NPK International Inc. 2026 Q3 Earnings Call

I'd like to welcome everyone to the NPK International Third Quarter 2026 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 include certain non-GAAP financial measures. Additional details and reconciliation 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 npki.com. Please note that the information disclosed on today's call is current as of October 30, 2026. At the conclusion of our prepared remarks, we will open the line for questions. With that, I would like to turn the call over to our President and CEO, Matthew Lanigan.

Thanks, Gregg, and welcome to everyone joining us on today's call. Our third quarter results demonstrated continued year-over-year growth in revenue and adjusted EBITDA and the expansion of EBITDA margin. We achieved this result despite the exceptionally dry weather pattern in Texas that resulted in slower-than-normal quarterly activity, as well as several scheduled utility projects commencing during the quarter without the use of planned matting, delaying the return of fleet utilization to more typical levels into the fourth quarter. Elsewhere in the country, business trends remain favorable, and our performance was in line with expectations coming into the quarter. While project timing can impact results in the short term, the long-term business momentum remains strong. As projects ramp up through the fourth quarter, we expect to end the year with robust fleet utilization, providing a strong jumping-off point for 2027.

For the quarter, we generated revenue of $76 million, an increase of 11% from the prior year, which included a 12% increase in rental and service revenues and a 9% increase in product sales. Rental and related services contributed $50 million of revenues to the third quarter. Notably, the third quarter revenue declined $4 million sequentially and fell short of our expectations due to the weather-related impact in Texas I just mentioned, which contributed to a nearly $6 million sequential decline in the R&S revenues within this region. Other regions were more resilient through the typical seasonal slow period, growing $2 million sequentially. Product sales activity remained robust, contributing $27 million of third quarter revenues, driven again by strong demand from the utility sector.

Adjusted EBITDA was $20 million, reflecting an adjusted EBITDA margin of 26.2%, a year-over-year improvement of nearly 400 basis points, but a sequential decline of 530 basis points. The sequential decline following the record Q2 EBITDA margin reflects the lower rental revenues, which I just covered, and a less favorable mix, as rental revenues accounted for the entire sequential revenue decline. Our optimistic view of the longer-term growth outlook for our business remains unchanged, and we continue to advance our Louisiana manufacturing expansion, investing approximately $6 million during the quarter. The project remains on track for completion in mid-2027, and as a reminder, it is expected to increase production capacity by approximately 50% to support our long-term growth and improve margins over time through operating leverage and reduced reliance on cross-rental mats. Our balance sheet continues to provide flexibility to execute our strategic priorities.

During the quarter, we invested $13 million to purchase one million shares outstanding, ending the quarter with net debt of approximately $22 million. While the unfavorable weather pattern provided a meaningful headwind to our Q3 and early Q4 R&S performance, as I reflect on our results through the first three quarters of 2026, the benefit of stronger product sales activity helped offset the shorter-term headwind to rental activity, keeping our consolidated results relatively in line with our organic growth expectations. On a year-to-date basis, revenue has increased 15% year over year, with approximately half of the growth generated organically and half through acquisition. Adjusted EBITDA increased 27%, expanding our adjusted EBITDA margin by 260 basis points, while after-tax return on invested capital remained stable at 11%.

We also invested approximately $46 million in capital through the first nine months, expanding our rental fleet by 10% and advancing our manufacturing expansion initiative, positioning the business to support future growth and further margin expansion. With that, I'll turn the call over to Gregg for his prepared remarks.

Thanks, Matthew. I'll begin with a more detailed discussion of our third quarter results and year-to-date performance before providing an update on our near-term outlook. Third quarter revenue was $76 million, an increase of 11% year-over-year. Rental and service revenues totaled $50 million, up 12% year-over-year, including an 8% increase in rental revenue and a 21% increase in associated service revenue. The $5 million year-over-year increase in rental and service revenue is primarily attributable to the U.K. acquisition, while the U.S. R&S revenues remained flat year-over-year, impacted by the exceptionally dry weather conditions that Matthew discussed. Product sales remained elevated at $27 million, up 9% from the prior year, driven by strength in utility sector demand. Gross profit was $24 million, a gross margin of 31.3%, compared with 31.9% in the prior third quarter.

Third quarter SG&A expenses totaled $14.7 million, an increase of $1.5 million from the prior third quarter. As highlighted in yesterday's release, third quarter SG&A includes $1.2 million of severance and related costs, along with $700,000 of costs associated with strategic planning and diligence activities as we continue to explore opportunities to drive our growth strategy. After consideration of these items, the remaining SG&A was $12.8 million for the third quarter, relatively in line with our recent quarterly run rate and expectations. Income tax expense was $2.3 million in the third quarter, reflecting an effective tax rate of 26%. Adjusted EBITDA was $20 million, increasing 30% year-over-year, and adjusted EBITDA margin was 26.2%. Adjusted EPS from continuing operations was $0.09 per diluted share, compared with $0.07 in the prior third quarter.

For the first nine months of 2026, total revenue was $233 million, an increase of 15% year-over-year. Adjusted EBITDA was $68 million, up 27%, and adjusted EPS increased 22%. Roughly two-thirds of our 2026 revenue is derived from the utility sector, relatively in line with prior year mix, as we've seen fairly balanced growth across industries. In terms of our geographic expansion efforts, in addition to our previously discussed expansion within Texas, we're also seeing solid progress with targeted customers in the Midwest and the Northeast. Turning to cash flows, operating activities generated $7 million of cash in the third quarter, including $18 million of net income adjusted for non-cash expenses, somewhat offset by $11 million of cash used by a net increase in working capital, including receivables and inventory.

Net CapEx used $11 million, which includes $3 million of net investment into fleet expansion and $6 million to fund the manufacturing expansion. We also used $13 million to fund share repurchases in the third quarter, purchasing 1 million shares at an average price of $13.37 per share. We ended the quarter with total debt of $26 million and total cash of $4 million for a net debt position of $22 million. Additionally, we have $132 million of availability under our bank facility, providing us with ample financial flexibility to continue executing on our strategic growth initiatives, including our manufacturing expansion, as well as the support of our capital return objectives. Now turning to our business outlook.

Overall, there has been no meaningful change in the market as our customers remain highly constructive on the outlook for utilities and critical infrastructure spending, which we see within our robust quoting activity. As for the near-term outlook, following the seasonal low period, which was amplified this year by the exceptionally dry weather in the South, we have seen our rental fleet utilization steadily improve through October, with fleet utilization exiting October in the mid-70s. With the October improvements and scheduled projects, we expect Q4 rental and services to reflect a mid-teens year-over-year growth versus last Q4, reflecting a fairly balanced combination of organic growth and the acquisition impact, and closing out 2026 with another quarterly rental and service record. On the product sales side, our visibility to Q4 remains subject to final customer decisions as they evaluate prioritization of matting versus longer lead item purchases.

Based on our current view, we are planning on Q4 to settle in the mid-teens, which will bring full-year product sales in line with prior year levels. This sales level provides us flexibility to move additional mats into the fleet in Q4 in support of our rental diversification efforts prior to our new manufacturing facility coming online. With the forecasted rebound in rental revenues, we expect a solid improvement in profitability, with both gross margin and adjusted EBITDA margin returning to the levels achieved in the first half of the year.