NPK International Inc. Q3 FY2024 earnings call

• Q3 performance was below expectations due to customer priorities shifting from transmission to renewable projects, dry weather limiting matting need, and a six-week unplanned maintenance event at the Louisiana manufacturing facility. • Q4 outlook: Strong start with October rental volume setting a new monthly record, expecting strong Q4 rental revenue and sequential increase in product sales. • Strategic priorities: Aligning transformation to a vertically integrated specialty Rental & Services business, working on industry reclassification and rebranding, optimizing overhead structure including retiring legacy IT system, and pursuing options to enhance the Katy office facility. • By year-end, aim to achieve $5 million cost savings by early 2026 with SG&A as a percentage of revenue in mid-teens range.

Total third quarter revenue was $44 million, a decline of 23% vs year ago. Rental and service revenues declined 11% q/q and 15% y/y to $32 million. Product sales were $12 million, down from Q2. Year-to-date, rental revenues are up 1% over prior year (increased volume offset by modest pricing reduction), service revenues down 21%, product sales up 20% over prior year. Utility sector contributed 60% of year-to-date revenues, including ~55% of rental and service revenues and ~two-thirds of product sales. Industrial Solutions operating income was unfavorably impacted by the unplanned manufacturing facility downtime, which had an estimated $1.3 million unfavorable impact on operating income, and adjusted EBITDA margin declined to 28.3% in Q3.

• Revised full-year revenue guidance from $230M-$240M to $217M-$223M. • Revised full-year industrial solutions adjusted EBITDA from $80M-$85M to $77M-$81M. • Expect strong Q4 rental revenue due to strong start and current backlog, and sequential increase in product sales. • SG&A costs expected to steadily decline in 2025 as overhead structure is optimized.

• Customer project shifts where key customers prioritized renewable generation projects over transmission projects, impacting rental revenues. • Unusually dry weather conditions in the southern region limiting matting need on projects. • Unplanned maintenance event at the Louisiana manufacturing facility that led to a production line being offline for ~six weeks, impacting adjusted EBITDA.

Q: Can you quantify the impact of project shifts and how long until projects come back?

A: Projects were shifted from Q3 to future quarters, impact in the vicinity of $1M within the quarter; no definitive start date yet but projects are expected to go ahead later.

Q: Talk about the plant maintenance, what work was done and planned maintenance?

A: Heating/hot oil system was repaired and upgraded, no other planned maintenance currently; plant has been running at normal levels since start of Q4.

Q: Color on the shift from transmission to renewable generation projects, permanent or postponed?

A: Customers reallocated priorities to solar renewable projects, transmission work still expected to go ahead, projects were postponed not lost.

Q: Market value of Katy facility and plans for sale?

A: No clear market value, focus is on making it a multi-tenant facility, optimizing space; book value is ~$23M.

Q: Working capital true-up from Fluids divestiture?

A: Process to play out over next couple of months, low teens millions related to working capital.

Q: Surge in activity in October?

A: Resumption of activity in southern region, including hurricane-related infrastructure projects, led to October being a record rental volume month.

Q: Organic regional expansion practical activities?

A: Focus on sales force expansion, building relationships with counterparties, proving ability to fulfill project requirements before expanding assets regionally.