NPK International Inc. (NPKI) Earnings

Management highlights

• Core Financial Results - NPK International delivered a strong Q1 2026 in line with prior quarter expectations, with total rental and service revenue hitting a new quarterly record. - The company expanded its rental fleet by 4%, repaid revolving credit, and allocated $3 million to share repurchases in the quarter, ending with a strong net debt position of $4 million and $148 million in available credit facility capacity. • Strategic Growth Initiatives - The board approved a 50% manufacturing production capacity expansion from current levels, to be completed with a $40 to $45 million investment over five quarters, bringing new capacity online by mid-2027 to support composite matting market share growth. - The company's top strategic priority is scaling its high-return rental platform, with plans to grow the DuraBase rental fleet by a low to mid-teens percentage in 2026, alongside geographic expansion and market share growth in the US and UK. • Operational Improvements - A new ARP system was implemented in Q1 2026, and management now aims to leverage the system's enhanced capabilities to drive organizational efficiencies, limit SG&A spending growth, and reduce SG&A as a percentage of revenue. • Capital Allocation Strategy - Management prioritizes organic investment in rental fleet expansion and manufacturing capacity expansion, followed by strategic acquisitions, with a continued commitment to returning free cash flow to shareholders through a disciplined share repurchase program.

Guidance

• Full year 2026 total revenue guidance was raised to $310 to $325 million, and adjusted EBITDA guidance was raised to $92 to $102 million. The midpoint of this range represents 15% total revenue growth and 28% adjusted EBITDA growth compared to 2025. • Full year 2026 total net CapEx guidance is $75 to $90 million, including $30 to $35 million for the current year's manufacturing expansion spending and $35 to $45 million for rental fleet expansion. • Q2 2026 guidance calls for 20% year-over-year growth in rental and service revenue (driven by double-digit organic growth and the Grassform acquisition), with product sales revenue expected to be in line with prior year Q2 levels. Q2 gross margin is expected to be roughly in line with prior year Q2 results, dependent on large project timing, and SG&A is expected to remain near the $13 million quarterly level. • The full year 2026 effective tax rate is expected to remain near the Q1 2026 level of 26%, with existing NOLs and accelerated capital investment deductions expected to significantly limit cash tax obligations for the next several years. • CapEx for the manufacturing expansion is expected to be front-loaded, concentrated in Q2 and Q3 2026. Revenue and EBITDA are expected to follow historical seasonality: Q3 typically pulls back slightly from Q2 levels, before rebounding and growing into Q4.

Segment performance

Revenue is segmented by business line and geography. By business line: - Rental and service: $52 million total (all-time quarterly high), 4% sequential growth, 20% year-over-year growth; rental revenues grew 27% year-over-year (12% organic + $4 million from the Grassform acquisition); service revenues grew 7% year-over-year, with nearly all growth from the acquisition. This segment contributed 69.3% of total first quarter revenue. - Product sales: $23 million total, 8% year-over-year growth, driven by robust demand from utility companies. This segment contributed 30.7% of total first quarter revenue. By geography: - US: $66 million total revenue, 9% year-over-year growth, with 17% rental revenue growth driven primarily by the utility sector. Contributed 88% of total first quarter revenue. - UK: $9 million total revenue, more than doubled year-over-year, primarily from the Grassform acquisition contribution. Contributed 12% of total first quarter revenue. Other financial segment performance: Gross margin was 36.2% (down from 37.7% Q4 2025 and 39% Q1 2025). SG&A totaled $13.2 million ($12.5 million legacy business + $0.7 million Grassform). Adjusted EBITDA was $22 million, 4% sequential growth, 14% year-over-year growth. Operating cash flow was $21 million, free cash flow was $5 million. Total CapEx was $16 million, with $15 million allocated to rental fleet expansion.

Risks & headwinds

• Forward-looking results are subject to material uncertainty, and actual outcomes may differ significantly from projections due to various risks and uncertainties disclosed in SEC periodic filings. • Quarterly performance cadence is dependent on the timing of large-scale customer projects, which can create variability in revenue and margin results between periods. • The ongoing conflict in the Middle East has the potential to disrupt supply chains and increase diesel and raw material costs; while management has not seen meaningful impacts to date, cost increases could pressure margins if they cannot be fully passed through to customers. • The 50% capacity expansion project faces inherent risks of unforeseen delays or budget overruns, despite management confidence in the current timeline and cost range.

Analyst Q&A

• Q: Analyst asks for pipeline details, including Greenfield vs Brownfield activity and growth in high voltage transmission projects. /

  A: Management states the overall pipeline remains as robust as it was last quarter, with only minor timing issues impacting Q1 results. There is very slight growth in quoting activity in emerging territories, which indicates early commercial investments are starting to deliver returns, and management remains optimistic for full year performance.

• Q: Given the multi-decade utility transmission capex cycle, how much growth runway does the approved 50% capacity expansion provide, and does NPK have optionality to add more capacity later? /

  A: Management states the expansion will provide sufficient capacity through the end of the current decade to meet expected demand. NPK retains ample room to add more capacity at its existing Louisiana facility if needed, and also has the flexibility to develop new alternate locations to meet future market growth.

• Q: Composite matting currently makes up what share of the overall matting market, and is the conversion pace from wood to composite accelerating? /

  A: Management estimates composite matting accounts for roughly 25% of the total market based on internal analysis. If the current strong market growth rate continues, the composite share is expected to hold steady, with only 1 to 2 percentage points of additional relative share shift expected for composite products.

• Q: When will Grassform be fully integrated, and what acquisition characteristics does NPK look for in its next target? /

  A: Management expects most Grassform integration to be completed within 3-6 months, with a longer tail for ERP system conversion; NPK intentionally minimized early integration disruption to let the well-run existing business operate normally. NPK will pursue additional acquisitions that accelerate organic growth goals, expand market coverage in core critical infrastructure, and have strong management, quality contracts, and acceptable leverage levels.

• Q: Will large delayed high voltage projects starting later this year lead to higher NPK growth in 2027 compared to 2026? /

  A: Large high voltage projects require more matting per project to support heavier installation equipment, so they will create a net increase in overall matting demand. Management notes it is too early to confirm a 2027 growth acceleration, but calls the current underlying trends encouraging.