Ladies and gentlemen, good day. Thank you for standing by. My name is Jim, and I will be your conference operator. [Operator Instructions] We are happy to welcome you today to this NPK International Second Quarter 2025 Earnings Conference Call. As a reminder, today's session is being recorded. [Operator Instructions] And now to get us started with opening remarks and introductions, I am pleased to turn the floor over to Mr. Gregg Piontek. Welcome, sir.

Thank you, operator. I'd like to welcome everyone to the NPK International Second Quarter 2025 Conference Call. Joining me today is Matthew Lanigan, our President and Chief Executive Officer. Before handing over to Matthew, I'd like to highlight that today's discussion contains forward-looking statements regarding future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC. Except as required by law, we undertake no obligation to update our forward-looking statements. Our comments in today's call may also include certain non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures are included in our quarterly earnings release, which can be found on our corporate website. There will be a replay of today's call, and it will be available by webcast within the Investor Relations section of our website at npki.com. Please note that the information disclosed on today's call is current as of August 6, 2025. At the conclusion of our prepared remarks, we will open the line for questions. And with that, I'd like to turn the call over to our President and CEO, Matthew Lanigan.

Thanks, Gregg, and welcome to everyone joining us on today's call. We are very pleased with our execution through the first half of 2025, which continued to validate our long-term growth strategy and unique value proposition. We believe that our strong first half results clearly demonstrate that our singular focus on worksite access and our commitment to rental fleet scale, geographic expansion and service quality are being increasingly recognized by our growing customer base. Total second quarter revenues were $68 million, delivering a 5% sequential increase. Pleasingly, while the second quarter 2025 was relatively in line with the second quarter last year, last year's results included a record $30 million from product sales, while this year's revenues reflect a much larger contribution from rental activities. Rental revenues came in at $32 million, reaching yet another single quarter record and representing a 34% increase year-over-year. We believe that the increase in rental revenues provides a more consistent and stable growth profile, supported by strong demand across our core utilities and critical infrastructure customers. As we touched on last quarter, customer rental demand surged late in the first quarter, including several concurrent large-scale transmission projects, which continued through the second quarter. To meet this concentrated surge in customer demand, we leveraged our rental fleet and logistics capabilities as well as our third-party network, demonstrating our ability to scale rapidly and deliver for our customers. Product sales activity also remained robust, generating $22 million of revenue, reflecting continued strength in demand from utility companies and other fleet owners supporting the utilities and critical infrastructure markets. Given the continued demand and robust outlook across our served markets, we maintained our commitment to the expansion of our rental fleet, investing a net $8 million in the second quarter, strengthening our scale, customer responsiveness and ability to serve the needs of the largest critical infrastructure projects. Also consistent with our capital allocation priorities, we used $6 million of cash in the second quarter to purchase 1% of our outstanding shares. As we look ahead to the second half of the year, we are encouraged by the strength in market activity as well as our pipeline of rental projects and product sales heading into the seasonally slower summer months. Given the combination of our strong performance in Q2 and our current visibility into the second half, we have raised our full year revenue and EBITDA expectations for 2025. And with that, I'll turn the call over to Gregg for his prepared remarks.

Thanks, Matthew. I'll begin with a more detailed discussion of our second quarter and first half results, then provide an update on our outlook for 2025 and our capital allocation priorities. As Matthew touched on, second quarter revenues benefited from the late Q1 broad-based surge in rental demand, which included several large-scale utility infrastructure projects that continued through the second quarter. Total rental and service revenues were $46 million for the second quarter, with rental revenues improving 13% sequentially and 34% year-over-year, while associated service revenues declined 4% sequentially but improved 15% year-over-year. Revenues from product sales remained robust at $22 million for the second quarter, up modestly sequentially, but down $8 million from the record result in Q2 of last year. For the first half of 2025, rental and service revenues have increased 25% year-over-year, while revenues from product sales are relatively in line with prior year. By industry, our year-over-year growth in rental and service revenues was driven by broad-based demand growth in power transmission, pipeline and general construction, somewhat offset by a lower contribution from the oil and gas sector, while product sales continue to be heavily directed to power transmission. Turning to gross profit. The second quarter result was relatively in line with the prior quarter, with the gross margin primarily impacted by the elevated cross-rental activity in support of the sharp surge in customer demand. Gross margin was 36.9% in the second quarter, down from the exceptionally strong 39% in the first quarter and relatively in line with the 37.2% in the second quarter of last year. Second quarter SG&A expenses totaled $13.7 million, an increase of $1.9 million sequentially and $900,000 year-over- year. The sequential increase is primarily attributable to elevated costs associated with performance-based incentives, including long-term incentive programs linked to the company's…

Thanks, Gregg. We remain very pleased with our strong performance, which we believe continues to validate our unique value proposition and growth outlook. As discussed previously, our strategy for 2025 remains focused on 3 foundational elements to drive long-term shareholder value creation through scale enhancement, operating efficiency and return of capital optimization. Our primary focus remains on achieving consistent revenue growth through the scale-up of our high-return rental business, which includes a combination of geographic expansion and market share growth within our currently served markets. As previously discussed, the big component of this is the effectiveness of our commercial front end, where we remain very pleased with the team's strong execution. Our quoted volumes continue to grow meaningfully year-over-year, while our award rates remain in line with historical levels, resulting in a 33% year-over-year growth in rental revenues for the first half of 2025 with similar year-over-year growth expected in the third quarter. To support this growth, we expanded our mat rental fleet by approximately 13% in 2024 and by an additional 8% in the first half of 2025 as we continue to build on our leading position within the rental market. Our second focus area is on driving operational efficiencies across every aspect of our business. During the quarter, we had some noise associated with certain performance-based incentive costs recognized. However, we continue to make progress in our efforts to streamline our overhead structure to achieve our target SG&A as a percentage of revenue in the mid-teens by early 2026. And our final priority is the allocation of capital beyond our organic requirements. With a strong balance sheet and a disciplined approach, we continue to execute on programmatic share repurchases while thoughtfully evaluating core strategic inorganic opportunities that increase our market coverage, value and relevance to customers in key critical infrastructure markets. In closing, I want to thank our shareholders for their ongoing support, our employees for their dedication to the business, including their commitment to safety and compliance and our customers for their ongoing partnership. And with that, we'll open the call for questions.

[Operator Instructions] We'll take our first question today from the line of Aaron Spychalla at Craig-Hallum.

Maybe first for me, you noted you're seeing longer contract durations and increased visibility as a result. Can you just talk a little more about that dynamic, what it means for the business? How many days or months is this? And how that might affect margins? And do you expect this to continue as you kind of look at the pipeline and just demand over the next couple of years?

Yes. Thanks, Aaron. I'll jump in on that, and Gregg can catch up anything I missed. Look, I think this is a dynamic we've been talking about now for several quarters in terms of our focus on pushing for the larger duration projects. I think the nature of what we're seeing come through the pipeline now is showing a larger percentage of those. I think that's consistent with what you're probably hearing from the larger utilities or contractors as these big transmission projects start to take off. In terms of margin, I think what you're seeing is you'll see some slightly lower service revenues associated with that, but longer -- the longer duration rental revenues means we get some increased utilization on the assets. So net-net, that should be a reasonably strong help to the margins. I think we've seen that the last couple of quarters. So at this point, it looks like we're seeing our pipeline consists of a reasonable percentage of those. So we're hopeful that this is a trend that will continue.

All right. And then just maybe second on the guide. It does imply a little bit more softness in the second half, I suppose. I know you have seasonality, and it's been kind of hot here recently. Can you just talk a little bit about some of the puts and takes in there between the low end and the high end and just trying to think of potential conservatism there.

Yes. I guess the way I would frame it is on the 2 different revenue streams on the RNS side, obviously, there, you've got the Q3 seasonality, which always remains a little bit of unknown how hot, how dry it is and the overall effects there. So that definitely impacts the Q2 versus Q1. But the other element is also on -- or yes, Q3 versus first half, rather. But the other element is on the product sales. The first half of the year was pretty strong. As we've said in the past, that's the piece that's a little more difficult to predict and forecast. So not necessarily expecting that same level of product sales in the second half of the year. But still, as we framed up on a year-over-year basis, we're talking about a pretty healthy growth.

Amit Dayal at H.C. Wainwright. You have our next question.

So with respect to these utility projects, transmission projects, from where you sit, like where do you think we are in terms of the stage of deployment, I guess, are we still in the early stages? Do you still see a pretty decent runway in front of you tied to those tailwinds for that sector?

Yes. I mean, we've spent a lot of the second quarter at a number of industry events and talking to our customers. And I would say we are reasonably early in this wave of spending. The transmission forecast moving forward from here are very robust. I think if you listen to the utilities, they're all reaffirming or upping their CapEx commitments to transmission infrastructure build-out. So I think the activity is there. Obviously, some of the unknowns is timing related. It would be nice if all of these things just stacked up quarter after quarter, but sometimes either supply chain or other things mean that's not the case. But we're pretty excited about what we're hearing from our customers and the level of activity that they're seeing over the next 5 years.

Just my last one, I guess, you have a pretty solid balance sheet, cash flows are positive. Like if you're going to look for potential acquisitions to drive a little bit more growth, where would that come from? And are you seriously considering any efforts on that side? Or are you maybe just waiting to see how the market develops? Just trying to see what the level of urgency you might have in terms of using the balance sheet and the tailwinds you are seeing in the sector to maybe drive additional growth?

Yes, I think we're in a good position, and we can be very thoughtful about the way we do this. It is something that we are considering. We've been talking about it for a while, but we're not going to be overpaying for things or doing anything that's irrational. We are definitely looking at what we consider close core. We think we understand the risk profile and know what we're doing in this space. So things that are complementary to that and associated with our core market are definitely things that we're looking at. But as you said, we're in a good position. We're not in a rush, and we'll continue to be thoughtful about that.

We'll go next to Alex Rygiel at Texas Capital.

Very nice quarter, Matt and Gregg. A couple of quick questions here. First, as it relates to your fleet expansion year-to-date, is that on track with your plan? And are there some scenarios? And what are the scenarios where you might actually accelerate that this year or into next year?

Yes. I would say that overall, our CapEx plan, we're running very much on plan. We have been able to generate a higher level of rental revenue growth really coming from the utilization, a higher utilization run rate. So that's really helped the efficiency. I would say the -- in terms of the evaluation or the increase to that, that would really be dependent on what we're seeing here in the second half of the year, how that plays out. As we've said in the past, it starts with maintaining your inventory, your finished good inventory to allow you to respond to the market needs and we'll deploy assets into the fleet as needed.

That's helpful. And then geographically, can you talk about some of the markets that you're investing more into your fleet right now?

Yes. I think if you break it down, definitely, the South has been busy for us along the Gulf Coast, Texas market and moving further east have definitely been strong for the first half. We look ahead and we think markets like the Midwest are going to be strong moving forward from there as well. So I think that's pretty much the way it's breaking down.

Our next question will come from Gerry Sweeney with ROTH Capital.

Just maybe one more question. I got a couple popped up, but maybe slightly different pack. Is there any place that you're not in that you think would offer good opportunity for growth? And if not, how do you move into that area organically or otherwise?

Yes, Jerry, I think we've touched on it in a couple of calls in the past. Obviously, our presence has been historically around the oil and gas basin. So obviously, the Texas, Louisiana Gulf Coast, we've pushed further east here in more recent quarters. We were strong up in the Northeast. I think the Midwest is an area where we're probably continuing to look to increase our fleet density to make sure we're taking advantage of the opportunity in that market. We have been spreading out. We've talked about our national footprint. We've talked about putting inventory in those markets. I think we're just managing the inventory scale in those markets associated with the opportunity. But the key growth markets are the ones I just touched on.

Got you. I mean, is some of this just balancing the growth opportunity and managing the income statement? Or I mean, could you speed it up and take a little bit of hit to margins for short term and then get faster growth a couple of quarters out? Or -- just curious if that plays into the opportunity.

Yes. I mean I think at any given point in time, we're assessing whether we need to ramp up the fleet build for future pipeline opportunities. So I think we balance that pretty well. We have resisted the build it and they will come kind of concept here. It's one of the advantages around vertical integration. We don't have to get too far ahead of ourselves from that perspective. As Gregg said, we can carry the inventory and either put it to sales or fleet build. But I'd say at any point in time, Jerry, at the margin, we're kind of looking at what you just described.

Laura Maher at B. Riley Securities. There's a chance you may have us on mute.

Can you hear me?

Yes.

My first question is, what is the current utilization rate across your fleet? And how does this compare to your target range?

Well, we do not -- we don't disclose our specific utilization at any given time. I think the way I would frame this is we've talked in the past of our typical range of utilization being between 60% and 80% and averaging out around 70% over the course of the year. I will say the second quarter and really consistent with the past 3 quarters from Q4 on, we've been running around that high end, around that 80% mark.

Okay. That's helpful. And then another one, I guess, just with the new administration's infrastructure priorities still evolving, are there any new end markets you guys see picking up?

Yes, Laura, we will continue to look at things. But as we talked about in the earlier question, the opportunity that we see in the transmission network build-out is significant. We're focusing on making sure we're there to service the key customers and their contractors in that space. Pipeline is another market where we're starting to see some activity grow. So we're making sure we're there. We have a national sales network. They're very glued into their local markets. And if something was to present itself that would benefit from our service and rental capabilities, we'd avail ourselves to it. But we still see the major drivers being that transmission and to a slightly lesser degree, pipeline growth.

And Bill Dezellem at Tieton Capital.

Two questions. First of all, the pipeline is an area that you have called out as having strength. And that is -- I guess it does not match what we're hearing about just pipeline build-out taking place. We've heard that is quite slow. Would you walk us through why you think your activity is not matching the industry where you're seeing strength with the industry being slow?

Yes, Bill, everything we're hearing and seeing in the space is it's certainly having a nice renaissance with the change of administration. So interested in where you're hearing that it's in a particular lull. Our presence again on pipelines typically is in laydown areas and access to the routes and any maintenance and repair activity. We don't have a large presence on the core pipeline stringing operations, but we're seeing that activity levels up substantially, albeit a smaller part of our portfolio than transmission and even the oil and gas side of the business, but we're seeing a healthy rebound. So our pipeline is reflecting that.

Great. I appreciate that, Matthew. And then in the past, you all have talked about conversions from wood to composites. Do you have any examples or case studies of large-scale conversions from wood to composite that you can share with us?

Yes. We talked about it in previous sales quarters where we've had traditional timber fleet operators who have come to us and purchased large volumes of composite, recognizing the longer-term economic benefits of that solution for them. This quarter, as we touched on, a lot of our direct sales were through directly to utilities who continue to see the longer-term benefit. Those utilities have traditionally been timber map customers at some point who are now recognizing that this asset provides them with a longer useful life and a better economic return. So I think they're the kind of the sandbox that we would continue to call out, Bill.

Congratulations on another solid quarter.

And ladies and gentlemen, at this time, I'm pleased to turn the floor back to our leadership team for any additional or closing remarks.

All right. Well, thanks for joining us on the call today. If you have any questions, please e-mail us at investors@mpki.com, and we look forward to speaking with you again next quarter.

Ladies and gentlemen, this does conclude today's conference, and we thank you all for your participation. You may now disconnect your lines.