternatives for the long-term positioning of the Fluids Systems division in June 2023, and in September 2023, we launched a formal sale process for substantially all the Fluids Systems business as part of this strategic review.
The ongoing Fluids sale process did not meet the held for sale accounting criteria as of March 31, 2024, and as such, continued to be accounted for as held for use. As of March 31, 2024, the Fluids Systems business had approximately $226 million of net assets, including $35 million in cash, $14 million of debt, and $174 million of net working capital. In addition, as of March 31, 2024, the Fluids Systems business had approximately $62 million of accumulated translation losses, which would be reclassified as a charge to income upon a disposition or substantial liquidation of the associated entities.
Exit of Other Operations
In addition to the above, in 2023, we made the decision to exit our offshore Australia operations, as well as our stimulation chemicals product line. We expect to incur certain exit related costs in 2024 of approximately $1 million from the exit of our offshore Australia operations. In 2023, we also completed our customer contract in Chile and completed the substantial liquidation of our Chile subsidiary. The operating results for these now exited businesses were not material for the first quarter of 2024 or 2023.
8
Note 3 – Earnings Per Share
The following table presents the reconciliation of the numerator and denominator for calculating net income per share:
| First Quarter | |||||||||||
| (In thousands, except per share data) | 2024 | 2023 | |||||||||
| Numerator | |||||||||||
| Net income - basic and diluted | $ | $ | |||||||||
| Denominator | |||||||||||
| Weighted average common shares outstanding - basic | |||||||||||
| Dilutive effect of stock options and restricted stock awards | |||||||||||
| Weighted average common shares outstanding - diluted | |||||||||||
| Net income per common share | |||||||||||
| Basic | $ | $ | |||||||||
| Diluted | $ | $ | |||||||||
We excluded the following weighted-average potential shares from the calculations of diluted net income per share during the applicable periods because their inclusion would have been anti-dilutive:
| First Quarter | |||||||||||
| (In thousands) | 2024 | 2023 | |||||||||
| Stock options and restricted stock awards | |||||||||||
Note 4 – Repurchase Program
In November 2018, our Board of Directors authorized a securities repurchase program available for repurchases of any combination of our common stock and our unsecured convertible senior notes, which matured in December 2021. In February 2024, our Board of Directors replaced the existing program with a new repurchase program for repurchases of common stock up to $50.0 million.
Our repurchase program authorizes us to purchase outstanding shares of our common stock in the open market or as otherwise determined by management, subject to certain limitations under the Amended ABL Facility (as defined in Note 7) and other factors. The repurchase program has no specific term. Repurchases are expected to be funded from borrowings under our Amended ABL Facility, operating cash flows, and available cash on hand. As part of the share repurchase program, our management has been authorized to establish trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934. As of March 31, 2024, we had $50.0 million remaining under the program.
9
Note 5 – Receivables
Receivables consisted of the following:
| (In thousands) | March 31, 2024 | December 31, 2023 | |||||||||
| Trade receivables: | |||||||||||
| Gross trade receivables | $ | $ | |||||||||
| Allowance for credit losses | ( | ( | |||||||||
| Net trade receivables | |||||||||||
| Income tax receivables | |||||||||||
| Other receivables | |||||||||||
| Total receivables, net | $ | $ | |||||||||
Other receivables included $4.2 million and $3.6 million for value added, goods and service taxes related to foreign jurisdictions as of March 31, 2024 and December 31, 2023, respectively. In addition, other receivables included an insurance receivable balance of $1.4 million as of March 31, 2024.
Changes in our allowance for credit losses were as follows:
| First Quarter | |||||||||||
| (In thousands) | 2024 | 2023 | |||||||||
| Balance at beginning of period | $ | $ | |||||||||
| Credit loss expense | |||||||||||
| Write-offs, net of recoveries | ( | ( | |||||||||
| Balance at end of period | $ | $ | |||||||||
Note 6 – Inventories
Inventories consisted of the following:
| (In thousands) | March 31, 2024 | December 31, 2023 | |||||||||
| Raw materials: | |||||||||||
| Fluids Systems | $ | $ | |||||||||
| Industrial Solutions | |||||||||||
| Total raw materials | |||||||||||
| Blended fluids systems components | |||||||||||
| Finished goods — mats | |||||||||||
| Total inventories | $ | $ | |||||||||
10
Note 7 – Financing Arrangements and Fair Value of Financial Instruments
Financing arrangements consisted of the following:
| March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||||||||
| (In thousands) | Principal Amount | Unamortized Discount and Debt Issuance Costs | Total Debt | Principal Amount | Unamortized Discount and Debt Issuance Costs | Total Debt | |||||||||||||||||||||||||||||
| Amended ABL Facility | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Foreign subsidiary facilities | |||||||||||||||||||||||||||||||||||
| Finance leases | |||||||||||||||||||||||||||||||||||
| U.K. term loan | ( | ( | |||||||||||||||||||||||||||||||||
| Other debt | ( | ( | |||||||||||||||||||||||||||||||||
| Total debt | ( | ( | |||||||||||||||||||||||||||||||||
| Less: current portion | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Long-term debt | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
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 March 31, 2024, our total availability under the Amended ABL Facility was $110.0 million, of which $48.0 million was drawn and $4.0 million was used for outstanding letters of credit, resulting in remaining availability of $58.0 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 March 31, 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. As of March 31, 2024, 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.
11
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 March 31, 2024, 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. During the first quarter of 2024, we entered into $2.2 million of new finance lease liabilities in exchange for leased assets.
In addition, at March 31, 2024, we had $40.2 million in outstanding letters of credit, performance bonds, and other guarantees for which certain of the letters of credit are collateralized by $0.2 million in restricted cash.
Our financial instruments include cash and cash equivalents, receivables, payables, and debt. We believe the carrying values of these instruments approximated their fair values at March 31, 2024 and December 31, 2023.
Note 8 – Income Taxes
12
Note 9 – Commitments and Contingencies
In the ordinary course of conducting our business, we become involved in litigation and other claims from private party actions, as well as judicial and administrative proceedings involving governmental authorities at the federal, state, and local levels. While the outcome of litigation or other proceedings against us cannot be predicted with certainty, management does not expect that any loss resulting from such litigation or other proceedings, in excess of any amounts accrued or covered by insurance, will have a material adverse impact on our consolidated financial statements.
The first quarter of 2024 includes a $0.9 million gain related to the final insurance settlement associated with Hurricane Ida in August 2021, as well as a $0.6 million gain related to a legal settlement.
Note 10 – Supplemental Disclosures to the Statements of Cash Flows
Supplemental disclosures to the consolidated statements of cash flows are presented below:
| First Quarter | |||||||||||
| (In thousands) | 2024 | 2023 | |||||||||
| Cash paid for: | |||||||||||
| Income taxes (net of refunds) | $ | $ | |||||||||
| Interest | $ | $ | |||||||||
Cash, cash equivalents, and restricted cash in the consolidated statements of cash flows consisted of the following:
| (In thousands) | March 31, 2024 | December 31, 2023 | |||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash (included in prepaid expenses and other current assets) | |||||||||||
| Cash, cash equivalents, and restricted cash | $ | $ | |||||||||
13
Note 11 – Segment Data
Summarized operating results for our reportable segments are shown in the following table (net of inter-segment transfers):
| First Quarter | |||||||||||
| (In thousands) | 2024 | 2023 | |||||||||
| Revenues | |||||||||||
| Fluids Systems | $ | $ | |||||||||
| Industrial Solutions | |||||||||||
| Total revenues | $ | $ | |||||||||
| Operating income (loss) | |||||||||||
| Fluids Systems | $ | $ | |||||||||
| Industrial Solutions | |||||||||||
| Corporate office | ( | ( | |||||||||
| Total operating income | $ | $ | |||||||||
Operating results shown above include the following items:
| First Quarter | |||||||||||
| (In thousands) | 2024 | 2023 | |||||||||
| Fluids sale process transaction expenses | $ | $ | |||||||||
| Gain on insurance recovery | ( | ||||||||||
| Facility exit costs and other, net | |||||||||||
| Severance costs | |||||||||||
| Total Fluids Systems | |||||||||||
| Gain on insurance recovery | ( | ||||||||||
| Gain on legal settlement | ( | ||||||||||
| Severance costs | |||||||||||
| Total Industrial Solutions | ( | ||||||||||
| Fluids sale process transaction expenses | |||||||||||
| Severance costs | |||||||||||
| Total Corporate office | |||||||||||
| Total | $ | $ | |||||||||
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The following table presents further disaggregated revenues for the Fluids Systems segment:
| First Quarter | |||||||||||
| (In thousands) | 2024 | 2023 | |||||||||
| United States | $ | $ | |||||||||
| Canada | |||||||||||
| Total North America | |||||||||||
| EMEA | |||||||||||
| Other | |||||||||||
| Total International | |||||||||||
| Total Fluids Systems revenues | $ | $ | |||||||||
The following table presents further disaggregated revenues for the Industrial Solutions segment:
| First Quarter | |||||||||||
| (In thousands) | 2024 | 2023 | |||||||||
| Rental revenues | $ | $ | |||||||||
| Service revenues | |||||||||||
| Product sales revenues | |||||||||||
| Total Industrial Solutions revenues | $ | $ | |||||||||
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 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.”
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.
Over much of the past decade, while the Fluids Systems segment has been the primary driver of revenues, the Industrial Solutions segment has been the primary driver of operating income, cash flows, and financial returns. Consequently, our growth investments in recent years have been heavily concentrated in the Industrial Solutions segment. The relative revenues, operating income, and capital expenditures for the Industrial Solutions and Fluids Systems segments for the first quarter of 2024 are as follows (amounts in millions):
* See Note 11 for certain items included in the Fluids Systems and Industrial Solutions segment operating results.
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. 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 is ongoing, we anticipate substantially completing the process in mid-2024, although it is not certain that any such transaction will be consummated on that timeline or at all. 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. If we successfully complete the process to substantially exit the Fluids Systems segment, our remaining operations will primarily reflect a specialty rental and service business, serving the utilities sector and other critical infrastructure markets. See further information below.
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2024 Priorities
The following priorities have been established for 2024:
•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. During the first quarter of 2024, approximately 95% of our capital expenditures were directed to the Industrial Solutions segment.
•Drive Operational Efficiency – We plan to maintain our focus on efficiency improvements and operating cost optimization across every aspect of our global footprint. 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 quarter of 2024, we continued to take actions to streamline our overhead structure across both segments and the corporate office, generating approximately $3 million in annual cost savings, while incurring $1.1 million of severance costs.
•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. 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.
Segment Overview
Industrial Solutions – Our Industrial Solutions segment, which generated 29% of our consolidated revenues and 65% of our segment-level operating income for the first quarter of 2024, 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.
The expansion of our business within 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, which generated 71% of our consolidated revenues and 35% of our segment-level operating income for the first quarter of 2024, provides drilling and completion fluids products and related technical services to customers for oil, natural gas, and geothermal projects primarily in EMEA and North America, 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 to drive improvements in segment profitability and returns.
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. 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.
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Rig count data remains the most widely accepted indicator of drilling activity. Average North American rig count data for the first quarter of 2024 and 2023 is as follows:
| First Quarter | 2024 vs 2023 | ||||||||||||||||||||||
| 2024 | 2023 | Count | % | ||||||||||||||||||||
| U.S. Rig Count | 623 | 760 | (137) | (18) | % | ||||||||||||||||||
| Canada Rig Count | 208 | 221 | (13) | (6) | % | ||||||||||||||||||
| North America Rig Count | 831 | 981 | (150) | (15) | % | ||||||||||||||||||
_______________________________________________________
Source: Baker Hughes Company
In 2023, market activity in the U.S. steadily declined, ending the year at 622 active rigs, down 20% from the end of 2022. Despite recent strength in oil prices, the 2024 outlook for U.S. market activity generally remains below the 2023 average level, as many of our customers maintain strong capital discipline and prioritize cash flow generation over growth.
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, geopolitical events in recent years 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 remains strong, with growth in activity expected over the next few years.
2023 Strategic Actions
The following strategic actions were taken in 2023.
Review of Strategic Alternatives for Fluids Systems Business
As described above, we launched a formal sale process for substantially all the Fluids Systems business in September 2023. The ongoing Fluids sale process did not meet the held for sale accounting criteria as of March 31, 2024, and as such, continued to be accounted for as held for use. As of March 31, 2024, the Fluids Systems business had approximately $226 million of net assets, including $35 million in cash, $14 million of debt, and $174 million of net working capital. In addition, as of March 31, 2024, the Fluids Systems business had approximately $62 million of accumulated translation losses, which would be reclassified as a charge to income upon a disposition or substantial liquidation of the associated entities.
As we continue to evaluate strategic alternatives for our Fluids Systems portfolio, we may incur future charges, including a loss on a potential transaction related to these efforts or potential asset impairments, which may negatively impact our future results.
Exit of Other Operations
In addition to the above, in 2023, we made the decision to exit our offshore Australia operations, as well as our stimulation chemicals product line. We expect to incur certain exit related costs in 2024 of approximately $1 million from the exit of our offshore Australia operations. In 2023, we also completed our customer contract in Chile and completed the substantial liquidation of our Chile subsidiary. The operating results for these now exited businesses were not material for the first quarter of 2024 or 2023.
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First Quarter of 2024 Compared to First Quarter of 2023
Consolidated Results of Operations
Summarized results of operations for the first quarter of 2024 compared to the first quarter of 2023 are as follows:
| First Quarter | 2024 vs 2023 | ||||||||||||||||||||||
| (In thousands) | 2024 | 2023 | $ | % | |||||||||||||||||||
| Revenues | $ | 169,107 | $ | 200,030 | $ | (30,923) | (15) | % | |||||||||||||||
| Cost of revenues | 134,587 | 164,738 | (30,151) | (18) | % | ||||||||||||||||||
| Selling, general and administrative expenses | 24,344 | 25,410 | (1,066) | (4) | % | ||||||||||||||||||
| Other operating (income) loss, net | (1,683) | (261) | (1,422) | NM | |||||||||||||||||||
| Operating income | 11,859 | 10,143 | 1,716 | 17 | % | ||||||||||||||||||
| Foreign currency exchange (gain) loss | (31) | 319 | (350) | NM | |||||||||||||||||||
| Interest expense, net | 1,750 | 2,089 | (339) | (16) | % | ||||||||||||||||||
| Income before income taxes | 10,140 | 7,735 | 2,405 | 31 | % | ||||||||||||||||||
| Provision for income taxes | 2,847 | 2,115 | 732 | 35 | % | ||||||||||||||||||
| Net income | $ | 7,293 | $ | 5,620 | $ | 1,673 | 30 | % | |||||||||||||||
Revenues
Revenues decreased 15% to $169.1 million for the first quarter of 2024, compared to $200.0 million for the first quarter of 2023. This $30.9 million decrease in revenues includes a $43.5 million (31%) decrease in North America, comprised of a $36.6 million decrease in the Fluids Systems segment and a $6.9 million decrease in the Industrial Solutions segment. In our Fluids Systems segment, revenues from our North America operations decreased primarily due to the effect of lower U.S. market share and reduced U.S. market activity. In our Industrial Solutions segment, revenues from our North America operations decreased primarily due to lower product sales, which typically fluctuate based on the timing of customer projects and orders. Revenues from our international operations increased by $12.6 million (21%), driven by higher Fluids Systems 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 18% to $134.6 million for the first quarter of 2024, compared to $164.7 million for the first quarter of 2023. This $30.2 million decrease in cost of revenues was primarily driven by the 15% decrease in revenues described above, as well as the impact of segment revenue mix, with Industrial Solutions representing a higher proportion of revenues for the first quarter of 2024, as compared to the prior year.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased $1.1 million to $24.3 million for the first quarter of 2024, compared to $25.4 million for the first quarter of 2023. This decrease was primarily driven by lower personnel expense resulting from efforts to streamline the overhead structure partially offset by higher strategic planning project costs. The first quarter of 2024 includes $2.2 million related to the Fluids sale process while the first quarter of 2023 included $0.9 million primarily related to strategic planning and an organizational design project. Selling, general and administrative expenses as a percentage of revenues was 14.4% for the first quarter of 2024 compared to 12.7% for the first quarter of 2023.
Other operating (income) loss, net
The first quarter of 2024 includes a $0.9 million gain related to the final insurance settlement associated with Hurricane Ida in August 2021, which caused damage to our facilities in Fourchon, Louisiana, as well as a $0.6 million gain related to a legal settlement in the Industrial Solutions segment. Other operating (income) loss, net, also includes gains and losses on sales of assets.
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Foreign currency exchange
Foreign currency exchange was minimal for the first quarter of 2024 and 2023, and reflects the impact of currency translation on assets and liabilities (including intercompany balances) that are denominated in currencies other than functional currencies.
Interest expense, net
Interest expense was $1.8 million for the first quarter of 2024 compared to $2.1 million for the first quarter of 2023. The decrease in interest expense is primarily due to a decrease in average debt outstanding.
Provision for income taxes
The provision for income taxes was $2.8 million for the first quarter of 2024, reflecting an effective tax rate of 28%, compared to income taxes of $2.1 million for the first quarter of 2023, reflecting an effective tax rate of 27%. The provision for income taxes for the first quarter of 2024 and 2023 primarily reflects income taxes associated with our international operations, as the tax provision associated with U.S. income is largely offset by the partial valuation allowance release associated with previously unbenefited U.S. net operating losses.
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Operating Segment Results
Summarized financial information for our reportable segments is shown in the following table (net of inter-segment transfers):
| First Quarter | 2024 vs 2023 | ||||||||||||||||||||||
| (In thousands) | 2024 | 2023 | $ | % | |||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Fluids Systems | $ | 120,140 | $ | 144,174 | $ | (24,034) | (17) | % | |||||||||||||||
| Industrial Solutions | 48,967 | 55,856 | (6,889) | (12) | % | ||||||||||||||||||
| Total revenues | $ | 169,107 | $ | 200,030 | $ | (30,923) | (15) | % | |||||||||||||||
| Operating income (loss) | |||||||||||||||||||||||
| Fluids Systems | $ | 6,836 | $ | 3,466 | $ | 3,370 | |||||||||||||||||
| Industrial Solutions | 12,936 | 14,483 | (1,547) | ||||||||||||||||||||
| Corporate office | (7,913) | (7,806) | (107) | ||||||||||||||||||||
| Total operating income | $ | 11,859 | $ | 10,143 | $ | 1,716 | |||||||||||||||||
| Segment operating margin | |||||||||||||||||||||||
| Fluids Systems | 5.7 | % | 2.4 | % | |||||||||||||||||||
| Industrial Solutions | 26.4 | % | 25.9 | % | |||||||||||||||||||
Fluids Systems
Revenues
Total revenues for this segment consisted of the following:
| First Quarter | 2024 vs 2023 | ||||||||||||||||||||||
| (In thousands) | 2024 | 2023 | $ | % | |||||||||||||||||||
| United States | $ | 30,477 | $ | 68,898 | $ | (38,421) | (56) | % | |||||||||||||||
| Canada | 21,223 | 19,365 | 1,858 | 10 | % | ||||||||||||||||||
| Total North America | 51,700 | 88,263 | (36,563) | (41) | % | ||||||||||||||||||
| EMEA | 62,555 | 52,577 | 9,978 | 19 | % | ||||||||||||||||||
| Other | 5,885 | 3,334 | 2,551 | 77 | % | ||||||||||||||||||
| Total International | 68,440 | 55,911 | 12,529 | 22 | % | ||||||||||||||||||
| Total Fluids Systems revenues | $ | 120,140 | $ | 144,174 | $ | (24,034) | (17) | % | |||||||||||||||
North America revenues decreased 41% to $51.7 million for the first quarter of 2024, compared to $88.3 million for the first quarter of 2023, primarily related to a decline in U.S. land as a result of lower market share and reduced market activity. Canada revenues increased $1.9 million driven primarily by elevated product consumption per rig and a slight increase in market share, which typically fluctuates based on customer mix and timing of projects.
International revenues increased 22% to $68.4 million for the first quarter of 2024, compared to $55.9 million for the first quarter of 2023. The increase was primarily driven by higher customer activity and elevated product consumption per rig in Europe and Africa.
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Operating income
The Fluids Systems segment generated operating income of $6.8 million for the first quarter of 2024 compared to $3.5 million for the first quarter of 2023. The improvement in operating income despite the lower revenues primarily reflects the combined effects of improved regional mix (higher international revenues, lower U.S. revenues) and improvements in customer pricing, particularly within the international markets, as well as cost reductions within the U.S. business. In addition, the first quarter of 2024 segment operating income includes $0.8 million in severance costs and transaction expenses related to the ongoing Fluids Systems segment sale process offset by a $0.8 million gain on insurance recovery, while the first quarter of 2023 segment operating income included $3.2 million in charges primarily related to facility exit and severance costs.
Industrial Solutions
Revenues
Total revenues for this segment consisted of the following:
| First Quarter | 2024 vs 2023 | ||||||||||||||||||||||
| (In thousands) | 2024 | 2023 | $ | % | |||||||||||||||||||
| Rental and service revenues | $ | 35,181 | $ | 36,360 | $ | (1,179) | (3) | % | |||||||||||||||
| Product sales revenues | 13,786 | 19,496 | (5,710) | (29) | % | ||||||||||||||||||
| Total Industrial Solutions revenues | $ | 48,967 | $ | 55,856 | $ | (6,889) | (12) | % | |||||||||||||||
Rental and service revenues decreased for the first quarter of 2024, reflecting a decline in service revenues, primarily driven by the impact of timing of certain customer projects, partially offset by a slight increase in rental revenues, driven primarily by higher volume. Product sales revenues decreased for the first quarter of 2024, and typically fluctuate based on the timing of customer projects and orders.
Operating income
The Industrial Solutions segment generated operating income of $12.9 million for the first quarter of 2024 compared to $14.5 million for the first quarter of 2023, the decrease being primarily attributable to the lower revenues, partially offset by higher profitability driven by efficiencies in rental and service activities as well as manufacturing.
Corporate Office
Corporate office expenses increased $0.1 million to $7.9 million for the first quarter of 2024, compared to $7.8 million for the first quarter of 2023. This slight increase was primarily driven by higher strategic planning project costs, as the first quarter of 2024 included $1.9 million related to the Fluids sale process while the first quarter of 2023 included $0.9 million primarily related to strategic planning and an organizational design project, substantially offset by lower personnel expense resulting from efforts to streamline the overhead structure.
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Liquidity and Capital Resources
Net cash provided by operating activities was $12.0 million for the first quarter of 2024 compared to $29.4 million for the first quarter of 2023. During the first quarter of 2024, net income adjusted for non-cash items provided cash of $13.7 million while changes in working capital used cash of $1.7 million. Operating cash flow for the first quarter of 2023 benefited from approximately $13 million related to the wind down of working capital associated with certain fourth quarter 2022 divestiture transactions.
Net cash used in investing activities was $12.7 million for the first quarter of 2024, including $13.9 million in capital expenditures partially offset by $1.1 million in proceeds from the sale of assets, which includes the sale of used mats from our Industrial Solutions rental fleet. The substantial majority of our capital expenditures for the first quarter of 2024 were directed to expanding our Industrial Solutions segment rental fleet.
Net cash provided by financing activities was $0.6 million for the first quarter of 2024, and primarily relates to net borrowings on our Amended ABL Facility and other financing arrangements.
Substantially all of our $37.7 million of cash on hand at March 31, 2024 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 our near-term working capital requirements for our operations will generally fluctuate directionally with revenues. We expect capital expenditures in 2024 to be approximately $30 million to $40 million, with spending heavily focused on the expansion of our mat rental fleet. We also expect to return value to our shareholders, utilizing excess cash generation to fund additional share repurchases. In addition, if we are successful in completing the process to substantially exit the Fluids Systems business, we anticipate the proceeds to be used to repay a significant portion of our existing outstanding debt, providing additional liquidity to fund our long-term strategic initiatives.
Our capitalization is as follows:
| (In thousands) | March 31, 2024 | December 31, 2023 | |||||||||
| Amended ABL Facility | 48,000 | 45,000 | |||||||||
| Other debt | 29,484 | 30,093 | |||||||||
| Unamortized discount and debt issuance costs | (46) | (60) | |||||||||
| Total debt | $ | 77,438 | $ | 75,033 | |||||||
| Stockholders’ equity | 421,589 | 415,364 | |||||||||
| Total capitalization | $ | 499,027 | $ | 490,397 | |||||||
| Total debt to capitalization | 15.5 | % | 15.3 | % | |||||||
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 March 31, 2024, our total availability under the Amended ABL Facility was $110.0 million, of which $48.0 million was drawn and $4.0 million was used for outstanding letters of credit, resulting in remaining availability of $58.0 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
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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 March 31, 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. As of March 31, 2024, 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 March 31, 2024, 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. During the first quarter of 2024, we entered into $2.2 million of new finance lease liabilities in exchange for leased assets.
In addition, at March 31, 2024, we had $40.2 million in outstanding letters of credit, performance bonds, and other guarantees for which certain of the letters of credit are collateralized by $0.2 million in restricted cash.
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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, 2023. Our critical accounting estimates and policies have not materially changed since December 31, 2023.
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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
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 March 31, 2024, we had total principal amounts outstanding under financing arrangements of $77.5 million, including $48.0 million of borrowings under our Amended ABL Facility, $6.9 million of borrowings under a U.K. term loan and credit facility, and $3.8 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 March 31, 2024 for the Amended ABL Facility, U.K. debt, and other international credit facilities was 6.9%, 8.4%, and 8.5%, respectively. Based on the balance of variable rate debt at March 31, 2024, a 100 basis-point increase in short-term interest rates would have increased annual pre-tax interest expense by $0.6 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.
ITEM 4. Controls and Procedures
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 (the “Exchange Act”)) as of the end of the period covered by this quarterly report in accordance with Rules 13a-15 and 15d-15 under the Exchange Act. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2024, 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 March 31, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
In the ordinary course of conducting our business, we become involved in litigation and other claims from private party actions, as well as judicial and administrative proceedings involving governmental authorities at the federal, state, and local levels. While the outcome of litigation or other proceedings against us cannot be predicted with certainty, management does not expect that any loss resulting from such litigation or other proceedings, in excess of any amounts accrued or covered by insurance, will have a material adverse impact on our consolidated financial statements.
ITEM 1A. Risk Factors
There have been no material changes during the period ended March 31, 2024 to our “Risk Factors” as discussed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023.
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ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
a)Not applicable
b)Not applicable
c)The following table details our repurchases of shares of our common stock for the three months ended March 31, 2024:
| Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under Plans or Programs ($ in Millions) | |||||||||||||||||||
| January 2024 | — | $ | — | — | $ | 18.1 | |||||||||||||||||
| February 2024 | — | $ | — | — | $ | 50.0 | |||||||||||||||||
| March 2024 | — | $ | — | — | $ | 50.0 | |||||||||||||||||
| Total | — | — | |||||||||||||||||||||
Our Board of Directors authorized a $100.0 million securities repurchase program in November 2018, available for repurchases of any combination of our common stock and our unsecured convertible senior notes, which matured in December 2021. In February 2024, our Board of Directors replaced the existing program with a new repurchase program for repurchases of common stock up to $50.0 million.
Our repurchase program is available to purchase outstanding shares of our common stock in the open market or as otherwise determined by management, subject to certain limitations under the Amended ABL Facility and other factors. The repurchase program has no specific term. Future repurchases are expected to be funded from operating cash flows, available cash on hand, and borrowings under our Amended ABL Facility. As part of the share repurchase program, our management has been authorized to establish trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934.
There were no shares of common stock repurchased under the repurchase program during the first quarter of 2024. As of March 31, 2024, we had $50.0 million remaining under the program.
During the three months ended March 31, 2024, there were no shares surrendered in lieu of taxes under vesting of restricted shares.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
Insider Trading Arrangements
During the quarter ended March 31, 2024, no director or officer of the Company adopted terminated
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ITEM 6. Exhibits
The exhibits listed are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| †*10.1 | |||||
| †*10.2 | |||||
| †*10.3 | |||||
| *31.1 | |||||
| *31.2 | |||||
| **32.1 | |||||
| **32.2 | |||||
| *101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | ||||
| *101.SCH | Inline XBRL Schema Document | ||||
| *101.CAL | Inline XBRL Calculation Linkbase Document | ||||
| *101.DEF | Inline XBRL Definition Linkbase Document | ||||
| *101.LAB | Inline XBRL Label Linkbase Document | ||||
| *101.PRE | Inline XBRL Presentation Linkbase Document | ||||
| *104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | ||||
† Management compensation plan or agreement.
* Filed herewith.
** Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 3, 2024
| NEWPARK RESOURCES, INC. | |||||
| (Registrant) | |||||
| By: | /s/ Matthew S. Lanigan | ||||
| Matthew S. Lanigan President and Chief Executive Officer (Principal Executive Officer) | |||||
| By: | /s/ Gregg S. Piontek | ||||
| Gregg S. Piontek Senior Vice President and Chief Financial Officer (Principal Financial Officer) | |||||
| By: | /s/ Douglas L. White | ||||
| Douglas L. White Vice President, Chief Accounting Officer and Treasurer (Principal Accounting Officer) | |||||
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