NPK International's Q3 2025: Contradictions Emerge on Industry Growth, Fleet Expansion, and Retail Strategy

Date of Call: October 31, 2025

Financials Results

• Revenue: $69.0M total Q3 revenue, up 56% YOY; rental & service $44M (rental down 7% sequentially; CFO stated rental & service up 57% YOY while CEO earlier said rental & service improved 37% YOY); product sales $25M, up 12% sequentially and >100% YOY
• EPS: $0.07 per diluted share (adjusted EPS from continuing operations), compared with $0.11 in Q2 2025 and $0.00 (breakeven) in Q3 2024
• Gross Margin: 31.9%, down from 36.9% in Q2 2025 and up from 27.5% in Q3 2024; impacted by approximately $1.7M of elevated transportation/manufacturing costs

Guidance:

• Full-year 2025 revenue expected $268M–$272M and adjusted EBITDA $71M–$74M (midpoint = ~24% revenue growth and ~32% adj EBITDA growth vs 2024)
• Rental & service revenue expected to grow mid-20s% YoY; product sales expected to grow high-teens% YoY
• Full-year net CapEx raised to $45M–$50M with over $40M into the rental fleet
• Q4 rental revenue expected to set a new quarterly record; Q4 product sales likely pull back from Q3 to the upper‑teens range
• Q4 gross margin expected to return to the mid‑30s% (some transitory transport/cross‑rent impacts)
• Q4 SG&A expected around Q3 level due to elevated incentive and ERP costs; mid‑teens SG&A target after ERP completion in early 2026
• Effective tax rate expected in the upper‑20s; cash taxes limited by NOLs and recent legislation

Business Commentary:

* Strong Revenue and Rental Fleet Utilization: - NPK International reported total third quarter revenues of $69 million, achieving 56% year-over-year growth and a modest 7% sequential decrease. - This growth was driven by strong demand for rental services and product sales, with rental fleet utilization reaching its highest level, indicating robust market demand.

• Rental and Service Revenue Growth:
• Rental and service revenues improved by 57% year-over-year, despite a 7% sequential decline due to seasonal factors.

• The growth is attributed to increased demand from utility customers and strategic focus on maximizing rental asset utilization.

• Product Sales and Market Demand:

• Product sales generated $25 million in revenue, doubling the third quarter of the previous year and increasing by 12% sequentially.

• High demand from utility customers, especially in the power transmission sector, fueled the significant product sales growth.

• Capital Expenditure and Fleet Expansion:

• NPK International invested $12 million in the third quarter to expand its rental fleet, increasing the full-year fleet investment by $10 million.

• This investment is in response to anticipated demand growth and continued market conversion from timber to composite products.

• Manufacturing Capacity and Efficiency Improvements:

• The company recently completed process modifications, resulting in a 5% increase in production levels.
• The improvements support the company's growth plans and enhance operational efficiency, aligning with the increased demand outlook.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted strong quarter: Q3 revenue $69M (+56% YoY), record rental utilization, $25M product sales, $25M operating cash, and raised full‑year revenue and adj. EBITDA guidance. Management reiterated fleet investment, capacity expansion planning, and share repurchases, signaling confidence in demand and cash generation.

Q&A:

• Question from Aaron Spychalla (Craig-Hallum Capital Group LLC, Research Division): Can you talk about how the overall pipeline has been growing year-over-year or some figures as you look towards 2026?
  Response: Pipeline growth is roughly in line with—or slightly outstripping—reported YoY revenue growth; longer-duration projects are increasing award lead times, improving visibility into 2026.

• Question from Aaron Spychalla (Craig-Hallum Capital Group LLC, Research Division): On the capacity expansion plans you are accelerating, can you give more detail on what this might add from a percentage standpoint and any details on cost potential and timing?
  Response: Early-stage planning targets roughly a ~50% addition relative to existing capacity; cost range is wide but management expects per‑unit cost below the last plant expansion.

• Question from Laura Maher (B. Riley Securities): How are you thinking about industrial distributors in your competitive landscape? Are they contributing to additional competition? Or are they primarily a source of sales for you right now?
  Response: Distributors are not a meaningful influence; sales remain primarily direct to end‑user utilities, which management prefers.

• Question from Laura Maher (B. Riley Securities): Is the fleet expansion CapEx tracking proportionately with revenue growth?
  Response: Over the long term CapEx should track revenue; near term CapEx is being accelerated to close utilization gaps and reduce cross‑rent driven margin compression.

• Question from Gerard Sweeney (ROTH Capital Partners, LLC, Research Division): How much of growth is industry-driven versus company share gains, and how is geographic expansion contributing?
  Response: Growth is a mix: meaningful industry-driven activity in established territories plus commercial progress expanding geographic footprint (notably Mid‑Atlantic and Midwest) driving incremental share gains.

• Question from Gerard Sweeney (ROTH Capital Partners, LLC, Research Division): On margins—will they return to the mid-30s and is there ability to make up lost margin?
  Response: Yes—management expects margins to normalize to the mid‑30s% range over time as transitory transport inefficiencies subside and utilization/coordination improve.

• Question from Gerard Sweeney (ROTH Capital Partners, LLC, Research Division): Was the transportation/logistics decision a strategic move to retain key clients, and can pricing or other actions mitigate future short-term inefficiencies?
  Response: The late‑quarter transport inefficiencies were to support a key strategic customer; management expects to recover margin via capacity expansion and better network staging rather than one‑off pricing changes.

• Question from Min Cho (Texas Capital): Is the planned manufacturing capacity addition more lines at existing locations or a new location?
  Response: Undecided—evaluating options; leaning toward adding at existing site due to space and prior investment but no final decision yet.

• Question from Min Cho (Texas Capital): Directionally should we expect CapEx for 2026 to be higher than 2025?
  Response: Undetermined—2026 CapEx will depend on how demand shapes up and management will provide more detail next year; fleet CapEx remains adjustable to market demand.

• Question from Min Cho (Texas Capital): What percentage of revenue is the U.K. business and what growth dynamics are you seeing there?
  Response: U.K. rental/service is a high single‑digit percentage of revenue; it shows similar infrastructure-driven demand and increasing composite adoption like the U.S.

• Question from William Dezellem (Tieton Capital Management, LLC): How are utilities thinking about rentals versus purchases today versus the past?
  Response: Utilities use a mix of purchases and rentals; given scale requirements they increasingly rely on rental/service partners alongside targeted purchases.

• Question from William Dezellem (Tieton Capital Management, LLC): Are nonutility markets demonstrating meaningful potential or is the opportunity primarily utilities?
  Response: Midstream activity is strengthening but remains a small base; electrical utility transmission is the dominant near‑term opportunity.

• Question from William Dezellem (Tieton Capital Management, LLC): On M&A, what strategic objectives are you seeking to accomplish?
  Response: Focus on close‑core, targeted M&A to accelerate penetration in existing markets and strengthen customer relevance.

• Question from William Dezellem (Tieton Capital Management, LLC): Given repeated short‑term inefficiencies, do you want higher inventories and do you have capacity to increase inventories enough to solve this?
  Response: Yes—management intends to raise inventory via fleet CapEx, debottlenecking and 24/7 production; they expect incremental capacity into 2026 and can flex CapEx to meet demand.

Contradiction Point 1

Industry Growth and Geographical Expansion

It directly impacts investor understanding of the primary drivers of the company's growth and strategic focus.

How is the pipeline growing year-over-year, and what figures do you expect by 2026? - Aaron Spychalla

2025Q3: We are seeing strong growth from industry-leading segments... We're seeing a good geographic expansion. - Matthew Lanigan(CEO)

Where are we in the deployment stage for utility and transmission projects? - Amit Dayal

2025Q2: Growth is driven by a mix of industry-leading segments and geographical expansion... There is increased traction in the Mid-Atlantic and Midwest regions, with industry growth more prevalent in established territories. - Matthew Lanigan(CEO)

Contradiction Point 2

Fleet Expansion and CapEx

It involves changes in financial forecasts and strategic planning related to fleet expansion and capital expenditure.

Is fleet expansion CapEx proportional to revenue growth? - Laura Maher

2025Q3: Over the long term, fleet expansion CapEx should track proportionately with revenue growth... Currently, there is a gap being filled with cross rents, which impacts margins, necessitating accelerated investment in fleet expansion. - Greggg Piontek(CFO)

Is the fleet expansion on track, and are there plans to accelerate it? - Alex Rygiel

2025Q2: Our CapEx plan is on track, with higher rental revenue growth due to increased utilization... The fleet expansion depends on market needs... We maintain inventory to meet market demands and can adjust fleet expansion accordingly. - Greggg Piontek(CFO)

Contradiction Point 3

Fleet Expansion CapEx Proportionate to Revenue Growth

It involves differing explanations of the relationship between fleet expansion CapEx and revenue growth, which can impact investor expectations regarding the company's financial management.

Is fleet expansion CapEx scaling with revenue growth? - Laura Maher

2025Q3: Over the long term, fleet expansion CapEx should track proportionately with revenue growth. - Greggg Piontek(CFO)

How are you adjusting EBITDA margin guidance and SG&A improvements given growth and margin trends? - Aaron Spychalla (Craig-Hallum)

2024Q4: The incremental margins are consistent with historical trends, showing mid-30s to low-40s percentage flow-through. - Gregg Piontek(CFO)

Contradiction Point 4

Geographical Expansion and Market Penetration

It involves differing perspectives on the primary driver of growth, which could impact strategic planning and investment decisions.

What portion of the growth is due to industry trends, and how much is geographical expansion contributing? - Gerard Sweeney(ROTH Capital Partners, LLC)

2025Q3: Growth is driven by a mix of industry-leading segments and geographical expansion. - Matthew Lanigan(CEO)

What has a greater impact on growth: increased market share in timber or geographic expansion, and how does this relate to fleet expansion? - Laura Maher(B. Riley Securities)

2025Q1: Share gain against timber is more significant as timber remains the predominant technology. - Matthew Lanigan(CEO)

Contradiction Point 5

Retail Sales Influence and Strategy

It pertains to the company's strategic positioning relative to industrial distributors and its focus on end customers, which can influence market perception and competitive strategies.

Are industrial distributors affecting your competitive landscape, and are they a primary sales source? - Laura Maher

2025Q3: Industrial distributors do not play a significant role in the business, with most sales happening directly to end customers. - Matthew Lanigan(CEO)

Can you explain the broader revenue guidance range this year versus previous years, and how are you allocating the split between products and rentals? - Aaron Spychalla (Craig-Hallum)

2024Q4: We do sell into industrial distributors, but typically that's about 15% of sales. - Matthew Lanigan(CEO)