Q4 2022 Newpark Resources Inc Earnings Call

Participants

Gregg S. Piontek; Senior VP & CFO; Newpark Resources, Inc.

Matthew S. Lanigan; President, CEO & Director; Newpark Resources, Inc.

William J. Dezellem; President, CIO & Chief Compliance Officer; Tieton Capital Management, LLC

Ken Dennard; Co-Founder, CEO and Managing Partner; Dennard Lascar Associates, LLC

Presentation

Operator

Greetings. Welcome to Newpark Resources Fourth Quarter and Full Year 2022 Earnings Conference Call. (Operator Instructions).

Ken Dennard

Thank you, operator, and good morning, everyone. We appreciate you joining us for the Newpark Resources conference call and webcast to review fourth quarter and full year 2022 results. Participating from the company in today's call are Matthew Lanigan, Newpark's President and Chief Executive Officer; and Gregg Piontek, Chief Financial Officer.

Matthew S. Lanigan

Good morning, everyone. The fourth quarter provided a strong finish to 2022 for the company with the successful closure of our key strategic divestitures and solid operating performances across our ongoing business segments. As we stated earlier last year, we had 3 primary objectives for 2022. One, monetize their investments in asset heavy, low-returning business units; two, reduced debt levels and three, reposition the company for stronger returns and more consistent free cash flow generation. These structural actions enhance our flexibility to accelerate investment in high-returning opportunities while also allowing us to reengage in our share repurchase program, returning a portion of cash generation to our shareholders.

Gregg S. Piontek

Thanks, Matthew, and good morning, everyone. I'll start with the specifics of the segment and consolidated financial results for the quarter. before providing an update on our near-term outlook. As Matthew touched on, the sequential improvement in fourth quarter results were largely driven by strength in demand from the utility and industrial sectors. Total Industrial Solutions revenues increased 12% both sequentially and year-over-year, posting fourth quarter revenue of $57 million, representing our strongest quarterly result in 4 years.

Matthew S. Lanigan

Thanks, Gregg. As we enter 2023, with a more agile capital light and simplified business, our focus will intensify around operational execution to drive enhanced returns and free cash flow generation as we help our customers do the same. We achieved all of our key objectives laid out early last year and are very pleased with the business transformation that has taken place to date.

Question and Answer Session

Operator

(Operator Instructions)

Ken Dennard

Sherri, this is Ken. We get a couple of questions online through the e-mail. So, I'll go ahead and ask those first and while you're queuing up to next questions. Matthew, the first question is you achieved solid growth rate with your utilities infrastructure market penetration in recent years, how should we think about the growth rate in years to come and the total addressable market size.

Matthew S. Lanigan

Thanks, Ken. Look, I think if you look at our performance in recent years, we've seen low double-digit CAGR across that part of the business. And that was in situation where we were somewhat constrained with some of the issues that the Fluids business was going through with everything going on in those markets. I think now that we have through our divestitures and see some smoother sailing there, we'd expect to see our growth rate continue to strengthen going forward.

Operator

Our first question is from Bill Dezellem with Tieton Capital.

William J. Dezellem

A couple of different questions. First of all, relative to the MAP business, would you discuss your capacity utilization both at the plant level and with your rental fleet, please?

Matthew S. Lanigan

Thanks, Bill, it's Matthew. Look, they're kind of figures that we don't really kind of publicize too much for competitive reasons. I think what I'd answer is our utilization has been healthy. We called out in the fourth quarter that the fleet utilization was healthy, and we're continuing to put CapEx into that, which would naturally suggest that we see some pressure on that we're going to alleviate through fleet expansion. And on the plant side of things, we've got capacity to service all of our customer and fleet needs at this point.

Gregg S. Piontek

Yes. And on the rental fleet utilization, we obviously see variability quarter-to-quarter as large projects come in and come off and you have a bit of seasonality. But fair to say that Q4, we saw a lot of things aligned and the utilization of our overall fleet was probably running towards the top end of what's achievable.

William J. Dezellem

And your comfort with the capacity at the plant to keep up with the demand that you see there? How would you characterize that? And really, the spirit of the question is just thinking about future CapEx for the plant.

Matthew S. Lanigan

Yes. Look, I think at this point, Bill, it's fair to say we're comfortable. And as we look forward, we're not necessarily predicting any large capital expenditures there in the immediate term.

Gregg S. Piontek

Yes. I mean if we face the need for meaningful CapEx that would be a pretty high-grade problem challenge to have with the business.

William J. Dezellem

Excellent. That is appreciated. And then my next question is probably a bit counter to the way most people would phrase the question. But relative to your free cash flow returning through share buyback. Would you discuss how you think about that relative to, I'll call it, hoarding the cash for future acquisitions? And so maybe I'll give you an opportunity to discuss the acquisition strategy and how that would fit in relative to the free cash flow being returned to shareholders via share buyback that you referenced in the opening remarks.

Gregg S. Piontek

Yes. I guess I'll start there. I think it starts with the target debt level. And again, there's -- it's pretty clear in our minds that we need to have a disciplined approach to returning some portion of our profitability to the shareholders, providing a return of capital. It is a good question on the acquisitions. You look at the longer-term opportunities. And I would think that if there were a very sizable transformative type of opportunity, it's probably going to have an equity component. And in order to have an equity component, quite frankly, you have to have a reasonable value on your equity.

Ken Dennard

Thanks, Bill. We had another e-mail that had a question that says, as you've completed the recent divestitures in Fluids, what oil and gas markets are your primary focus going forward?

Matthew S. Lanigan

Yes. Thanks, Ken. I'll jump on that one. Look, I think as we break it down, North American land is an attractive market. It's a smaller market today. But as you look at the customer discipline, I think it's going to be a more stable market. That is helpful to us in terms of working capital fluctuations. So that's a market that we're going to continue to look at to optimize.

Ken Dennard

Thank you, Matthew. We've got no additional questions in the queue. Do you want to wrap it up with some final comments.

Gregg S. Piontek

Sure. I just wanted to thank everyone once again for joining us on the call and for your interest in Newpark, and we'll talk to you again next quarter.

Operator

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.