UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20202021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 001-02960
Newpark Resources, Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Delaware | 72-1123385 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| | |
9320 Lakeside Boulevard, | Suite 100 | |
The Woodlands, | Texas | 77381 |
(Address of principal executive offices) | (Zip Code) |
(281) 362-6800
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value | NR | New York Stock Exchange |
Rights to Purchase Series D Junior Participating Preferred Stock | N/A | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
Large accelerated filer | ☑☐ | | Accelerated filer | ☐☑ |
Non-accelerated filer | ☐ | | Smaller reporting company | ☑☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
As of October 30, 2020,August 2, 2021, a total of 90,803,61092,080,085 shares of common stock, $0.01 par value per share, were outstanding.
NEWPARK RESOURCES, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE AND NINESIX MONTHS ENDED
SEPTEMBERJUNE 30, 2020
2021
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, as amended. We also may provide oral or written forward-looking statements in other materials we release to the public. Words such as “will,” “may,” “could,” “would,” “should,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” and similar expressions are intended to identify these forward-looking statements but are not the exclusive means of identifying them. These forward-looking statements reflect the current views of our management as of the filing date of this Quarterly Report on Form 10-Q and include statements regarding the impact of the COVID-19 pandemic, as well as our future operating results related to compliance with certain financial covenants under our ABL Facility;10-Q; however, various risks, uncertainties, contingencies, and other factors, some of which are beyond our control, are difficult to predict and could cause our actual results, performance, or achievements to differ materially from those expressed in, or implied by, these statements.
We assume no obligation to update, amend, or clarify publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by securities laws. In light of these risks, uncertainties, and assumptions, the forward-looking events discussed in this Quarterly Report on Form 10-Q might not occur.
For further information regarding these and other factors, risks, and uncertainties that could cause actual results to differ, we refer you to the risk factors set forth in Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2019, and in Part II Item 1A “Risk Factors” in our Quarterly Report on Form 10-Q for the period ended March 31, 2020.
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
Newpark Resources, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
| (In thousands, except share data) | (In thousands, except share data) | September 30, 2020 | | December 31, 2019 | (In thousands, except share data) | June 30, 2021 | | December 31, 2020 |
ASSETS | ASSETS | | | | ASSETS | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 24,028 | | | $ | 48,672 | | Cash and cash equivalents | $ | 35,094 | | | $ | 24,197 | |
Receivables, net | Receivables, net | 127,957 | | | 216,714 | | Receivables, net | 142,789 | | | 141,045 | |
Inventories | Inventories | 159,567 | | | 196,897 | | Inventories | 147,191 | | | 147,857 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 17,327 | | | 16,526 | | Prepaid expenses and other current assets | 16,959 | | | 15,081 | |
Total current assets | Total current assets | 328,879 | | | 478,809 | | Total current assets | 342,033 | | | 328,180 | |
| Property, plant and equipment, net | Property, plant and equipment, net | 287,332 | | | 310,409 | | Property, plant and equipment, net | 266,355 | | | 277,696 | |
Operating lease assets | Operating lease assets | 32,306 | | | 32,009 | | Operating lease assets | 29,067 | | | 30,969 | |
Goodwill | Goodwill | 42,234 | | | 42,332 | | Goodwill | 42,484 | | | 42,444 | |
Other intangible assets, net | Other intangible assets, net | 26,103 | | | 29,677 | | Other intangible assets, net | 23,605 | | | 25,428 | |
Deferred tax assets | Deferred tax assets | 3,264 | | | 3,600 | | Deferred tax assets | 3,566 | | | 1,706 | |
Other assets | Other assets | 2,927 | | | 3,243 | | Other assets | 2,437 | | | 2,769 | |
Total assets | Total assets | $ | 723,045 | | | $ | 900,079 | | Total assets | $ | 709,547 | | | $ | 709,192 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current debt | Current debt | $ | 10,149 | | | $ | 6,335 | | Current debt | $ | 11,255 | | | $ | 67,472 | |
Accounts payable | Accounts payable | 44,013 | | | 79,777 | | Accounts payable | 70,527 | | | 49,252 | |
Accrued liabilities | Accrued liabilities | 35,923 | | | 42,750 | | Accrued liabilities | 37,281 | | | 36,934 | |
Total current liabilities | Total current liabilities | 90,085 | | | 128,862 | | Total current liabilities | 119,063 | | | 153,658 | |
| Long-term debt, less current portion | Long-term debt, less current portion | 92,206 | | | 153,538 | | Long-term debt, less current portion | 66,545 | | | 19,690 | |
Noncurrent operating lease liabilities | Noncurrent operating lease liabilities | 26,371 | | | 26,946 | | Noncurrent operating lease liabilities | 23,530 | | | 25,068 | |
Deferred tax liabilities | Deferred tax liabilities | 14,513 | | | 34,247 | | Deferred tax liabilities | 15,269 | | | 13,368 | |
Other noncurrent liabilities | Other noncurrent liabilities | 10,787 | | | 7,841 | | Other noncurrent liabilities | 8,896 | | | 9,376 | |
Total liabilities | Total liabilities | 233,962 | | | 351,434 | | Total liabilities | 233,303 | | | 221,160 | |
| Commitments and contingencies (Note 9) | Commitments and contingencies (Note 9) | | Commitments and contingencies (Note 9) | 0 | | 0 |
| Common stock, $0.01 par value (200,000,000 shares authorized and 107,587,786 and 106,696,719 shares issued, respectively) | 1,076 | | | 1,067 | | |
Common stock, $0.01 par value (200,000,000 shares authorized and 109,003,762 and 107,587,786 shares issued, respectively) | | Common stock, $0.01 par value (200,000,000 shares authorized and 109,003,762 and 107,587,786 shares issued, respectively) | 1,090 | | | 1,076 | |
Paid-in capital | Paid-in capital | 625,328 | | | 620,626 | | Paid-in capital | 629,833 | | | 627,031 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (69,847) | | | (67,947) | | Accumulated other comprehensive loss | (56,786) | | | (54,172) | |
Retained earnings | Retained earnings | 69,422 | | | 134,119 | | Retained earnings | 38,510 | | | 50,937 | |
Treasury stock, at cost (16,786,446 and 16,958,418 shares, respectively) | (136,896) | | | (139,220) | | |
Treasury stock, at cost (16,956,256 and 16,781,150 shares, respectively) | | Treasury stock, at cost (16,956,256 and 16,781,150 shares, respectively) | (136,403) | | | (136,840) | |
Total stockholders’ equity | Total stockholders’ equity | 489,083 | | | 548,645 | | Total stockholders’ equity | 476,244 | | | 488,032 | |
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 723,045 | | | $ | 900,079 | | Total liabilities and stockholders’ equity | $ | 709,547 | | | $ | 709,192 | |
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
Newpark Resources, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(In thousands, except per share data) | 2020 | | 2019 | | 2020 | | 2019 |
Revenues | $ | 96,424 | | | $ | 202,763 | | | $ | 362,920 | | | $ | 630,648 | |
Cost of revenues | 99,301 | | | 169,429 | | | 357,675 | | | 522,338 | |
Selling, general and administrative expenses | 20,597 | | | 27,017 | | | 66,230 | | | 85,796 | |
Other operating (income) loss, net | (820) | | | 29 | | | (1,906) | | | (367) | |
Impairments | 3,038 | | | 0 | | | 3,038 | | | 0 | |
Operating income (loss) | (25,692) | | | 6,288 | | | (62,117) | | | 22,881 | |
| | | | | | | |
Foreign currency exchange loss | 580 | | | 828 | | | 3,343 | | | 756 | |
Interest expense, net | 2,411 | | | 3,628 | | | 8,524 | | | 10,807 | |
Gain on extinguishment of debt | 0 | | | 0 | | | (419) | | | 0 | |
Income (loss) before income taxes | (28,683) | | | 1,832 | | | (73,565) | | | 11,318 | |
| | | | | | | |
Provision (benefit) for income taxes | (4,813) | | | 3,273 | | | (11,303) | | | 7,171 | |
Net income (loss) | $ | (23,870) | | | $ | (1,441) | | | $ | (62,262) | | | $ | 4,147 | |
| | | | | | | |
Net income (loss) per common share - basic: | $ | (0.26) | | | $ | (0.02) | | | $ | (0.69) | | | $ | 0.05 | |
Net income (loss) per common share - diluted: | $ | (0.26) | | | $ | (0.02) | | | $ | (0.69) | | | $ | 0.05 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
(In thousands, except per share data) | | | | | 2021 | | 2020 | | 2021 | | 2020 |
Revenues | | | | | $ | 142,249 | | | $ | 101,946 | | | $ | 283,421 | | | $ | 266,496 | |
Cost of revenues | | | | | 124,106 | | | 112,290 | | | 244,097 | | | 258,374 | |
Selling, general and administrative expenses | | | | | 22,980 | | | 20,937 | | | 43,891 | | | 45,633 | |
Other operating income, net | | | | | (1,590) | | | (742) | | | (1,864) | | | (1,086) | |
Operating loss | | | | | (3,247) | | | (30,539) | | | (2,703) | | | (36,425) | |
| | | | | | | | | | | |
Foreign currency exchange (gain) loss | | | | | 224 | | | 781 | | | (108) | | | 2,763 | |
Interest expense, net | | | | | 2,164 | | | 2,912 | | | 4,572 | | | 6,113 | |
(Gain) loss on extinguishment of debt | | | | | 0 | | | (1,334) | | | 790 | | | (419) | |
Loss before income taxes | | | | | (5,635) | | | (32,898) | | | (7,957) | | | (44,882) | |
| | | | | | | | | | | |
Provision (benefit) for income taxes | | | | | 363 | | | (6,654) | | | 3,403 | | | (6,490) | |
Net loss | | | | | $ | (5,998) | | | $ | (26,244) | | | $ | (11,360) | | | $ | (38,392) | |
| | | | | | | | | | | |
Net loss per common share - basic: | | | | | $ | (0.07) | | | $ | (0.29) | | | $ | (0.12) | | | $ | (0.43) | |
Net loss per common share - diluted: | | | | | $ | (0.07) | | | $ | (0.29) | | | $ | (0.12) | | | $ | (0.43) | |
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
Newpark Resources, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(In thousands) | 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
Net income (loss) | $ | (23,870) | | | $ | (1,441) | | | $ | (62,262) | | | $ | 4,147 | |
| | | | | | | |
Foreign currency translation adjustments (net of tax benefit (expense) of $(330), $713, $268, $604) | 3,461 | | | (3,897) | | | (1,900) | | | (4,097) | |
| | | | | | | |
Comprehensive income (loss) | $ | (20,409) | | | $ | (5,338) | | | $ | (64,162) | | | $ | 50 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
(In thousands) | | | | | 2021 | | 2020 | | 2021 | | 2020 |
| | | | | | | | | | | |
Net loss | | | | | $ | (5,998) | | | $ | (26,244) | | | $ | (11,360) | | | $ | (38,392) | |
| | | | | | | | | | | |
Foreign currency translation adjustments (net of tax benefit (expense) of $(90), $326, $186, $598) | | | | | 670 | | | 2,132 | | | (2,614) | | | (5,361) | |
| | | | | | | | | | | |
Comprehensive loss | | | | | $ | (5,328) | | | $ | (24,112) | | | $ | (13,974) | | | $ | (43,753) | |
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
Newpark Resources, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
| (In thousands) | (In thousands) | Common Stock | | Paid-In Capital | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Treasury Stock | | Total | (In thousands) | Common Stock | | Paid-In Capital | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Treasury Stock | | Total |
Balance at June 30, 2020 | $ | 1,074 | | | $ | 623,269 | | | $ | (73,308) | | | $ | 93,292 | | | $ | (136,890) | | | $ | 507,437 | | |
Balance at March 31, 2021 | | Balance at March 31, 2021 | $ | 1,077 | | | $ | 628,552 | | | $ | (57,456) | | | $ | 45,554 | | | $ | (136,805) | | | $ | 480,922 | |
Net loss | Net loss | — | | | — | | | — | | | (23,870) | | | — | | | (23,870) | | Net loss | — | | | — | | | — | | | (5,998) | | | — | | | (5,998) | |
Employee stock options, restricted stock and employee stock purchase plan | Employee stock options, restricted stock and employee stock purchase plan | 2 | | | 267 | | | — | | | — | | | (6) | | | 263 | | Employee stock options, restricted stock and employee stock purchase plan | 13 | | | (713) | | | — | | | (1,046) | | | 402 | | | (1,344) | |
Stock-based compensation expense | Stock-based compensation expense | — | | | 1,792 | | | — | | | — | | | — | | | 1,792 | | Stock-based compensation expense | — | | | 1,994 | | | — | | | — | | | — | | | 1,994 | |
Foreign currency translation, net of tax | Foreign currency translation, net of tax | — | | | — | | | 3,461 | | | — | | | — | | | 3,461 | | Foreign currency translation, net of tax | — | | | — | | | 670 | | | — | | | — | | | 670 | |
Balance at September 30, 2020 | $ | 1,076 | | | $ | 625,328 | | | $ | (69,847) | | | $ | 69,422 | | | $ | (136,896) | | | $ | 489,083 | | |
Balance at June 30, 2021 | | Balance at June 30, 2021 | $ | 1,090 | | | $ | 629,833 | | | $ | (56,786) | | | $ | 38,510 | | | $ | (136,403) | | | $ | 476,244 | |
| Balance at June 30, 2019 | $ | 1,067 | | | $ | 618,626 | | | $ | (67,873) | | | $ | 153,395 | | | $ | (139,086) | | | $ | 566,129 | | |
Balance at March 31, 2020 | | Balance at March 31, 2020 | $ | 1,067 | | | $ | 622,115 | | | $ | (75,440) | | | $ | 120,501 | | | $ | (137,884) | | | $ | 530,359 | |
Net loss | Net loss | — | | | — | | | — | | | (1,441) | | | — | | | (1,441) | | Net loss | — | | | — | | | — | | | (26,244) | | | — | | | (26,244) | |
Employee stock options, restricted stock and employee stock purchase plan | Employee stock options, restricted stock and employee stock purchase plan | — | | | (2,495) | | | — | | | (651) | | | 2,979 | | | (167) | | Employee stock options, restricted stock and employee stock purchase plan | 7 | | | (331) | | | — | | | (965) | | | 994 | | | (295) | |
Stock-based compensation expense | Stock-based compensation expense | — | | | 2,501 | | | — | | | — | | | — | | | 2,501 | | Stock-based compensation expense | — | | | 1,485 | | | — | | | — | | | — | | | 1,485 | |
Treasury shares purchased at cost | — | | | — | | | — | | | — | | | (3,494) | | | (3,494) | | |
Foreign currency translation, net of tax | Foreign currency translation, net of tax | — | | | — | | | (3,897) | | | — | | | — | | | (3,897) | | Foreign currency translation, net of tax | — | | | — | | | 2,132 | | | — | | | — | | | 2,132 | |
Balance at September 30, 2019 | $ | 1,067 | | | $ | 618,632 | | | $ | (71,770) | | | $ | 151,303 | | | $ | (139,601) | | | $ | 559,631 | | |
Balance at June 30, 2020 | | Balance at June 30, 2020 | $ | 1,074 | | | $ | 623,269 | | | $ | (73,308) | | | $ | 93,292 | | | $ | (136,890) | | | $ | 507,437 | |
| Balance at December 31, 2020 | | Balance at December 31, 2020 | $ | 1,076 | | | $ | 627,031 | | | $ | (54,172) | | | $ | 50,937 | | | $ | (136,840) | | | $ | 488,032 | |
Net loss | | Net loss | — | | | — | | | — | | | (11,360) | | | — | | | (11,360) | |
Employee stock options, restricted stock and employee stock purchase plan | | Employee stock options, restricted stock and employee stock purchase plan | 14 | | | (471) | | | — | | | (1,067) | | | 437 | | | (1,087) | |
Stock-based compensation expense | | Stock-based compensation expense | — | | | 3,273 | | | — | | | — | | | — | | | 3,273 | |
Foreign currency translation, net of tax | | Foreign currency translation, net of tax | — | | | — | | | (2,614) | | | — | | | — | | | (2,614) | |
Balance at June 30, 2021 | | Balance at June 30, 2021 | $ | 1,090 | | | $ | 629,833 | | | $ | (56,786) | | | $ | 38,510 | | | $ | (136,403) | | | $ | 476,244 | |
| Balance at December 31, 2019 | Balance at December 31, 2019 | $ | 1,067 | | | $ | 620,626 | | | $ | (67,947) | | | $ | 134,119 | | | $ | (139,220) | | | $ | 548,645 | | Balance at December 31, 2019 | $ | 1,067 | | | $ | 620,626 | | | $ | (67,947) | | | $ | 134,119 | | | $ | (139,220) | | | $ | 548,645 | |
Cumulative effect of accounting change | Cumulative effect of accounting change | — | | | — | | | — | | | (735) | | | — | | | (735) | | Cumulative effect of accounting change | — | | | — | | | — | | | (735) | | | — | | | (735) | |
Net loss | Net loss | — | | | — | | | — | | | (62,262) | | | — | | | (62,262) | | Net loss | — | | | — | | | — | | | (38,392) | | | — | | | (38,392) | |
Employee stock options, restricted stock and employee stock purchase plan | Employee stock options, restricted stock and employee stock purchase plan | 9 | | | (167) | | | — | | | (1,700) | | | 2,324 | | | 466 | | Employee stock options, restricted stock and employee stock purchase plan | 7 | | | (434) | | | — | | | (1,700) | | | 2,330 | | | 203 | |
Stock-based compensation expense | Stock-based compensation expense | — | | | 4,869 | | | — | | | — | | | — | | | 4,869 | | Stock-based compensation expense | — | | | 3,077 | | | — | | | — | | | — | | | 3,077 | |
Foreign currency translation, net of tax | Foreign currency translation, net of tax | — | | | — | | | (1,900) | | | — | | | — | | | (1,900) | | Foreign currency translation, net of tax | — | | | — | | | (5,361) | | | — | | | — | | | (5,361) | |
Balance at September 30, 2020 | $ | 1,076 | | | $ | 625,328 | | | $ | (69,847) | | | $ | 69,422 | | | $ | (136,896) | | | $ | 489,083 | | |
| Balance at December 31, 2018 | $ | 1,064 | | | $ | 617,276 | | | $ | (67,673) | | | $ | 148,802 | | | $ | (129,788) | | | $ | 569,681 | | |
Net income | — | | | — | | | — | | | 4,147 | | | — | | | 4,147 | | |
Employee stock options, restricted stock and employee stock purchase plan | 3 | | | (8,019) | | | — | | | (1,646) | | | 9,218 | | | (444) | | |
Stock-based compensation expense | — | | | 9,375 | | | — | | | — | | | — | | | 9,375 | | |
Treasury shares purchased at cost | — | | | — | | | — | | | — | | | (19,031) | | | (19,031) | | |
Foreign currency translation, net of tax | — | | | — | | | (4,097) | | | — | | | — | | | (4,097) | | |
Balance at September 30, 2019 | $ | 1,067 | | | $ | 618,632 | | | $ | (71,770) | | | $ | 151,303 | | | $ | (139,601) | | | $ | 559,631 | | |
Balance at June 30, 2020 | | Balance at June 30, 2020 | $ | 1,074 | | | $ | 623,269 | | | $ | (73,308) | | | $ | 93,292 | | | $ | (136,890) | | | $ | 507,437 | |
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
Newpark Resources, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| | | Nine Months Ended September 30, | | Six Months Ended June 30, |
(In thousands) | (In thousands) | 2020 | | 2019 | (In thousands) | 2021 | | 2020 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | Cash flows from operating activities: | | | |
Net income (loss) | $ | (62,262) | | | $ | 4,147 | | |
Adjustments to reconcile net income (loss) to net cash provided by operations: | | | | |
Impairments and other non-cash charges | 13,024 | | | 0 | | |
Net loss | | Net loss | $ | (11,360) | | | $ | (38,392) | |
Adjustments to reconcile net loss to net cash provided by operations: | | Adjustments to reconcile net loss to net cash provided by operations: | | | |
Inventory impairments | | Inventory impairments | 0 | | | 8,996 | |
Depreciation and amortization | Depreciation and amortization | 34,186 | | | 34,891 | | Depreciation and amortization | 21,493 | | | 22,915 | |
Stock-based compensation expense | Stock-based compensation expense | 4,869 | | | 9,375 | | Stock-based compensation expense | 3,273 | | | 3,077 | |
Provision for deferred income taxes | Provision for deferred income taxes | (19,023) | | | (787) | | Provision for deferred income taxes | 402 | | | (11,418) | |
Credit loss expense | Credit loss expense | 1,304 | | | 1,044 | | Credit loss expense | 230 | | | 726 | |
Gain on sale of assets | Gain on sale of assets | (2,916) | | | (5,779) | | Gain on sale of assets | (5,358) | | | (2,163) | |
Gain on extinguishment of debt | (419) | | | 0 | | |
(Gain) loss on extinguishment of debt | | (Gain) loss on extinguishment of debt | 790 | | | (419) | |
Amortization of original issue discount and debt issuance costs | Amortization of original issue discount and debt issuance costs | 3,962 | | | 4,589 | | Amortization of original issue discount and debt issuance costs | 2,068 | | | 2,801 | |
Change in assets and liabilities: | Change in assets and liabilities: | | | Change in assets and liabilities: | | |
Decrease in receivables | 77,004 | | | 17,065 | | |
Decrease in inventories | 26,566 | | | 11,873 | | |
(Increase) decrease in receivables | | (Increase) decrease in receivables | (5,594) | | | 66,510 | |
(Increase) decrease in inventories | | (Increase) decrease in inventories | (209) | | | 7,512 | |
Increase in other assets | Increase in other assets | (2,912) | | | (3,621) | | Increase in other assets | (2,236) | | | (5,294) | |
Decrease in accounts payable | (34,606) | | | (11,806) | | |
Increase (decrease) in accounts payable | | Increase (decrease) in accounts payable | 21,344 | | | (26,577) | |
Increase (decrease) in accrued liabilities and other | Increase (decrease) in accrued liabilities and other | 1,516 | | | (7,805) | | Increase (decrease) in accrued liabilities and other | 994 | | | (3,261) | |
Net cash provided by operating activities | Net cash provided by operating activities | 40,293 | | | 53,186 | | Net cash provided by operating activities | 25,837 | | | 25,013 | |
| Cash flows from investing activities: | Cash flows from investing activities: | | | | Cash flows from investing activities: | | | |
Capital expenditures | Capital expenditures | (14,609) | | | (35,803) | | Capital expenditures | (10,477) | | | (10,655) | |
Proceeds from sale of property, plant and equipment | Proceeds from sale of property, plant and equipment | 10,497 | | | 7,116 | | Proceeds from sale of property, plant and equipment | 9,208 | | | 7,963 | |
Net cash used in investing activities | Net cash used in investing activities | (4,112) | | | (28,687) | | Net cash used in investing activities | (1,269) | | | (2,692) | |
| Cash flows from financing activities: | Cash flows from financing activities: | | | | Cash flows from financing activities: | | | |
Borrowings on lines of credit | Borrowings on lines of credit | 147,987 | | | 237,093 | | Borrowings on lines of credit | 97,746 | | | 117,068 | |
Payments on lines of credit | Payments on lines of credit | (180,440) | | | (242,263) | | Payments on lines of credit | (100,469) | | | (116,207) | |
Purchases of Convertible Notes | Purchases of Convertible Notes | (29,124) | | | 0 | | Purchases of Convertible Notes | (18,107) | | | (29,124) | |
Proceeds from term loan | | Proceeds from term loan | 8,258 | | | 0 | |
Debt issuance costs | Debt issuance costs | 0 | | | (1,214) | | Debt issuance costs | (196) | | | 0 | |
Proceeds from employee stock plans | 0 | | | 1,236 | | |
Purchases of treasury stock | Purchases of treasury stock | (332) | | | (21,678) | | Purchases of treasury stock | (1,350) | | | (326) | |
Other financing activities | Other financing activities | 1,029 | | | 1,336 | | Other financing activities | 808 | | | 2,480 | |
Net cash used in financing activities | Net cash used in financing activities | (60,880) | | | (25,490) | | Net cash used in financing activities | (13,310) | | | (26,109) | |
| Effect of exchange rate changes on cash | Effect of exchange rate changes on cash | (1,810) | | | (1,526) | | Effect of exchange rate changes on cash | (591) | | | (2,713) | |
| Net decrease in cash, cash equivalents, and restricted cash | (26,509) | | | (2,517) | | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | | Net increase (decrease) in cash, cash equivalents, and restricted cash | 10,667 | | | (6,501) | |
Cash, cash equivalents, and restricted cash at beginning of period | Cash, cash equivalents, and restricted cash at beginning of period | 56,863 | | | 64,266 | | Cash, cash equivalents, and restricted cash at beginning of period | 30,348 | | | 56,863 | |
Cash, cash equivalents, and restricted cash at end of period | Cash, cash equivalents, and restricted cash at end of period | $ | 30,354 | | | $ | 61,749 | | Cash, cash equivalents, and restricted cash at end of period | $ | 41,015 | | | $ | 50,362 | |
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
NEWPARK RESOURCES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Basis of Presentation and Significant Accounting Policies
Newpark Resources, Inc. is a geographically diversified supplier providing products, as well as rentals and services to customers across multiple industries. The accompanying unaudited condensed consolidated financial statements of Newpark Resources, Inc. and our wholly-owned subsidiaries, which we collectively refer to as “we,” “our,” or “us,” have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the Securities and Exchange Commission (“SEC”), and do not include all information and footnotes required by the accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019.2020. Our fiscal year end is December 31, our thirdsecond quarter represents the three-three month period ended SeptemberJune 30, and our first nine monthshalf represents the nine-monthsix month period ended SeptemberJune 30. The results of operations for the thirdsecond quarter and first nine monthshalf of 20202021 are not necessarily indicative of the results to be expected for the entire year. Unless otherwise noted, all currency amounts are stated in U.S. dollars.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary to present fairly our financial position as of SeptemberJune 30, 2020,2021, our results of operations for the thirdsecond quarter and first nine monthshalf of 20202021 and 2019,2020, and our cash flows for the first nine monthshalf of 20202021 and 2019.2020. All adjustments are of a normal recurring nature. Our balance sheet at December 31, 20192020 is derived from the audited consolidated financial statements at that date.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. For further information, see Note 1 in our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
We operate our business through 2 reportable segments: Fluids Systems and Industrial Solutions. Our Fluids Systems segment primarily provides customized drilling, completion, and stimulation fluids solutions to oil and natural gas exploration and production (“E&P”) customers primarily in North America and Europe, the Middle East and Africa (“EMEA”), as well as certain countries in Asia Pacific and Latin America. Our Industrial Solutions segment includes our Site and Access Solutions business (historically reported as the Mats and Integrated Services segment), along with our Industrial Blending operations. Site and Access Solutions provides composite matting system rentals utilized for temporary worksite access, along with related site construction and services to customers in various markets including power transmission, E&P, pipeline, renewable energy, petrochemical, construction and other industries, primarily in the United States and Europe. We also sell our manufactured composite mats to customers around the world, with power transmission being the primary end-market. Our Industrial Blending operations began in 2020, leveraging our chemical blending capacity and technical expertise to enter targeted industrial end-markets.
New Accounting Pronouncements
Standards Adopted in 2020
Credit Losses. In 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance which requires financial assets measured at amortized cost basis, including trade receivables, to be presented at the net amount expected to be collected. The new guidance requires an entity to estimate its lifetime “expected credit loss” for such assets at inception, which will generally result in the earlier recognition of allowances for losses. Under previous guidance, reserves for uncollectible accounts receivable were determined on a specific identification basis when we believed that the required payment of specific amounts owed to us was not probable. Under the new guidance, our allowance for credit losses reflects losses that are expected over the contractual life of the asset, and takes into account historical loss experience, current and future economic conditions, and reasonable and supportable forecasts.
We adopted this new guidance as of January 1, 2020 using the modified retrospective transition method, and recorded a net reduction of $0.7 million to opening retained earnings to reflect the cumulative effect of adoption. Results for reporting periods beginning after December 31, 2019 are presented under the new guidance, while prior period amounts were not adjusted and continue to be reported in accordance with previous guidance. See Note 5 for additional required disclosures.
The cumulative effect of the changes made to our consolidated balance sheet for the adoption of the new accounting guidance for credit losses were as follows:
| | | | | | | | | | | | | | | | | |
(In thousands) | Balance at December 31, 2019 | | Impact of Adoption of New Credit Losses Guidance | | Balance at January 1, 2020 |
Receivables, net | $ | 216,714 | | | $ | (959) | | | $ | 215,755 | |
Deferred tax assets | 3,600 | | | 59 | | | 3,659 | |
Deferred tax liabilities | 34,247 | | | (165) | | | 34,082 | |
Retained earnings | 134,119 | | | (735) | | | 133,384 | |
Standards Not Yet Adopted2021
Income Taxes: Simplifying the Accounting for Income Taxes. In December 2019, the FASBFinancial Accounting Standards Board (“FASB”) issued new guidance which is intended to simplify various aspects related to accounting for income taxes. We adopted this new guidance as of January 1, 2021. The adoption of this new guidance had no material impact on our financial statements or related disclosures.
Standards Not Yet Adopted
Debt: Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. In August 2020, the FASB issued new guidance which is intended to simplify the accounting for convertible instruments. This guidance iswill be effective for us in the first quarter of 2021. We2022. As our existing convertible instrument matures in December 2021, we do not expect the adoption of this guidance to have a material impact on our consolidated financial statements or related disclosures.
Note 2 – Earnings Per Share
The following table presents the reconciliation of the numerator and denominator for calculating net income (loss)loss per share: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Second Quarter | | First Half |
(In thousands, except per share data) | | | | | 2021 | | 2020 | | 2021 | | 2020 |
Numerator | | | | | | | | | | | |
Net loss - basic and diluted | | | | | $ | (5,998) | | | $ | (26,244) | | | $ | (11,360) | | | $ | (38,392) | |
| | | | | | | | | | | |
Denominator | | | | | | | | | | | |
Weighted average common shares outstanding - basic | | | | | 91,145 | | | 89,981 | | | 90,924 | | | 89,813 | |
Dilutive effect of stock options and restricted stock awards | | | | | 0 | | | 0 | | | 0 | | | 0 | |
Dilutive effect of Convertible Notes | | | | | 0 | | | 0 | | | 0 | | | 0 | |
Weighted average common shares outstanding - diluted | | | | | 91,145 | | | 89,981 | | | 90,924 | | | 89,813 | |
| | | | | | | | | | | |
Net loss per common share | | | | | | | | | | | |
Basic | | | | | $ | (0.07) | | | $ | (0.29) | | | $ | (0.12) | | | $ | (0.43) | |
Diluted | | | | | $ | (0.07) | | | $ | (0.29) | | | $ | (0.12) | | | $ | (0.43) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Third Quarter | | First Nine Months |
(In thousands, except per share data) | | | | | 2020 | | 2019 | | 2020 | | 2019 |
Numerator | | | | | | | | | | | |
Net income (loss) - basic and diluted | | | | | $ | (23,870) | | | $ | (1,441) | | | $ | (62,262) | | | $ | 4,147 | |
| | | | | | | | | | | |
Denominator | | | | | | | | | | | |
Weighted average common shares outstanding - basic | | | | | 90,535 | | | 89,675 | | | 90,056 | | | 89,863 | |
Dilutive effect of stock options and restricted stock awards | | | | | 0 | | | 0 | | | 0 | | | 1,676 | |
Dilutive effect of Convertible Notes | | | | | 0 | | | 0 | | | 0 | | | 0 | |
Weighted average common shares outstanding - diluted | | | | | 90,535 | | | 89,675 | | | 90,056 | | | 91,539 | |
| | | | | | | | | | | |
Net income (loss) per common share | | | | | | | | | | | |
Basic | | | | | $ | (0.26) | | | $ | (0.02) | | | $ | (0.69) | | | $ | 0.05 | |
Diluted | | | | | $ | (0.26) | | | $ | (0.02) | | | $ | (0.69) | | | $ | 0.05 | |
We excluded the following weighted-average potential shares from the calculations of diluted net income (loss)loss per share during the applicable periods because their inclusion would have been anti-dilutive:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Third Quarter | | First Nine Months |
(In thousands) | | | | | 2020 | | 2019 | | 2020 | | 2019 |
Stock options and restricted stock awards | | | | | 5,608 | | | 4,989 | | | 5,172 | | | 1,812 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Second Quarter | | First Half |
(In thousands) | | | | | 2021 | | 2020 | | 2021 | | 2020 |
Stock options and restricted stock awards | | | | | 5,863 | | | 5,067 | | | 5,583 | | | 4,951 | |
For the thirdsecond quarter and first nine monthshalf of 2021 and 2020, as well as the third quarter of 2019, we excluded all potentially dilutive stock options and restricted stock awards in calculating diluted earnings per share as the effect was anti-dilutive due to the net loss incurred for these periods. The Convertible Notes (as defined in Note 7) only impact the calculation of diluted net income per share in periods that the average price of our common stock, as calculated in accordance with the terms of the indenture governing the Convertible Notes, exceeds the conversion price of $9.33 per share. We have the option to pay cash, issue shares of common stock, or any combination thereof for the aggregate amount due upon conversion of the Convertible Notes as further described in Note 7. If converted, we currently intend towill settle the principal amount of the notes in cash and as a result, only the amounts payable in excess of the principal amount of the notes, if any, would be assumed to be settled with shares of common stock for purposes of computing diluted net income per share.
Note 3 – Capital Stock and Repurchase Program
Our securities repurchase program remains available for repurchases of any combination of our common stock and our Convertible Notes. The repurchase program has no specific term. Repurchases are expected to be funded from operating cash flows, available cash on hand, and borrowings under our ABL Facility (as defined in Note 7). As part of the share repurchase program, our management has been authorized to establish trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934. As of SeptemberJune 30, 2020,2021, we had $51.9$33.8 million remaining under the program.
During the first nine monthshalf of 2021, we repurchased $18.3 million of our Convertible Notes in the open market under the repurchase program for a total cost of $18.1 million. During the first half of 2020, we repurchased $33.1 million of our Convertible Notes in the open market under the repurchase program for a total cost of $29.1 million. There were 0 Convertible Notes repurchased under the program during 2019.
There were 0 shares of common stock repurchased under the repurchase program during the first nine monthshalf of 2020. During the first nine months of 2019, we repurchased an aggregate of 2,537,833 shares of our common stock under the program for a total cost of $19.0 million.
On May 27, 2020, our Board of Directors adopted a limited duration stockholder rights agreement which expires on May 1, 2021 whereby a dividend distribution of 1 right (each, a “Right”) for each outstanding share of our common stock was paid to holders of record as of the close of business on June 12,or 2020. Each Right entitles the registered holder to purchase from us one one-thousandth of a share of Series D Junior Participating Preferred Stock, par value $0.01 per share, at a purchase price of $12.00, subject to adjustment. Subject to certain exceptions, if a person or group acquires more than 10% of our outstanding common stock, the Rights will become exercisable for common stock having a value equal to two times the purchase price.
Note 4 – Stock-Based and Other Long-Term Incentive Compensation
During the second quarter of 2021, our stockholders approved an amendment to the 2015 Employee Equity Incentive Plan (“2015 Plan”) to increase the number of shares authorized for issuance under the 2015 Plan from 12,300,000 to 14,300,000 shares, and also approved an amendment to the 2014 Non-Employee Directors’ Restricted Stock Plan (“2014 Director Plan”) to increase the number of shares authorized for issuance under the 2014 Director Plan from 1,000,000 to 1,200,000 shares.
During the second quarter of 2020,2021, the Compensation Committee of our Board of Directors (“Compensation Committee”) approved equity-based compensation to executive officers and other key employees consisting of 2,474,3772,665,177 restricted stock units, which will primarily vest in equal installments over a three-year period. At September 30, 2020, 1,622,532 shares remained available for award under the 2015 Employee Equity Incentive Plan (“2015 Plan”). In addition, non-employee directors received a grant of 156,886210,367 restricted stock awards, which will vest in full on the earlier of the day prior to the next annual meeting of stockholders following the grant date or the first anniversary of the grant date. At June 30, 2021, 1,623,738 shares remained available for award under the 2015 Plan and 146,527 shares remained available for award under the 2014 Director Plan. The weighted average grant-date fair value was $2.06$3.28 per share for both the restricted stock units and restricted stock awards.
Also during the second quarter of 2020,2021, the Compensation Committee approved the issuance of performance-based cash awards to certain executive officers with a target amountvalue of $2.6$3.0 million. The performance-based cash awards will be settled based on the relative ranking of our total shareholder return (“TSR”) as compared to the TSR of our designated peer group over a three-year performance period. The performance period began May 2, 20202021 and ends May 31, 2023,2024, with the ending TSR price being equal to the average closing price of our shares over the 30-calendar days ending May 31, 20232024 and the cash payout for each executive ranging from 0% to 200% of target. The performance-based cash awards are accrued as a liability award over the performance period based on the estimated fair value. The fair value of the performance-based cash awards is remeasured each period using a Monte-Carlo valuation model with changes in fair value recognized in the consolidated statements of operations.
Note 5 – Receivables
Receivables consisted of the following:
| | | | | | | | | | | |
(In thousands) | September 30, 2020 | | December 31, 2019 |
Trade receivables: | | | |
Gross trade receivables | $ | 119,705 | | | $ | 207,554 | |
Allowance for credit losses | (5,753) | | | (6,007) | |
Net trade receivables | 113,952 | | | 201,547 | |
Income tax receivables | 4,403 | | | 7,393 | |
Other receivables | 9,602 | | | 7,774 | |
Total receivables, net | $ | 127,957 | | | $ | 216,714 | |
| | | | | | | | | | | |
(In thousands) | June 30, 2021 | | December 31, 2020 |
Trade receivables: | | | |
Gross trade receivables | $ | 136,398 | | | $ | 133,717 | |
Allowance for credit losses | (4,732) | | | (5,024) | |
Net trade receivables | 131,666 | | | 128,693 | |
Income tax receivables | 5,446 | | | 6,545 | |
Other receivables | 5,677 | | | 5,807 | |
Total receivables, net | $ | 142,789 | | | $ | 141,045 | |
Other receivables included $8.4$4.7 million and $6.2$4.4 million for value added, goods and service taxes related to foreign jurisdictions as of SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively.
We adopted the new accounting guidance for credit losses as of January 1, 2020 (see Note 1 for additional information). To measure expected credit losses, we evaluate our receivables on a collective basis for assets that share similar risk characteristics. Our allowance for credit losses reflects losses that are expected over the contractual life of the asset, and takes into account historical loss experience, current and future economic conditions, and reasonable and supportable forecasts.2020.
Changes in our allowance for credit losses were as follows: | | | | | | | | | | | |
| First Half |
(In thousands) | 2021 | | 2020 |
Balance at beginning of period | $ | 5,024 | | | $ | 6,007 | |
Cumulative effect of accounting change | 0 | | | 959 | |
Credit loss expense | 230 | | | 726 | |
Write-offs, net of recoveries | (522) | | | (937) | |
Balance at end of period | $ | 4,732 | | | $ | 6,755 | |
| | | | | | | | | | | |
| First Nine Months |
(In thousands) | 2020 | | 2019 |
Balance at beginning of period | $ | 6,007 | | | $ | 10,034 | |
Cumulative effect of accounting change | 959 | | | 0 | |
Credit loss expense | 1,304 | | | 1,044 | |
Write-offs, net of recoveries | (2,517) | | | (2,530) | |
Balance at end of period | $ | 5,753 | | | $ | 8,548 | |
Note 6 – Inventories
Inventories consisted of the following:
| | | | | | | | | | | |
(In thousands) | September 30, 2020 | | December 31, 2019 |
Raw materials: | | | |
Fluids systems | $ | 106,484 | | | $ | 141,314 | |
Mats and integrated services | 3,724 | | | 5,049 | |
Total raw materials | 110,208 | | | 146,363 | |
Blended fluids systems components | 34,221 | | | 39,542 | |
Finished goods - mats | 15,138 | | | 10,992 | |
Total inventories | $ | 159,567 | | | $ | 196,897 | |
| | | | | | | | | | | |
(In thousands) | June 30, 2021 | | December 31, 2020 |
Raw materials: | | | |
Fluids systems | $ | 103,149 | | | $ | 98,974 | |
Industrial Solutions | 5,856 | | | 6,315 | |
Total raw materials | 109,005 | | | 105,289 | |
Blended fluids systems components | 28,714 | | | 31,744 | |
Finished goods - mats | 9,472 | | | 10,824 | |
Total inventories | $ | 147,191 | | | $ | 147,857 | |
Raw materials for the Fluids Systems segment consists primarily of barite, chemicals, and other additives that are consumed in the production of our fluids systems. Raw materials for the Mats and Integrated ServicesIndustrial Solutions segment consists primarily of resins, chemicals, and other materials used to manufacture composite mats and cleaning products, as well as materials that are consumed in providing spill containment and other services to our customers. Our blended fluids systems components consist of base fluid systems that have been either mixed internally at our blending facilities or purchased from third-party vendors. These base fluid systems require raw materials to be added, as needed to meet specified customer requirements.
Fluids Systems segment cost of revenues includes a total of $10.0 million of charges for the first nine months of 2020 for inventory write-downs, primarily attributable to the reduction in carrying values of certain inventory to their net realizable value.
Note 7 – Financing Arrangements and Fair Value of Financial Instruments
Financing arrangements consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
(In thousands) | Principal Amount | | Unamortized Discount and Debt Issuance Costs | | Total Debt | | Principal Amount | | Unamortized Discount and Debt Issuance Costs | | Total Debt |
Convertible Notes | $ | 66,912 | | | $ | (5,262) | | | $ | 61,650 | | | $ | 100,000 | | | $ | (12,291) | | | $ | 87,709 | |
ABL Facility | 29,900 | | | — | | | 29,900 | | | 65,000 | | | — | | | 65,000 | |
Other debt | 10,805 | | | — | | | 10,805 | | | 7,164 | | | — | | | 7,164 | |
Total debt | 107,617 | | | (5,262) | | | 102,355 | | | 172,164 | | | (12,291) | | | 159,873 | |
Less: Current portion | (10,149) | | | 0 | | | (10,149) | | | (6,335) | | | 0 | | | (6,335) | |
Long-term debt | $ | 97,468 | | | $ | (5,262) | | | $ | 92,206 | | | $ | 165,829 | | | $ | (12,291) | | | $ | 153,538 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
(In thousands) | Principal Amount | | Unamortized Discount and Debt Issuance Costs | | Total Debt | | Principal Amount | | Unamortized Discount and Debt Issuance Costs | | Total Debt |
Convertible Notes | $ | 48,567 | | | $ | (1,459) | | | $ | 47,108 | | | $ | 66,912 | | | $ | (4,221) | | | $ | 62,691 | |
ABL Facility | 14,000 | | | 0 | | | 14,000 | | | 19,100 | | | 0 | | | 19,100 | |
Term loan | 7,247 | | | (157) | | | 7,090 | | | 0 | | | 0 | | | 0 | |
Other debt | 9,602 | | | 0 | | | 9,602 | | | 5,371 | | | 0 | | | 5,371 | |
Total debt | 79,416 | | | (1,616) | | | 77,800 | | | 91,383 | | | (4,221) | | | 87,162 | |
Less: Current portion | (11,255) | | | 0 | | | (11,255) | | | (71,693) | | | 4,221 | | | (67,472) | |
Long-term debt | $ | 68,161 | | | $ | (1,616) | | | $ | 66,545 | | | $ | 19,690 | | | $ | 0 | | | $ | 19,690 | |
Convertible Notes. In December 2016, we issued $100.0 million of unsecured convertible senior notes (“Convertible Notes”) that mature on December 1, 2021, of which $66.9$48.6 million principal amount was outstanding at SeptemberJune 30, 2020.2021. The notes bear interest at a rate of 4.0% per year, payable semiannually in arrears on June 1 and December 1 of each year.
Holders may convert the notes at their option atAt any time prior to the close of business on the business day immediately preceding June 1, 2021, holders could have converted their notes only under the following circumstances:
•during any calendar quarter (and only during such calendar quarter) if the last reported sale price of our common stock for at least 20 trading days (regardless of whether consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price of the notes in effect on each applicable trading day;
•during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of notes for each trading day was less than 98% of the last reported sale price of our common stock on such date multiplied by the conversion rate on each such trading day; or
•upon the occurrence of specified corporate events, as described in the indenture governing the notes, such as a consolidation, merger, or share exchange.
certain circumstances. On or after June 1, 2021 until the close of business on the business day immediately preceding the maturity date, holders may convert their notes at any time, regardless of whethertime. If any of the foregoing conditions have been satisfied. As of October 30, 2020, the notes were not convertible.
The notes are convertible into,converted on or after June 1, 2021, we will settle the converted notes at our election,the maturity date with a combination of cash and shares of common stock or a combination of both, subject to satisfaction of specified conditions and during specified periods, as described above. If converted, we currently intend to pay cash forin accordance with the principal amountterms of the notes converted.indenture governing the Convertible Notes. The conversion rate is 107.1381 shares of our common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of $9.33 per share of common stock), subject to adjustment in certain circumstances. We may not redeem the notes prior to their maturity date. As of August 2, 2021, no holders have converted their notes. The Convertible Notes are classified as long-term debt in the June 30, 2021 balance sheet as we intend to settle the notes at maturity utilizing borrowings under our ABL Facility, as discussed further below.
In accordance with accounting guidance for convertible debt with a cash conversion option, we separately accounted for the debt and equity components of the notes in a manner that reflected our estimated nonconvertible debt borrowing rate. As of SeptemberJune 30, 2020,2021, the carrying amount of the debt component was $61.7$47.1 million, which is net of the unamortized debt discount and debt issuance costs of $5.3$1.5 million. Including the impact of the unamortized debt discount and debt issuance costs, the effective interest rate on the notes is approximately 11.3%.
During the first nine monthshalf of 2020,2021, we repurchased $33.1$18.3 million of our Convertible Notes in the open market for a total cost of $29.1$18.1 million, and recognized a net gainloss of $0.4$0.8 million reflecting the difference in the amount paid and the net carrying value of the extinguished debt, including original issue discount and debt issuance costs.
Asset-Based Loan Facility. In May 2016, we entered into an asset-based revolving credit agreement, which replaced our previous credit agreement. Inwas amended in October 2017 we entered into an Amended and Restated Credit Agreement and in March 2019 we entered into a First Amendment to Amended and Restated Credit Agreement (as amended, the “ABL Facility”). The ABL Facility provides financing of up to $200.0 million available for borrowings (inclusive of letters of credit) and can be increased up to a maximum capacity of $275.0 million, subject to certain conditions. As of SeptemberJune 30, 2020,2021, our total availability under the ABL Facility was $99.0$85.2 million, of which $29.9$14.0 million was drawn and $0.7 million was used for outstanding letters of credit, resulting in remaining availability of $69.1$70.5 million. This availability under the ABL Facility excludes $24.7 million related to eligible rental mats as we failed to satisfy the required minimum consolidated fixed charge coverage ratio, as measured on the trailing twelve-month period ended March 31, 2021.
The ABL Facility terminates in March 2024; however, the ABL Facility has a springing maturity date that will accelerate the maturity of the ABL Facility to September 1, 2021 if, prior to such date, the Convertible Notes have not been repurchased, redeemed, refinanced, exchanged or otherwise satisfied in full or we have not escrowed an amount of funds, that together with the amount that we establish as a reserve against our borrowing capacity, is sufficient for the future settlement of the Convertible Notes at their maturity. The ABL Facility requires compliance with a minimum consolidated fixed charge coverage ratio of 1.25 to 1.0 calculated based on the trailing twelve-month period ended June 30, 2021 and remaining unused availability of at least $25.0 million to utilize borrowings or assignment of availability under the ABL Facility towards funding the repayment of the Convertible Notes. As measured on the trailing twelve-month period ended June 30, 2021, we have satisfied the minimum consolidated fixed charge coverage ratio as required to include eligible rental mats in the borrowing availability under the ABL
Facility and have satisfied the ABL Facility requirements to utilize the ABL Facility for the future settlement of the Convertible Notes. Prior to September 1, 2021, we will establish a reserve against our borrowing capacity under the ABL Facility for the future settlement of the Convertible Notes and intend to utilize borrowings to fund the repayment of the Convertible Notes at their December 1, 2021 maturity. As of August 2, 2021, we had $21.1 million outstanding under the ABL Facility, including letters of credit. After giving effect to satisfying the ABL Facility requirements, total availability is $107.9 million, inclusive of $24.4 million in eligible rental mats.
Borrowing availability under the ABL Facility is calculated based on eligible U.S. accounts receivable, inventory, and, subject to satisfaction of certain financial covenants as described below, composite mats included in the rental fleet, net of reserves and limits on such assets included in the borrowing base calculation. To the extent pledged by us, the borrowing base calculation also includes the amount of eligible pledged cash. The lender may establish such reserves, in part based on appraisals of the asset base, and other limits at its discretion which could reduce the amounts otherwise available under the ABL Facility. Availability associated with eligible rental mats will also be subject to maintaining a minimum consolidated fixed charge coverage ratio of 1.5 to 1.0 and at least $1.0 million of operating income for the MatsSite and Integrated Services segment,Access Solutions business, each calculated based on a trailing twelve-month period.
As of November 3, 2020, our total availability under the ABL Facility was $112.3 million, of which $29.0 million was drawn, resulting in remaining availability of $83.3 million. As of November 3, 2020, our total availability under the ABL Facility included $25.3 million from eligible rental mats. After the filing of our quarterly compliance certificate under the ABL Facility for the third quarter of 2020 in November, we will not satisfy the minimum consolidated fixed charge coverage ratio that is required to continue including eligible rental mats in the borrowing availability under the ABL Facility. While this does not represent a default, it would reduce the borrowing availability under the ABL Facility noted above as of November 3, 2020 by $25.3 million.
Under the terms of the ABL Facility, we may elect to borrow at a variable interest rate based on either, (1) LIBOR subject to a floor of zero or (2) a base rate equal to the highest of: (a) the federal funds rate plus 50 basis points, (b) the prime rate of Bank of America, N.A. and (c) LIBOR, subject to a floor of zero, plus 100 basis points, plus, in each case, an applicable margin per annum. The applicable margin ranges from 150 to 200 basis points for LIBOR borrowings, and 50 to 100 basis points for base rate borrowings, based on the consolidated fixed charge coverage ratio as defined in the ABL Facility calculated based on a trailing twelve-month period.Facility. As of SeptemberJune 30, 2020,2021, the applicable margin for borrowings under our ABL Facility was 150200 basis points with respect to LIBOR borrowings and 50100 basis points with respect to base rate borrowings.borrowings, with the applicable margins reducing to 150 basis points and 50 basis points, respectively, in August 2021. The weighted average interest rate for the ABL Facility was 1.9%2.1% at SeptemberJune 30, 2020. In November 2020, the applicable margins for borrowings under our ABL Facility will increase 50 basis points based on the consolidated fixed charge coverage ratio.2021. In addition, we are required to pay a commitment fee on the unused portion of the ABL Facility ranging from 25 to 37.5 basis points, based on the level of outstanding borrowings, as defined in the ABL Facility. As of SeptemberJune 30, 2020,2021, the applicable commitment fee was 37.5 basis points.
The ABL Facility is a senior secured obligation, secured by first liens on substantially all of our U.S. tangible and intangible assets, and a portion of the capital stock of our non-U.S. subsidiaries has also been pledged as collateral. The ABL Facility contains customary operating covenants and certain restrictions including, among other things, the incurrence of additional debt, liens, dividends, asset sales, investments, mergers, acquisitions, affiliate transactions, stock repurchases and other restricted payments. The ABL Facility also requires compliance with a minimum consolidated fixed charge coverage ratio of 1.0 to 1.0 calculated based on a trailing twelve-month period if availability under the ABL Facility falls below $22.5 million. In addition, the ABL Facility contains customary events of default, including, without limitation, a failure to make payments under the facility, acceleration of more than $25.0 million of other indebtedness, certain bankruptcy events, and certain change of control events.
Other Debt. In February 2021, a U.K. subsidiary entered a £6.0 million (approximately $8.3 million) term loan facility that matures in February 2024, the proceeds of which were used to pay down the ABL Facility. The term loan bears interest at a rate of LIBOR plus a margin of 3.4% per year, payable in quarterly installments of £375,000 plus interest beginning March 2021 and a £1.5 million payment due at maturity. We had $7.2 million outstanding under this arrangement at June 30, 2021.
Certain of our other foreign subsidiaries maintain local credit arrangements consisting primarily of lines of credit or overdraft facilities which are generally renewed on an annual basis. We utilize local financing arrangements in our foreign operations in order to provide short-term local liquidity needs. We had $7.9$5.8 million and $4.8$3.5 million outstanding under these arrangements at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively.
In addition, at SeptemberJune 30, 2020,2021, we had $57.5$45.4 million in outstanding letters of credit, performance bonds, and other guarantees for which certain of the letters of credit are collateralized by $6.3$5.9 million in restricted cash.
Our financial instruments include cash and cash equivalents, receivables, payables, and debt. We believe the carrying values of these instruments, with the exception of our Convertible Notes, approximated their fair values at SeptemberJune 30, 20202021 and December 31, 2019.2020. The estimated fair value of our Convertible Notes was $59.2$48.6 million at SeptemberJune 30, 20202021 and $101.4$61.1 million at December 31, 2019,2020, based on quoted market prices at these respective dates.
Note 8 – Income Taxes
The benefitprovision for income taxes was $11.3$3.4 million for the first nine monthshalf of 2020,2021, despite reporting a pretax loss for the period, primarily reflecting an effective tax benefit rate of 15%. This result primarily reflects the impact of the geographic composition of our pretax loss,loss. The tax expense primarily relates to earnings from our international operations since we are currently unable to recognize the tax benefit from our U.S. losses as they may not be realized. The benefit for income taxes was $6.5 million for the first half of 2020, where the tax benefit from losses in the U.S was partially offset by the tax expense related to earnings from our international operations. The provision for income taxes was $7.2 million for the first nine months of 2019, reflecting an effective tax rate of 63%. The 2019 effective tax rate was impacted by the geographic composition of our pretax income as well as non-deductible expenses relative to the amount of pretax income.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in March 2020 in the United States. The CARES Act contains several tax provisions, including additional carryback opportunities for net operating losses, temporary increases in the interest deductibility threshold, and the acceleration of refunds for any remaining alternative minimum tax (“AMT”) carryforwards. While there was no material impact from the CARES Act in our provision for income taxes for the first nine months of 2020, we are continuing to evaluate the provisions of the CARES Act. In addition, we filed an amendment to our 2018 U.S. federal income tax return in the second quarter of 2020 and received a refund of $0.7 million for AMT carryforwards in July 2020.12
The CARES Act also permits most companies to defer paying their portion of certain applicable payroll taxes from the date the CARES Act was signed into law through December 31, 2020. The deferred amount will be due in two equal installments on December 31, 2021 and December 31, 2022. The deferred amount of applicable payroll taxes was $2.3 million at September 30, 2020.
Note 9 – Commitments and Contingencies
In the ordinary course of conducting our business, we become involved in litigation and other claims from private party actions, as well as judicial and administrative proceedings involving governmental authorities at the federal, state, and local levels. While the outcome of litigation or other proceedings against us cannot be predicted with certainty, management does not expect that any loss resulting from such litigation or other proceedings, in excess of any amounts accrued or covered by insurance, will have a material adverse impact on our consolidated financial statements.
Kenedy, Texas Drilling Fluids Facility Fire
In July 2018, a fire occurred at our Kenedy, Texas drilling fluids facility, destroying the distribution warehouse, including inventory and surrounding equipment. In addition, nearby residences and businesses were evacuated as part of the response to the fire. In order to avoid any customer service disruptions, we implemented contingency plans to supply products from alternate facilities in the area and region. Subsequently, we received petitions seeking payment for alleged bodily injuries, property damage, and punitive damages claimed to have been incurred as a result of the fire and the subsequent efforts we undertook to remediate any potential smoke damage. As of September 30, 2020, all plaintiffs' claims have been settled under our insurance program and the matter is closed. As of September 30, 2020, our claims related to the fire under our property, business interruption, and general liability insurance programs have not been finalized.
Note 10 – Supplemental Disclosures to the Statements of Cash Flows
Supplemental disclosures to the statements of cash flows are presented below: | | | | | | | | | | | |
| First Half |
(In thousands) | 2021 | | 2020 |
Cash paid for: | | | |
Income taxes (net of refunds) | $ | 3,263 | | | $ | 4,081 | |
Interest | $ | 2,579 | | | $ | 3,572 | |
| | | | | | | | | | | |
| First Nine Months |
(In thousands) | 2020 | | 2019 |
Cash paid for: | | | |
Income taxes (net of refunds) | $ | 4,733 | | | $ | 10,095 | |
Interest | $ | 4,160 | | | $ | 5,702 | |
Cash, cash equivalents, and restricted cash in the consolidated statements of cash flows consisted of the following:
| | | | | | | | | | | |
(In thousands) | September 30, 2020 | | December 31, 2019 |
Cash and cash equivalents | $ | 24,028 | | | $ | 48,672 | |
Restricted cash (included in prepaid expenses and other current assets) | 6,326 | | | 8,191 | |
Cash, cash equivalents, and restricted cash | $ | 30,354 | | | $ | 56,863 | |
| | | | | | | | | | | |
(In thousands) | June 30, 2021 | | December 31, 2020 |
Cash and cash equivalents | $ | 35,094 | | | $ | 24,197 | |
Restricted cash (included in prepaid expenses and other current assets) | 5,921 | | | 6,151 | |
Cash, cash equivalents, and restricted cash | $ | 41,015 | | | $ | 30,348 | |
Note 11 – Segment Data
Summarized operating results for our reportable segments are shown in the following table (net of inter-segment transfers): | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Second Quarter | | First Half |
(In thousands) | | | | | 2021 | | 2020 | | 2021 | | 2020 |
Revenues | | | | | | | | | | | |
Fluids systems | | | | | $ | 97,093 | | | $ | 74,662 | | | $ | 184,942 | | | $ | 207,467 | |
Industrial solutions | | | | | 45,156 | | | 27,284 | | | 98,479 | | | 59,029 | |
Total revenues | | | | | $ | 142,249 | | | $ | 101,946 | | | $ | 283,421 | | | $ | 266,496 | |
| | | | | | | | | | | |
Operating income (loss) | | | | | | | | | | | |
Fluids systems | | | | | $ | (6,531) | | | $ | (25,059) | | | $ | (13,298) | | | $ | (27,327) | |
Industrial solutions | | | | | 10,143 | | | 1,005 | | | 23,273 | | | 4,067 | |
Corporate office | | | | | (6,859) | | | (6,485) | | | (12,678) | | | (13,165) | |
Total operating loss | | | | | $ | (3,247) | | | $ | (30,539) | | | $ | (2,703) | | | $ | (36,425) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Third Quarter | | First Nine Months |
(In thousands) | | | | | 2020 | | 2019 | | 2020 | | 2019 |
Revenues | | | | | | | | | | | |
Fluids systems | | | | | $ | 67,711 | | | $ | 152,547 | | | $ | 275,178 | | | $ | 485,744 | |
Mats and integrated services | | | | | 28,713 | | | 50,216 | | | 87,742 | | | 144,904 | |
Total revenues | | | | | $ | 96,424 | | | $ | 202,763 | | | $ | 362,920 | | | $ | 630,648 | |
| | | | | | | | | | | |
Operating income (loss) | | | | | | | | | | | |
Fluids systems | | | | | $ | (18,957) | | | $ | 5,893 | | | $ | (46,284) | | | $ | 21,951 | |
Mats and integrated services | | | | | (139) | | | 10,049 | | | 3,928 | | | 32,863 | |
Corporate office | | | | | (6,596) | | | (9,654) | | | (19,761) | | | (31,933) | |
Total operating income (loss) | | | | | $ | (25,692) | | | $ | 6,288 | | | $ | (62,117) | | | $ | 22,881 | |
The following table presents further disaggregated revenues for the Fluids Systems segment: | | | | | | | | | | | | | | | | | | | | | | | |
| Second Quarter | | First Half |
(In thousands) | 2021 | | 2020 | | 2021 | | 2020 |
United States | $ | 56,784 | | | $ | 42,670 | | | $ | 104,454 | | | $ | 116,330 | |
Canada | 4,956 | | | 3,066 | | | 17,619 | | | 16,326 | |
Total North America | 61,740 | | | 45,736 | | | 122,073 | | | 132,656 | |
| | | | | | | |
EMEA | 32,962 | | | 26,036 | | | 58,421 | | | 68,173 | |
Other | 2,391 | | | 2,890 | | | 4,448 | | | 6,638 | |
Total International | 35,353 | | | 28,926 | | | 62,869 | | | 74,811 | |
| | | | | | | |
Total Fluids Systems revenues | $ | 97,093 | | | $ | 74,662 | | | $ | 184,942 | | | $ | 207,467 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | First Nine Months |
(In thousands) | 2020 | | 2019 | | 2020 | | 2019 |
United States | $ | 40,314 | | | $ | 98,140 | | | $ | 156,644 | | | $ | 318,353 | |
Canada | 1,961 | | | 8,029 | | | 18,287 | | | 26,283 | |
Total North America | 42,275 | | | 106,169 | | | 174,931 | | | 344,636 | |
| | | | | | | |
EMEA | 23,207 | | | 41,126 | | | 91,380 | | | 123,346 | |
Other | 2,229 | | | 5,252 | | | 8,867 | | | 17,762 | |
Total International | 25,436 | | | 46,378 | | | 100,247 | | | 141,108 | |
| | | | | | | |
Total Fluids Systems revenues | $ | 67,711 | | | $ | 152,547 | | | $ | 275,178 | | | $ | 485,744 | |
The following table presents further disaggregated revenues for the MatsIndustrial Solutions segment: | | | | | | | | | | | | | | | | | | | | | | | |
| Second Quarter | | First Half |
(In thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Product sales revenues | $ | 10,182 | | | $ | 5,184 | | | $ | 30,219 | | | $ | 9,326 | |
Rental revenues | 19,233 | | | 9,170 | | | 36,312 | | | 22,672 | |
Service revenues | 13,872 | | | 12,930 | | | 25,526 | | | 27,031 | |
Industrial blending revenues (1) | 1,869 | | | 0 | | | 6,422 | | | 0 | |
Total Industrial Solutions revenues | $ | 45,156 | | | $ | 27,284 | | | $ | 98,479 | | | $ | 59,029 | |
(1) Industrial blending operations began in the second quarter of 2020. Results for the industrial blending component are presented in Industrial Solutions beginning in the fourth quarter of 2020. Results prior to the fourth quarter of 2020 were reported in Fluids Systems and Integrated Services segment:not adjusted as they were not material.
| | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | First Nine Months |
(In thousands) | 2020 | | 2019 | | 2020 | | 2019 |
Service revenues | $ | 13,469 | | | $ | 18,930 | | | $ | 40,500 | | | $ | 59,989 | |
Rental revenues | 9,327 | | | 16,700 | | | 31,999 | | | 55,955 | |
Product sales revenues | 5,917 | | | 14,586 | | | 15,243 | | | 28,960 | |
Total Mats and Integrated Services revenues | $ | 28,713 | | | $ | 50,216 | | | $ | 87,742 | | | $ | 144,904 | |
Industrial Solutions operating results for the second quarter of 2021 includes a $1.0 million gain in other operating income related to a legal settlement.
DuringIn March 2020, oil prices collapsed due to geopolitical events along with the worldwide effects of the COVID-19 pandemic, which led to a rapid decline in customer activity in the oil and natural gas exploration and production (“E&P”)&P industry. As of September 30, 2020, the U.S. active rig count was 261, reflecting a 67% decline from the first quarter 2020 average level. The average U.S. active rig count was 477 for the first nine months of 2020 reflecting a 52% decline from the first nine months of 2019. In addition, international activity levels have also been negatively impacted by the COVID-19 pandemic and decline in oil prices. In response to these market changes, we initiated workforce reductions and other cost reduction programs late in the first quarter of 2020 and continued these actions throughout 2020.
As part of the cost reduction programs, we have reduced our global employee base by approximately 620 (28%550 (25%) in the first nine monthshalf of 2020. As a result of these workforce reductions, our operating results for the thirdsecond quarter of 2020 include $0.4included
$2.8 million of total severance costs ($0.22.6 million in Fluids Systems and $0.2 million in theour Corporate office), with $0.1$2.0 million in cost of revenues and $0.3$0.8 million in selling, general and administrative expenses. Our operating results for the first nine monthshalf of 2020 include $3.9included $3.5 million of total severance costs ($3.33.1 million in Fluids Systems and $0.6$0.4 million in theour Corporate
office), with $2.6$2.4 million in cost of revenues and $1.3$1.1 million in selling, general and administrative expenses. These costs have beenwere substantially paid as of SeptemberJune 30, 2020.
For the third quarter of 2020, weWe recognized $4.7$11.9 million of total charges primarily for inventory write-downs, severance costs, and facility exit costs in the impairmentsecond quarter of certain fixed assets and other non-cash charges,2020, with $4.5$11.7 million in the Fluids Systems segment and $0.2 million in the Corporate Office. For the first nine months of 2020, weoffice. We recognized $18.0$13.3 million of total charges primarily for inventory write-downs, severance costs, fixed asset impairments, and facility exit costs in the first half of 2020, with $17.4$12.9 million in the Fluids Systems segment and $0.6$0.4 million in the Corporate office. See below for details of charges in the Fluids Systems segment.
| | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | First Nine Months |
(In thousands) | 2020 | | 2019 | | 2020 | | 2019 |
Inventory write-downs | $ | 990 | | | $ | 0 | | | $ | 9,986 | | | $ | 0 | |
Severance costs | 189 | | | 284 | | | 3,288 | | | 1,152 | |
Property, plant and equipment impairments | 3,038 | | | 0 | | | 3,038 | | | 0 | |
Facility exit costs and other | 286 | | | 0 | | | 1,086 | | | 0 | |
Total Fluids Systems impairments and other charges | $ | 4,503 | | | $ | 284 | | | $ | 17,398 | | | $ | 1,152 | |
We also made the decision in late 2019 to wind down our Brazil operations. At September 30, 2020, we had $11.8 million of accumulated translation losses related to our subsidiary in Brazil. As such, we will reclassify these losses and recognize a charge to income at such time when we have substantially liquidated our subsidiary in Brazil.
As of September 30, 2020, our consolidated balance sheet includes $42.2 million of goodwill, all of which relates to the Mats and Integrated Services segment. Goodwill and other indefinite-lived intangible assets are tested for impairment annually as of November 1, or more frequently, if indicators of impairment exists. In March 2020, primarily as a result of the collapse in oil prices and the expected declines in the U.S. land E&P markets, along with a significant decline in the quoted market prices of our common stock, we considered these developments to be a potential indicator of impairment that required us to complete an interim goodwill impairment evaluation. As such, in March 2020, we estimated the fair value of our Mats and Integrated Services reporting unit based on our current forecasts and expectations for market conditions and determined that even though the estimated fair value had decreased, the fair value remained substantially in excess of its net carrying value, and therefore, no impairment was required. During the second quarter and third quarter of 2020, we determined that there were no further indicators of events or changes in circumstances that would more likely than not reduce the fair value below its carrying amount.
As of September 30, 2020, our consolidated balance sheet also includes $287.3 million of property, plant and equipment, net, and $25.6 million of finite-lived intangible assets, net, which combined includes $159.6 million in the Fluids Systems segment and $143.6 million in the Mats and Integrated Services segment. We review property, plant and equipment, finite-lived intangible assets and certain other assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We assess recoverability based on expected undiscounted future net cash flows. Due to the changes in market conditions, we have reviewed these assets for impairment during the first nine months of 2020 and determined that the estimated undiscounted cash flows exceeded the carrying value, and therefore, no impairment was required. Fluids Systems segment includes a $3.0 million impairment charge for the first nine months of 2020, attributable to the abandonment of certain property, plant and equipment. | | | | | | | | | | | | | | | | | | | | | | | |
| Second Quarter | | First Half |
(In thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Inventory write-downs | $ | 0 | | | $ | 8,269 | | | $ | 0 | | | $ | 8,996 | |
Severance costs | 550 | | | 2,593 | | | 613 | | | 3,099 | |
Facility exit costs | 0 | | | 800 | | | 0 | | | 800 | |
Total Fluids Systems impairments and other charges | $ | 550 | | | $ | 11,662 | | | $ | 613 | | | $ | 12,895 | |
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition, results of operations, liquidity, and capital resources should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in this report as well as our Annual Report on Form 10-K for the year ended December 31, 2019.2020. Our thirdsecond quarter represents the three-monththree month period ended SeptemberJune 30 and our first nine monthshalf represents the nine-monthsix month period ended SeptemberJune 30. Unless otherwise noted, all currency amounts are stated in U.S. dollars. The reference to a “Note” herein refers to the accompanying Notes to Unaudited Condensed Consolidated Financial Statements contained in Item 1 “Financial Statements.”
Overview
We are a geographically diversified supplier providing products, as well as rentals and services.services to customers across multiple industries. We operate our business through two reportable segments: Fluids Systems, which primarily serves the oil and natural gas exploration and production (“E&P”) industry,customers, and Mats and Integrated Services,Industrial Solutions, which serves a variety of industries,various markets including electricalpower transmission, & distribution, E&P, pipeline, renewable energy, petrochemical, construction and constructionother industries.
Our operating results, particularlylong-term strategy includes key foundational elements that are intended to enhance long-term shareholder value creation:
•End-market diversification – To help reduce our dependency on customers in the volatile E&P industry, improve the stability in cash flow generation and returns on invested capital, and provide growth opportunities into new markets, we have focused our efforts over the past several years on diversifying our presence outside of our historical E&P customer base. These efforts have been primarily focused within our Site and Access Solutions business, where we have prioritized growth in power transmission, pipeline, renewable energy, and construction markets. In the first half of 2021, our Industrial Solutions segment generated $98 million of revenues, including approximately $81 million from power transmission and other industrial markets. The continued diversification of our revenues, including end-markets that are likely to benefit from ongoing energy transition efforts around the world, such as power transmission, renewable energy, and geothermal, remains a strategic priority going forward, and we anticipate that our capital investments will primarily focus on industrial end-market expansion.
•Provide products that enhance environmental sustainability – Our Company has a long history of providing environmentally-friendly technologies to our customers. In the Industrial Solutions segment, we believe the lightweight design of our fully recyclable DURA-BASE® matting system provides a distinct environmental advantage for our customers as compared to alternative wood mat products in the market, by eliminating deforestation required to produce wood mat products while also reducing CO2 emissions associated with product transportation. In our Fluids Systems segment, dependour family of high-performance water-based fluids systems, which we market as Evolution® and DeepDrill® systems, are designed to enhance drilling performance while also providing a variety of environmental benefits relative to traditional oil-based fluids. Our Fluids Systems segment has also developed a water-based fluids system for geothermal applications that we market as TerraThermTM. The continued advancement of technology that provides our customers with economic benefits, while also enhancing their environmental and safety programs, remains a priority for our research and development efforts.
Our Fluids Systems operating results remain dependent on oil and natural gas drilling activity levels in the markets we serve and the nature of the drilling operations (including the depth and whether the wells are drilled vertically or horizontally), which governs the revenue potential of each well. Drilling activity levels, in turn, depend on a variety of factors, including oil and natural gas commodity pricing, inventory levels, product demand, and regulatory restrictions. Oil and natural gas prices and activity are cyclical and volatile, and this market volatility has a significant impact on our operating results.
While our revenue potential is driven by a number of factors including those described above, rig count data remains the most widely accepted indicator of drilling activity. Average North American rig count data for the thirdsecond quarter and first nine monthshalf of 20202021 as compared to the same periods of 20192020 is as follows:
| | | Third Quarter | | 2020 vs 2019 | | Second Quarter | | 2021 vs 2020 |
| | 2020 | | 2019 | | Count | | % | | 2021 | | 2020 | | Count | | % |
U.S. Rig Count | U.S. Rig Count | 254 | | | 920 | | | (666) | | | (72) | % | U.S. Rig Count | 450 | | | 392 | | | 58 | | | 15 | % |
Canada Rig Count | Canada Rig Count | 47 | | | 132 | | | (85) | | | (64) | % | Canada Rig Count | 72 | | | 25 | | | 47 | | | 188 | % |
North America Rig Count | North America Rig Count | 301 | | | 1,052 | | | (751) | | | (71) | % | North America Rig Count | 522 | | | 417 | | | 105 | | | 25 | % |
| | | First Nine Months | | 2020 vs 2019 | | First Half | | 2021 vs 2020 |
| | 2020 | | 2019 | | Count | | % | | 2021 | | 2020 | | Count | | % |
U.S. Rig Count | U.S. Rig Count | 477 | | | 984 | | | (507) | | | (52) | % | U.S. Rig Count | 420 | | | 588 | | | (168) | | | (29) | % |
Canada Rig Count | Canada Rig Count | 89 | | | 132 | | | (43) | | | (33) | % | Canada Rig Count | 105 | | | 110 | | | (5) | | | (5) | % |
North America Rig Count | North America Rig Count | 566 | | | 1,116 | | | (550) | | | (49) | % | North America Rig Count | 525 | | | 698 | | | (173) | | | (25) | % |
Source: Baker Hughes Company
During 2019, U.S. rig count steadily declined, exiting the year at 805 active rigs, a 26% decline from the end of 2018. During March 2020, oil prices collapsed due to geopolitical events along with the worldwide effects of the COVID-19 pandemic. As a result, average U.S. rig count declined significantly beginning in the second quarter oflate March 2020 declined 50% from the first quarter of 2020 and further declined another 35% in the third quarter of 2020 from the average level in the second quarter of 2020. Afterbefore reaching a low of 244 in mid-August the2020. The average U.S. rig count has since increased 27% sequentially in the first quarter of 2021 and increased a further 15% sequentially in the second quarter of 2021. We anticipate that market activity will continue to 296 asimprove from current levels, although the ongoing impacts of October 30, 2020.the COVID-19 variants and an uncertain economic environment make the timing and pace of recovery difficult to predict. The Canada rig count reflects both the current weakness in oil prices as well as normal seasonality for this market, with the highest rig count levels generally observed in the first quarter of each year, prior to Spring break-up. We anticipate that market activity will continue to modestly improve from current levels, although the ongoing impacts of the COVID-19 pandemic and an uncertain economic environment that will likely persist through the remainder of 2020 and into 2021 make the timing and pace of recovery difficult to predict.
Outside of North America land markets, drilling activity is generally more stable as this drilling activity in many countries is based on longer-term economic projections and multi-year drilling programs, which tends to reducetypically reduces the impact of short-term changes in commodity prices on overall drilling activity. However, operations in several countries in the EMEA region experienced activity disruptions and project delays beginning in March 2020 and continuing through the third quarter of 2020,into 2021, driven by government-imposed restrictions on movements of personnel, quarantines of staffing, and logistical limitations as a result of the COVID-19 pandemic. We currently expect these disruptions and project delays will continue to impact international activity levels in the near-term, and while we anticipate a general improvement in customer activity as we progress through the remainder of 2020 before beginning to gradually recover in early 2021, although the impact from the duration and magnitude of the ongoing health pandemic and related government responses are very difficult to predict.
In response to thesethe 2020 market changes and reduced demand for our products and services as a result of the decline in oil prices and the COVID-19 pandemic, we initiatedtook a number of actions late in the first quarter of 2020 and continuing throughoutduring 2020 aimed at conserving cash and protecting our liquidity, including:
•Thewhich included the implementation of cost reduction programs, including workforce reductions, employee furloughs, the suspension of the Company’s matching contributions to its U.S. defined contribution plan, and temporary salary reductions effective April 1, 2020 for a significant portion of U.S. employees, including a 15% cut to the salaries paid to executive officers (with a further 10% cut for the CEO effective August 12, 2020) and the annual cash retainers paid to all non-employee members of the Board of Directors;
•The initiationDirectors. We recognized total charges of additional actions to further reduce the operational footprint of the Fluids Systems business$29.2 million in U.S. land, to better align our cost structure with the lower market activity levels; and
•The elimination of all non-critical capital investments.
As part of the cost reduction programs, we have reduced our global employee base by approximately 620 (28%) in2020, including $13.3 million during the first nine monthshalf of 2020.
For the first nine months of 2020 we recognized $18.0 million of total charges primarily for inventory write-downs, severance costs, fixed asset impairments, and facility exit costs, with $17.4 million in the Fluids Systems segment and $0.6 million in the Corporate office. The $17.4 million of Fluids Systems charges includes $10.0 million for inventory write-downs, $3.3 million in severance costs, $3.0 million in fixed asset impairments, and $1.1 million in facility exit costs and other.
costs. While we have taken certain actions to reduce our workforce and cost structure, our business contains high levels of fixed costs, including significant facility and personnel expenses.expense. Beginning in the second quarter of 2021, we restored salaries to pre-reduction levels for a portion of our non-executive U.S. employees and reinstituted the Company matching contribution for our U.S. defined contribution plan. Beginning in July 2021, we restored salaries to pre-reduction levels for the remaining non-executive U.S. employees and our executive officers as well as the annual cash retainers paid to all non-employee members of the Board of Directors. We continue to evaluate under-performing areas of our business as well as opportunities to further enable a more efficient and scalable cost structure. In the absence of a longer-term increase in activity levels, we may incur future charges related to further cost reduction efforts or potential asset impairments, which may negatively impact our future results.
Segment Overview
Fluids Systems – Our Fluids Systems segment, which generated 76%65% of consolidated revenues for the first nine monthshalf of 2020,2021, provides customized drilling, completion, and stimulation fluids solutionsproducts and related technical services to E&P customers for oil, natural gas, and geothermal projects primarily in North America and Europe, the Middle East and Africa (“EMEA”), as well as certain countries in Asia Pacific and Latin America. InternationalDespite the continuing effects of COVID-19 impacting international customer activity, expansion outside of North America, including the penetration of international oil companies (“IOCs”) and national oil companies (“NOCs”), isremains a key element of our Fluids Systems strategy, which has historically helped to stabilize segment revenues while North American oil and natural gas exploration activities have fluctuated significantly. Revenues from IOC and NOC customers represented approximately 43%31% of Fluids Systems segment revenues for the first nine monthshalf of 20202021 compared to approximately 31%44% for the first nine monthshalf of 2019.
In addition2020, with the decrease primarily due to COVID-related activity disruptions and project delays. Consistent with our international expansion efforts, we have also expanded our presence in the deepwater Gulf of Mexico, capitalizing on our capabilities, infrastructure, and strong market position, as well as through product line extensions into adjacent product offerings, including completion fluids. Revenues for drilling and completion fluids from offshore Gulf of Mexico increased to $37 million forstrategy, during the first nine monthshalf of 2020 compared2021, we secured multi-year tender awards in Bahrain and Thailand, both of which are expected to $32 million for the first nine months of 2019.
In response to the increasing market demand for cleaning products following the COVID-19 pandemic, we began leveraging our chemical blending capacity and technical expertise to begin producing disinfectants and industrial cleaning products in the second quarter of 2020. After initial production start-up in the second quarter of 2020, revenues from these products tripled in the third quarter of 2020 to nearly $3 million. Following the third quarter 2020 installation of required packaging equipment for these products, we plan to continue to ramp up production over the next several months.2021.
Industrial Solutions – Our Mats and Integrated ServicesIndustrial Solutions segment, which generated 24%35% of consolidated revenues for the first nine monthshalf of 2020,2021, provides engineered composite matmatting system rentals utilized for temporary worksite access, along with related site construction and services to customers in various markets including electricalpower transmission, & distribution, E&P, pipeline, renewable energy, petrochemical, construction and constructionother industries, across North Americaprimarily in the United States and Europe. We also sell our manufactured composite mats to customers around the world.
world, with power transmission being the primary end-market. In addition, we began leveraging our chemical blending capacity and technical expertise into industrial blending operations, and in response to the increasing market demand for cleaning products resulting from the COVID-19 pandemic, began producing disinfectants and industrial cleaning products in 2020. The scale-up of production was completed by the end of the third quarter of 2020, which effectively repositioned our chemical blending operation located in Conroe, Texas to support industrial end-markets. Beginning prospectively in the fourth quarter of 2020, the assets and operating results associated with these industrial blending operations are included in the Industrial Solutions segment, while the historical results from earlier in 2020, which were immaterial, are included in the Fluids Systems segment.
The expansion of our rental and service activities in utility infrastructurepower transmission and other non-E&Pindustrial markets remains a strategic priority for us due to the magnitude of this market growth opportunity,such markets’ relative stability compared to E&P, as well as the market’s relative stability compared to E&P. The Mats and Integrated Services segment rental and service revenuesmagnitude of growth opportunity in these markets, including the potential positive impact from non-E&P markets was approximately $45 million for the first nine months of 2020 compared to approximately $50 million for the first nine months of 2019. Product sales revenues largely reflect sales to utility customers and other non-E&P markets, and typically fluctuate based on the timing of customer orders. Including product sales, total revenues from non-E&P markets represented approximately 66% of total segment revenues for the first nine months of 2020 compared to approximately 47% of total segment revenues for the first nine months of 2019.energy transition. During the first nine months of 2020, our business was impacted by the COVID-19 pandemic, as customers delayed sales orderspurchases and project timingplanned projects citing COVID-related market uncertainty, permitting delays, and logistical restrictions. As a result, we reduced our mat production levels duringThe Industrial Solutions segment rental and service revenues from power transmission and other industrial markets increased to approximately $45 million for the third quarterfirst half of 2021, compared to approximately $29 million for the first half of 2020. Product sales revenues largely reflect sales to power transmission customers and other industrial markets, and typically fluctuate based on the timing of customer orders. Total segment revenues from power transmission and other industrial markets were $81 million (83% of segment revenues) for the first half of 2021, more than doubling the $38 million (64% of segment revenues) generated in the first half of 2020, andbenefiting from the market recovery, including some level of pent-up demand associated with COVID-related project delays in 2020, particularly in the power transmission sector. We expect to continue to do so forcustomer activity, particularly in the remainderpower transmission sector, will remain robust in the coming years, driven in part by the impacts of the year to reduce current inventory levels, which negatively impacts our results due toenergy transition and the high level of fixed costs in our manufacturing operations. We currently expect that increased activity for both rental projects and product sales remains highly dependentincreasing reliance on our customers gaining confidence in the broader economic recovery. While customer quoting activity has improved from the lull seen during the second quarter of 2020, the ongoing impact of these uncertainties, permitting delays, and logistical restrictions are difficult to predict.electrical grid.
ThirdSecond Quarter of 20202021 Compared to ThirdSecond Quarter of 20192020
Consolidated Results of Operations
Summarized results of operations for the thirdsecond quarter of 2021 compared to the second quarter of 2020 compared to the third quarter of 2019 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | 2020 vs 2019 |
(In thousands) | 2020 | | 2019 | | $ | | % |
Revenues | $ | 96,424 | | | $ | 202,763 | | | $ | (106,339) | | | (52) | % |
Cost of revenues | 99,301 | | | 169,429 | | | (70,128) | | | (41) | % |
Selling, general and administrative expenses | 20,597 | | | 27,017 | | | (6,420) | | | (24) | % |
Other operating income, net | (820) | | | 29 | | | (849) | | | NM |
Impairments | 3,038 | | | — | | | 3,038 | | | NM |
Operating income (loss) | (25,692) | | | 6,288 | | | (31,980) | | | NM |
| | | | | | | |
Foreign currency exchange loss | 580 | | | 828 | | | (248) | | | (30) | % |
Interest expense, net | 2,411 | | | 3,628 | | | (1,217) | | | (34) | % |
Income (loss) before income taxes | (28,683) | | | 1,832 | | | (30,515) | | | NM |
| | | | | | | |
Provision (benefit) for income taxes | (4,813) | | | 3,273 | | | (8,086) | | | NM |
Net income (loss) | $ | (23,870) | | | $ | (1,441) | | | $ | (22,429) | | | NM |
| | | | | | | | | | | | | | | | | | | | | | | |
| Second Quarter | | 2021 vs 2020 |
(In thousands) | 2021 | | 2020 | | $ | | % |
Revenues | $ | 142,249 | | | $ | 101,946 | | | $ | 40,303 | | | 40 | % |
Cost of revenues | 124,106 | | | 112,290 | | | 11,816 | | | 11 | % |
Selling, general and administrative expenses | 22,980 | | | 20,937 | | | 2,043 | | | 10 | % |
Other operating income, net | (1,590) | | | (742) | | | (848) | | | NM |
Operating loss | (3,247) | | | (30,539) | | | 27,292 | | | 89 | % |
| | | | | | | |
Foreign currency exchange loss | 224 | | | 781 | | | (557) | | | (71) | % |
Interest expense, net | 2,164 | | | 2,912 | | | (748) | | | (26) | % |
Gain on extinguishment of debt | — | | | (1,334) | | | 1,334 | | | 100 | % |
Loss before income taxes | (5,635) | | | (32,898) | | | 27,263 | | | 83 | % |
| | | | | | | |
Provision (benefit) for income taxes | 363 | | | (6,654) | | | 7,017 | | | NM |
Net loss | $ | (5,998) | | | $ | (26,244) | | | $ | 20,246 | | | (77) | % |
Revenues
Revenues decreased 52%increased 40% to $96.4$142.2 million for the thirdsecond quarter of 2020,2021, compared to $202.8$101.9 million for the thirdsecond quarter of 2019.2020. This $106.3$40.3 million decreaseincrease includes a $86.1$31.8 million (56%(45%) decreaseincrease in revenues in North America, comprised of a $63.9$16.0 million decreaseincrease in the Fluids Systems segment and a $22.2$15.8 million decreaseincrease in the Mats and Integrated ServicesIndustrial Solutions segment. Revenues from our North America operations decreasedincreased primarily due to the 71% reduction25% increase in North America rig count.count, which favorably impacted our Fluids Systems segment, as well as a recovery of activity in the power transmission sector, which favorably impacted our Industrial Solutions segment. Revenues from our international operations decreasedincreased by $20.3$8.6 million (41%(27%), primarily drivenbut continues to be impacted by activity disruptions and project delays resulting from the COVID-19 pandemic in our EMEA region.pandemic. Additional information regarding the change in revenues is provided within the operating segment results below.
Cost of revenues
Cost of revenues decreased 41%increased 11% to $99.3$124.1 million for the thirdsecond quarter of 2020,2021, compared to $169.4$112.3 million for the thirdsecond quarter of 2019. This $70.1 million decrease was primarily driven by the 52% decrease in revenues described above.2020. Fluids Systems segment cost of revenues for the thirdsecond quarter of 2020 includes a total of $1.1included $11.1 million of charges related to inventory write-downs, severance costs, and severancefacility exit costs. The increase in cost of revenues was primarily driven by the 40% increase in revenues described above.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased $6.4increased $2.0 million to $20.6$23.0 million for the thirdsecond quarter of 2020,2021, compared to $27.0$20.9 million for the thirdsecond quarter of 2019.2020. This decreaseincrease was primarily driven by lower personnel costs, lowerhigher performance-based incentive and stock-based compensation expense, as well as the restoration of certain U.S. salary and lower spending related toretirement benefits, partially offset by a reduction in severance charges and legal matters. In addition, the third quarter of 2019 includes higher professional fees related to the October 2019 acquisition of Cleansorb Limited ("Cleansorb") and our long-term strategic planning project.costs. Selling, general and administrative expenses as a percentage of revenues was 21.4%16.2% for the thirdsecond quarter of 20202021 compared to 13.3%20.5% for the thirdsecond quarter of 20192020.
ImpairmentsOther operating income, net
Fluids Systems segmentOther operating income for the second quarter of 2021 includes a $3.0$1.0 million impairment charge forgain related to a legal settlement in the third quarterIndustrial Solutions segment. Other operating income also includes gains on sales of 2020, attributable to the abandonment of certain property, plant and equipment.assets.
Foreign currency exchange
Foreign currency exchange was a $0.6$0.2 million loss for the thirdsecond quarter of 20202021 compared to a $0.8 million loss for the thirdsecond quarter of 2019,2020, and reflects the impact of currency translation on assets and liabilities (including intercompany balances) that are denominated in currencies other than functional currencies.
Interest expense, net
Interest expense was $2.4$2.2 million for the thirdsecond quarter of 20202021 compared to $3.6$2.9 million for the thirdsecond quarter of 2019.2020. Interest expense for the thirdsecond quarter of 2021 and 2020 and 2019 includes $1.2$1.0 million and $1.6$1.2 million, respectively, in non-cash amortization of original issue discount and debt issuance costs. The decrease in interest expense is primarily due to lower debt balances as well as a decrease in interest rates on the ABL Facility.
Provision (benefit) for income taxes
The benefit for income taxes was $4.8 million for the third quarter of 2020, reflecting an effective tax benefit rate of 17%. This result primarily reflects the impact of the geographic composition of our pretax loss, where the tax benefit from losses in the U.S was partially offset by the tax expense related to earnings from our international operations. The provision for income taxes was $3.3 million for the third quarter of 2019 and included a $2.0 million charge, primarily reflecting the impact of an increase in the projected full year 2019 tax rate resulting from a decline in projected U.S. earnings for 2019.
Operating Segment Results
Summarized financial information for our reportable segments is shown in the following table (net of inter-segment transfers):
| | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | 2020 vs 2019 |
(In thousands) | 2020 | | 2019 | | $ | | % |
Revenues | | | | | | | |
Fluids systems | $ | 67,711 | | | $ | 152,547 | | | $ | (84,836) | | | (56) | % |
Mats and integrated services | 28,713 | | | 50,216 | | | (21,503) | | | (43) | % |
Total revenues | $ | 96,424 | | | $ | 202,763 | | | $ | (106,339) | | | (52) | % |
| | | | | | | |
Operating income (loss) | | | | | | | |
Fluids systems | $ | (18,957) | | | $ | 5,893 | | | $ | (24,850) | | | |
Mats and integrated services | (139) | | | 10,049 | | | (10,188) | | | |
Corporate office | (6,596) | | | (9,654) | | | 3,058 | | | |
Total operating income (loss) | $ | (25,692) | | | $ | 6,288 | | | $ | (31,980) | | | |
| | | | | | | |
Segment operating margin | | | | | | | |
Fluids systems | (28.0) | % | | 3.9 | % | | | | |
Mats and integrated services | (0.5) | % | | 20.0 | % | | | | |
Fluids Systems
Revenues
Total revenues for this segment consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | 2020 vs 2019 |
(In thousands) | 2020 | | 2019 | | $ | | % |
United States | $ | 40,314 | | | $ | 98,140 | | | $ | (57,826) | | | (59) | % |
Canada | 1,961 | | | 8,029 | | | (6,068) | | | (76) | % |
Total North America | 42,275 | | | 106,169 | | | (63,894) | | | (60) | % |
| | | | | | | |
EMEA | 23,207 | | | 41,126 | | | (17,919) | | | (44) | % |
Other | 2,229 | | | 5,252 | | | (3,023) | | | (58) | % |
Total International | 25,436 | | | 46,378 | | | (20,942) | | | (45) | % |
| | | | | | | |
Total Fluids Systems revenues | $ | 67,711 | | | $ | 152,547 | | | $ | (84,836) | | | (56) | % |
North America revenues decreased 60% to $42.3 million for the third quarter of 2020, compared to $106.2 million for the third quarter of 2019. This decrease was primarily attributable to a $57.8 million decrease from U.S. land markets driven by the 72% decline in U.S. rig count partially offset by an increase in market share. Revenues from offshore Gulf of Mexico decreased $2.4 million, as our expanding market share was more than offset by activity disruptions in 2020 resulting from elevated hurricane activity. For the third quarter of 2020, U.S. revenues included $30.3 million from land markets and $7.4 million from offshore Gulf of Mexico.
Internationally, revenues decreased 45% to $25.4 million for the third quarter of 2020, compared to $46.4 million for the third quarter of 2019. The decrease in EMEA was driven by lower activity primarily attributable to COVID-19 disruptions and the impact of lower oil prices in Algeria, Romania, and various other countries. The decrease in other international was primarily attributable to lower activity in Australia.
Operating income (loss)
The Fluids Systems segment incurred an operating loss of $19.0 million for the third quarter of 2020, reflecting a $24.9 million change from the $5.9 million of operating income generated for the third quarter of 2019. The decrease in operating income includes a $14.0 million decline from North American operations and a $6.4 million decline from international operations, which are primarily attributable to the changes in revenues described above, partially offset by the benefit of cost reduction programs. The Fluids Systems operating loss for the third quarter of 2020 also includes $4.5 million of charges primarily for the impairment of certain fixed assets and other non-cash charges.
During the fourth quarter of 2019, we made the decision to wind down our Brazil operations. We may incur operating losses and asset write-downs as we wind down these operations. In addition, at September 30, 2020, we had $11.8 million of accumulated translation losses related to our subsidiary in Brazil, that are reflected in accumulated other comprehensive loss in stockholders’ equity. Accounting guidance requires that we reclassify these accumulated translation losses and recognize a charge to income at such time when we have substantially liquidated the assets of our subsidiary in Brazil.
Mats and Integrated Services
Revenues
Total revenues for this segment consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | 2020 vs 2019 |
(In thousands) | 2020 | | 2019 | | $ | | % |
Rental and service revenues | $ | 22,796 | | | $ | 35,630 | | | $ | (12,834) | | | (36) | % |
Product sales revenues | 5,917 | | | 14,586 | | | (8,669) | | | (59) | % |
Total Mats and Integrated Services revenues | $ | 28,713 | | | $ | 50,216 | | | $ | (21,503) | | | (43) | % |
Rental and service revenues decreased $12.8 million (36%) to $22.8 million for the third quarter of 2020, which includes a $12.0 million decrease from E&P customers, primarily resulting from lower U.S. activity caused by the decline in oil and natural gas prices. In addition, revenues from non-E&P customers decreased $0.8 million as our continued expansion into non-E&P markets, including increased demand to support repairs of hurricane-damaged utility infrastructure along the U.S. Gulf Coast region, was more than offset by the impact of delays in customer project timing resulting from COVID-related market uncertainty, permitting delays, and logistical restrictions. Revenues from product sales, which typically fluctuate based on the timing of mat orders from customers, was negatively impacted in the third quarter of 2020 as certain customers delayed orders due to the uncertainty related to the COVID-19 pandemic.
Operating income (loss)
The Mats and Integrated Services segment incurred an operating loss of $0.1 million for the third quarter of 2020 compared to operating income of $10.0 million for the third quarter of 2019, the decrease being primarily attributable to the change in revenues as described above.
Corporate Office
Corporate office expenses decreased $3.1 million to $6.6 million for the third quarter of 2020, compared to $9.7 million for the third quarter of 2019. This decrease was primarily driven by reduced personnel costs and lower spending related to legal matters, as well as higher professional fees incurred in the third quarter of 2019 related to the Cleansorb acquisition and our long-term strategic planning project.
First Nine Months of 2020 Compared to First Nine Months of 2019
Consolidated Results of Operations
Summarized results of operations for the first nine months of 2020 compared to the first nine months of 2019 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| First Nine Months | | 2020 vs 2019 |
(In thousands) | 2020 | | 2019 | | $ | | % |
Revenues | $ | 362,920 | | | $ | 630,648 | | | $ | (267,728) | | | (42) | % |
Cost of revenues | 357,675 | | | 522,338 | | | (164,663) | | | (32) | % |
Selling, general and administrative expenses | 66,230 | | | 85,796 | | | (19,566) | | | (23) | % |
Other operating income, net | (1,906) | | | (367) | | | (1,539) | | | NM |
Impairments | 3,038 | | | — | | | 3,038 | | | NM |
Operating income (loss) | (62,117) | | | 22,881 | | | (84,998) | | | NM |
| | | | | | | |
Foreign currency exchange loss | 3,343 | | | 756 | | | 2,587 | | | NM |
Interest expense, net | 8,524 | | | 10,807 | | | (2,283) | | | (21) | % |
Gain on extinguishment of debt | (419) | | | — | | | (419) | | | NM |
Income (loss) before income taxes | (73,565) | | | 11,318 | | | (84,883) | | | NM |
| | | | | | | |
Provision (benefit) for income taxes | (11,303) | | | 7,171 | | | (18,474) | | | NM |
Net income (loss) | $ | (62,262) | | | $ | 4,147 | | | $ | (66,409) | | | NM |
Revenues
Revenues decreased 42% to $362.9 million for the first nine months of 2020, compared to $630.6 million for the first nine months of 2019. This $267.7 million decrease includes a $228.4 million (47%) decrease in revenues in North America, comprised of a $169.7 million decrease in the Fluids Systems segment and a $58.7 million decrease in the Mats and Integrated Services segment. Revenues from our North America operations decreased primarily due to the 49% reduction in North America rig count. Revenues from our international operations decreased by $39.3 million (26%), primarily driven by activity disruptions and project delays resulting from the COVID-19 pandemic as well as lower oil prices in our EMEA region. Additional information regarding the change in revenues is provided within the operating segment results below.
Cost of revenues
Cost of revenues decreased 32% to $357.7 million for the first nine months of 2020, compared to $522.3 million for the first nine months of 2019. This $164.7 million decrease was primarily driven by the 42% decrease in revenues described above. Fluids Systems segment cost of revenues for the first nine months of 2020 includes a total of $13.4 million of charges related to inventory write-downs, severance costs, and facility exit costs.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased $19.6 million to $66.2 million for the first nine months of 2020, compared to $85.8 million for the first nine months of 2019. The first nine months of 2019 included a $4.0 million charge for stock-based compensation expense associated with the February 2019 retirement policy modification and $3.7 million in professional fees related to our long-term strategic planning project and the Cleansorb acquisition. The remaining decrease of $11.9 million was primarily driven by reduced personnel costs and lower spending related to legal matters in the first nine months of 2020. Selling, general and administrative expenses as a percentage of revenues was 18.2% for the first nine months of 2020 compared to 13.6% for the first nine months of 2019.
Impairments
Fluids Systems segment includes a $3.0 million impairment charge for the first nine months of 2020, attributable to the abandonment of certain property, plant and equipment.
Foreign currency exchange
Foreign currency exchange was a $3.3 million loss for the first nine months of 2020 compared to a $0.8 million loss for the first nine months of 2019, and reflects the impact of currency translation on assets and liabilities (including intercompany balances) that are denominated in currencies other than functional currencies.
Interest expense, net
Interest expense was $8.5 million for the first nine months of 2020 compared to $10.8 million for the first nine months of 2019. Interest expense for the first nine months of 2020 and 2019 includes $4.0 million and $4.6 million, respectively, in non-cash amortization of original issue discount and debt issuance costs. The decrease in interest expense is primarily due to lower debt balances as well as a decrease in interest rates on the ABL Facility.balances.
Gain on extinguishment of debt
In the second quarter of 2020, we repurchased $18.6 million of our Convertible Notes in the open market for $15.3 million. The $0.4$1.3 million gain for the first nine monthssecond quarter of 2020 reflects the difference in the amount paid and the net carrying value of the extinguished debt, including original issue discount and debt issuance costs, related to the repurchase of $33.1 million of our Convertible Notes in the open market for $29.1 million.costs.
Provision (benefit) for income taxes
The benefitprovision for income taxes was $11.3$0.4 million for the first nine monthssecond quarter of 2020,2021, despite reporting a pretax loss for the period, primarily reflecting an effective tax benefit rate of 15%. This result primarily reflects the impact of the geographic composition of our pretax loss,loss. The tax expense primarily relates to earnings from our international operations since we are currently unable to recognize the tax benefit from our U.S. losses as they may not be realized. The benefit for income taxes was $6.7 million for the second quarter of 2020, where the tax benefit from losses in the U.S was partially offset by the tax expense related to earnings from our international operations. The provision for income taxes was $7.2 million for the first nine months of 2019, reflecting an effective tax rate of 63%. The 2019 effective tax rate was impacted by the geographic composition of our pretax income as well as non-deductible expenses relative to the amount of pretax income.
Operating Segment Results
Summarized financial information for our reportable segments is shown in the following table (net of inter-segment transfers):
| | | | | | | | | | | | | | | | | | | | | | | |
| First Nine Months | | 2020 vs 2019 |
(In thousands) | 2020 | | 2019 | | $ | | % |
Revenues | | | | | | | |
Fluids systems | $ | 275,178 | | | $ | 485,744 | | | $ | (210,566) | | | (43) | % |
Mats and integrated services | 87,742 | | | 144,904 | | | (57,162) | | | (39) | % |
Total revenues | $ | 362,920 | | | $ | 630,648 | | | $ | (267,728) | | | (42) | % |
| | | | | | | |
Operating income (loss) | | | | | | | |
Fluids systems | $ | (46,284) | | | $ | 21,951 | | | $ | (68,235) | | | |
Mats and integrated services | 3,928 | | | 32,863 | | | (28,935) | | | |
Corporate office | (19,761) | | | (31,933) | | | 12,172 | | | |
Total operating income (loss) | $ | (62,117) | | | $ | 22,881 | | | $ | (84,998) | | | |
| | | | | | | |
Segment operating margin | | | | | | | |
Fluids systems | (16.8) | % | | 4.5 | % | | | | |
Mats and integrated services | 4.5 | % | | 22.7 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Second Quarter | | 2021 vs 2020 |
(In thousands) | 2021 | | 2020 | | $ | | % |
Revenues | | | | | | | |
Fluids systems | $ | 97,093 | | | $ | 74,662 | | | $ | 22,431 | | | 30 | % |
Industrial solutions | 45,156 | | | 27,284 | | | 17,872 | | | 66 | % |
Total revenues | $ | 142,249 | | | $ | 101,946 | | | $ | 40,303 | | | 40 | % |
| | | | | | | |
Operating income (loss) | | | | | | | |
Fluids systems | $ | (6,531) | | | $ | (25,059) | | | $ | 18,528 | | | |
Industrial solutions | 10,143 | | | 1,005 | | | 9,138 | | | |
Corporate office | (6,859) | | | (6,485) | | | (374) | | | |
Total operating loss | $ | (3,247) | | | $ | (30,539) | | | $ | 27,292 | | | |
| | | | | | | |
Segment operating margin | | | | | | | |
Fluids systems | (6.7) | % | | (33.6) | % | | | | |
Industrial solutions | 22.5 | % | | 3.7 | % | | | | |
Fluids Systems
Revenues
Total revenues for this segment consisted of the following: | | | | | | | | | | | | | | | | | | | | | | | |
| Second Quarter | | 2021 vs 2020 |
(In thousands) | 2021 | | 2020 | | $ | | % |
United States | $ | 56,784 | | | $ | 42,670 | | | $ | 14,114 | | | 33 | % |
Canada | 4,956 | | | 3,066 | | | 1,890 | | | 62 | % |
Total North America | 61,740 | | | 45,736 | | | 16,004 | | | 35 | % |
| | | | | | | |
EMEA | 32,962 | | | 26,036 | | | 6,926 | | | 27 | % |
Other | 2,391 | | | 2,890 | | | (499) | | | (17) | % |
Total International | 35,353 | | | 28,926 | | | 6,427 | | | 22 | % |
| | | | | | | |
Total Fluids Systems revenues | $ | 97,093 | | | $ | 74,662 | | | $ | 22,431 | | | 30 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| First Nine Months | | 2020 vs 2019 |
(In thousands) | 2020 | | 2019 | | $ | | % |
United States | $ | 156,644 | | | $ | 318,353 | | | $ | (161,709) | | | (51) | % |
Canada | 18,287 | | | 26,283 | | | (7,996) | | | (30) | % |
Total North America | 174,931 | | | 344,636 | | | (169,705) | | | (49) | % |
| | | | | | | |
EMEA | 91,380 | | | 123,346 | | | (31,966) | | | (26) | % |
Other | 8,867 | | | 17,762 | | | (8,895) | | | (50) | % |
Total International | 100,247 | | | 141,108 | | | (40,861) | | | (29) | % |
| | | | | | | |
Total Fluids Systems revenues | $ | 275,178 | | | $ | 485,744 | | | $ | (210,566) | | | (43) | % |
North America revenues decreased 49%revenues increased 35% to $174.9$61.7 million for the first nine monthssecond quarter of 2020,2021, compared to $344.6$45.7 million for the first nine monthssecond quarter of 2019.2020. This decreaseincrease was primarily attributable to a $169.5$20.9 million decreaseincrease from U.S. land markets driven by the 52% decline15% increase in U.S. rig count as well as an increase in market share, partially offset by a $5.0$6.0 million increasedecrease from offshore Gulf of Mexico driven primarily by thechanges in customer drilling and completion fluids product line extension.activity levels. For the first nine monthssecond quarter of 2020,2021, U.S. revenues included $116.4$49.3 million from land markets and $36.9$7.5 million from offshore Gulf of Mexico.
Internationally, revenues decreased 29%increased 22% to $100.2$35.4 million for the first nine monthssecond quarter of 2020,2021, compared to $141.1$28.9 million for the first nine monthssecond quarter of 2019.2020. The decreaseincrease was primarily driven by higher activity in EMEA was drivenEurope and North Africa, partially offset by lower activity primarily attributable to COVID-19 disruptions and the impact of lower oil prices in Algeria, Romania, and various other countries, partially offset by increases in Tunisia, Italy, and Kuwait, as well as the October 2019 acquisition of Cleansorb. The decrease in other international was primarily attributable to lower activity in Australia, including the completion of the Baker Hughes Greater Enfield project in the third quarter of 2019.Middle East and Asia Pacific regions. However, despite these improvements, customer activity levels in substantially all key markets continue to be impacted by the COVID-19 pandemic.
Operating income (loss)loss
The Fluids Systems segment incurred an operating loss of $46.3$6.5 million for the first nine monthssecond quarter of 2021, reflecting a $18.5 million improvement from the $25.1 million operating loss incurred in the second quarter of 2020. The Fluids Systems operating loss for the second quarter of 2021 includes $0.6 million of severance costs and the operating loss for the second quarter of 2020 reflecting a $68.2 million change from the $22.0included $11.7 million of charges related to inventory write-downs, severance costs, and facility exit costs. The remaining improvement in the operating income generated for the first nine months of 2019. The decrease in operating incomeloss includes a $41.5$6.4 million declinebenefit from North AmericanAmerica operations and a $11.1$1.1 million declinebenefit from international operations, which are primarily attributable to the changes in revenues described above partially offset byalong with the benefit of cost reduction programs. The Fluids Systems operating loss for the first nine months of 2020 also includes $17.4 million of charges primarily related to inventory write-downs, severance costs, fixed asset impairments, and facility exit costs, whereas the first nine months of 2019 included $1.8 million of charges related to severance costs and the February 2019 retirement policy modification.programs implemented during 2020.
Mats and IntegratedIndustrial Solutions Services
Revenues
Total revenues for this segment consisted of the following: | | | | | | | | | | | | | | | | | | | | | | | |
| Second Quarter | | 2021 vs 2020 |
(In thousands) | 2021 | | 2020 | | $ | | % |
Product sales revenues | $ | 10,182 | | | $ | 5,184 | | | $ | 4,998 | | | 96 | % |
Rental and service revenues | 33,105 | | | 22,100 | | | 11,005 | | | 50 | % |
Industrial blending revenues | 1,869 | | | — | | | 1,869 | | | NM |
Total Industrial Solutions revenues | $ | 45,156 | | | $ | 27,284 | | | $ | 17,872 | | | 66 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| First Nine Months | | 2020 vs 2019 |
(In thousands) | 2020 | | 2019 | | $ | | % |
Rental and service revenues | $ | 72,499 | | | $ | 115,944 | | | $ | (43,445) | | | (37) | % |
Product sales revenues | 15,243 | | | 28,960 | | | (13,717) | | | (47) | % |
Total Mats and Integrated Services revenues | $ | 87,742 | | | $ | 144,904 | | | $ | (57,162) | | | (39) | % |
Rental and service revenues decreased $43.4 million (37%) to $72.5 million forIn the first nine monthssecond quarter of 2020, which includes a $38.4 million decrease from E&P customers, primarily resulting from lower U.S.customer activity causedacross most end-markets was unfavorably impacted by the decline in oilCOVID-19 pandemic and natural gas prices. In addition, revenues from non-E&P customers decreased $5.0 million as our continued expansion into non-E&P markets was more than offset by the impact ofrelated operational restrictions and market uncertainty, causing delays in customerpurchases and project timing resulting from COVID-related market uncertainty, permitting delays, and logistical restrictions. Revenuesexecution. As a result, revenues from product sales, which typically fluctuate based on the timing of mat orders from customers, improved $5.0 million from the second quarter of 2020. In addition, rental and service revenues increased $11.0 million as delayed purchases and projects resumed, including a $11.3 million increase from power transmission and other industrial markets, which was negatively impactedpartially offset by a $0.3 million decrease from the E&P market. The increase from industrial customers reflects our continued expansion into these markets, both in the first nine months of 2020 as certain customers delayed orders due toU.S. and United Kingdom, including an approximately 110% increase in revenues from the market uncertainty related to the COVID-19 pandemic.power transmission sector.
Operating income
The Mats and Integrated ServicesIndustrial Solutions segment generated operating income of $3.9$10.1 million for the first nine monthssecond quarter of 20202021 compared to $32.9$1.0 million for the first nine monthssecond quarter of 2019,2020, the decreaseincrease being primarily attributable to the changechanges in revenues as described above. In addition, the Industrial Solutions operating results for the second quarter of 2021 includes a $1.0 million gain in other operating income related to a legal settlement.
Corporate Office
Corporate office expenses increased $0.4 million to $6.9 million for the second quarter of 2021, compared to $6.5 million for the second quarter of 2020. This increase was primarily driven by higher performance-based incentive and stock-based compensation expense, as well as the restoration of certain U.S. salary and retirement benefits, partially offset by the benefit of cost reduction programs implemented in 2020.
First Half of 2021 Compared to First Half of 2020
Consolidated Results of Operations
Summarized results of operations for the first half of 2021 compared to the first half of 2020 are as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| First Half | | 2021 vs 2020 |
(In thousands) | 2021 | | 2020 | | $ | | % |
Revenues | $ | 283,421 | | | $ | 266,496 | | | $ | 16,925 | | | 6 | % |
Cost of revenues | 244,097 | | | 258,374 | | | (14,277) | | | (6) | % |
Selling, general and administrative expenses | 43,891 | | | 45,633 | | | (1,742) | | | (4) | % |
Other operating income, net | (1,864) | | | (1,086) | | | (778) | | | 72 | % |
Operating loss | (2,703) | | | (36,425) | | | 33,722 | | | 93 | % |
| | | | | | | |
Foreign currency exchange (gain) loss | (108) | | | 2,763 | | | (2,871) | | | NM |
Interest expense, net | 4,572 | | | 6,113 | | | (1,541) | | | (25) | % |
(Gain) loss on extinguishment of debt | 790 | | | (419) | | | 1,209 | | | NM |
Loss before income taxes | (7,957) | | | (44,882) | | | 36,925 | | | 82 | % |
| | | | | | | |
Provision (benefit) for income taxes | 3,403 | | | (6,490) | | | 9,893 | | | NM |
Net loss | $ | (11,360) | | | $ | (38,392) | | | $ | 27,032 | | | 70 | % |
Revenues
Revenues increased 6% to $283.4 million for the first half of 2021, compared to $266.5 million for the first half of 2020. This $16.9 million increase includes a $23.5 million (13%) increase in revenues in North America, comprised of a $34.1 million increase in the Industrial Solutions segment partially offset by a $10.6 million decrease in the Fluids Systems segment. Revenues from our North America operations increased primarily due to significant growth in power transmission and other industrial markets, which impacts our Industrial Solutions segment, partially offset by the 25% decrease in North America rig count, which primarily impacts our Fluids Systems segment. Revenues from our international operations decreased by $6.6 million (8%), primarily driven by activity disruptions and project delays resulting from the COVID-19 pandemic. Additional information regarding the change in revenues is provided within the operating segment results below.
Cost of revenues
Cost of revenues decreased 6% to $244.1 million for the first half of 2021, compared to $258.4 million for the first half of 2020. Fluids Systems segment cost of revenues for the first half of 2020 included a total of $12.2 million of charges related to inventory write-downs, severance costs, and facility exit costs. The remaining decrease was primarily driven by the benefit of cost reduction programs implemented in 2020, partially offset by the 6% increase in revenues described above.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased $1.7 million to $43.9 million for the first half of 2021, compared to $45.6 million for the first half of 2020. This decrease was primarily driven by reduced personnel costs in the first half of 2021, including the benefit of cost reduction programs implemented in 2020, as well as a reduction in severance charges and legal costs, partially offset by higher performance-based incentive and stock-based compensation expense. Selling, general and administrative expenses as a percentage of revenues was 15.5% for the first half of 2021 compared to 17.1% for the first half of 2020.
Other operating income, net
Other operating income for the first half of 2021 includes a $1.0 million gain related to a legal settlement in the Industrial Solutions segment. Other operating income also includes gains on sales of assets.
Foreign currency exchange
Foreign currency exchange was a $0.1 million gain for the first half of 2021 compared to a $2.8 million loss for the first half of 2020, and reflects the impact of currency translation on assets and liabilities (including intercompany balances) that are denominated in currencies other than functional currencies.
Interest expense, net
Interest expense was $4.6 million for the first half of 2021 compared to $6.1 million for the first half of 2020. Interest expense for the first half of 2021 and 2020 includes $2.1 million and $2.8 million, respectively, in non-cash amortization of original issue discount and debt issuance costs. The decrease in interest expense is primarily due to lower debt balances.
(Gain) loss on extinguishment of debt
In the first half of 2021 and 2020, we repurchased $18.3 million and $33.1 million, respectively, of our Convertible Notes in the open market for $18.1 million and $29.1 million, respectively. The $0.8 million loss and $0.4 million gain for the first half of 2021 and 2020, respectively, reflects the difference in the amount paid and the net carrying value of the extinguished debt, including original issue discount and debt issuance costs.
Provision (benefit) for income taxes
The provision for income taxes was $3.4 million for the first half of 2021, despite reporting a pretax loss for the period, primarily reflecting the impact of the geographic composition of our pretax loss. The tax expense primarily relates to earnings from our international operations since we are currently unable to recognize the tax benefit from our U.S. losses as they may not be realized. The benefit for income taxes was $6.5 million for the first half of 2020, where the tax benefit from losses in the U.S was partially offset by the tax expense related to earnings from our international operations.
Operating Segment Results
Summarized financial information for our reportable segments is shown in the following table (net of inter-segment transfers): | | | | | | | | | | | | | | | | | | | | | | | |
| First Half | | 2021 vs 2020 |
(In thousands) | 2021 | | 2020 | | $ | | % |
Revenues | | | | | | | |
Fluids systems | $ | 184,942 | | | $ | 207,467 | | | $ | (22,525) | | | (11) | % |
Industrial solutions | 98,479 | | | 59,029 | | | 39,450 | | | 67 | % |
Total revenues | $ | 283,421 | | | $ | 266,496 | | | $ | 16,925 | | | 6 | % |
| | | | | | | |
Operating income (loss) | | | | | | | |
Fluids systems | $ | (13,298) | | | $ | (27,327) | | | $ | 14,029 | | | |
Industrial solutions | 23,273 | | | 4,067 | | | 19,206 | | | |
Corporate office | (12,678) | | | (13,165) | | | 487 | | | |
Total operating loss | $ | (2,703) | | | $ | (36,425) | | | $ | 33,722 | | | |
| | | | | | | |
Segment operating margin | | | | | | | |
Fluids systems | (7.2) | % | | (13.2) | % | | | | |
Industrial solutions | 23.6 | % | | 6.9 | % | | | | |
Fluids Systems
Revenues
Total revenues for this segment consisted of the following: | | | | | | | | | | | | | | | | | | | | | | | |
| First Half | | 2021 vs 2020 |
(In thousands) | 2021 | | 2020 | | $ | | % |
United States | $ | 104,454 | | | $ | 116,330 | | | $ | (11,876) | | | (10) | % |
Canada | 17,619 | | | 16,326 | | | 1,293 | | | 8 | % |
Total North America | 122,073 | | | 132,656 | | | (10,583) | | | (8) | % |
| | | | | | | |
EMEA | 58,421 | | | 68,173 | | | (9,752) | | | (14) | % |
Other | 4,448 | | | 6,638 | | | (2,190) | | | (33) | % |
Total International | 62,869 | | | 74,811 | | | (11,942) | | | (16) | % |
| | | | | | | |
Total Fluids Systems revenues | $ | 184,942 | | | $ | 207,467 | | | $ | (22,525) | | | (11) | % |
North America revenues decreased 8% to $122.1 million for the first half of 2021, compared to $132.7 million for the first half of 2020. This decrease was primarily attributable to a $13.2 million decrease from offshore Gulf of Mexico driven primarily by changes in customer drilling and completion activity levels, partially offset by a $2.1 million increase from U.S. land markets driven primarily by an increase in market share despite the 29% decline in U.S. rig count. For the first half of 2021, U.S. revenues included $88.9 million from land markets and $15.6 million from offshore Gulf of Mexico.
Internationally, revenues decreased 16% to $62.9 million for the first half of 2021, compared to $74.8 million for the first half of 2020. The decrease was driven by lower activity primarily attributable to COVID-19 disruptions impacting customer activity levels in substantially all key markets, with the most significant impact in the Middle East and North Africa.
Operating loss
The Fluids Systems segment incurred an operating loss of $13.3 million for the first half of 2021, reflecting a $14.0 million improvement from the $27.3 million operating loss incurred in the first half of 2020. The Fluids Systems operating loss for the first half of 2021 includes $0.6 million of severance costs and operating loss for the first half of 2020 included $12.9 million of charges related to inventory write-downs, severance costs, and facility exit costs. The remaining improvement in the operating loss includes a $5.7 million benefit from North America operations partially offset by a $4.0 million decline from international operations, reflecting the changes in revenues described above and the benefit of cost reduction programs implemented during 2020.
Industrial Solutions
Revenues
Total revenues for this segment consisted of the following: | | | | | | | | | | | | | | | | | | | | | | | |
| First Half | | 2021 vs 2020 |
(In thousands) | 2021 | | 2020 | | $ | | % |
Product sales revenues | $ | 30,219 | | | $ | 9,326 | | | $ | 20,893 | | | 224 | % |
Rental and service revenues | 61,838 | | | 49,703 | | | 12,135 | | | 24 | % |
Industrial blending revenues | 6,422 | | | — | | | 6,422 | | | NM |
Total Industrial Solutions revenues | $ | 98,479 | | | $ | 59,029 | | | $ | 39,450 | | | 67 | % |
In the first half of 2020, customer activity across most end-markets was unfavorably impacted by the COVID-19 pandemic and the related operational restrictions and market uncertainty, causing delays in purchases and project execution. As a result, revenues from product sales, which typically fluctuate based on the timing of mat orders from customers, improved $20.9 million from the first half of 2020, including a favorable impact from pent-up demand following the COVID-19 pandemic. In addition, rental and service revenues increased $12.1 million as delayed purchases and projects resumed, including a $16.0 million increase from power transmission and other industrial markets, which was partially offset by a $3.9 million decrease from the E&P market. The increase from industrial customers reflects our continued expansion into these markets, both in the U.S. and United Kingdom, including an approximately 68% increase in revenues from the power transmission sector. The revenue decrease from E&P customers primarily resulted from the lower U.S. drilling activity, along with our focus on supporting the more stable power transmission and other industrial markets.
Operating income
The Industrial Solutions segment generated operating income of $23.3 million for the first half of 2021 compared to $4.1 million for the first half of 2020, the increase being primarily attributable to the changes in revenues as described above. In addition, the Industrial Solutions operating results for the first half of 2021 includes a $1.0 million gain in other operating income related to a legal settlement.
Corporate Office
Corporate office expenses decreased $12.2$0.5 million to $19.8$12.7 million for the first nine monthshalf of 2020,2021, compared to $31.9$13.2 million for the first nine monthshalf of 2019. The first nine months of 2019 included a $3.4 million charge for stock-based compensation expense associated with the February 2019 retirement policy modification and $3.7 million in professional fees related to our long-term strategic planning project and the Cleansorb acquisition. The remaining2020. This decrease of $5.1 million iswas primarily driven by reducedlower personnel costs and lower spending related to legal matters in the first nine monthshalf of 2020.2021, including the benefit of cost reduction programs implemented in 2020, partially offset by increases in performance-based incentive and stock-based compensation expense.
Liquidity and Capital Resources
Net cash provided by operating activities was $40.3$25.8 million for the first nine monthshalf of 20202021 compared to $53.2$25.0 million for the first nine monthshalf of 2019.2020. During the first nine monthshalf of 2020,2021, net loss adjusted for non-cash items usedprovided cash of $27.3$11.5 million, while changes in working capital provided cash of $67.6$14.3 million.
Net cash used in investing activities was $4.1$1.3 million for the first nine monthshalf of 2020,2021, including capital expenditures of $14.6 million. Capital$10.5 million, substantially offset by $9.2 million in proceeds from the sale of assets. The majority of the proceeds from the sale of assets reflect used mats from our rental fleet, which are part of the commercial offering of our Site and Access Solutions business. Nearly all of our capital expenditures during the first nine monthshalf of 2020 included $7.62021 were directed to supporting our Industrial Solutions segment, including $7.1 million for the Mats and Integrated Services segment, includingof investments in the mat rental fleet, as well as new products, and $5.5 million forprimarily supporting the Fluids Systems segment.increasing demand from the power transmission sector.
Net cash used in financing activities was $60.9$13.3 million for the first nine monthshalf of 2020,2021, which primarily includes $29.1$18.1 million in repurchases of our Convertible Notes and a net repayment of $35.1$5.1 million on our ABL Facility, (as defined below).partially offset by $8.1 million of net proceeds from a U.K. term loan facility.
Substantially allApproximately $30.4 million of our $24.0$35.1 million of cash on hand at SeptemberJune 30, 20202021 resides in our international subsidiaries. Subject to maintaining sufficient cash requirements to support the strategic objectives of these international subsidiaries and complying with applicable exchange or cash controls, we expect to continue to repatriate excess cash from these international subsidiaries, subjectsubsidiaries. As we progress through 2021, we anticipate that working capital will likely increase in the near term with future working capital requirements for our operations generally fluctuating directionally with revenues. We expect capital expenditures in the near term to exchange or cash controls and the cash requirements to support the strategic objectives of these international subsidiaries.remain fairly limited, focusing on industrial end-market expansion opportunities. In addition, we may continue to purchase our Convertible Notes under our existing repurchase program from timeprior to time.
Our revenues and operating results in 2020 have been negatively impacted by the decrease in demand for our products and services following the decline in the price of oil as well as the COVID-19 pandemic and related economic shutdowns around the world. We have taken a number of actions aimed at conserving cash and protecting our liquidity, including workforce and salary reductions, elimination of all non-critical capital expenditures, as well as actions to reduce our operational footprint to match current and anticipated activity levels by operating region. We currently expect capital expenditures to remain limited for the foreseeable future. We anticipate that revenues will begin to increase in the fourth quarter of 2020 as market activity improves from current levels, although the ongoing impacts of the COVID-19 pandemic and an uncertain economic environment that will likely persist through the remainder of 2020 and into earlyDecember 2021 make the timing and pace of recovery difficult to predict. We anticipate that our near-term working capital requirements to support the revenue growth will largely be offset by the benefit from our on-going efforts to reduce inventory levels and international receivables, which remain elevated from historical levels. As we progress through 2021, we anticipate that future working capital requirements for our operations will fluctuate directionally with revenues.maturity.
Availability under our ABL Facility also provides additional liquidity as discussed further below. Total availability under the ABL Facility will fluctuate directionally based on the level of eligible U.S. accounts receivable, inventory, and, subject to satisfaction of certain financial covenants as described below, composite mats included in the rental fleet. As of November 3, 2020, our total availability under the ABL Facility was $112.3 million, of which $29.0 million was drawn, resulting in remaining availability of $83.3 million. As of November 3, 2020, our total availability under the ABL Facility included $25.3 million from eligible rental mats. As discussed further below, in November 2020, we will no longer satisfy a financial covenant required for the composite mats to be included in the borrowing availability under the ABL Facility, and therefore, the adjusted total availability under the ABL Facility would be reduced by such amount. Based on our current projections of operating results through the first half of 2021, we currently anticipate satisfying the financial covenants required such that the eligible rental mats would again be included in the borrowing availability under the ABL Facility following the second quarter of 2021.
Considering the above, weWe expect our available cash on-hand, cash generated by operations, and remainingthe expected availability under our ABL Facility to be adequate to fund our current operations during the next 12 months.months and the repurchase or repayment of the 2021 Convertible Notes. We also continue to evaluate other sources of additional liquidity to support our longer-term liquidity options, which include possible financing or alternative arrangements secured by certain assets in the U.S. or our international operations.
Our capitalization is as follows:
| | | | | | | | | | | |
(In thousands) | September 30, 2020 | | December 31, 2019 |
Convertible Notes | $ | 66,912 | | | $ | 100,000 | |
ABL Facility | 29,900 | | | 65,000 | |
Other debt | 10,805 | | | 7,164 | |
Unamortized discount and debt issuance costs | (5,262) | | | (12,291) | |
Total debt | $ | 102,355 | | | $ | 159,873 | |
| | | |
Stockholder's equity | 489,083 | | | 548,645 | |
Total capitalization | $ | 591,438 | | | $ | 708,518 | |
| | | |
Total debt to capitalization | 17.3 | % | | 22.6 | % |
| | | | | | | | | | | |
(In thousands) | June 30, 2021 | | December 31, 2020 |
Convertible Notes | $ | 48,567 | | | $ | 66,912 | |
ABL Facility | 14,000 | | | 19,100 | |
Other debt | 16,849 | | | 5,371 | |
Unamortized discount and debt issuance costs | (1,616) | | | (4,221) | |
Total debt | $ | 77,800 | | | $ | 87,162 | |
| | | |
Stockholder's equity | 476,244 | | | 488,032 | |
Total capitalization | $ | 554,044 | | | $ | 575,194 | |
| | | |
Total debt to capitalization | 14.0 | % | | 15.2 | % |
Convertible Notes. In December 2016, we issued $100.0 million of unsecured convertible senior notes (“Convertible Notes”) that mature on December 1, 2021, of which $66.9$48.6 million principal amount was outstanding at SeptemberJune 30, 2020.2021. The notes bear interest at a rate of 4.0% per year, payable semiannually in arrears on June 1 and December 1 of each year.
Holders may convert the notes at their option atAt any time prior to the close of business on the business day immediately preceding June 1, 2021, holders could have converted their notes only under the following circumstances:
•during any calendar quarter (and only during such calendar quarter) if the last reported sale price of our common stock for at least 20 trading days (regardless of whether consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price of the notes in effect on each applicable trading day;
•during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of notes for each trading day was less than 98% of the last reported sale price of our common stock on such date multiplied by the conversion rate on each such trading day; or
•upon the occurrence of specified corporate events, as described in the indenture governing the notes, such as a consolidation, merger, or share exchange.
certain circumstances. On or after June 1, 2021 until the close of business on the business day immediately preceding the maturity date, holders may convert their notes at any time, regardless of whethertime. If any of the foregoing conditions have been satisfied. As of October 30, 2020, the notes were not convertible.
The notes are convertible into,converted on or after June 1, 2021, we will settle the converted notes at our election,the maturity date with a combination of cash and shares of common stock or a combination of both, subject to satisfaction of specified conditions and during specified periods, as described above. If converted, we currently intend to pay cash forin accordance with the principal amountterms of the notes converted.indenture governing the Convertible Notes. The conversion rate is 107.1381 shares of our common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of $9.33 per share of common stock), subject to adjustment in certain circumstances. We may not redeem the notes prior to their maturity date. As of August 2, 2021, no holders have converted their notes. The Convertible Notes are classified as long-term debt in the June 30,
2021 balance sheet as we intend to settle the notes at maturity utilizing borrowings under our ABL Facility, as discussed further below.
In accordance with accounting guidance for convertible debt with a cash conversion option, we separately accounted for the debt and equity components of the notes in a manner that reflected our estimated nonconvertible debt borrowing rate. As of June 30, 2021, the carrying amount of the debt component was $47.1 million, which is net of the unamortized debt discount and debt issuance costs of $1.5 million. Including the impact of the unamortized debt discount and debt issuance costs, the effective interest rate on the notes is approximately 11.3%.
During the first nine monthshalf of 2020,2021, we repurchased $33.1$18.3 million of our Convertible Notes in the open market for a total cost of $29.1$18.1 million, and recognized a net gainloss of $0.4$0.8 million reflecting the difference in the amount paid and the net carrying value of the extinguished debt, including original issue discount and debt issuance costs.
Asset-Based Loan Facility. In May 2016, we entered into an asset-based revolving credit agreement, which replaced our previous credit agreement. Inwas amended in October 2017 we entered into an Amended and Restated Credit Agreement and in March 2019 we entered into a First Amendment to Amended and Restated Credit Agreement (as amended, the “ABL Facility”). The ABL Facility provides financing of up to $200.0 million available for borrowings (inclusive of letters of credit) and can be increased up to a maximum capacity of $275.0 million, subject to certain conditions. As of June 30, 2021, our total availability under the ABL Facility was $85.2 million, of which $14.0 million was drawn and $0.7 million was used for outstanding letters of credit, resulting in remaining availability of $70.5 million. This availability under the ABL Facility excludes $24.7 million related to eligible rental mats as we failed to satisfy the required minimum consolidated fixed charge coverage ratio, as measured on the trailing twelve-month period ended March 31, 2021.
The ABL Facility terminates in March 2024; however, the ABL Facility has a springing maturity date that will accelerate the maturity of the ABL Facility to September 1, 2021 if, prior to such date, the Convertible Notes have not been repurchased, redeemed, refinanced, exchanged or otherwise satisfied in full or we have not escrowed an amount of funds, that together with the amount that we establish as a reserve against our borrowing capacity, is sufficient for the future settlement of the Convertible Notes at their maturity. The ABL Facility requires compliance with a minimum consolidated fixed charge coverage ratio of 1.25 to 1.0 calculated based on the trailing twelve-month period ended June 30, 2021 and remaining unused availability of at least $25.0 million to utilize borrowings or assignment of availability under the ABL Facility towards funding the repayment of the Convertible Notes.
As measured on the trailing twelve-month period ended June 30, 2021, we have satisfied the minimum consolidated fixed charge coverage ratio as required to include eligible rental mats in the borrowing availability under the ABL Facility and have satisfied the ABL Facility requirements to utilize the ABL Facility for the future settlement of the Convertible Notes. Prior to September 1, 2021, we will establish a reserve against our borrowing capacity under the ABL Facility for the future settlement of the Convertible Notes and intend to utilize borrowings to fund the repayment of the Convertible Notes at their December 1, 2021 maturity. As of August 2, 2021, we had $21.1 million outstanding under the ABL Facility, including letters of credit. After giving effect to satisfying the ABL Facility requirements, total availability is $107.9 million, inclusive of $24.4 million in eligible rental mats.Borrowing availability under the ABL Facility is calculated based on eligible U.S. accounts receivable, inventory, and, subject to satisfaction of certain financial covenants as described below, composite mats included in the rental fleet, net of reserves and limits on such assets included in the borrowing base calculation. To the extent pledged by us, the borrowing base calculation also includes the amount of eligible pledged cash. The lender may establish such reserves, in part based on appraisals of the asset base, and other limits at its discretion which could reduce the amounts otherwise available under the ABL Facility. Availability associated with eligible rental mats will also be subject to maintaining a minimum consolidated fixed charge coverage ratio of 1.5 to 1.0 and at least $1.0 million of operating income for the MatsSite and Integrated Services segment,Access Solutions business, each calculated based on a trailing twelve-month period.
As noted above, we will not satisfy the minimum consolidated fixed charge coverage ratio that is required to continue including eligible rental mats in the borrowing availability under the ABL Facility after the filing of our quarterly compliance certificate under the ABL Facility for the third quarter of 2020 in November 2020. While this does not represent a default, it would reduce the borrowing availability under the ABL Facility noted above as of November 3, 2020 by $25.3 million. We anticipate regaining compliance with the minimum consolidated fixed charge coverage ratio as required to include eligible rental mats in the borrowing availability under the ABL Facility following the second quarter of 2021. As such, we currently believe that we will be able to utilize borrowings or assignment of availability under the ABL Facility towards funding the repayment of the Convertible Notes prior to September 1, 2021. If we are unable to regain compliance with the minimum consolidated fixed charge coverage ratio following the second quarter of 2021, we would further evaluate options, which may include a waiver or amendment to our ABL Facility. Any waiver or amendment to the ABL Facility, if required, may increase the cost of our borrowings and impose additional limitations over certain types of activities, and we can give no assurance that we will be able to obtain such amendment or waiver on favorable terms or at all.
Under the terms of the ABL Facility, we may elect to borrow at a variable interest rate based on either, (1) LIBOR subject to a floor of zero or (2) a base rate equal to the highest of: (a) the federal funds rate plus 50 basis points, (b) the prime rate of Bank of America, N.A. and (c) LIBOR, subject to a floor of zero, plus 100 basis points, plus, in each case, an applicable margin per annum. The applicable margin ranges from 150 to 200 basis points for LIBOR borrowings, and 50 to 100 basis points for base rate borrowings, based on the consolidated fixed charge coverage ratio as defined in the ABL Facility. As of SeptemberJune 30, 2020,2021, the applicable margin for borrowings under our ABL Facility was 150200 basis points with respect to LIBOR borrowings and 50100 basis points with respect to base rate borrowings.borrowings, with the applicable margins reducing to 150 basis points and 50 basis points, respectively, in August 2021. The weighted average interest rate for the ABL Facility was 1.9%2.1% at SeptemberJune 30, 2020. In November 2020, the applicable margins for borrowings under the ABL Facility will increase 50 basis points based on the consolidated fixed charge coverage ratio.2021. In addition, we are required to pay a commitment fee on the unused portion of the ABL Facility ranging from 25 to 37.5 basis points, based on the level of outstanding borrowings, as defined in the ABL Facility. As of SeptemberJune 30, 2020,2021, the applicable commitment fee was 37.5 basis points.
The ABL Facility is a senior secured obligation, secured by first liens on substantially all of our U.S. tangible and intangible assets, and a portion of the capital stock of our non-U.S. subsidiaries has also been pledged as collateral. The ABL Facility contains customary operating covenants and certain restrictions including, among other things, the incurrence of
additional debt, liens, dividends, asset sales, investments, mergers, acquisitions, affiliate transactions, stock repurchases and other restricted payments. The ABL Facility also requires compliance with a minimum consolidated fixed charge coverage ratio of 1.0 to 1.0 calculated based on a trailing twelve-month period if availability under the ABL Facility falls below $22.5 million. Based on our current projections, we do not anticipateexpect availability under the ABL Facility fallingto fall below $22.5 million. In addition, the ABL Facility contains customary events of default, including, without limitation, a failure to make payments under the facility, acceleration of more than $25.0 million of other indebtedness, certain bankruptcy events, and certain change of control events.
Other Debt. In February 2021, a U.K. subsidiary entered a £6.0 million (approximately $8.3 million) term loan facility that matures in February 2024, the proceeds of which were used to pay down the ABL Facility. The term loan bears interest at a rate of LIBOR plus a margin of 3.4% per year, payable in quarterly installments of £375,000 plus interest beginning March 2021 and a £1.5 million payment due at maturity. We had $7.2 million outstanding under this arrangement at June 30, 2021.
Certain of our other foreign subsidiaries maintain local credit arrangements consisting primarily of lines of credit or overdraft facilities which are generally renewed on an annual basis. We utilize local financing arrangements in our foreign operations in order to provide short-term local liquidity needs. We had $7.9$5.8 million and $4.8$3.5 million outstanding under these arrangements at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively.
In addition, at SeptemberJune 30, 2020,2021, we had $57.5$45.4 million in outstanding letters of credit, performance bonds, and other guarantees for which certain of the letters of credit are collateralized by $6.3$5.9 million in restricted cash.
Critical Accounting Estimates and Policies
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America,(“U.S. GAAP”), which requires usmanagement to make estimates and assumptions that affect the reported amounts and disclosures.disclosure. Significant estimates used in preparing our condensed consolidated financial statements include estimated cash flows and fair values used for impairments of long-lived assets, including goodwill and other intangibles, and valuation allowances for deferred tax assets. Our estimates are based on historical experience and on our future expectations that we believe to be reasonable. The
combination of these factors forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from our current estimates and those differences may be material.
As of September 30, 2020, our consolidated balance sheet includes $42.2 million of goodwill, all of which relates to the Mats and Integrated Services segment. Goodwill and other indefinite-lived intangible assets are tested for impairment annually as of November 1, or more frequently, if indicators of impairment exists. In March 2020, primarily as a result of the collapse in oil prices and the expected declines in the U.S. land E&P markets, along with a significant decline in the quoted market prices of our common stock, we considered these developments to be a potential indicator of impairment that required us to complete an interim goodwill impairment evaluation. As such, in March 2020, we estimated the fair value of our Mats and Integrated Services reporting unit based on our current forecasts and expectations for market conditions and determined that even though the estimated fair value had decreased, the fair value remained substantially in excess of its net carrying value, and therefore, no impairment was required. During the second quarter and third quarter of 2020, we determined that there were no further indicators of events or changes in circumstances that would more likely than not reduce the fair value below its carrying amount.
In addition, we review property, plant and equipment, finite-lived intangible assets and certain other assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We assess recoverability based on expected undiscounted future net cash flows. Due to the changes in market conditions, we have reviewed these assets for impairment during the first nine months of 2020 and determined that the estimated undiscounted cash flows exceeded the carrying value, and therefore, no impairment was required. Fluids Systems segment includes a $3.0 million impairment charge for the first nine months of 2020, attributable to the abandonment of certain property, plant and equipment.
For additional discussion of our critical accounting estimates and policies, see “Management's Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2019.2020. Our critical accounting estimates and policies have not materially changed since December 31, 2019.2020.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in interest rates and changes in foreign currency exchange rates. A discussion of our primary market risk exposure in financial instruments is presented below.
Interest Rate Risk
At SeptemberJune 30, 2020,2021, we had total principal amounts outstanding under financing arrangements of $107.6$79.4 million, including $66.9$48.6 million of borrowings under our Convertible Notes which bear interest at a fixed rate of 4.0% and $29.9, as well as $14.0 million of borrowings under our ABL Facility. BorrowingsFacility and $7.2 million of borrowings under our ABL Facilitya U.K. term loan which are subject to a variable interest raterates as determined by the ABL Facility.respective debt agreements. The weighted average interest rate at SeptemberJune 30, 20202021 for the ABL Facility and the U.K. term loan was 1.9%.2.1% and 3.4%, respectively. Based on the balance of variable rate debt at SeptemberJune 30, 2020,2021, a 100 basis-point increase in short-term interest rates would have increased annual pre-tax interest expense by $0.3$0.2 million.
Foreign Currency Risk
Our principal foreign operations are conducted in certain areas of EMEA, Canada, Asia Pacific, and Latin America. We have foreign currency exchange risks associated with these operations, which are conducted principally in the foreign currency of the jurisdictions in which we operate including European euros, Kuwaiti dinar, Algerian dinar, Romanian new leu, Canadian dollars, British pounds, and Australian dollars, and Brazilian reais.dollars. Historically, we have not used off-balance sheet financial hedging instruments to manage foreign currency risks when we enter into a transaction denominated in a currency other than our local currencies.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of SeptemberJune 30, 2020,2021, the end of the period covered by this quarterly report.
Changes in Internal Control Over Financial Reporting
There were no changes in internal control over financial reporting during the quarter ended SeptemberJune 30, 20202021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
None.
ITEM 1A. Risk Factors
There have been no materialSet forth below are changes toduring the period ended June 30, 2021 in our “Risk Factors” as discussed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019, except as discussed in Part II, Item 1A2020.
Risks Related to Cybersecurity Breaches or Business System Disruptions
We utilize various management information systems and information technology infrastructure to manage or support a variety of our Quarterly Reportbusiness operations, and to maintain various records, which may include confidential business or proprietary information as well as information regarding our customers, business partners, employees or other third parties. We also utilize third-party vendors and their systems and technology to support our business activities, including secure processing of confidential, sensitive, proprietary and other types of information. Failures of or interference with access to these systems, such as communication disruptions, could have an adverse effect on Form 10-Q forour ability to conduct operations or directly impact consolidated financial reporting. Security breaches pose a risk to confidential data and intellectual property, which could result in transaction errors, processing inefficiencies, the three months ended March 31, 2020.loss of sales and customers, data privacy breaches and damage to our competitiveness and reputation. There can be no assurance that the policies and procedures we or these third parties have in place, including system monitoring and data back-up processes, to prevent or mitigate the effects of these potential disruptions or breaches will be sufficient to prevent, detect and limit the impact of disruptions or breaches. We do not carry insurance against these risks, although we do invest in security technology, perform penetration tests from time to time, and design our business processes to attempt to mitigate the risk of such breaches. However, there can be no assurance that security breaches will not occur.
Additionally, the development and maintenance of these measures requires continuous monitoring as technologies change and efforts to overcome security measures evolve. We have experienced cybersecurity threats and incidents involving our systems and third-party systems and expect these incidents to continue. While none of the cybersecurity events have been material to date, a successful breach or attack could have a material negative impact on our operations or business reputation, harm our reputation and relationships with our customers, business partners, employees or other third parties, and subject us to consequences such as litigation and direct costs associated with incident response. In addition, these risks could have a material adverse effect on our business, results of operations, and financial condition.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
a)Not applicable
b)Not applicable
c)The following table details our repurchases of shares of our common stock for the three months ended SeptemberJune 30, 2020:2021: | | | | | | | | | | | | | | | | | | | | | | | |
Period | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under Plans or Programs ($ in Millions) |
April 2021 | — | | | $ | — | | | — | | | $ | 33.8 | |
May 2021 | 6,836 | | | $ | 3.50 | | | — | | | $ | 33.8 | |
June 2021 | 385,905 | | | $ | 3.51 | | | — | | | $ | 33.8 | |
Total | 392,741 | | | | | — | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Period | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under Plans or Programs ($ in Millions) |
July 2020 | 1,217 | | | $ | 2.11 | | | — | | | $ | 51.9 | |
August 2020 | — | | | $ | — | | | — | | | $ | 51.9 | |
September 2020 | — | | | $ | — | | | — | | | $ | 51.9 | |
Total | 1,217 | | | | | — | | | |
During the three months ended June 30, 2021, we purchased an aggregate of 392,741 shares surrendered in lieu of taxes under vesting of restricted shares.In November 2018, our Board of Directors authorized changes to our securities repurchase program. These changes increased the authorized amount under the repurchase program to $100.0 million, available for repurchases of any combination of our common stock and our Convertible Notes.
Our repurchase program authorizes us to purchase our outstanding shares of our common stock or Convertible Notes in the open market or as otherwise determined by management, subject to certain limitations under the ABL Facility and other factors. The repurchase program has no specific term. Repurchases are expected to be funded from operating cash flows, available cash on hand, and borrowings under our ABL Facility. As part of the share repurchase program, our management has been authorized to establish trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934. As of SeptemberJune 30, 2020,2021, we had $51.9$33.8 million remaining under the program.
There were no Convertible Notes and no shares of common stock repurchased under the repurchase program during the three months ended SeptemberJune 30, 2020.
During the three months ended September 30, 2020, we purchased an aggregate of 1,217 shares surrendered in lieu of taxes under vesting of restricted shares.2021.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
The information concerning mine safety violations and other regulatory matters required by section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95.1 of this Quarterly Report on Form 10-Q, which is incorporated by reference.
ITEM 5. Other Information
None.
ITEM 6. Exhibits
The exhibits listed are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
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3.1 | |
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*31.1 | |
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*95.1 | |
*101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
*101.SCH | Inline XBRL Schema Document |
*101.CAL | Inline XBRL Calculation Linkbase Document |
*101.DEF | Inline XBRL Definition Linkbase Document |
*101.LAB | Inline XBRL Label Linkbase Document |
*101.PRE | Inline XBRL Presentation Linkbase Document |
*104 | Cover Page Interactive Data File (formatted as- the cover page XBRL tags are embedded within the Inline XBRL and contained in Exhibit 101)document. |
† Management compensation plan or agreement.
* Filed herewith.
** Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: NovemberAugust 4, 20202021
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NEWPARK RESOURCES, INC. |
(Registrant) |
| |
By: | /s/ Paul L. Howes |
| Paul L. Howes President and Chief Executive Officer (Principal Executive Officer) |
| | | | | |
By: | /s/ Gregg S. Piontek |
| Gregg S. Piontek Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
| | | | | |
By: | /s/ Douglas L. White |
| Douglas L. White Vice President, Chief Accounting Officer and Treasurer (Principal Accounting Officer) |