Q3 2025 NPK International Earnings Call

Thank you for standing by. My name is Tina and I will be your conference operator. Today at this time, I would like to welcome everyone to the NPK International third quarter 2025 earnings call.

All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question, press *1 on your telephone keypad. To withdraw your question, press *1 again. Thank you. It is now my pleasure to turn today's call over to Gregg Piontek. You may begin.

Thank you, operator. I'd like to welcome everyone to the NPK International third quarter 2025 conference call.

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

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

Actual results May differ significantly from those projected. In today's forward-looking statements due to various risks and uncertainties including the risks described in our periodic reports filed with the SEC.

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

Our comments on today's call may also contain certain non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures are included in our quarterly earnings release, which can be found on our corporate website.

There will be a replay of today's call, and it will be available by webcast within the Investor Relations section of our website at NPK.com.

At the conclusion of our prepared remarks, we will open the line for questions and with that, I'd like to turn the call over to our president and CEO. Matthew lanegan

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

We are very encouraged by our third quarter performance. That continued to showcase the robust outlook, for our serve markets, and our ability and Agility in responding to our customers needs.

The quarter produced very strong year-over-year growth that reflects the strengthening demand for our products and services.

We also saw modest quarter over quarter growth. A result of our purposeful focus on maximizing. Our rental asset utilization during a traditionally slower seasonal quarter.

Our total third quarter revenues of 69 million is very pleasing given 23 has traditionally seen a more meaningful pullback in utility activities during the warmer summer months.

On a year-over-year basis, our total revenues improved 56%, while rental and service revenues improved 37%.

Focusing on our rental and service activity, which we believe represents the stickiest and highest long-term driver of returns. We recently achieved our highest rental Fleet utilization on record as we responded to multiple short, notice project, extensions and expansions

As we have mentioned in the past, we are proud of our Fleet scale and our operational flexibility to be able to meet these changing customer demands.

However, the combination of short notice accelerated start times and high utilization does lead to certain Transportation inefficiencies as matting, inventory is relocated.

While we expect some level of inefficiency due to changing customer demands, the timing and extent of the experience late in the third quarter led to approximately $1 million in elevated costs. That negatively impacted our gross margins in Q3.

We anticipate some carryover impact of these elevated costs in early Q4. However we believe they will be recovered over the project term allowing us to maintain our typical gross margins over the longer term.

Product sales activity. Also remain robust generating, 25 million of Revenue, reflecting continued strength in demand from multiple utility customers.

Given the continued demand and robust outlook across our served markets, we maintain our commitment to the expansion of our rental fleet, investing a net $12 million in the third quarter and increasing our full-year fleet investments by $10 million to meet the anticipated demand growth as we approach 2026.

I also wanted to highlight that with the strengthening Market Outlook underpinned by continued upward revisions in forecasted utility transmission spend as well as a Midstream and general infrastructure Outlook. We accelerated our manufacturing capacity expansion planning efforts during the quarter.

We expect these efforts to continue into early 2026 before moving on to procurement and construction activities.

We are also making progress with our previously mentioned debottlenecking activities at our plant, which are being executed in parallel with the manufacturing capacity expansion planning.

Notably we recently completed process modification achieving roughly 5% increase in production levels which further supports our growth plans and operational efficiency objectives.

Finally, I wanted to touch on cash flow generation and capital allocation during the quarter.

We are once again very pleased with the strong cash generation in the third quarter, with cash provided by operating activities of $25 million and free cash flow of $13 million.

During the quarter, we used $3.4 million to repurchase more than 400,000 shares at an average price of $8.45, while also building our cash balance by $10 million. With that, I'll turn the call over to Greg for his prepared remarks.

Thanks Matthew.

I'll begin with a more detailed discussion of our third quarter and year to date results. Then provide an update on our Outlook and capital allocation priorities for the remainder of 2025.

As Matthew touched on third quarter. Revenues came in above our expectations benefiting from our strategic focus on maintaining strong rental utilization through the seasonally slower summer months. Along with several Lake quarter, largescale, mobilizations and robust product sale demand,

Total Rental and service. Revenues were 44 million for the third quarter. With rental revenues, down 7% sequentially through the seasonally slower Q3, but improving 57% year-over-year, while Associated service Revenue was flat sequentially and improved 9% year-over-year,

Revenue from product sales also remained robust at $25 million for the third quarter, up 12% sequentially and more than doubling the third quarter of last year.

For the first nine months of 2025, rental and service revenues have increased 29% year-over-year, while revenues from product sales increased 21%. Both growths are primarily driven by significant demand in the power transmission sector.

Learning to gross profit. The third quarter result was impacted by roughly 1.7 million of costs. In the quarter related to the late quarter Transportation costs, required to meet customer project timelines along with manufacturing planning projects and other charges.

Gross margin was 31.9% in the third quarter, down from 36.9% in the second quarter and up from 27.5% in the third quarter of last year.

Third quarter SG&A expenses totaled $13.3 million, a decrease of $400,000 sequentially and a $2.3 million increase compared to the prior year.

The third quarter was again impacted by elevated costs associated with performance-based incentives.

Including long-term incentive programs linked to the company's share price.

As well as those tied to 2025 revenues, profitability, and other performance targets.

The third quarter sgna. Also included roughly $500,000 of project costs associated with strategic planning efforts and our ongoing Erp implementation.

Income tax expense was $3 million in the third quarter, reflecting an effective tax rate of 33%. Our year-to-date effective tax rate increased modestly to 28%.

Adjusted EPS from continuing operations was 7 cents per diluted share in the third quarter. Compared to 11 cents in the second quarter and break even in the third quarter of last year.

Turning to cash flows, operating activities generated $25 million of cash in the third quarter, including $16 million from net income, adjusted for non-cash expenses, and $9 million of cash provided by a net decrease in working capital.

Net capex used was $12 million, which includes $10 million of net investment in fleet expansion.

Additionally, as Matthew touched on, we use 3.4 million to purchase 402,000 shares under a repurchase program, reflecting an average purchase price of 8.45 cents per share.

Looking at year to date cash flows for the first 9 months of 2025, we generated a total of 55 million of cash from operating activities along with 14 million dollars of additional proceeds. From the fluids deer using 31 million to fund net, capital expenditures and expanding our matte rental Fleet by approximately 13% from the end of 2024. While also using 20 million dollars to repurchase 3 million shares and an average purchase price of $6.70 per share, reducing our outstanding share count by nearly 4% from the end of 2024.

We ended the quarter with a total cash position of $36 million and total debt of $10 million, resulting in a net cash position of $26 million.

Additionally, we have 144 million of availability under a bank facility.

Now turning to our business outlook, as highlighted in yesterday's press release, considering the continued strength in rental project activity and robust product sale demand, particularly within the utility sector, we have increased our full-year 2025 expectations. Total anticipated revenues are now in the range of $268 million to $272 million, with adjusted EBITDA of $71 million to $74 million.

The midpoint of our 2025 range, reflects 24%, Revenue, growth and 32% adjusted Eva dog growth over 2024.

Breaking our full year Revenue expectation down further. We expect Total Rental and service revenues to grow by a mid-20s percentage.

...and product sales are expected to grow by a high teens percentage range relative to 2024 levels.

With the current strong demand and outlook carrying into 2026.

We're increasing our full year. Net capex expectation for 2025 to 45 to 50 million with over 40 million dollars, invested into the rental Fleet.

As for the near-term outlook, we expect to see Q4 rental revenue set a new quarterly record, surpassing the level achieved in Q2.

On the product sales side, we expect Q4 revenues to pull back from the exceptionally strong, third quarter, likely in the upper teens range.

Q4 gross margin is expected to return to the mid-30s range, which includes some continued transitory impacts of the elevated transportation and cross-run activity.

Additionally, we expect Q4 sgna will also be impacted by costs from the ongoing strategic planning and Erp implementation projects.

Which will likely keep SGNA around the Q3 level in the fourth quarter.

Our goal of mid teens sgna percentage of Revenue. Following the completion of our Erp implementation in early 2026 remains unchanged.

Those worth noting that we expect 2026 sgna will continue to carry elevated. Incentive costs associated with the company's 2025 share price performance.

In terms of taxes, we expect our effective tax rate to remain in the upper 20s range.

Though, with the benefit of existing NOLs and other tax carryforwards, along with accelerated deductions under the recent OB3 legislation, we expect our cash tax obligations will remain limited for the next several years.

In terms of our capital allocation strategy, we continue to prioritize investments in the growth of our rental fleet and expect to continue returning a portion of free cash flow generation to shareholders through our share repurchase program.

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

Thanks Greg.

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

Our primary focus remains on achieving consistent Revenue. Growth through the scale up of our high return rental business, which includes a combination of geographic expansion and market share growth within our currently, served us and UK markets.

Over the course of 2025, we are focused heavily on our commercial front-end scale-up to drive our geographic expansion, and we remain very pleased with the team's continued strong execution.

A quoted volume is growing meaningfully year-over-year. While our award rate remains in line with historical levels, this has resulted in a 40% year-over-year growth in rental revenues for the first nine months of 2025.

To support this growth, we remain committed to expanding our Matt rental Fleet, which grew by approximately 13% in 2024 and by an additional 13% in the first 9 months of 2025, as we continue to build on our leading position within the rental market.

As I touched on in my opening remarks, in light of what we see as a strengthening multi-year capital cycle for our utility customers and the sustained market conversion from timber to composite, we have also kicked off manufacturing expansion planning.

Our second focus area is on driving organizational efficiencies across every aspect of our business.

During the quarter, we began the rollout of a new ERP system, a process that will continue into early 2026. As we look to further streamline our overhead structure, our target is to achieve SG&A as a percent of revenue in the mid-teens by early 2026.

And our final priority is the allocation of capital beyond our organic requirements.

With a strong balance sheet and a disciplined approach, we remain committed to our programmatic share purchase program while also actively evaluating several core strategic inorganic opportunities that increase our market coverage, value, and relevance to customers in key critical infrastructure markets.

As we close out the final quarter of 2025 and sharpen our focus on 2026, I'm exceptionally proud of our team's execution and how we have positioned the company.

Now a full year removed from our disposition of the fluids business. We have a world-class team meaningful growing scale and Manufacturing capacity and a strong balance sheet to support our Capital allocation priorities.

We expect to deliver over 20% Revenue growth and 30% adjusted Eva growth in 2025 and with the building blocks in place and a robust Outlook in our key serve markets. I believe we are positioned to continue to deliver double-digit growth in 2026 and Beyond

In closing, I want to thank our shareholders, for their ongoing. Support our employees, for the dedication, to the business, including their commitment to safety, and compliance, and our customers for their ongoing Partnerships. And with that, we'll open the call for questions.

Thank you at this time. I would like to remind everyone in order to ask a question, press star 1 on your telephone keypad. We respectfully ask that you limit questions to 1 and 1 follow up. Our first question comes from the line of Aaron spatula with Craig Howland. Please go ahead.

Yo, can you just talk about, you know, how the overall pipeline has been growing? Um, you know, year-over-year, just some kind of figures as you kind of look towards 2026.

Thanks. And I'll take that 1 of growth that we've kind of commented on on a year-over-year basis. It's, it's fair to assume that the pipeline growth is in line with that. Maybe a little out stripping that what we are seeing um, is with these longer duration projects, we're getting a little bit longer to look at those. So we are seeing some elongation of the time to award as part of that, so kind of encouraging on both fronts pipeline building, uh, in in that kind of range that I quoted there and then, you know, longer duration visibility that you mentioned earlier in your question. So, um, I think all of that is is shaping up well into 26.

Gotcha, thanks for that. And then, you know, on the capacity, expansion plans, I I mean accelerating the efforts, there could you just give some more detail on? You know what this might add from you know a percentage standpoint and you know any details on on kind of cost potential and and timing

Yeah, it's a little early for us on that 1. We've ticked off the planning, I mean it's you know, we will continue to work through it but I would expect that we would be putting something in line with you know, about half of our existing capacity in that range, is what we would be looking at um, at this point and then we're really working hard.

Out on the cost down, that's a pretty wide range. So, I'm nervous about getting anyone fixated on a given figure. Um, you know, the outside cost that we're looking to bring down would be what we spent on our last plan expansion. We continue to think we can do better than that. Um, so we feel like it would be south of that figure.

All right, great. Uh, thanks for taking the questions. I'll turn it over.

Thanks Aaron.

Our next question comes from the line of Laura Mayor with B. Riley Securities. Please go ahead.

Good morning, Matthew and Greg. Thanks for taking the question. Um, my first question: how are you thinking about industrial distributors in your competitive landscape? Are they contributing to additional competition, or are they primarily a source of sales for you right now?

Yeah, um, I I would say that we're kind of they don't play a big part in our business at all really Lauren. Um, you know, most of everything we do is direct to, the End customer rather than intermediate. I mean, at the margin, there are the occasional time particularly International, uh, sales. Not that they've played a big part in this year, but, um, at this point, we're not really seeing it as a as a meaningful influence on our strategy at least. Yeah. I I think 1 of the, the things to highlight here is yeah, on the product sales side, that's 1 of the major changes that we saw over the past year. You know, as we had talked about in 2024

A lot of our, um, product sales went to, uh, operators that had fleets.

this year, the the sales are much, much more concentrated, with end user utility companies, which is is really the preferred End customer that we're looking to to build the relationships with

Okay, thank you for that. And then maybe just one more thing: the fleet expansion capex is tracking proportionally with revenue growth.

it's um,

Over the long term, it should, um, you know, this year it's it's short. There's a couple things to that number 1 is, is we have, um, really improved the level of utilization. So we're basically getting more Revenue generation from our existing Fleet. And then obviously, you, you're also have a gap here, that we're feeling currently with cross rents and, and that, that has the margin compression impact. And that's in part why we're accelerating investments into the fleet to help, um, you know, drive that that cost reduction and get, uh, better margin on that.

Great. Thank you.

Thanks. Thanks.

Next question comes from the line of Gary Sweeney with Roth Capital. Please go ahead.

Good morning. Uh, Matthew and Greg, thanks for taking my call.

Thank you. Um, sticking to the top line, uh, you called out transmission and distribution in midstream being strong, but I’m curious how much of growth is...

Within those areas again, when you're coming from a smaller base. Their those numbers aren't as material as some of our historical bases, but we're very encouraged with the progress we're making there. So, you know, I would say our commercial efforts to grow our the breadth of our distribution geographically is paying off. And then, you know, this quarter, you know, you could definitely see we called out large projects. You know, extensions Etc. They were more in our established territory so that I would put more as a in know, an industry growth. So I I feel there's a a nice blend of both probably industry-leading over the geography at this point in an absolute basis.

Yeah, I think, I think that and that also plays into the that whole, you know, the whole material conversion, the the composite to would, I think that it is important to note that, you know, we don't see that mixed changing dramatically this year because the everyone is just keeping up with the industry growth as we progress to the year.

Yeah. Uh the separately on the margins. Um I think you obviously you called out the transportation side but you also made the comment that uh you may pick that margin back up. I wasn't sure if the margins were returned to we'll say the mid-30s or whatever. It's the exact number is

um,

just as they're, they're getting settled on a go forward basis or there's an ability to maybe make up some of that loss margin. I'm not sure if that was pricing or other opportunities.

So, yeah, I, you know, I think this kind of goes back to our commentary that you know that we've made in the past of um, you know the the business we need to look at over the course of a year in mid-30s maintaining mid-30s as we grow is is our expectations. But within that

You're going to see some exceptionally strong quarters, such as what we saw in q1, where it was a, you know, 39% and we said, that's, you know, that's when everything is, is hitting mats are down high utilization, all that, and then you have the quarter, such as this, where it's obviously, the seasonal, seasonally slower. So that builds in some inefficiencies and then just the timing of projects we talked about as we hit the, the higher utilization level levels, we found ourselves having some elevated, uh, Transportation. I that that's, we don't expect that to continue. Uh, there's some level of that noise always in there, but that's why we we expect Q4 to be back in that typical mid-30s range.

All right. I got to squeak in one quick one. I know you said too, but just on that front—logistics, transportation, etc.—was this more of a strategic move to...?

Get in with more clients, keep bigger clients happy, and you saw longer rental times with some of these projects. You know, just opposed to maybe at some point in the future. You could build in some better pricing and stuff to manage some of these short-term projects.

Yeah, or late. Uh, quickly accelerating projects, I guess. Yeah, this was, you know, wholly and solely around a key strategic customer that had some needs very late in the quarter, um, that we felt compelled to respond to and will continue to do so for this customer, Jerry. So, um, on the long term, that relationship is a very healthy one, um, one that continues to return well for both of us, so we'll continue to protect that. I think what we're doing on the margin recovery, you know, it goes to the capacity expansion, it goes to kind of, uh, you know, helping coordinate better across our network, uh, to make sure that we can stage our inventory a little closer. You know, to be honest, in this case, some of the matting we thought we were going to be able to help them with didn't come off other projects. So that's why we're in a scramble. When we planned it all, it looked good on paper, and then as projects got extended and we couldn't get that inventory off the ground, that's why we had to go to kind of plan B here. So, it wasn't our intention to always kind of...

Compressed margins. This way it just happened to to be the case and so we'll continue to kind of look at our Logistics efficiency and and manage it going forward.

Understood, that's super helpful. I appreciate it, guys. And congratulations on those.

Thanks Jerry.

On your next question comes from the line of Mencho with Texas Capitol. Please go ahead.

Right. Thanks, Matt and Greg. After you, and Greg, um, congratulations on a strong quarter here. So, a couple of questions. In terms of your raising capex, I know that you're talking about. So, um, you're planning for some new manufacturing capacity. Is that more in terms of adding lines at existing manufacturing locations, or are you actually looking to expand your locations as well?

Yeah, I mean I'd say we're not we're not kind of settled on that 1 yet. You know, part of part of the planning that we're doing is to look at what the the right answer there is. There's obviously a lot of pull towards the current growth facility based on the space we have at the site and and and the investment we already have their but I'd say we're not settled on that 1 yet as we continue to look at optionality.

And, um, should we assume that directionally, capex for 2026 will be higher than 2025?

Uh, tough to say that.

Our 2026 uh, expectation on the the next call. Obviously we we stepped up the um the the capex here uh in the current year, you know, which will now get us upper teens growth in the fleet. I think our 26 expectation is going to be um you know a function of of how we see the year shaping up as we uh get closer to it.

But I think it is important to highlight that this is one of the important pieces. You know, of this business is we can adjust our capex into the fleet based on the demand that we see in the marketplace.

Right. And then just finally, I know you don't talk about your UK business a lot, but what percentage of revenue was UK? Can you just talk about the growth dynamics you’re seeing there?

So yeah the the UK business. I mean as you look at it on the the rental and service side, it's a high single digit percentage contributor to the overall portfolio. So the smaller pieces but uh a lot of the same Dynamics uh as what we see in the US um they have a lot of infrastructure projects you know, a lot of um plans here in the coming years, that's going to require uh an increase in spend and also a increasing recognition in the marketplace of the differentiation of the composite.

Or the composite mats over the alternative products.

Excellent, great. Thank you.

Thanks man.

Our final question comes from the line of Matthew Lanigan.

Ben bill.

With Titan Capital, please go ahead. Well, let's start with the name. It's Bill dlm and, uh, uh, I have a couple of questions as you, uh, uh, probably would guess here that the utilities would would you talk to us about their mindset towards rentals, uh, versus purchases today with this accelerated Demand versus how they may have been thinking in the past if there's any difference at all?

Yeah, I think generally speaking utilities have shown us that they have an appetite to purchase some portion of their Fleet requirements. Again, we talked to the economic incentives, they have internally to to spend capital and, and get a return of and a return on on that. So we see that Trend continuing, I think what we're seeing is with the scale of what they're needing to achieve here, over the next few years, they're also recognizing that they need strong rental Partners to help them strong rental and Service Partners to help them, uh, through with that workload. So we're seeing them lean on both sides, um, you know,

But it it's been like that. I mean, I think coming out of Co, we saw them pull back on sales, a little bit as they were looking to spend their capital on things. That the supply chain was saying were perhaps more strained. So they wanted to secure those items to make sure they had what they needed for their projects. I think, as Supply chains are opening up a little bit. Uh, they're looking more broadly at their potential, uh, you know, Capital categories and and matting is certainly 1 that we've seen this year. Uh, they're bouncing back towards so hope that answers your question. Bill, that is helpful and um and then relative to non-utility markets are are you seeing any new or other markets uh that are demonstrating meaningful potential? Or uh, is is the opportunity really Centric on uh, on utilities?

Yeah, I think we called it out. I mean, Midstream has been very dormant for you know, many years. Uh, previous administrations I think were were, were very much curtailing activity in that market space. We're seeing we're seeing a lot more, you know, activity there. Again, the majority of that activity is met with a different matting technology that we don't have in our Fleet, um, for the, for the main stringing operations there. But definitely around, laid, down areas, in egress. And and so on we have a role to play. So, generally speaking the stronger that industry. The more opportunity we will have their, um, and so

And really, when you take a step back, it's that's offsetting really the what has been a modest pullback on the Upstream, uh, side of things. So, overall oil and gas there is kind of flat year on year, that's helpful. And since I'm the last, uh, question, uh, I'm going to keep going here, a little more if I may the uh, um, m&a you referenced uh, uh,

That your, your eyes are wide open, which you provide kind of some strategic insights, in terms of what you are looking to accomplish, uh, with, uh, with the m&a.

Yeah, I think, you know, I think we've covered this on previous calls. Bill, our Focus Now is really on clothes, call what we do today and then just looking to see how we can accelerate our penetration of markets, where we believe that we could play a bigger role. So I think you can expect that to be, you know, where we're spending our time.

Nothing has changed; they're correct. No.

And then 1 additional question. Uh please so as you uh I think this is the second quarter this year that you have had some inefficiencies tied to uh customers changing uh changing project, scope timeline, Etc.

Does that imply, that that ultimately, you want your inventory to be higher and, uh, to to give you more flexibility to, uh, to respond to these, uh, uh, situations and, and then, if the answer is yes, do you even have the capacity, uh, with a level of, uh, activity in the market to increase your inventories enough to? Um, um,

Enough to Solve the Riddle That that we're talking about here.

Yeah, I think I I'd say the answer is yes, Bill obviously, the higher our utilization gets the the the, you know, your more responsive to moving things further than you would ideally like to. And that's what happened to us in in Q3 here. So, the capex that we're spending on our Fleet, the, the planning we're doing on manufacturing expansion is all designed to help manage that, uh, Challenge and and get the margins back into the business when it comes to capacity. You know, if we look at 25, you know, we we ran we started running the plants 24/7 in April. So year, on year, we're going to have in in rental capacity going into 26. We talked about our debottlenecking activities, which give us incremental capacity. We've always got the cross rent, Flex that we've been working. So, we feel comfortable that we're able to meet our growth requirements and get better at our planning efficiency. But honestly Bill, if during a quarter projects, you

Planned on. Coming up to feed new projects, if that doesn't happen. Exactly the way it was planned, you're always going to have a level of inefficiency. And I would say when you're running at the High, utilizations, We Are that's a heightened challenge for you. So, um, but we we feel like we can manage it.

Great, thank you. And, uh, good luck with the, uh, ongoing high-class problems.

We appreciate you.

With no further questions in queue, I will now hand the call back to management for closing remarks.

Great, thanks for joining us on the call. Today, should you have any questions or requests, please?

Email us.

Investors at NPK, calm. We look forward to hosting you again on our next quarterly call. Thanks.

Thank you again for joining us today. This does conclude today's presentation. You may now disconnect