NPK International Inc. (NPKI) FY 2024 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
ITEM 7. 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 consolidated financial statements and notes thereto included in Item 8 “Financial Statements and Supplementary Data.”
Overview
NPK International Inc. is a temporary worksite access solutions company that manufactures, sells, and rents recyclable composite matting products, along with a full suite of services, including planning, logistics, and site restoration. In 2024, 67% of our revenues were generated from the rental of our recyclable composite matting systems, along with related site construction and services to customers in various markets including power transmission, oil and natural gas exploration and production (“E&P”), pipeline, renewable energy, petrochemical, construction and other industries within the United States and United Kingdom. The remaining 33% of our 2024 revenues were generated from the sale of our manufactured recyclable composite mats to customers around the world, with power transmission being the primary end-market.
We previously operated a Fluids Systems business, which was historically reported as a separate operating segment, that provided drilling and completion fluids products and related technical services to customers for oil, natural gas, and geothermal projects primarily in Europe, the Middle East and Africa, and North America, as well as certain countries in Asia Pacific. On September 13, 2024, we completed the sale of the equity interests in substantially all of the Company’s Fluids Systems segment (the “Sale Transaction”) to SCF Partners, a leading private equity firm serving the global energy industry (the “Purchaser”). The results of operations of Fluids Systems are reported in discontinued operations in the consolidated statements of operations. All results and information in the consolidated financial statements and related notes are presented for our continuing operations and exclude Fluids Systems unless otherwise noted specifically as discontinued operations. See Note 2 for additional information.
2024 Strategic Actions
As aligned with our Strategy described in Part I. Item I. Business, the following strategic actions were taken in 2024.
•Completed the Fluids Systems Sale Transaction – The September 2024 sale marked an important strategic milestone for our company, simplifying our business model while meaningfully improving our margin profile, return on investment and profitability potential, as we focus on growing our scale as a leading, pure-play specialty rental and services business in the global worksite access and critical infrastructure markets. The estimated total consideration of the Sale Transaction was $88.2 million, which includes $70.2 million of cash proceeds received at closing, $16.0 million of receivables, primarily reflecting an adjustment for the final working capital conveyed at closing, and a $5 million interest-bearing note receivable, partially offset by net deferred consideration liabilities.
•Rebranded as NPK – In December 2024, we announced our new brand identity, aligning with our strategic focus on specialty rental solutions for the global access market, and launched a new company website (www.npki.com). NPK International commenced trading on the NYSE under the ticker symbol “NPKI” beginning December 19, 2024.
•Strengthened Balance Sheet – We ended 2024 with total cash of $17.8 million, total debt of $7.7 million, and available liquidity under our ABL credit facility of $65.8 million, positioning the Company to pursue our stated organic and inorganic growth strategy.
•Accelerated Organic Growth – In support of our efforts to accelerate revenue growth through the expansion of our high-return rental business, approximately $37 million of our 2024 capital expenditures were directed to the expansion of our mat rental fleet, expanding the rental fleet by approximately 11%, driving a 7% year-over-year increase in rental revenues.
•Drove Operational Efficiency – During 2024, we continually took actions to streamline our overhead structure, which contributed to a $5.0 million year-over-year reduction in selling, general and administrative expenses (“SG&A”) for 2024. SG&A as a percentage of revenues was 21.2% for 2024 compared to 24.6% for 2023. We plan to maintain our focus on efficiency improvements and operating cost optimization across every aspect of our business. With the recent completion of the sale of the Fluids Systems business and simplified business model, we continue to evaluate and execute actions intended to streamline the organization and our cost structure, driving improvements in profitability, with the goal of driving SG&A as a percentage of revenue to a mid-teens range by early 2026.
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Year Ended December 31, 2024 Compared to Year Ended December 31, 2023
Consolidated Results of Operations
Summarized results of operations for 2024 compared to 2023 are as follows:
| Year Ended December 31, | 2024 vs 2023 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands) | 2024 | 2023 | $ | % | ||||||||||
| Revenues | $ | 217,489 | $ | 207,648 | $ | 9,841 | 5 | % | ||||||
| Cost of revenues | 140,359 | 135,094 | 5,265 | 4 | % | |||||||||
| Selling, general and administrative expenses | 46,048 | 51,083 | (5,035) | (10) | % | |||||||||
| Other operating (income) loss, net | (1,269) | (1,469) | 200 | NM | ||||||||||
| Operating income from continuing operations | 32,351 | 22,940 | 9,411 | 41 | % | |||||||||
| Foreign currency exchange (gain) loss | 869 | (889) | 1,758 | NM | ||||||||||
| Interest expense, net | 2,621 | 4,107 | (1,486) | (36) | % | |||||||||
| Income from continuing operations before income taxes | 28,861 | 19,722 | 9,139 | 46 | % | |||||||||
| Provision (benefit) for income taxes from continuing operations | (6,738) | 5,573 | (12,311) | NM | ||||||||||
| Income from continuing operations | 35,599 | 14,149 | 21,450 | NM | ||||||||||
| Income (loss) from discontinued operations | (185,861) | 367 | (186,228) | NM | ||||||||||
| Net income (loss) | $ | (150,262) | $ | 14,516 | $ | (164,778) | NM |
The following table presents further disaggregated revenues by type:
| Year Ended December 31, | 2024 vs 2023 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands) | 2024 | 2023 | $ | % | ||||||||||
| Rental and service revenues | $ | 145,785 | $ | 149,954 | $ | (4,169) | (3) | % | ||||||
| Product sales revenues | 71,704 | 57,694 | 14,010 | 24 | % | |||||||||
| Total revenues | $ | 217,489 | $ | 207,648 | $ | 9,841 | 5 | % |
The following table presents gross profit margins by type:
| Year Ended December 31, | Change | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands) | 2024 | 2023 | ||||||||
| Rental and service - Gross profit margin | 35.3 | % | 34.3 | % | 100 | bps | ||||
| Product sales - Gross profit margin | 35.8 | % | 36.7 | % | (90) | bps | ||||
| Total gross profit margin | 35.5 | % | 34.9 | % | 60 | bps |
Revenues
Revenues increased 5% to $217.5 million for 2024, compared to $207.6 million for 2023, including a 24% increase in product sales revenues, partially offset by a 3% decline in rental and service revenues. Rental revenues increased $6.1 million (7%) primarily due to higher rental volume driven by our organic growth efforts, partially offset by lower pricing. Service revenues decreased $10.3 million (15%), primarily attributable to a reduced level of services required within customer rental projects. Product sales revenues increased $14.0 million (24%) for 2024, primarily reflecting an increasing customer adoption of manufactured composite matting products relative to timber-based products that continue to be the primary solution used for temporary worksite access. The majority of the 2024 and 2023 revenues were derived from customers in the power transmission sector.
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Cost of revenues
Cost of revenues increased 4% to $140.4 million for 2024 (35.5% gross profit margin), compared to $135.1 million for 2023 (34.9% gross profit margin), primarily driven by the 5% increase in revenues described above. The improvement in gross profit margin is primarily attributable to the effects of an improved revenue mix. Rental and service margins increased primarily due to a higher proportion of rental revenues and a lower proportion of service revenues. Product sales margins decreased partially due to an approximately $1 million impact of an unscheduled downtime event on one of the production lines at our manufacturing facility in the third quarter 2024.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased $5.0 million to $46.0 million for 2024, compared to $51.1 million for 2023. The decrease was primarily driven by lower performance-based incentives and other personnel expense resulting from efforts to streamline the overhead structure, lower severance costs, as well as increased lease and sublease income associated with our administrative offices. In addition, 2023 included $1.4 million of costs related to strategic planning projects. Selling, general and administrative expenses as a percentage of revenues was 21.2% for 2024 compared to 24.6% for 2023.
Other operating (income) loss, net
Other operating (income) loss, net primarily reflects gains and losses associated with the sale of assets. In addition, 2024 includes a $0.6 million gain related to a legal settlement.
Foreign currency exchange
Foreign currency exchange was a $0.9 million loss for 2024 compared to a $0.9 million gain for 2023 and reflects the impact of currency translation for assets and liabilities (including intercompany balances) that are denominated in currencies other than functional currencies, principally related to our U.K. operations.
Interest expense, net
Interest expense was $2.6 million for 2024 compared to $4.1 million for 2023. The decrease in interest expense is primarily due to a decrease in average debt outstanding. The 2024 expense includes a $0.5 million non-cash write off of debt issuance costs associated with the amendment of our Amended ABL Facility. Discontinued operations also includes an allocation of interest expense on corporate debt. Such interest expense totaled $1.4 million and $2.4 million for 2024 and 2023, respectively.
Provision (benefit) for income taxes from continuing operations
The benefit for income taxes from continuing operations was $6.7 million for 2024 compared to a provision for income taxes of $5.6 million for 2023. The 2024 benefit includes a $15.9 million benefit primarily related to the release of valuation allowances on U.S. federal and state net operating losses and tax credit carryforwards that are now expected to be realized following the sale of the Fluids Systems business. Excluding this valuation allowance benefit, the effective tax rate increased to 31.7% for 2024 compared to 28.3% for 2023, primarily attributable to higher state income taxes and the effect of unbenefited losses in the U.K.
Income (loss) from discontinued operations
Income (loss) from discontinued operations reflects the former Fluids Systems segment, which was sold in the third quarter of 2024. The loss from discontinued operations for 2024 includes the loss on sale of the segment of $195.7 million. Discontinued operations also include $8.9 million and $12.7 million in charges for 2024 and 2023, respectively, primarily related to the Sale Transaction, impairments, and other items. See Note 2 for additional information.
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Year Ended December 31, 2023 Compared to Year Ended December 31, 2022
Consolidated Results of Operations
Summarized results of operations for 2023 compared to 2022 are as follows:
| Year Ended December 31, | 2023 vs 2022 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands) | 2023 | 2022 | $ | % | ||||||||||
| Revenues | $ | 207,648 | $ | 192,993 | $ | 14,655 | 8 | % | ||||||
| Cost of revenues | 135,094 | 133,002 | 2,092 | 2 | % | |||||||||
| Selling, general and administrative expenses | 51,083 | 48,780 | 2,303 | 5 | % | |||||||||
| Other operating (income) loss, net | (1,469) | (3,226) | 1,757 | NM | ||||||||||
| Impairments and other charges | — | 7,905 | (7,905) | NM | ||||||||||
| Operating income from continuing operations | 22,940 | 6,532 | 16,408 | NM | ||||||||||
| Foreign currency exchange (gain) loss | (889) | 1,276 | (2,165) | NM | ||||||||||
| Interest expense, net | 4,107 | 3,510 | 597 | 17 | % | |||||||||
| Income from continuing operations before income taxes | 19,722 | 1,746 | 17,976 | NM | ||||||||||
| Provision for income taxes from continuing operations | 5,573 | 924 | 4,649 | NM | ||||||||||
| Income from continuing operations | 14,149 | 822 | 13,327 | NM | ||||||||||
| Income (loss) from discontinued operations | 367 | (21,656) | 22,023 | NM | ||||||||||
| Net income | $ | 14,516 | $ | (20,834) | $ | 35,350 | NM |
The following table presents further disaggregated revenues by type:
| Year Ended December 31, | 2023 vs 2022 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands) | 2023 | 2022 | $ | % | ||||||||||
| Rental and service revenues | $ | 149,954 | $ | 134,301 | $ | 15,653 | 12 | % | ||||||
| Product sales revenues | 57,694 | 58,692 | (998) | (2) | % | |||||||||
| Total revenues | $ | 207,648 | $ | 192,993 | $ | 14,655 | 8 | % |
The following table presents gross profit margins by type:
| Year Ended December 31, | Change | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands) | 2023 | 2022 | ||||||||
| Rental and service - Gross profit margin | 34.3 | % | 31.9 | % | 240 | bps | ||||
| Product sales - Gross profit margin | 36.7 | % | 29.3 | % | 740 | bps | ||||
| Total gross profit margin | 34.9 | % | 31.1 | % | 380 | bps |
Revenues
Revenues increased 8% to $207.6 million for 2023, compared to $193.0 million for 2022, including a 12% increase in rental and service revenues, partially offset by a 2% decline in product sales revenues. Rental revenues increased $7.8 million (10%) primarily due to higher rental volume, driven by our organic growth efforts, partially offset by lower pricing. Service revenues increased $7.9 million (13%), reflecting a modestly higher level of services included within customer rental projects. Product sales revenues decreased slightly for 2023, with continued strong demand across sectors, including utilities.
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Cost of revenues
Cost of revenues increased 2% to $135.1 million for 2023 (34.9% gross profit margin), compared to $133.0 million for 2022 (31.1% gross profit margin). The improvement in gross profit margin is primarily associated with revenue growth, including the effects of improved operating cost leverage from increased manufacturing, rental, and service activity.
Selling, general and administrative expenses
Selling, general and administrative expenses increased $2.3 million to $51.1 million for 2023, compared to $48.8 million for 2022. This increase was primarily driven by $1.4 million of costs related to strategic planning projects and a $1.3 million increase in severance costs. Selling, general and administrative expenses as a percentage of revenues was 24.6% for 2023 compared to 25.3% for 2022.
Other operating (income) loss, net
Other operating (income) loss, net primarily includes gains associated with the sale of assets. Other operating (income) loss, net for 2022 includes a gain on divestiture of $2.6 million for the sale of the Conroe, Texas blending facility. See Note 13 for additional details.
Impairments and other charges
For 2022, we recognized a $7.9 million non-cash impairment charge related to the exit of our Industrial Blending operations. See Note 13 for additional details.
Foreign currency exchange
Foreign currency exchange was a $0.9 million gain for 2023 compared to a $1.3 million loss for 2022 and reflects the impact of currency translation for assets and liabilities (including intercompany balances) that are denominated in currencies other than functional currencies, principally related to our U.K. operations.
Interest expense, net
Interest expense was $4.1 million for 2023 compared to $3.5 million for 2022. The increase in interest expense is primarily due to an increase in benchmark borrowing rates in 2023 partially offset by a decrease in average debt outstanding. Discontinued operations also includes an allocation of interest expense on corporate debt. Such interest expense totaled $2.4 million and $2.3 million for 2024 and 2023, respectively.
Provision (benefit) for income taxes from continuing operations
The provision for income taxes from continuing operations was $5.6 million for 2023, representing an effective tax rate of 28.3%, compared to a provision for income taxes of $0.9 million for 2022, representing an effective tax rate of 52.9%. The effective tax rate for 2022 was negatively impacted by the level of pretax income from continuing operations.
Income (loss) from discontinued operations
Income (loss) from discontinued operations reflects the former Fluids Systems segment, which was sold in the third quarter of 2024. Discontinued operations also include $12.7 million and $29.8 million in charges for 2023 and 2022, respectively, primarily related to impairments and other items. See Note 2 for additional information.
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Liquidity and Capital Resources
We elected not to adjust the consolidated statements of cash flows for the years ended December 31, 2024, 2023, and 2022 to exclude cash flows attributable to discontinued operations. As a result, the below descriptions of net cash provided by or used in operating, investing, and financing activities represents the consolidated cash flows for such activities. See Note 2 for depreciation, capital expenditures and significant operating and investing non-cash items related to discontinued operations.
Net cash provided by operating activities was $38.2 million for 2024 compared to $100.0 million for 2023. Net income adjusted for non-cash items provided cash of $54.5 million in 2024, compared to $57.2 million in 2023, while changes in working capital used cash of $16.3 million in 2024, compared to $42.8 million of cash provided in 2023. The cash provided by changes in working capital in 2023 benefited from the wind down of working capital associated with certain fourth quarter 2022 divestiture transactions.
Net cash provided by investing activities was $8.3 million for 2024, which includes $48.5 million in initial net proceeds from the sale of the Fluids Systems business, partially offset by capital expenditures of $43.5 million in 2024, the substantial majority of which were directed to expanding our mat rental fleet. Net cash used in investing activities was $5.7 million for 2023, including $29.2 million in capital expenditures partially offset by $19.8 million in proceeds received related to our fourth quarter 2022 divestiture transactions.
Net cash used in financing activities was $66.9 million for 2024 and primarily relates to net repayments on our Amended ABL Facility and other financing arrangements. Net cash used in financing activities was $81.0 million for 2023, which includes $47.4 million in net repayments on our Amended ABL Facility and other financing arrangements and $32.0 million in share purchases under our repurchase program.
Following completion of the Sale Transaction in September 2024, substantially all our $17.8 million of cash on hand at December 31, 2024 resides in the U.S. We primarily manage our liquidity utilizing cash on hand and availability under our Amended ABL Facility and other existing financing arrangements.
We expect future working capital requirements for our operations will generally fluctuate directionally with revenues, and total availability under the Amended ABL Facility to fluctuate directionally based on the level of eligible U.S. accounts receivable, inventory, and composite mats included in the rental fleet. We expect capital expenditures in 2025 to be $35 million to $40 million, with spending primarily focused on the expansion of our mat rental fleet to further support the utilities market penetration. We also expect to use a portion of our existing liquidity to return value to our shareholders and pursue our long-term strategic initiatives. We expect cash on hand and cash generated by operations, as well as the projected availability under our Amended ABL Facility and other existing financing arrangements, to be adequate to fund our current operations during the next 12 months.
Our capitalization is as follows:
| (In thousands) | December 31, 2024 | December 31, 2023 | ||||
|---|---|---|---|---|---|---|
| Amended ABL Facility | $ | — | $ | 45,000 | ||
| Other debt | 7,728 | 17,085 | ||||
| Unamortized discount and debt issuance costs | (1) | (56) | ||||
| Total debt | $ | 7,727 | $ | 62,029 | ||
| Stockholders’ equity | 326,495 | 415,364 | ||||
| Total capitalization | $ | 334,222 | $ | 477,393 | ||
| Total debt to capitalization | 2.3 | % | 13.0 | % |
Asset-Based Loan Facility. In October 2017, we entered into a U.S. asset-based revolving credit agreement, which was amended in March 2019, amended and restated in May 2022, and further amended and restated in September 2024 (the “Amended ABL Facility”). The Amended ABL Facility provides financing of up to $100.0 million available for borrowings (inclusive of letters of credit), which can be increased up to $250.0 million, subject to certain conditions. The Amended ABL Facility has a five-year term expiring May 2027, is based on a Bloomberg Short-Term Bank Yield Index (“BSBY”) pricing grid, and includes a mechanism to incorporate a sustainability-linked pricing framework with the consent of the required lenders (as defined in the Amended ABL Facility). The BSBY rates were replaced with Term SOFR (Secured Overnight Financing Rate) beginning in November 2024.
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As of December 31, 2024, our total availability under the Amended ABL Facility was $67.8 million, with no outstanding borrowings and $2.0 million was used for outstanding letters of credit, resulting in remaining availability of $65.8 million.
Borrowing availability under the Amended ABL Facility is calculated based on eligible U.S. accounts receivable, inventory and composite mats included in the rental fleet, net of reserves and subject to limits on certain of the assets included in the borrowing base calculation. To the extent pledged by the borrowers, the borrowing base calculation also includes the amount of eligible pledged cash. The administrative agent may establish reserves in accordance with the Amended ABL Facility, in part based on appraisals of the asset base, and other limits in its discretion, which could reduce the amounts otherwise available under the Amended ABL Facility.
Under the terms of the Amended ABL Facility, we may elect to borrow at a variable interest rate based on either, (1) the Term SOFR rate (subject to a floor of zero) or (2) the base rate (subject to a floor of zero), equal to the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate of Bank of America, N.A., and (c) Term SOFR for a one-month interest period plus 1.00%, plus, in each case, an applicable margin per annum. The applicable margin ranges from 1.50% to 2.00% per annum for Term SOFR borrowings, and 0.50% to 1.00% per annum for base rate borrowings, based on the consolidated leverage ratio (as defined in the Amended ABL Facility) as of the last day of the most recent fiscal quarter. We are also required to pay a commitment fee equal to (i) 0.375% per annum at any time the average daily unused portion of the commitments is greater than 50% and (ii) 0.25% per annum at any time the average daily unused portion of the commitments is less than 50%.
As of December 31, 2024, the applicable margin for borrowings under the Amended ABL Facility was 1.50% with respect to Term SOFR borrowings and 0.50% with respect to base rate borrowings, and the applicable commitment fee on the unused portion of the Amended ABL Facility was 0.375% per annum.
The September 2024 amendment, among other things, (i) released Newpark Drilling Fluids from its obligations as a borrower under the Amended ABL Facility, (ii) reduced the aggregate commitments under the Amended ABL Facility from $175 million to $100 million, (iii) reduced the aggregate letter of credit sublimit under the Amended ABL Facility from $15 million to $10 million, (iv) provided that the financial covenant requiring the Consolidated Leverage Ratio (as defined in the Amended ABL Facility) to be less than or equal to 4.00 to 1.00 is tested for each fiscal quarter (beginning the fiscal quarter ending June 30, 2024), instead of being tested only when availability under the Amended ABL Facility is below 40% of the borrowing base, (v) consented to the Sale Transaction and (vi) decreased certain other thresholds proportionally with the decreased commitments under the Amended ABL Facility. The Amended ABL Facility also requires a minimum fixed charge coverage ratio of 1.00 to 1.00 for the most recently completed four fiscal quarters.
The Amended ABL Facility is a senior secured obligation of the Company and certain of our U.S. subsidiaries constituting borrowers thereunder, secured by a first priority lien on substantially all of the personal property and certain real property of the borrowers, including a first priority lien on certain equity interests of direct subsidiaries of the borrowers.
The Amended ABL Facility contains customary representations, warranties and covenants that, among other things, and subject to certain specified circumstances and exceptions, restrict or limit the ability of the borrowers and certain of their subsidiaries to incur indebtedness (including guarantees), grant liens, make investments, pay dividends or distributions with respect to capital stock and make other restricted payments, make prepayments on certain indebtedness, engage in mergers or other fundamental changes, dispose of property, and change the nature of their business.
The Amended ABL Facility includes customary events of default including non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations or warranties, cross-default to other material indebtedness, bankruptcy and insolvency events, invalidity or impairment of security interests or invalidity of loan documents, certain ERISA events, unsatisfied or unstayed judgments and change of control.
Other Financing Arrangements. In April 2022, a U.K. subsidiary entered a £7.0 million term loan and a £2.0 million revolving credit facility. In October 2024, all amounts outstanding under the term loan and revolving credit facility were repaid, and both were terminated.
We also maintain finance leases primarily related to transportation equipment. During 2024, we entered $3.5 million of new finance lease liabilities in exchange for leased assets.
Off-Balance Sheet Arrangements
We do not have any special purpose entities. At December 31, 2024, we had $6.2 million in outstanding letters of credit, performance bonds, and other guarantees for which certain of the letters of credit are collateralized by $0.5 million in restricted cash. We also enter into normal short-term operating leases for office and warehouse space, as well as certain operating equipment. None of these off-balance sheet arrangements either has, or is expected to have, a material effect on our financial statements.
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Contractual Obligations
A summary of our outstanding contractual and other obligations and commitments at December 31, 2024 is as follows:
| (In thousands) | 2025 | 2026 | 2027 | 2028 | 2029 | Thereafter | Total | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Amended ABL Facility | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
| Financing obligation (1) | 106 | — | — | — | — | — | 106 | |||||||||||||||||||
| Finance lease liabilities (1) | 3,278 | 2,909 | 1,791 | 519 | — | — | 8,497 | |||||||||||||||||||
| Operating lease liabilities (1) | 2,724 | 2,696 | 2,552 | 2,178 | 2,029 | 3,056 | 15,235 | |||||||||||||||||||
| Trade accounts payable and accrued liabilities (2) | 39,597 | — | — | — | — | — | 39,597 | |||||||||||||||||||
| Other long-term liabilities (3) | — | 2,279 | 402 | — | — | 2,921 | 5,602 | |||||||||||||||||||
| Performance bond obligations | 3,312 | — | — | 435 | — | — | 3,747 | |||||||||||||||||||
| Letter of credit commitments | 2,487 | — | — | — | — | — | 2,487 | |||||||||||||||||||
| Total contractual obligations | $ | 51,504 | $ | 7,884 | $ | 4,745 | $ | 3,132 | $ | 2,029 | $ | 5,977 | $ | 75,271 |
(1)Financing obligations, finance lease liabilities, and operating lease liabilities represent the undiscounted future payments.
(2)Excludes the current portion of operating lease liabilities.
(3)Table does not allocate by year expected tax payments and uncertain tax positions due to the inability to make reasonably reliable estimates of the timing of future cash settlements.
We anticipate that the obligations and commitments listed above that are due in less than one year will be paid from available cash on-hand, cash generated by operations, and the projected availability under our Amended ABL Facility, subject to covenant compliance and certain restrictions as further discussed above. The specific timing of settlement for certain long-term obligations cannot be reasonably estimated.
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Critical Accounting Policies
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), which requires management to make estimates and assumptions that affect the reported amounts and disclosures. Significant estimates used in preparing our 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. See Note 1 in Item 8. “Financial Statements and Supplementary Data” for a discussion of the accounting policies for each of these matters. 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.
We believe the critical accounting policies described below affect our more significant judgments and estimates used in preparing the consolidated financial statements.
Sale of Fluids Systems Business
In September 2024, we completed the sale of the Fluids Systems business. See Note 2 for additional information. In connection with recognizing the loss on the Sale Transaction included in discontinued operations, we made certain estimates in determining the amounts of deferred consideration due from the Purchaser and estimated liabilities due to the Purchaser. Estimated deferred consideration due from the Purchaser is related to certain pre-closing tax assets and other receivables that are expected to be substantially realized in 2025. Estimated liabilities due to the Purchaser includes certain payables for pre-closing tax liabilities and obligations attributable to the Fluids Systems business that are expected to be substantially settled in 2025, as well as an estimated liability for contractual indemnifications related to various pre-closing contingencies of the Fluids Systems business.
Our estimates for the fair value of deferred consideration due from the Purchaser and liabilities due to the Purchaser required us to make judgments regarding the likelihood of possible outcomes and cash flows and the ultimate resolution of such matters. These judgments are uncertain in that they require assumptions about the potential outcomes and may change. Depending on the actual outcomes of such matters, or changes in these assumptions, the estimated amounts recognized for deferred consideration due from the Purchaser and estimated liabilities due to the Purchaser may change and any income or expense associated with such changes will be presented in discontinued operations.
Goodwill
As of December 31, 2024, our consolidated balance sheet includes $47.2 million of goodwill. Goodwill is tested for impairment annually as of November 1, or more frequently, if indicators of impairment exist. As part of our annual goodwill review, we first perform a qualitative assessment based on company performance and future business outlook to determine if indicators of impairment exist. When there are qualitative indicators of impairment, we use an impairment test which includes a comparison of the carrying value of net assets of our reporting unit, including goodwill, with its estimated fair values, which we estimate using a combination of a market multiple and discounted cash flow approach (classified within Level 3 of the fair value hierarchy). In completing the annual evaluation during the fourth quarter of 2024, we determined that the fair value was significantly more than the net carrying value, and therefore, no impairment was required.
Income Taxes
We had total deferred tax assets of $78.6 million and $56.0 million at December 31, 2024 and 2023, respectively. A valuation allowance must be established to offset a deferred tax asset if, based on available evidence, it is more likely than not that some or all of the deferred tax asset will not be realized. We have considered future taxable income and tax planning strategies in assessing the need for our valuation allowance. At December 31, 2024, we had a total valuation allowance of $34.3 million, which includes valuation allowances of $20.3 million for U.S. capital loss carryforwards, $9.2 million for certain U.S. state and foreign net operating loss carryforwards, as well as $4.8 million for foreign tax credits. In 2024, we recognized a valuation allowance of $20.3 million on capital losses related to the sale of the Fluids Systems business that are not expected to be realized, partially offset by $15.9 million tax benefit recognized primarily related to the release of valuation allowances on U.S. federal and state net operating losses and tax credit carryforwards that are now expected to be realized following the sale of the Fluids Systems business. Changes in the expected future generation of qualifying taxable income within these jurisdictions or in the realizability of other tax assets may result in an adjustment to the valuation allowance, which would be charged or credited to income in the period this determination was made.
We file income tax returns in the U.S. and certain non-U.S. jurisdictions and are subject to examination in the various jurisdictions in which we file. We are no longer subject to income tax examinations for U.S. federal and substantially all state jurisdictions for years prior to 2020 and for substantially all foreign jurisdictions for years prior to 2018.
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From time to time, we are examined by various tax authorities in countries where we operate. We fully cooperate with all audits but defend existing positions vigorously. We evaluate the potential exposure associated with various filing positions and record a liability for uncertain tax positions as circumstances warrant. Although we believe all tax positions are reasonable and properly reported in accordance with applicable tax laws and regulations in effect during the periods involved, the final determination of these matters could be materially different than that which is reflected in historical income tax provisions and accruals.
New Accounting Pronouncements
See Note 1 in Item 8. “Financial Statements and Supplementary Data” for a discussion of new accounting pronouncements.
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