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NR

NEWPARK RESOURCES INC (NR)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 2024 delivered margin expansion despite lower revenue: Adjusted EBITDA rose to $21.3M (12.6% of revenue) from $21.0M (10.5%) in Q1 2023; GAAP diluted EPS was $0.08 and adjusted EPS was $0.10 .
  • Industrial Solutions margins improved to 36.8% adjusted EBITDA; rental demand accelerated through the quarter with rental volumes at record levels entering Q2 .
  • Fluids Systems revenue fell year-over-year but profitability improved on stronger international mix, improved pricing, and cost actions; international contributed 75% of segment revenue with Eastern Hemisphere up 24% to $68M and Canada up 10% to $21M .
  • Guidance maintained: FY2024 Industrial Solutions revenue $230–$240M, adjusted EBITDA $80–$85M, CapEx $30–$35M; management reiterated strong Q2 setup and ongoing strategic review of Fluids targeted to substantially conclude by mid-year 2024 .
  • Near-term stock reaction catalysts: record rental volumes entering Q2 and management’s outlook for 15–20% year-over-year Industrial Solutions revenue growth in Q2, while Fluids revenue expected 15–20% lower YoY on U.S. softness .

What Went Well and What Went Wrong

What Went Well

  • Consolidated gross margin expanded 280 bps YoY to 20.4%; adjusted EBITDA margin expanded 210 bps to 12.6% .
  • Industrial Solutions adjusted EBITDA margin reached 36.8% (+150 bps YoY) on improved operating leverage and favorable mix; rental volumes reached record levels entering Q2 .
  • Fluids Systems adjusted EBITDA margin expanded 120 bps YoY to 7.2% with international strength; Eastern Hemisphere revenue +24% to $68M, Canada +10% to $21M .

What Went Wrong

  • Consolidated revenue declined to $169.1M from $200.0M YoY; free cash flow was negative ($0.8M) due to rental fleet expansion and annual incentive payouts .
  • Industrial Solutions segment revenue decreased YoY (to $49.0M from $55.9M) primarily on timing of product sales and lower contributions from pipeline and oil & gas .
  • U.S. Fluids revenue fell to $30M (down 56% YoY and 17% sequential), reflecting continued market softness and lower rig service contribution .

Financial Results

MetricQ3 2023Q4 2023Q1 2024
Revenue ($USD Millions)$198.5 $167.8 $169.1
GAAP Diluted EPS ($)$0.09 $(0.01) $0.08
Adjusted Diluted EPS ($)$0.09 $0.04 $0.10
Operating Income ($USD Millions)$13.2 $4.4 $11.9
Adjusted EBITDA ($USD Millions)$22.3 $16.2 $21.3
Adjusted EBITDA Margin (%)11.2% 9.7% 12.6%

Segment breakdown

SegmentQ3 2023 Revenue ($M)Q4 2023 Revenue ($M)Q1 2024 Revenue ($M)Q3 2023 Op Income ($M)Q4 2023 Op Income ($M)Q1 2024 Op Income ($M)
Fluids Systems$141.2 $121.4 $120.1 $7.6 $(1.1) $6.8
Industrial Solutions$57.3 $46.5 $49.0 $14.3 $11.4 $12.9

Segment profitability (Adjusted EBITDA and margins)

SegmentQ3 2023 Adj EBITDA ($M)Q4 2023 Adj EBITDA ($M)Q1 2024 Adj EBITDA ($M)Q3 2023 Adj EBITDA Margin (%)Q4 2023 Adj EBITDA Margin (%)Q1 2024 Adj EBITDA Margin (%)
Fluids Systems$9.9 $4.7 $8.6 7.0% 3.9% 7.2%
Industrial Solutions$19.7 $16.8 $18.0 34.4% 36.1% 36.8%

KPIs and balance sheet

KPIQ3 2023Q4 2023Q1 2024
Cash from Operations ($M)$27.0 $36.2 $12.0
Free Cash Flow ($M)$22.9 $27.8 $(0.8)
Capital Expenditure ($M)$(4.8) $(9.1) $(13.9)
Total Debt ($M)$85.7 $75.0 $77.4
Net Debt ($M)$59.1 $36.4 $39.7
Net Leverage (x)0.7x 0.5x 0.5x

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Industrial Solutions Revenue ($M)FY 2024$230–$240 $230–$240 Maintained
Industrial Solutions Adjusted EBITDA ($M)FY 2024$80–$85 $80–$85 Maintained
Industrial Solutions CapEx ($M)FY 2024$30–$35 $30–$35 Maintained
Q2 2024 Industrial Solutions Revenue Growth (YoY)Q2 2024N/A15–20% (management outlook) New near-term outlook
Q2 2024 Fluids Revenue (YoY)Q2 2024N/A15–20% lower (U.S. softness) New near-term outlook

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2023 and Q4 2023)Current Period (Q1 2024)Trend
Industrial Solutions demand cadenceQ4: project start-ups shifted into 2024; normalization vs prior-year weather-driven demand Demand accelerated through Q1; record rental volumes entering Q2 Improving sequentially
Pricing/mix for longer-duration projectsN/ALarger, longer-duration projects pursued; lower pricing than short-term but stable returns via higher utilization Mix shifting to longer projects
International Fluids strengthQ3: Eastern Hemisphere record revenue; Canada seasonal lift International now 75% of segment revenue; Eastern Hemisphere $68M (+24%), Canada $21M (+10%) Strengthening internationally
U.S. Fluids softnessQ3/Q4: subdued U.S. market U.S. Fluids revenue $30M; 56% YoY decline; pricing discipline and cost reductions continue Persistent headwind
Cost actions/overheadQ4: lower corporate expenses, incentive normalization ~$3M annual cost savings from streamlining; meaningful structural change awaits Fluids review completion Ongoing streamlining
Macro/government programs & AI data centersN/AMulti-billion government grid programs and AI data centers support long-term demand for worksite access Structural tailwinds emerging

Management Commentary

  • “We’ve continued to advance our multi-year value creation strategy as we position Newpark to become a market-leading, pure-play specialty rental business serving the global worksite access market.”
  • “Industrial Solutions… segment EBITDA margin of nearly 37%… rental demand conditions strengthened… with rental volumes reaching record levels entering the second quarter.”
  • “Fluids Systems… stronger international activity… revenues from international operations increased 19%… Eastern Hemisphere revenue increased 24% to $68 million and Canada increased 10% to $21 million.”
  • “We are continuing to work diligently through the Fluids Systems strategic review and remain focused on having the process substantially concluded by mid-year 2024.”
  • CFO: “We continue to forecast 2024 Industrial Solutions revenues in the $230 million to $240 million range, with segment adjusted EBITDA in the range of $80 million to $85 million and segment CapEx of $30 million to $35 million.”

Q&A Highlights

  • Pipeline and project mix: management sees robust pipeline growth with start dates pushing into future quarters, supporting visibility; mix shifting toward larger long-duration projects with slightly lower pricing but comparable ROI via higher utilization .
  • Market dynamics and competition: increased transition from timber to composites as competitors consider building composite fleets; underscores composite mat unit economics and lifecycle benefits .
  • Overhead trajectory: ~$3M annual savings achieved; meaningful changes to cost structure expected after Fluids strategic review concludes .
  • Geographic expansion: building out Midwest and West sales; prior regional expansion ramped in 12–18 months; potential for acquisitions to accelerate .
  • Government stimulus timing: utilities spending expected to accelerate in 2025–2026; management anticipates impact beginning in 2025 .
  • Rental revenue mix: ~90% of rental/service revenue from U.S., ~10% from U.K.; U.K. demand includes rail infrastructure (e.g., HS2) .
  • Fluids profitability drivers: improved international mix, pricing recovery via contract renewals, and U.S. cost reductions drove operating income improvement despite lower revenue .

Estimates Context

MetricQ1 2024 ActualS&P Global Consensus# of Estimates
EPS (GAAP, diluted)$0.08 Unavailable via S&P Global (CIQ mapping not found)Unavailable
EPS (Adjusted, diluted)$0.10 Unavailable via S&P Global (CIQ mapping not found)Unavailable
Revenue ($USD Millions)$169.1 Unavailable via S&P Global (CIQ mapping not found)Unavailable

Note: S&P Global consensus data was unavailable due to missing Capital IQ mapping for NR in our data source. As a result, estimate comparisons cannot be provided.

Key Takeaways for Investors

  • Q1 demonstrated execution on margin expansion: adjusted EBITDA margin rose to 12.6% and gross margin to 20.4%, supported by mix and cost actions .
  • Industrial Solutions is the core value driver: adjusted EBITDA margin at 36.8%, record rental volumes entering Q2, and FY2024 segment guidance maintained (revenue $230–$240M; adjusted EBITDA $80–$85M) .
  • International Fluids strength offsets U.S. softness: 75% of segment revenue from international; Eastern Hemisphere $68M (+24% YoY) and Canada $21M (+10% YoY) .
  • Near-term setup is positive: management expects Q2 Industrial Solutions revenue growth of 15–20% YoY, though Fluids is guided 15–20% lower YoY on U.S. weakness .
  • Cash and leverage remain conservative: net debt $39.7M and net leverage 0.5x TTM; flexibility to fund rental fleet growth and potential shareholder returns post-Fluids review .
  • Strategic review of Fluids is a key 2024 catalyst: management targets substantial completion by mid-year, with potential portfolio simplification to a pure-play worksite access rental platform .
  • Watch project timing and mix: larger, longer-duration projects enhance utilization and stability but carry lower pricing vs short-term rentals; narrative points to sustained grid investment and AI data center build-out supporting demand .