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 3rd 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 star 1 on your telephone keypad. To withdraw your question, press star 1 again. Thank you. It is now my pleasure to turn today's call over to Greg Piantic. You may begin.

Greg Piantic Thank you, Operator. I'd like to welcome everyone to the NPK International Third Quarter 2025. Joining me today is Matthew Lanigan, our President and Chief Executive Officer. Before handing over to Matthew, I'd like to highlight actual results may differ significantly due to various risks. Additional details and recon-parable gaps are included in our quarterly. There will be a replay of today's call and it will be available by web mpki.com. Please note that the information disclosed on prepared remarks, we will open the line for questions. Call over to our President and CEO, Matthew Lennigan.

Thanks, Greg, and welcome to everyone. The quarter produced very strong year-over-year growth that reflects the strengthening demand for our product. We also saw modest quarter-over-quarter growth for asset utilization during a traditionally slower, single third quarter revenues of $69 million is very much more meaningful pullback in utility activities on a year-over-year basis our rental and service revenues improved, which we believe represents the stickiest and highest long-term driver of returns. Complete utilisation on record as we responded to multiple short-notice projects. As we have mentioned in the past, we are proud to be able to meet the combination of short-notice and high utilisation. While we expect $1 million, we anticipate $75 million of revenue, reflecting continued strength in demand from multiple utilities. Given the continued demand and robust outlook across our serve markets, we maintain our commitment to investing a net $12 million dollars in the third 10 million dollars we forecasted utility transmission spend as well as a strengthening midstream and expect these efforts to continue into early 2026 before moving on to the previously mentioned debottlenecking activities at our plan which are being executed in parallel notably we reached 5 percent increase in i wanted to touch on cash flow generation and capital allocation we are once again very pleased with 25 million dollars 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 for 25. 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 late quarter large scale mobilizations and robust total rental and service revenues were $44 million for the third quarter with the seasonally slower Q3, but improving 57% year over year, while associated service revenues were flat sequentially. Revenues from product sales also remained robust at $25 million for the third sequentially and more than doubling the third. 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 primarily driven by significant demand growth. Turning to gross profit, the third quarter result was impacted by roughly $1.7 million of costs in the quarter related to the along with manufacturing planning projects and other gross margin was 30 from 27.5 third quarter sgna expenses totaled 13.3 million dollars a decrease of 400 000 sequentially and a 2.3 million dollar increase the third quarter was again impacted by elevated costs associated with performance including long-term incentive programs linked to the company's share price, as well as those tied to 2025 revenues, profitability, and the third quarter SG&A also in our ongoing ERP implementation. Income tax expense was $3 million in the third quarter, reflecting an effective tax rate of 33%, as our year-to-date effective tax rate increased modestly to 28%. Adjusted EPS from continuing operations was $0.07 per diluted share in the third quarter compared to $0.11 in the second quarter and break-even. Turning to cash flows, operating activities generated $25 million of cash in the third quarter, including $16 million from net income adjustment and $9 million of cash provided by a net decrease in working capital. Net CapEx used $12 million, which includes $10 million of net investment. Additionally, as Matthew touched on, we used $3.4 million to purchase 402,000 shares, reflecting an average purchase price of $8.40. Looking at year-to-date cash flows, for the first nine months of 2025, we've generated a total of $55 million of cash from operating activities, along with $14 million of additional proceeds using $31 million to fund net capital, while also using $20 million to repurchase 3 million shares at an average purchase price of $6.70 per share, reducing our outstanding share count by nearly 4%. We ended the quarter with total cash of $36 million, and additionally, we have $144 million of availability. Now turning to our business outlook. As disclosed in yesterday's press release, considering the continued strength in rental project activity and the utility sector, we have increased our full year 2025 expense 68 to $272 million range and adjusted EBITDA of 71 to 70. The midpoint of our 2025 range reflects 24% revenue growth and 32% adjusted EBITDA growth over 2024. Breaking our full-year revenue expectation down further, we expect total rental and service revenues to grow by a mid-20 and product sales to grow by a high teens percentage or levels. 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. In fact, we expect to see Q4 rental revenue set a new quarterly record, surpassing the level achieved in Q2. Q4 revenues to pull back from 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-rent activity. In terms of SG&A, we expect Q4 incentive-related expenses will remain elevated in last year results. Additionally, we expect Q4 SG&A will halt strategic planning and ERP implementation projects, which will likely keep SG&A around the Q3 level, and the goal of mid-teens SG&A percentage of revenue following the completion of our ERP implementation in early 2026 remains unchanged though it's worth noting that we expect 2026 sgna will continue to carry elevated incentive 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 carry forwards along with accelerated deductions under the recent ob3 legislation and limited for 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. Back over to Matthew for his concluding remarks.

Thanks, Greg. As discussed previously, our strategy for 2025 remains focused on three foundational elements to draw 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 have both continued struggling meaningfully year over year while our award rate remains in line with historic rental revenue for the first nine months of 2025. to support this growth we remain committed to expanding our mat rental fleet which grew by approximately by an additional 13 percent in the first nine months of 20 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 beers on driving organizational inquiry began the roll out of a new erp system into early 2026 as we look to further streamline our overhead structure and achieve our targeted sgna 2026 and our final priority is the allocation of capital beyond our organic requirements with a strong balance sheet and a disciplined approach with inorganic opportunity. As we close out the final quarter of 2025 and sharpen our focus on 2026, I'm exceptionally proud of our team's execution. Now a full year removed from our disposition of the fluids business, we have a world-class team, meaningful, growing, expect to deliver over 20% adjusted EBITDA 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. In closing, I want to thank our shareholders for their ongoing support, our employees for their 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 one on your telephone keypad. We respectfully ask that you limit questions to one and one follow-up. Our first question comes from the line of Aaron Spatula with Craig Hallam. Please go ahead.

Yeah, good morning, Matthew and Greg. Thanks for taking the questions. You know, first for me, you know, you're obviously increasing expansion in the rental fleet and, you know, a lot of your customers are increasing CapEx plans. You're starting to get, you know, incrementally better project visibility from some of these longer duration projects.

You know, can you just talk about you know how the overall pipeline has has been growing um you know year over year or just some kind of figures as as you kind of look towards 2026 yeah thanks and i'll take that one look like you know if you look at the rate 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 is we're encouraging on both fronts pipeline building uh in that kind of i think all of that is shaping up well into 20 gotcha thanks

And then, you know, on the capacity expansion plans, I mean, accelerating the efforts there, can 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 kind of cost, potential and timing?

Yeah, it's a little early for us on that one. We've kicked off the planning. I mean, it's, you know, we will continue to work through it. Something in line with, you know, on a given figure, continue to think we can, we feel like it would be south.

All right. Thanks for taking the questions.

Thanks, Aaron.

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

Good morning, Matthew and Greg. Thanks for taking the question.

Hey, Lauren.

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. Yeah, they don't play a big part in our business.

You know, most of it at this point, as we had talked about, a lot of our product sales went to this year. The sales are much, much more concentrated with end user utility companies, which is really the preferred.

OK, thanks for that. And then maybe just one more. Is the fleet expansion capex tracking proportionally with revenue growth?

It's over the long term, it should. you know this year it's it's short there's a couple things to that number one is is we have really improved the level of utilization so we're basically getting more revenue generation from our existing fleet and then obviously years 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 you know drive that that cost reduction and get.

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

Good morning, Matthew and Greg. Thanks for taking my call. Thanks, Jared. Sticking the top line, you called out transmission and distribution and midstream being strong.

But curious, how much of growth is industry growth and how is that coming into play as well as the opportunity continue to expand maybe geographically as well as maybe with yeah good question jerry i mean i you know we are seeing some increased traction in the areas that we did kind of seed with our commercial you know during the quarter i think the mid-atlantic and you know we've caught out the midwest a few times we did see you know meaningful quarter on quarter growth in those areas again when you're coming from a smaller base there those numbers aren't as material as some of our historic in there. So, you know, I would say our commercial efforts, you know, this quarter, you know, you could definitely see we called out large projects. I feel there's a nice blend of both, probably industry leading over the geography.

Yeah, I think that also plays into that whole, you know, the whole material conversion, the composite to wood.

I think that it is important to note that, you know, we don't see that mix changing dramatically this year because everyone is just keeping up with the industry growth as we progress through the year yeah then separately on the margins I think you obviously called out the transportation side but you also made the comment that you may pick that margin back up I wasn't sure if the margins would be turned to we'll say the mid-30s or whatever the exact number is 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 lost margin. I'm not sure if that was pricing or other opportunity.

Yeah, you know, I think this kind of goes back to our commentary that, you know, that we've made in the past of, you know, the business we need to look at over the course of a year in mid-30s, maintaining mid-30s as we grow 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 you know 39 percent 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 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 expect Q4 to be back in that typical mid-30s range.

I've got to squeak in one quick one. I know you said two, but just on that front, logistics, transportation, et cetera, was this more of a strategic move to get in with more clients, keep bigger clients happy, and you saw longer rental times for some of these projects, or, you know, juxtaposed to maybe at some point in the future, you could build in some better pricing and stuff to manage some of these shorter or late, quickly accelerating projects.

Yeah, this was wholly and solely around a key strategic customer to respond to and will continue to do so for this customer, Jerry. So long term, that relationship is a very healthy one, 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, it goes to the capacity expansion. and it goes to kind of coordinate better to make sure that we can... So, 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 were in a scramble. When we planned, it all looked good, and we couldn't get that in. That's why we had to go to kind of plan B here, so it wasn't our intention to always kind of compress margins this way. It just happened to be the case, and so we'll continue to kind of look and manage it going.

Understood. That's super helpful.

I appreciate it, guys, and congratulations on my base. thanks dear thanks dear your next question comes from the line of mincho with texas capital please go ahead great thanks matt and greg matthew and greg um congratulations on a strong quarter here so a couple of questions so in terms of your raising capex i know that you're talking about you're planning for some new manufacturing capacity is that more in terms of adding lines of existing manufacturing locations, or are you actually looking to expand your location as well?

Yeah, I mean, I'd say we're not kind of settled on that one yet. You know, part of the planning that we're doing is to look at what the right answer there is. There's obviously a lot.

And then obviously just given these plans, should we assume that directionally CapEx for 2026 will be higher than 2025?

Tough to say that. You know, I think we'll talk more about our 2026 expectation on the next call. Obviously, we stepped up the CapEx here 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, you know, a function of how we see the year shaping up as we get closer to it. But I think it is important to highlight that's one of the important pieces of this business is we can adjust our capex and the fleet based on that we see in the marketplace.

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

So, yeah, the U.K. business, I mean, as you look at it on the rental and service side, it's a high single digit percentage contributor to the overall portfolio. So, smaller pieces, but a lot of the same dynamics as what we see in the U.S. They have a lot of infrastructure projects, you know, a lot of plans here in the coming years that's going to require an increase in spend and also an increasing recognition in the marketplace of the differentiation of the composite mats over the alternative product.

Excellent. Great. Thank you.

Our final question comes from the line of Bill DeZellem with Tiding Capital. Please go ahead.

Well, let's start with the name. It's Bill DeZellem. And I have a couple of questions, as you probably would guess here. The utilities, would you talk to us about their mindset towards rentals today with this accelerated demand versus how they may have been thinking in the past, if there's any difference at all?

Yeah, Bill, there's no one answer across the utilities here. I think, generally speaking, utilities have shown us that they, again, we talk to. I think what we're seeing is with the scale of what they're recognizing, the supply chain was saying were perhaps more strained, so they wanted to make sure they had what they needed for their projects. I think it's opening up a little bit. They're looking more broadly at their potential capital categories, and matting is certainly one that we've seen this year. They're bouncing back to work.

That is helpful. And then relative to non-utility markets, are you seeing any new or other markets that are demonstrating meeting the opportunity on utilities?

Yeah, I think we called it out. I mean, midstream has been very dormant for, you know, many years. Previous administrations, I think, were very much curtailing activity in that market space. we're seeing activity there. Again, the majority of that activity is met with a fleet for the main stringing operations there, but more opportunity we will have.

Yeah, and when you look at the year to date numbers, year over year, the growth on the RNS side, it really is coming from the utility sector. As Matthew touched on, a midstream is strengthening, but it's coming off of a pretty small base. And really, when you take a step back, that's offsetting really what has been a modest pullback on the upstream 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 question, I'm going to keep going here a little more, if I may. The M&A you referenced, would you provide kind of some strategic insights in terms of what you are looking to accomplish with the M&A?

Yeah, I think we've covered what we do today and then just looking to see how I think you can expect.

Nothing has changed there. And then one additional question, please. So as you – I think this is the second quarter this year that you have had some inefficiencies tied to project scope, timeline, etc. Does that imply that ultimately you want your inventories to be higher to give you more flexibility onto these situations? And then if the answer is yes, do you even have the capacity with the level of activity in the market to increase your inventories enough to solve the riddle that we're...

Yeah, I'd say the answer is yes, Bill. gets the you know you're more here so 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 into 26 we talked about our de-bottlenecking activities which give us incremental capacity we've always got the cross rent flex that we've been working so we feel cost requirements, efficiency, but projects you've planned on coming up to sufficiency, and I would say when you're running at the high utilizations we are, that's a high, but we feel like we can manage it.

Great. Thank you, and good luck with the ongoing high-class problem.

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 at investors at NPKI.com. And we look forward to hosting you again on our next quarterly call. Thanks.