NPK International Inc. (NPKI) Q3 2026 Earnings Call Transcript

Hello, everyone. Thank you for joining us and welcome to NPK International's third quarter 2026 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Greg Piantic, Senior Vice President and Chief Financial Officer. Please go ahead.

Thank you, Operator. 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 results may differ significantly, including the risks, discussion, details, and reconciliation to the most 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, NPKI.com. Please note that the information disclosed on today's call is current as of October 30th, 2026. At the conclusion of our prepared remarks, we will open the line for questions. And with that, I would like to turn the call over to our President and CEO, Matthew Lanigan.

Thanks, Greg, 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 plan matting, delaying the return of fleet Thank you. The report is brought to you by the National Public Service Revenue and a 9% increase in product. $50 million of revenue. Notably, the third quarter revenue declined $4 million sequentially. Related impact in Texas I just mentioned, which contributed to a nearly $6 million sequentially. 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 favourable 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 maps. Our balance sheet continues to provide flexibility to execute our strategic priorities. During the quarter, we invested $13 million to purchase 1 million shares outstanding, ending the quarter with net debt of approximately $22 million. While the unfavourable 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-day basis, revenue has increased 15% year-over-year, with approximately half of the growth generated organically and half through acquisition. Adjusted EBITDA increased to 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 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 results and year-to-date performance before providing an update on our near-term outlook. The third quarter revenue was $76 million in 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 services. 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 remain 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. 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 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 was derived from the utility sector, relatively in line with prior year mix, as we've seen fairly balanced growth in terms of our geographic expansion efforts. In addition to our previously discussed expansion within Texas, we're also seeing solid 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, 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. We also used $13 million to fund share repurchases in the third quarter, purchasing 1 million shares at an average price. 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 a bank facility, providing us with ample financial flexibility to continue executing on our strategic growth initiatives, including our manufacturing expansion as well. 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've seen our rental fleet utilization steadily improve through October, with fleet utilization exiting October in the mid-70s, with the October improvements and scheduled 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 sale 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 bring full-year products and flexibility to move additional mats into the fleet in Q4 in support of our rental diversification efforts prior to our new manufacturing facility coming up. With a 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. In light of the unfavorable seasonal impact on rental revenues and EBITDA margins for both Q3 and early Q4, and the current line of sight to utility customer Q4, We have revised our full year 2026 outlook, adjusting the total revenues range to $300 million to $305 million and adjusted EBITDA to a range of $90 million to $93 million. The midpoint of our range reflects 9% revenue growth and 21% adjusted EBITDA growth over 2025. The midpoint of our revenue guidance reflects modest organic growth in rentals, along with the contribution from the grass form acquisition, while product sales are expected to be relatively in line with prior year. Our total net capex expectation was also revised to $70 to $75 million for the year, including approximately $20 million of current year spending for the manufacturing expansion project, along with $40 to $45 million target. This level investment is expected to grow our Durabase rental fleet by a mid-teams percentage for the year, supporting our organic growth and geographic expansion efforts while also displacing. Our SG&A expectation remains unchanged at roughly a $13 million quarterly level in the near term, while tax rate is expected to remain relatively in line with the year-to-date rate. As highlighted previously, we entered 2026 with roughly $40 million of NOLs and other tax credit carry-forwards, which, when combined with the accelerated deductions for capital investments, are expected to significantly limit our cash tax obligations for the next several years. As it relates to our capital allocation strategy, we continue to prioritize investments in the growth of our rental fleet and our manufacturing strategic acquisitions, while also remaining committed to returning a portion of free cash flow generation to shareholders through our Discipline Share Repurchase Program. I'll turn the call back over to Matthew for his conclusion.

Thanks, Greg. With the end of the year in sight, we remain confident in our long-term double-digit growth outlook and committed to the execution of our strategic priorities. While weather impacts on project timings and key utility customers' capital allocation to non-matting purchases have reduced our 2026 expectations, our long-term outlook remains unchanged. Supporting our key customers' needs and remaining flexible to their changing schedules is key to supporting our long-term relationships, and our continued focus on fleet scale and geographic diversification will provide related impacts like we saw in Texas in Q3 moving forward. Quoting The activity remains aligned with our confidence in our serve markets and remains above a 20% year-over-year increase. Pleasingly, most of that volume is coming from our expansion geographies. As we sit here today, our full utilisation has returned to the mid-sevential organic R&S growth expectation. Our primary focus remains on the geographic expansion and scale-up of our rental platform, which generates the highest long-term returns for our business. As we look forward, we continue to see a robust, long-term investment cycle in our core markets. Grid load growth is expected to remain elevated, driven by growing demand from data centers, the reshoring of U.S. manufacturing, and the broad electrification of our economy. Additionally, critical investments are needed to expand, modernize, and harden the nation's aging transmission infrastructure, which is necessary to maintain a secure, healthy, and growing economy. Collectively, this combination of drivers reinforces our confidence that our investments in scale are well-timed and vital to position us to capitalise on these opportunities and drive profitable growth. To support that growth, our commitment to making the necessary investments is unchanged, with the growth of our Durabase composite MAP rental fleet remaining our top priority, necessitating the expansion of our current manufacturing capacity, which we have addressed in prior quarters. Our second focus area remains on driving organisational efficiencies across the business. We continue to see this play out in both gross margins and SG&A as a percent of revenues, as we remain on track to achieve a 30% EBITDA margin in 2026, delivering a meaningful margin expansion over prior year. As we continue to grow, we see opportunity to further expand our EBITDA margins and returns on invested capital through operating leverage, while also making targeted investments to drive sustainable long-term revenue growth for the company and our final priority is the allocation of capital beyond our organic requirements with a strong balance sheet and a disciplined approach we remain active in the evaluation of core strategic inorganic opportunities that increase our market coverage as well as the continuation of our share repurchase program as mentioned during the quarter we purchased 1 million shares which leaves us with 76 $6 million remaining on our authorisation, and we will continue to utilise our program. With supportive long-term market outlooks in our serve geographies, a clear strategic focus, and a robust balance sheet, we remain on pace to deliver another year of profitable growth for 2026 and beyond. 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 partnership. And with that, we'll open the call for questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Aaron Speichler with Craig Hallam. Your line is open, Aaron. Please go ahead.

Good morning, Matthew and Greg. Thanks for taking the questions. First for us, can you just give a little bit more details on some of the rental dynamics? How big were the projects? It sounds like most of them have started up and seem to be more customer weather specific, not really a change in overall market demand. And if you could just speak to the potential growth you see, you know, kind of customer-wise or region-wise as well down in Texas, that'd be great.

Yeah, thanks, Aaron. I'll jump on that one. Yeah, look, I think you covered it pretty well. I think where we left, you got in that Texas, I guess, post-actual localized Texas issue that kind of caught us into early fourth quarter, you know, the vast majority. You know, the encouraging thing was, and we touched on it, you know, outside, I think our diversification efforts were paying dividends there. You know, the other thing I'd add, I think this really plays into why our buffer for regionalized or localized effects like we saw here in the quarter going forward. So, you know, disappointing in terms of the impact it had. The overactivity levels really reflect our confidence here going forward.

Got it. Thanks for the caller there. And then maybe second, you know, on the guidance, it implies, you know, kind of low 30s, around 33% EBITDA margin in the fourth quarter. Can you just talk to, you know, confidence and kind of drivers behind that? It sounds like you're not seeing, you know, notable impact on the commodity side with resin prices.

Yeah, I guess, first of all, in terms of the overall EBITDA margin, the big mover from Q2 to Q3 was the rental revenue. I mean, rental is coming from. In terms of the resin prices, no, not much of an issue. We did see earlier in this year the price increases following the conflict, but we were able to – we continue to grow and expand. We're getting operating leverage, and that's helping.

Got it. Thanks for taking the questions.

I'll turn it over. Thanks, Aaron. Your next question comes from the line of Laura Mayer with Bea Riley. Your line is open, Laura. Please go ahead.

Hi, good morning, Matthew and Craig. So, you said rental project activity strengthened significantly through October. Is that catch-up on delayed deployments or new activity, and what does the deployed fleet look like today versus the start of 3Q?

Yeah, I mean, it is real. 70s, I think, is the fleet, you know, that's recovered. 60s mark. I think they're your bookends. And, yeah, so that's...

Thanks. And then for my second question, you reiterated unchanged 2027 growth expectations. Can you frame that in terms of rental revenue growth and the margin profile, and then what has to go right on the deployment side for that to hold?

Yeah, I guess as we look at 2027, the way I would hear in 2026, we have the R&S growth, and that's a function of these large projects. Obviously, you layer that on top, and you're starting with that double-digit. It means, I think, the greater variable within the revenue. And, you know, as we can, in terms of the EBITDA profile on that, you know, it just goes back to what we have delivered here, the operating leverage that we're getting.

Thanks. I'll pass it on.

Your next question comes from the line of Min Cho with Texas Capital Bank. Your line is open, Min. Please go ahead.

Great. Thank you. Good morning, Matthew and Greg. Just a couple of questions here. Hi. Can you talk a little bit about just how we should think about the quoting activity being up 20% and expectations for revenue growth? What is the typical lag between quoting and delivery, or is that just kind of a constant rolling effect?

Yeah, no, I think it's been extending, man. I think as activity levels across, you know, the increasing, we're getting, I would say, is likely to stay. We look at it in any kind of model.

Okay, that's fair. And then you definitely mentioned that you're seeing strength outside of the Texas market. Can you just talk about where, like what geographies you're seeing the most demand from?

Yeah, I think pleasingly, you know, we've been talking, if you go back on our calls now for a while about getting more traction in the Midwest, I think they're the kind of the main regions that I'd call.

Excellent. And then can you talk a little, obviously, you know, there's transportation involved here to get the mats to where you need them. Can you talk a little bit about diesel impact and how you're looking to offset that or how you have?

Yeah, I mean, yeah, I think Q3 is a great example of that. I mean, when you look at Texas, when the customer is saying, hey, we're not going to need these mats, when we thought they did, out to projects where we could get some utilization for them with diesel prices. I think it's playing, you know, the story in the markets where we see the growth moving in the future and minimize the amount of kind of...

Excellent. Great. Thank you.

Your next question comes from the line of Jerry Sweeney with Roth Capital Partners. Your line is open, Jerry. Please go ahead.

Good morning, guys. You kind of hit upon one of my main questions just now, and that was sort of the strategy and ability to redeploy the mats. So it sounds like longer term, the mats for rentals will be more regionally based. You can redeploy them within those regions. And then if you have more capacity, a larger fleet, you can keep METs in a region and have less moving around. Is that, generally speaking, what you're discussing?

Yeah, 100%, Jerry. I think when you look at the sweet spot, anything much over, if you can get your front end working well, identifying with...

Got it. And weather is weather, right, obviously. But, you know, certain areas of the country tend to have longer periods of maybe dryness, et cetera. But, I mean, is Texas or the south, southwest more susceptible to some of these issues as opposed to some of the other areas? And I guess the deeper question is, you know, how much dryness does a region need to have for people or clients to start pulling back on some of those?

Yeah, great question. I mean, I've been in this business now for 10 years, Jerry, and this is the first time. We've seen this. I think I quoted a number out of, you know, we pulled some rain gauge data out of DFW. This was the second. I think that kind of goes to some indication of freedom, which is... Yeah, that was my next point. Yeah, super early. Texas is supposed to be wetter. Yeah, so, I mean, again, you know, we want to make sure they get to where they need to be. It does point a wetter. So far, in 10 years, it's been the only spot that said we don't need mats for a project.

Gotcha. So this was a unique year, and I'm a believer in regression to the mean, so next year. All right, guys, thank you.

Your next question comes from the line of Bill DeZellum with Titan Capital Management. Your line is open, Bill. Please go ahead.

Thank you. First of all, would you please repeat the fleet growth that you're anticipating this year, and then how does that compare with the fleet growth that you are targeting over the next few years?

Our year-to-date, with the level of additions expected here in Q4, we're expecting to be kind of mid-teens. One of the dependencies coming into this year and why we had a broad range, you're also satisfying, Matthew touched on, to the extent that it's a little bit softer there. We're able to put more into the fleet, display some of the cross-rents, and also position ourselves.

And then, Greg, as you look out over, whether it be three years or five years, what rate of growth are you targeting for fleet growth again?

Well, I think your fleet growth over the longer term, taking ebbs and flows out of things is going to go the overall demand and how much of that is, Greg.

Great. Thank you. And then let's circle back, if we could, to the comment that you all made in the press release and your opening remarks regarding the strategic planning and the diligence costs. Walk us through what you all are doing and maybe bigger picture what you're trying to accomplish, not just holistically, but maybe as much detail as you can provide will really be helpful.

To the business, so people's expectation of value for some of these businesses, and we're very disciplined in the way we're continuing and obviously the alarm of the market term, higher share of components.

And the strategic planning, what are you all trying to, what's the riddle that you're trying to solve with your strategic planning?

Yeah, look, I think primarily, Bill, it's just continuing to get pretty dramatic changes, pretty dramatic increases in the spend. A lot of movement over the past few years in terms of that longer-term outlook, and you're just trying to stay current with the views as that shifts to make sure that you're being thoughtful about the longer-term And

then lastly, are you finding new industries outside of utilities that you think could be a meaningful growth opportunity as you work through the strategic planning thought process?

I mean, I think, Bill, contribution in what we do. Obviously, if there's an ancillary, that's a much kind of pivot for the business.

I think it's important to highlight, as we noted, the utility proportion that's coming from the utilities has been holding consistent with last year.

Great. Thank you both.

This concludes the Q&A session. I will now turn the call back to Greg Piantic for closing remarks.

Thanks again for joining us on the call today, and should you have any questions or requests, please reach out by email at investors at NPKI.com, and we look forward to hosting you again on next quarter's call.

This concludes today's call. Thank you for attending. You may now disconnect.