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Hello, everyone. Thank you for joining us, and welcome to NPK International 2Q '26 Earnings. [Operator Instructions].

I will now hand the conference over to Gregg Piontek, Senior Vice President and Chief Financial Officer. Please go ahead.

Thank you, operator. I'd like to welcome everyone to the NPK International Second Quarter 2026 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 on 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 website. There will be a replay of today's call that 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 July 30, 2026. At the conclusion of our prepared remarks, we will open the line for questions.

And with that, I would 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. Our solid second quarter results yet again demonstrate our team's commitment to growth, the continued momentum in our core markets and the operating leverage inherent in our business model. During the quarter, we made meaningful progress on our strategic priorities, including our manufacturing expansion, which has us well positioned for further scale and strength moving forward.

Looking at the quarter, we delivered $82 million of revenue, an increase of 20% from last year with strong profitability capture driven by year-over-year growth in both product sales and rentals. Total rental and service revenues achieved another quarterly high at $54 million, a 16% year-over-year increase. This result was particularly pleasing due to the unique nature of our second quarter.

As we mentioned on our Q1 call, our Q2 expectation was influenced by the anticipated completion timing of multiple large-scale projects, which ultimately represented over 25% of our domestic mat fleet. Despite the accelerated timing relative to previous expectations, our ability to absorb these large project transitions while continuing to grow profitably in the quarter once again demonstrates the benefits of our scale, the resilience of our business model and our operations team's ability to manage multiple large project transitions for our customers.

Product sales demand was very strong, contributing $28 million to second quarter revenue, a 28% year-over-year increase, reflecting continued strong demand from our utility customers along with international sales. As a result of this continued quarterly growth, combined with solid operating leverage, we delivered $26 million of adjusted EBITDA in the quarter, representing a 37% year-over-year improvement and a 31.5% adjusted EBITDA margin.

Off the back of the strong profitability, we are again raising our full year profitability guidance, which Gregg will cover in more detail in his prepared remarks. As I mentioned earlier, we also made solid progress on our manufacturing expansion project in Louisiana, investing $4 million in the quarter. We are confident that this expansion, which is expected to increase our production capacity by approximately 50% as well as our continuing debottlenecking initiatives will support our long-term growth and composite matting market share expansion for the foreseeable future while also enhancing margins through reduced usage of cross rental mats.

We are also very pleased with our second quarter cash flow, delivering $22 million of cash from operations and $6 million of free cash flow, while also expanding our mat rental fleet by 3%. We maintained our strong financial position, ending the quarter with net debt of just $2 million, providing ample financial flexibility to continue executing on our strategic objectives. Overall, Q2 once again demonstrated our consistent strong execution, which we believe is a direct reflection of our commitment to our key strategic priorities.

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 operational outlook and capital allocation priorities for the remainder of 2026. The second quarter results were highlighted by strength in product sales and continued growth in rental revenues, which reflect the momentum in our end markets. As Matthew touched on, product sales grew by 21% sequentially and 28% year-over-year, primarily benefiting from continued strong demand from utility customers, along with elevated international sales. Rental and service revenues grew 3% sequentially and 16% year-over-year to a quarterly record $54 million despite the accelerated completion of the large-scale projects that Matthew mentioned.

Breaking the revenue down further, rental revenues grew 18% year-over-year, reflecting 4% organic growth, combined with a $4 million contribution from the Grassform acquisition. The organic growth reflects the impact of improved pricing, partially offset by the lower fleet utilization attributable to the large project completions and the natural lag in the fleet redeployment. Service revenues grew 12% with substantially all of the increase coming from the acquisition.

Turning to gross profit. The second quarter gross margin was 37%, representing an 80 basis point sequential improvement and in line with prior year. The sequential gross margin improvement primarily reflects the effect of stronger product sales activity and stable rental margins, while the year-over-year comparison reflects the effects of stronger product sales and increased manufacturing operating leverage, offset by lower rental utilization.

Second quarter SG&A expenses totaled $14.2 million compared to $13.2 million in the first quarter and $13.7 million in the second quarter of last year. As noted in yesterday's press release, the second quarter results included a $900,000 charge resulting from a Board-approved modification to the retirement eligibility terms applicable to long-term incentive awards to better align with market practices. Income tax expense was $3.9 million in the second quarter, reflecting an effective tax rate of 25%. Adjusted EPS from continuing operations was $0.15 per diluted share in the second quarter compared to $0.12 per share in the first quarter and $0.11 per share in the second quarter of last year.

For the first half of 2026, total revenues have increased 18% year-over-year, while adjusted EBITDA and adjusted EPS grew by 25% and 20%, respectively. Looking at first half revenues by geography and sector. Our U.S. revenues increased 11% year-over-year to $138 million, including 11% growth in rental revenues, with the utility sector driving the substantial majority of that growth. U.K. revenues more than doubled year-over-year to $19 million in the first half of 2026, primarily reflecting the Grassform contributions.

Turning to cash flows. Our Q2 performance remained relatively in line with prior quarter. Operating activities generated $22 million of cash in the second quarter, including $25 million from net income adjusted for noncash expenses, somewhat offset by $3 million of cash used by a net increase in working capital. Net CapEx used to $16 million, which includes $10 million of net investment into fleet expansion and $4 million to fund the manufacturing expansion. We ended the quarter with total debt of $11 million and total cash of $8 million for a net debt position of $2 million. Additionally, we have $148 million of availability under our bank facility, providing us with ample financial flexibility to continue executing on our strategic growth objectives, including our manufacturing expansion.

Now turning to our business outlook. Overall, our customers remain highly constructive on the near- and longer-term outlook for utilities and critical infrastructure spending, which we see within our robust quoting activity. As for the near-term outlook, despite Q3 being our typical seasonal low point in customer project activity and the effects of the ongoing redeployments from recently completed large-scale projects, we expect total Q3 rental and service revenues to remain fairly in line with Q2 levels, reflecting a year-over-year improvement of more than 20%.

Product sales are expected to revert back to levels more in line with Q1 following the exceptionally strong Q2 result. Q3 gross margin is also expected to be roughly in line with the first half result but remain dependent on the specifics of project timing. In light of the strong first half profitability and favorable near-term outlook, we have revised our full year 2026 outlook, narrowing the total revenues range to $313 million to $323 million and increasing adjusted EBITDA to a range of $97 million to $103 million. The midpoint of our range reflects 15% revenue growth and 32% adjusted EBITDA growth over 2025. The midpoint of our revenue guidance continues to reflect double-digit organic rental revenue growth, along with the contribution from the Grassform acquisition, while product sales are expected to grow modestly from 2025 levels.

Our CapEx plan for 2026 has been reduced, primarily reflecting changes in timing of the manufacturing expansion expenditures. So this does not impact our anticipated midyear 2027 start-up date. Total net CapEx is now expected to be $65 million to $80 million for the year, including $20 million to $25 million of current year spending for the manufacturing expansion project, along with $35 million to $45 million targeted for the rental fleet expansion. This level of investment is expected to grow our DURA-BASE rental fleet by a low to mid-teens percentage, supporting our organic growth and also displacing a portion of cross-rent assets currently deployed on projects. Our SG&A expectation remains unchanged at roughly $13 million quarterly level in the near term, while tax rate is expected to remain relatively in line with the first half rate for the remainder of the year.

As highlighted previously, we entered 2026 with roughly $40 million of NOLs and other tax credit carryforwards, which when combined with the accelerated deductions for capital investments are expected to significantly limit our cash tax obligations for the next several years. As it relates to our capital allocation strategy, we continue to prioritize investments in the growth of our rental fleet and our manufacturing capacity expansion as well as strategic acquisitions while also remaining committed to returning a portion of free cash flow generation to shareholders through our disciplined share repurchase program.

And with that, I'll turn the call back over to Matthew for his concluding remarks.

Yes. Thanks, Gregg. As we close out the first half of the year, we remain confident in our double-digit growth outlook and commitment to the execution of our strategic priorities in 2026. Our primary focus remains the scale-up of our rental platform, which generates the highest long-term returns for our business. As we have discussed, our strategy includes a combination of geographic expansion and market share growth in the U.S. and U.K.

Our quoting pipeline continues to support our confidence with roughly 20% year-over-year increase in quoted volumes with over half of that volume being originated in our expansion geographies. We remain confident that the strong momentum in these markets will support our continued fleet and operational expansion, though as we saw this quarter, we recognize the quarterly cadence remains dependent on project timings, particularly for large-scale projects.

To support our strategy, we remain committed to making the necessary investments for growth, investing in the expansion of our DURA-BASE composite mat rental fleet while also advancing our manufacturing expansion project. Our decision to expand our Louisiana facility was driven by superior economics relative to other alternate locations as this location maintains our proximity to strategic raw material supply, captures operational benefits and efficiencies through co-location with our existing infrastructure and skilled workforce and continues our decades-long investment in and support of the local community.

Our second focus area remains on driving organizational efficiencies across the business. We continue to see this play out in both gross margins and SG&A as a percent of revenues as we are on pace to exceed 30% EBITDA margin in 2026. As we continue to grow, we see opportunity to continue to expand our EBITDA margins and returns on invested capital through operating leverage while also making targeted investments to drive sustainable long-term revenue growth for the company. And as Gregg touched on, our final priority is the allocation of capital beyond our organic requirements. With a strong balance sheet and disciplined approach, we remain active in the evaluation of core strategic inorganic opportunities that increase our market coverage, value and relevance to customers in key critical infrastructure markets as well as the continuation of our share repurchase program.

As it pertains to strategic inorganic execution, I wanted to call out our recent U.K. acquisition and our entire U.K. team who are integrating our 2 U.K. platforms while running ahead of expectations and delivering excellent results. The combined U.K. entity provided our business with strong profitable growth during the quarter, while our U.S. team successfully managed the large-scale project transitions, which are a natural part of our business strategy and cadence. With robust market outlooks in our served geographies, a clear strategic focus and a robust balance sheet, we remain on pace to deliver another strong year of profitable growth for 2026.

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 partnerships.

And with that, we'll open the call for questions.

[Operator Instructions] Your first question is from the line of Aaron Spychalla with Craig-Hallum.

First, can you maybe talk about visibility and confidence into the guidance? You talked a little bit about project timing, the 20% growth in the pipeline. Just curious if you're seeing any impacts from any data center slowing or just secondary impacts on customer spend?

Yes. Thanks, Aaron. I think the short answer to that is that we're not seeing any impact of, I think, what's been affecting participants in the space over the last few days. Our pipeline is fairly advanced and locked in. So we're not concerned about any risk there and visibility is good. What I will say we're always kind of alerting people to the fact that timings are not necessarily under our control, so they could shift a little bit, which may impact here or there. But the way we see it looking at it today, second half is very much in line with the guidance that we called out.

Great. And then just second, I mean, obviously, really good margin performance. Can you just talk about some of the drivers there, again, confidence in kind of the outlook? And then just the impact from cross rentals on the business, what has that been? And just how might that reverse or see a benefit next year as you bring on capacity?

Yes. So the -- I guess I'll start with that one first. The cross rentals, the cost has been fairly stable. It's about 3 points of headwind basically on the R&S margins overall. And as we had talked about, we see over time, we'll be reducing that. So you'll see some lift from that. But in terms of the improvement of the margin, you got a little bit of mix. The rental versus service continues to trend more towards the rental, which is the higher margin. But then within that, it's a lot of operating leverage and cost management, both on the rental operations side as well as on the manufacturing side, the increasing -- the increase in the manufacturing volume and just the leverage that you're getting there. That's really what's driving it. And as we look ahead, we don't see a substantial change to that.

Your next question is from the line of Laura Maher with B. Riley Securities.

So for my first question, the release cites strong demand from key customer accounts. Could you give some color on how concentrated rental growth was this quarter? And then can you -- like some more color on the customer base broadening among your top accounts?

Yes. I think when you look at this quarter, a lot of the demobilizations were attributed with one of our larger customers, Laura. So if anything, that would have kind of addressed any concentration associated with the overall rental mix. And so other than that, I think it was a fairly standard distribution across multiple regions. And so I think that would be how I'd summarize that one. You'll have to remind me the second part of your question.

Do you see the customer base broadening among your top accounts?

Yes. Thank you. Yes, we do actually. I think I touched on it in my pipeline commentary that we're seeing buildup in our kind of emerging or growing regions. So we're happy with the way that our geographic distribution is starting to play out. Obviously, we've got some work to do to have it balance out our historical footprint, but encouraging that we're starting to see a broader distribution of geographic regions in our activity.

Yes. I think going back to our commentary over the past several quarters, the good news with the success that we saw in 2025 with these larger projects, we saw a great uptake with one particular customer that's what caused that customer to be, what, 19% customer here in 2025. And here in '26, the -- a key focus of ours is diversifying and finding the next customers to really help diversify that and so it's kind of playing out as we expected. We know these things take a little bit of time to get there, but we're on a good path.

I guess a follow-up on that then. How much of the fleet is deployed on transmission and distribution work versus data center development and other end markets? Could you give color there on if there's any update on the change in the mix?

Yes, Laura, I'll start by saying we have no mats deployed on data center build-out or development. So I just want to kind of point that out on the -- as of.

Yes. The majority of our products, the rental distribution largely reflects the revenue concentrations that Gregg spoke about, 70-plus percent of the fleet would be on transmission projects and the balance largely domestically on our oil and gas footprint around fracking basins in the country. And then obviously, in the U.K., more concentrated again on transmission and perhaps rail and general construction.

Your next question comes from Bill Dezellem with Tieton Capital Management.

Two questions. The first one is, how are you thinking about additional acquisitions at this point relative to where you're at with the integration of Grassform?

Yes, Bill, I think we've been consistent with this. We'll continue to look at opportunities that will accelerate our presence into geographic markets if we think that economics pencils out. So we're constantly looking at those. As it pertains to integration with Grassform, I'd say that's going very well. I think if you recall, when we purchased that business, we said there wasn't a lot of integration we wanted to do. It was a business that ran itself very well, had a great team around it. We weren't looking to change that in a material way. And I think that acquisition has responded well to that as a backdrop. So I'm not sure we would classify that as any form of distraction, if that's what you were alluding to in the question.

That's exactly right. So you're prepared to move to the next acquisition if it were to present itself, essentially what you're saying?

That's right.

And then my second question is relative to the project completions. If we heard you correctly, there were several that were accelerated. Would you walk us through what the dynamics were behind the scenes with that customer and what's happening within them that led to those accelerated completions of projects, it's just that they have so much work that they're trying to get through things more quickly than originally planned or if they have priorities that have shifted? Help with that would be appreciated.

Yes. I think putting it into some sort of relative is important here, Bill. These are projects that have been down almost a year. So we're talking -- we're talking days at the end of several hundred days of projects. So the ability to accurately call when they're coming up is always dependent on weather, other parts of the supply chain, labor productivity on the customer and their contractor side. So they give us their best estimates, but ultimately, they're motivated to wind the project up as soon as they can. And we just saw that there were some projects there that were a few days here or there out of sync, but at the scale that those projects are, they have the kind of impacts that we saw on the overall P&L from our perspective.

Yes. I think it goes back to really highlighting what we've talked about in the past, the dynamic of why it's so critical that you're able -- you have the scale and the flexibility to respond because these project timings, both starts and the ends shift around. Some of these projects have been extended previously beyond what they're originally scheduled for. But ultimately, you get very limited notice on when that decision is made and you have to respond to it. And so that's where the acceleration was referring to relative to our expectations at the May 1 call.

That's helpful. So essentially, I've over-indexed to that comment, it sounds like.

Yes, there's certainly no macro change, if you will, to the business dynamic. It was business as normal, but at that scale, it obviously has a slightly larger impact.

Great. That's fine. And then I'm going to break the rules on the number of questions and ask one more, if I may. Relative to data centers, you said you're currently not deployed on any data centers. Given the amount of electricity that these consume, do you see any burgeoning opportunity to essentially, I guess, I'll call them many distribution lines or maybe even many transmission lines going from a main trunk off to a data center that's going to lead to any meaningful work for you? Or is it really too short of distances to be needle movers for you?

Yes. I mean I think the way I kind of lay that out, Bill, is obviously, connectivity to loads, which I think we need to remind ourselves that data centers capture most of the public narrative at this point, but we're also onshoring manufacturing and other sources of load demand on the grid, and they're all going to need some sort of interconnectivity. I think ultimately, these large load cases will have to be tied into the grid versus sort of behind-the-meter temporary kind of accommodations that will accelerate their start-up. And all of that is opportunity for us as those lines are constructed. As it pertains to the cadencing and everything, we'll have to see the way that plays out. But I'd say every large load is going to need to be supplied by a line unless it's sitting right beside an existing transmission line, and that's opportunity for our business.

Your next question is from the line of Min Cho with Texas Capital Securities.

Quick questions here. Are you starting to lay down mat for greenfield projects? Or are you still working mostly on brownfield? And what could change if that transition starts to occur? Like do you need more mats, longer rentals? Or any commentary there, please?

Yes. So I mean, the majority of what we're doing is still on existing lines and right of ways versus greenfields. I think the major driver for that looking forward is more likely to be some of the higher voltage lines, but they're out in '27, '28. Most of the meaningful construction on those is in the '27, '28 time frame. And roughly speaking, 1.5x the matting is a fair rule of thumb on these right of ways for the larger higher voltage trunks that are planned in some of the regions. So hopefully, that addresses your question.

Yes. And just can you talk a little bit about what you're seeing in the U.K.? Obviously, you had some increased product sales there, and it looks like the Grassform revenues were pretty much in line with the first quarter. Just anything to note in terms of demand, just overall demand in the U.K. and opportunities?

Yes. I think that market is playing exactly the way we thought it was. I feel like the demand is still strong there. Our businesses had a slightly softer start to the year than we had planned ourselves, which is largely just the customers getting themselves organized and getting back to work after the holiday season, and we're seeing that market continue to strengthen and perform well for us. So the one thing I will say is we did not have any sales to the U.K. Our international sales were into other markets. And so I just wanted to clarify that for you, Min.

This concludes the Q&A session. I will now turn the call back to management for closing remarks.

Thanks again for joining us on today's call. Should you have any questions or requests, please reach out to us at [email protected], and we look forward to hosting you again next quarter.

That concludes today's call. Thank you for attending. You may now disconnect.

Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the NPK International First Quarter 2026 earnings. [Operator Instructions]

I would now like to turn the call over to Gregg Piontek. Please go ahead.

Thank you, operator. I'd like to welcome everyone to the NPK International First Quarter 2026 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 on 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 May 1, 2026. 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 strong start to 2026, which played out in line with our expectations discussed on last quarter's call. Despite the typical pause in customer projects around the year-end holidays, rental activity accelerated throughout the quarter with total rental and service revenues setting another quarterly record at $52 million, a 4% sequential and 20% year-over-year increase.

Product sales demand also remained robust, contributing $23 million to first quarter revenue. Off the back of our solid execution, we delivered $22 million adjusted EBITDA in the quarter, representing a 4% sequential and 14% year-over-year improvement. We're also very pleased with our first quarter cash flow, delivering $21 million of cash flow from operations and $5 million of free cash flow while also expanding our rental fleet by 4%, repaying our revolving credit facility and using $3 million to fund share repurchases.

Overall, Q1 once again demonstrated our consistent strong execution, which we believe are a direct reflection of our commitment to our key strategic priorities. As highlighted last quarter, a key component of our organic growth strategy is our manufacturing capacity expansion efforts. Having substantially concluded our project evaluation, our Board of Directors recently approved our plans to increase our production capacity by approximately 50% from current levels. We expect to invest $40 million to $45 million over the next 5 quarters to complete this project with the goal of bringing the additional capacity online by mid-2027. We are confident that this expansion, along with our continuing debottlenecking initiatives will support our growth and composite matting market share growth for the foreseeable future.

With that, I'll turn the call to Gregg for his prepared remarks.

Thanks, Matthew. I'll begin with a more detailed discussion of our first quarter results, then provide an update on our operational outlook and capital allocation priorities for the remainder of 2026. As Matthew touched on, the first quarter results were in line with our outlook commentary on our Q4 earnings call and reflect the continued momentum in our end markets. It's worth noting that the first quarter of 2026 also followed a similar pattern to early 2025. With a seasonal lull in project activity around the year-end holidays, then picking up steam as we progress through the first quarter.

Rental revenues grew 27% year-over-year, reflecting 12% organic growth, combined with a $4 million contribution from the Grassform acquisition. Service revenues grew 7% with substantially all of the increase coming from the acquisition. Total rental and service revenues were $52 million in the first quarter, achieving another all-time quarterly high, improving 4% sequentially and 20% year-over-year.

Product sales activity also remained robust, benefiting from continuing demand from utility companies, generating $23 million of revenues in the first quarter, an 8% improvement from the quarter of last year.

Looking at revenues by geography and sector. Our U.S. revenues increased 9% year-over-year to $66 million including 17% growth in rental revenues, with the utility sector driving the substantial majority of our growth. U.K. revenues more than doubled year-over-year to $9 million in the first quarter, primarily reflecting the Grassform contribution.

Turning to gross profit. The first quarter gross margin was 36.2% compared to 37.7% in the fourth quarter and 39% in the first quarter of last year. The modest sequential gross margin compression primarily reflects the effect of lower rental fleet utilization early in the quarter attributable to the timing of large-scale projects, partially offset improvements in pricing, while the year-over-year decline also reflects the continuing impact of the cross rental costs discussed in previous quarters. It's important to highlight here that our cross rental fleet provides flexibility to support our large project activity and meet our customer commitments while also helping limit inefficient transportation.

First quarter SG&A expenses totaled $13.2 million compared to $15.4 million in the fourth quarter and $11.7 million in the first quarter of last year. The first quarter result includes $12.5 million from our legacy business, along with $700,000 associated with the Grassform business. As highlighted last quarter, the fourth quarter results included $1.8 million of acquisition-related transaction costs and severance.

Income tax expense was $3.6 million in the first quarter, reflecting an effective tax rate of 26%. Adjusted EPS from continuing operations was $0.12 per diluted share in the first quarter compared to $0.13 per share in the fourth quarter and $0.12 per share in the first quarter of last year.

Turning to cash flows. Operating activities generated $21 million of cash in the first quarter, including $22 million from net income adjusted for noncash expenses, slightly offset by $1 million of cash used by a net increase in working capital. Net CapEx used $16 million, which includes nearly $15 million of net investment into the rental fleet expansion. We also used $3 million to fund share repurchases. We ended the quarter with total debt of $11 million and total cash of $7 million for a net-debt position of $4 million. Additionally, we have $148 million of availability under our bank facility, providing us with ample financial flexibility to continue executing on our strategic growth objectives, including our manufacturing expansion.

Now turning to our business outlook. As disclosed in yesterday's press release, our customers remain highly constructive on the near- and longer-term outlook for utilities and critical infrastructure spending. With the benefits of our first quarter results and near-term expectations, we have raised the range of our full year 2026 outlook, now anticipating total revenues of $310 million to $325 million and adjusted EBITDA of $92 million to $102 million. The midpoint of our range reflects 15% revenue growth and 28% adjusted EBITDA growth over 2025. Our revenue guidance continues to reflect double-digit organic rental revenue growth along with the contribution from the Grassform acquisition, while product sales remained relatively in line with 2025 levels.

In terms of CapEx, outside of the manufacturing expansion project, there are no other changes to our investment expectations for 2026. We anticipate total net CapEx of $75 million to $90 million for the year, including $30 million to $35 million of current year spending for the manufacturing expansion project, along with $35 million to $45 million targeted for rental fleet expansion. This level of investment is expected to grow our DURA-BASE rental fleet by a low- to mid-teens percentage, supporting our organic growth and also displacing a portion of cross-run assets currently deployed on projects.

As for the near-term outlook, we expect to deliver 20% year-over-year growth in rental and service revenues in Q2, which includes the benefit of double-digit organic growth combined with the effect of the Grassform acquisition.

On the product sales side, we expect Q2 revenues will be fairly in line with prior Q2 levels. Q2 gross margin is also expected to be roughly in line with the prior Q2 results. They remain dependent on the timing of project completions and fleet redeployments for a few large-scale projects. In terms of SG&A, we expect to remain near the $13 million quarterly level in the near term.

For taxes, we expect our effective tax rate will remain relatively in line with the Q1 level for the full year 2026. We entered the year with roughly $40 million of NOLs and other tax credit carryforwards, which when combined with the accelerated deductions for capital investments are expected to significantly limit our cash tax obligations for the next several years. As it relates to our capital allocation strategy, we continue to prioritize investments in the growth of our rental fleet and our manufacturing capacity expansion as well as strategic acquisitions while also remaining committed to returning a portion of free cash flow generation to shareholders through our disciplined share repurchase program.

And with that, I'd like to turn the call back over to Matthew for his concluding remarks.

Yes. Thanks, Gregg. With a strong start to the year, we remain committed to our strategic priorities and executing to our 2026 plan we laid out last quarter. To that end, our primary focus continues to be the scale-up of our rental platform, which generates the highest long-term returns for our business. As we've discussed, our strategy includes a combination of geographic expansion and market share growth in the U.S. and U.K. We remain confident that the strong momentum in these markets will support our continued fleet and operational expansion throughout the year, though the quarterly cadence remains dependent on project timings, particularly for large-scale projects. We remain committed to making the necessary investments to support our growth, investing a substantial majority of 2026 cash flows into the expansion of our DURA-BASE composite mat rental fleet which we expect to grow by low to mid-teens percentage in 2026, while also advancing our manufacturing expansion project, which will increase our production capacity by roughly 50%.

Our second focus area remains on driving organizational efficiencies across the business. As we work through the significant transition to our new ERP system implemented in the first quarter, we now seek to leverage the enhanced system capabilities to drive further improvements while also making the necessary investments to drive sustainable long-term revenue growth for the company.

On balance, we expect our approach will help limit SG&A spending growth and drive continued improvement in our SG&A as a percentage of revenues.

With respect to the conflict in the Middle East, we continue to monitor its impact on both our own and our customers supply chains, and we have not seen any meaningful impacts to date. We are tracking our raw material suppliers closely and expect our work over the last several years to diversify our supply base will provide a useful counterbalance to any short-term cost movements.

In addition, as Gregg mentioned earlier, our cross rental fleet capacity provides some offset to our internal transport charges associated with fleet movements between projects and we are ensuring our direct sales pipeline maintains commercial flexibility to pass through impacts where practical.

And our final priority is the allocation of capital beyond our organic requirements. With a strong balance sheet and a disciplined approach, we remain committed to our share repurchase program while also continuing to evaluate core strategic inorganic opportunities that increase our market coverage, value and relevance to customers in key critical infrastructure markets. With robust market outlooks in our served geographies, a clear strategic focus and a pristine balance sheet, we are confident in our ability to deliver another strong year of profitable growth in 2026.

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] Your first question comes from the line of Aaron Spychalla with Craig-Hallum.

So maybe first for me, just on -- can you talk about the pipeline in a little bit more detail? Just what have you been seeing from kind of greenfield versus brownfield projects? Are you starting to see any pickup from some of the high-voltage projects that are starting to come to the market?

Yes. Aaron, I'll take that one. I think at this point -- answering the second part of your question first, we're not really -- it's still a little early for some of the larger, higher voltage projects. We're expecting to see them a little later in the year. So most of the activity we're seeing right now is outside of that range. When I look at the split, where we left it last year in terms of pipeline build year-on-year, I think those -- that's holding pretty well here. We're seeing a slight growth, very slight growth in our emerging territory [ quoting ] activity, which is great to see that the investments in that commercial front end is starting to pay off. So I'd say, generally speaking, our pipeline remains as robust as where we left it last quarter. Some timing issues here in the first quarter that we touched on, on the call really kind of driving that first quarter, but still very optimistic for the rest of the year.

All right. And then I appreciate the color on the capacity expansion. As we're hearing more of your customers talking about multi-decade CapEx cycle for utility transmission. Just can you talk about how long of a growth runway the expansion provides you and just potential to add additional capacity either in Louisiana or at the new location over time.

Yes. I guess the answer to that question is going to be a function of how fast the market wants to grow. Look, we see this plant giving us plenty of capacity through the end of the decade, if you will. And then beyond that, I think it is worth noting [Audio Gap] only settle on our locations. Longer term, we have plenty of room in our Louisiana facility if we wanted to co-locate everything there. And also, we have the ability to look for alternate sites. So we feel pretty good about our ability to grow our capacity in a timely fashion to meet the market demand out.

Your next question comes from the line of Lauren Maher with B. Riley Securities.

My first question is with the additional CapEx in mind, are you anticipating maintaining the same returns that you're currently generating?

Yes. I would expect no change in the overall expectation. Obviously, that's a bit of a step change in terms of the investment in the asset base. But over time, we should continue to gain operating leverage on our asset base and provide a tailwind to our return on invested capital.

Great. And then you mentioned improved pricing. Can you frame the magnitude of rental rate increases and whether you see room for further pricing?

Yes. I think at this point, I'd probably frame it in low single digit, Laura. And I think what we're seeing is a little bit of tightness in the market. So we would expect to be able to hold that and maybe add to that moving forward in the year. Obviously, a little early for that, but encouraged with what we're seeing so far.

Your next question comes from the line of Min Cho with Texas Capital Securities.

So it sounds like as the utilization remains strong, but you're going to continue to prioritize our rental fleet additions over product sales. But do you feel like your capacity is sufficient right now to support both at least through this year?

Yes. I think we touched on that last quarter. I mean, we feel comfortable that we can beat both. And I don't think we've been in a position yet where we've had to "prioritize one over the other". I think we've been able to meet both. I think as Gregg touched on, we have a cross rental fleet that we can utilize here which has been helpful in offsetting any transportation inefficiencies with the price of diesel now kind of rising with the conflict in the Middle East. We're using that to help offset it. But we feel comfortable that we can meet what we see in the foreseeable future.

Excellent. So how should we think about kind of revenue and EBITDA progression through the rest of the year relative to the first quarter, kind of given seasonality, your cross rental I guess, continued cross rental, I guess, continued cross rental usage or displacement as well as CapEx timing.

Yes. I mean, the CapEx, I would expect to be -- there will be some front-loaded elements here associated with the procurement of equipment for the securing of the equipment for the expansion. So I would expect that to be a little more loaded up than, call it, Q2 and Q3. As far as the revenue and EBITDA cadence, EBITDA is obviously going to follow -- we're holding a pretty consistent EBITDA margin. But the revenue cadence, I would say the back half of the year still have that natural seasonality in Q3. So obviously, I framed up the expectation for Q2. Naturally, the Q3 typically pulls back a bit from Q2 and then rebounds and surges from there in Q4.

Your next question comes from the line of Brandon Rogers with Roth Capital.

This is Brandon Rogers on for Gerry Sweeney. So in terms of the wood to composite matting conversion, would you -- where would you estimate the composite matting stands as a percent of the overall market? And do you see the pace of conversion accelerating or remaining stable?

Yes. Thanks, Brandon. I think we've called this out. We still see roughly 1/4 of the market in total being composite at this point, based on our math. I think the market share shift is going to be really a function of the pace of growth. If the market keeps growing as strongly as it is now, I think that we would expect that kind of percentage to hold just as everybody is keeping up with the growth rate, maybe a point or 2 of relative share shifts.

And then 1 more for me. So -- sorry -- so the utility spending has accelerated your manufacturing capacity plans with the target for the 50% increase by mid '27. Is there anything that could delay this time line? Or is there any likelihood that the investments required to complete the expansion or more than your estimated $40 million to $45 million?

Yes. I think there's always some movements in project timings and budget estimates. We feel pretty good that with the range we've painted and the timing there. We've been planning this for a while. Unforeseen things may happen, but we feel pretty good that we're going to be able to deliver this within the time frame and the budget that we've put forward here, Brandon.

[Operator Instructions] Your question comes from the line of Bill Dezellem with Tieton Capital.

A couple of questions. Following up on your remarks about the large high-voltage projects have not yet begun, but you see them beginning later this year. Does that imply an acceleration of your growth rate in 2027 relative to 2026?

A little early to piece it all together, Bill, but I think what we had called out on previous calls was these high-voltage lines are going to have a larger matting requirement to fulfill them, large heavier equipment, larger equipment to get those lines installed. So we see that as a net increase in matting requirement. And so you would logically say, yes, how that fits in with the rest of the project activity and what we can service, we need to look at that as we get closer to '27, but encouraging trend for sure.

Great. And then relative to the acquisition comments, I guess I'll put 2 in here. When do you anticipate that Grassform will be fully integrated, which I'm presuming that is the point that you would be willing to seriously entertain the next acquisition. And when that time comes, what are you structurally looking for with that next acquisition? Help us understand the characteristics that you're looking for and what you would be trying to accomplish with that acquisition?

Yes. Thanks, Bill. Look, I think we would have substantially most of the integration completed within the next sort of 3 to 6 months. I think an ERP conversion, we'll obviously look to roll them onto our ERP system. That may put a little bit longer tail on that. But when we bought the business, Bill, our focus was not to distract them with a lot of integration activity. It was to let them run. We're a very well-run business. And so we didn't want to get in the way too much with integration activities, which is why that time line may seem a little longer than you might have expected. And I think so far, that's going well for us. With respect to future acquisitions, I think it's pretty clear relative to our strategy. I think if there's markets where we can accelerate composite market share relative to timber incumbent, and we think that, that an acquisition will accelerate that relative to what we could do organically. That's when we would look to seriously kick the tires on something to acquire. And then from there, you've got your normal structural kind of pipeline factors in terms of the leverage of the company, the strength of the management team, the quality of the contracts that they have, et cetera, all of those kind of normal diligence items that you'd expect. So I hope that addressed your question.

I'll now turn the call back over to Gregg Piontek for closing remarks.

All right. That our call today. Should you have any questions or requests, please reach out to us using our e-mail at [email protected], and we look forward to hosting you again next quarter.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Thank you for standing by. My name is Carly, and I will be your conference operator today. At this time, I would like to welcome everyone to the NPK International Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Gregg Piontek, Chief Financial Officer. Please go ahead.

Thank you, operator. I'd like to welcome everyone to the NPK International Fourth 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 on today's call may also include certain non-GAAP financial measures. Additional details and reconciliation 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 February 26, 2026. 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 strong fourth quarter performance, which reflects a record finish to 2025 and continues to highlight the merits of our long-term growth strategy.

Total revenues for the fourth quarter increased 9% sequentially and 31% year-over-year, benefiting from sustained strength in rental fleet utilization, including the impacts of multiple large-scale utility projects discussed last quarter. Product sales demand also remained robust, contributing $25 million to fourth quarter revenue.

The elevated utilization and our strong execution delivered a solid improvement in profitability, resulting in a fourth quarter adjusted EBITDA of $22 million, representing a 41% sequential and 27% year-over-year improvement. Our strong Q4 results are a direct reflection of our commitment to our key strategic priorities.

As I reflect on our 2025 performance, I wanted to take a moment to highlight our achievements against each of the initiatives we laid out 1 year ago. Entering 2025, our highest priority was to accelerate organic rental growth, which we believe represents the stickiest and highest long-term driver of returns.

For the full year 2025, we delivered $124 million in rental revenues, representing a 39% year-over-year growth, of which 37% was from organic growth and 2% was from our November acquisition of Grassform. To support our rental growth, we invested a net $37 million, expanding our DURA-BASE fleet by 16% in the year. With the impact of roughly 20,000 composite mats added through the Grassform acquisition, we ended the year with approximately 215,000 composite mats in our rental fleet.

In addition to the strong rental growth, product sales grew by 30% year-over-year, reflecting continued robust demand for our industry-leading composite matting solutions. In total, we delivered $277 million of revenue for the year, up 27% year-over-year, while also expanding our gross margin by nearly 100 basis points to 36.4% and expanding adjusted EBITDA margin by more than 200 basis points to 27.3%. As highlighted last quarter, a key component of our organic growth strategy is our continued focus on manufacturing capacity expansion, which accelerated in the second half of the year.

Our total production volumes for 2025 increased by more than 15% year-over-year as we transition to 24/7 production and implemented manufacturing process modifications to enhance throughput. With the full year benefit of these changes in 2026, we believe we have sufficient production capacity to meet our near-term growth needs. Looking longer term, our team is wrapping up the evaluation of manufacturing expansion options that aim to bring additional capacity online in the first half of 2027, and we'll provide more details on this in our first quarter earnings call.

Our second priority coming into 2025 was a focused pursuit of strategic inorganic growth. Throughout the year, we actively evaluated several opportunities, assessing each for strategic and cultural alignment as well as their ability to meet our required economic returns. We were very pleased to complete the acquisition of Grassform Plant Hire in November, which strengthens our capabilities and enhances our scale, positioning us as a top-tier worksite access provider in the U.K. market. We welcome the talented Grassform team to NPK and look forward to seeing our combined U.K. team deliver for our customers in this growing market.

Our third priority for 2025 was the pursuit of operational efficiency. Over the past year, we completed our acquired transitional support services for the divested Fluids business while simultaneously advancing a major ERP conversion project. I'm pleased to highlight that we have now successfully rolled out the new ERP system to all our legacy operations.

As with any ERP system conversion, this was a major undertaking impacting nearly every process and employee in the company. We appreciate all the hard work from our dedicated team and are very pleased with the results to date as the organization adapts to the new system and begins to realize and expand the enabled efficiencies it creates. The ERP system is yet another significant milestone in our efforts to streamline our overhead costs and SG&A profile.

Our fourth and final priority for 2025 was to enhance our return on invested capital. As a result of the operating leverage that our growth in profitability drives through our asset base, combined with our focused balance sheet management, I'm very pleased to highlight that we delivered an after-tax return on net assets of 11% in 2025, a substantial year-over-year improvement. We also executed meaningfully on our return of capital program, repurchasing 4% of our outstanding shares in 2025 at an average price of $6.70 per share and exited the year with 2 million fewer shares outstanding versus the prior year.

Overall, our team achieved all our stated objectives with the strong execution culminating in 38% year-over-year improvement in adjusted EBITDA and an 83% year-over-year improvement in adjusted EPS. We are extremely proud of our success during 2025 and look forward to carrying this momentum into '26.

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 fourth quarter and full year 2025 results, then provide an update on our outlook and capital allocation priorities for 2026. As Matthew touched on, with the benefit of several large-scale projects that mobilized late in the third quarter, combined with continued strength in demand across both rental and sales, fourth quarter revenues came in above our expectations. Total rental and service revenues were $50 million in the fourth quarter, achieving another all-time quarterly high with rental revenues improving 18% sequentially and 35% year-over-year, while associated service revenues were flat sequentially and declined 7% year-over-year. The recently completed Grassform acquisition contributed $2 million of rental and service revenues in the fourth quarter.

Product sales activity also remained robust, benefiting from strong year-end demand from utility companies, generating $25 million of revenues in the fourth quarter, improving 4% sequentially and 62% from the fourth quarter of last year. For the full year 2025, rental and service revenues increased 26% year-over-year, while revenues from product sales increased 30%, both primarily driven by significant demand growth in the power transmission sector. More than 2/3 of our 2025 revenues was derived from the power transmission sector, including roughly 60% of rental and services and the vast majority of product sales. It's also worth noting that more than 80% of our 2025 product sales revenues were derived from utility companies as they continue to recognize the value of the DURA-BASE product within their owned mat fleets.

Turning to gross profit. The fourth quarter rebounded nicely with gross margin improving to 37.7%, a meaningful improvement from 31.9% in the third quarter, but modestly lower than the exceptionally strong 39.2% gross margin generated in the fourth quarter last year. The sequential gross margin improvement reflects the operating leverage benefits from the higher revenues and manufacturing volume in addition to the roughly $1.7 million of costs related to fleet transportation and other charges incurred during Q3. The modest year-over-year decline primarily reflects the continuing impact of the elevated cross rental costs discussed in previous quarters.

Fourth quarter SG&A expenses totaled $15.4 million, which includes $1.8 million of acquisition-related transaction costs and severance as highlighted in yesterday's press release, along with $400,000 associated with the Grassform business. The remaining $13.2 million of SG&A expense was relatively in line with expectations and the prior quarter as the fourth quarter was again impacted by elevated costs associated with performance-based incentives, primarily tied to 2025 performance targets.

Income tax expense was $1.7 million in the fourth quarter, which is net of a $1.5 million benefit associated with the release of valuation allowances on various state net operating loss carryforwards attributable to increased profitability forecasted for the business. Excluding this benefit, our fourth quarter effective tax rate was 26% and full year 2025 adjusted effective tax rate was 28%.

Adjusted EPS from continuing operations was $0.13 per diluted share in the fourth quarter, meaningfully improving from $0.07 per share in the third quarter and $0.08 per share in the fourth quarter of last year.

Turning to cash flows. Operating activities generated $18 million of cash in the fourth quarter, including $21 million from net income adjusted for noncash expenses, partially offset by $3 million of cash used by a net increase in working capital. Net CapEx used $12 million, which includes $11 million of net investment into the fleet expansion.

Looking at the full year 2025 cash flows, we generated a total of $73 million of cash from operating activities, along with $17 million of additional proceeds from the Fluids divestiture, using $42 million for the Grassform acquisition and $43 million to fund net capital expenditures that enabled us to expand our composite mat rental fleet by approximately 16% from the end of 2024, while also using $20 million to repurchase 3 million shares.

We ended the year with total debt of $17 million and total cash of $5 million for a net debt position of $12 million. Additionally, we have $139 million of availability under our bank facility, providing us with ample financial flexibility to continue executing on our strategic growth objectives.

Now turning to our business outlook. As disclosed in yesterday's press release, our customers remain highly constructive on the near-term and longer-term outlook for utilities and critical infrastructure spending. For the full year 2026, we anticipate total revenues of $305 million to $325 million and adjusted EBITDA of $88 million to $100 million. The midpoint of our range reflects 14% revenue growth and 25% adjusted EBITDA growth over 2025.

Breaking our revenue expectation down, we anticipate the substantial majority of our revenue growth in 2026 to be driven by rentals and associated services. As for product sales, we remain very encouraged by the robust activity, which has provided a strong and relatively stable revenue stream over the past several quarters. As we look to 2026, while the outlook for demand remains robust, in light of the project-centric nature and other factors that influence customer CapEx timing, our planning assumption is for product sales to remain relatively flat in 2026.

In support of our anticipated rental growth, we expect to invest net CapEx of $45 million to $55 million in 2026, including approximately $35 million to $45 million targeted for rental fleet expansion. This level of investment is expected to grow our DURA-BASE rental fleet by a low to mid-teens percentage, supporting our organic growth and also displacing a portion of cross-rent assets currently deployed on projects. I'd also like to note that this CapEx range excludes investments in our planned manufacturing expansion for which we plan to provide further details in our Q1 call, as Matthew mentioned earlier.

As for the near-term outlook, we expect to deliver roughly 20% year-over-year growth in rental and service revenues in Q1, which includes the benefit of a double-digit organic growth combined with the effect of the Grassform acquisition. On the product sales side, we expect Q1 revenues will be fairly in line with prior Q1 levels. Q1 gross margin is expected to remain above the mid-30s mark, likely in line with the full year 2025 results.

In terms of SG&A, we expect to see a reduction in personnel expense in Q1, primarily reflecting the reset of annual performance-based incentives for 2026, along with the impact of our SG&A streamlining efforts. These reductions will be somewhat offset by the SG&A costs associated with the Grassform acquisition, which we expect will keep SG&A near the $13 million quarterly level in the near term as we close in on our mid-teens percentage of revenue SG&A target.

In terms of taxes, we expect our effective tax rate to remain in the mid- to upper 20s in 2026. We entered the year with roughly $40 million of NOLs and other tax credit carryforwards, which when combined with the accelerated deductions for capital investments are expected to significantly limit our cash tax obligations for the next several years.

As it relates to our capital allocation strategy, we continue to prioritize investments in the growth of our rental fleet, our planned manufacturing expansion as well as strategic acquisitions while also remaining committed to returning a portion of free cash flow generation to shareholders through a programmatic and opportunistic share repurchase program.

And with that, I'd like to turn the call back over to Matthew for his concluding remarks.

Thanks, Gregg. With a very successful 2025 in the rearview mirror and our strategy substantially unchanged, our focus now shifts to fine-tuning the key priorities we need to execute to achieve our growth targets in 2026 and beyond.

Our primary focus continues to be the scale-up of our rental platform, which generates the highest long-term returns for our business. Our strategy includes a combination of geographic expansion and market share growth within our currently served U.S. and U.K. markets. We remain confident that the strong momentum in these markets will support our continued fleet and operational expansion. Our view is supported by our robust commercial pipeline entering 2026 with quoted volumes approximately 30% higher than the end of 2024.

The majority of our quoting increase is comprised of targeted growth territories and strategic customers as we seek to expand our geographic reach and diversify our customer base within these regions. While award timings and project start times are tricky to lock down within a given quarter, we feel encouraged with what we are seeing in 2026 activity levels.

To support our growth, we remain committed to expanding our DURA-BASE composite mat rental fleet, which we expect to grow by a low to mid-teens percentage in 2026. As I touched on earlier, we will provide further details on our manufacturing capacity expansion project on our first quarter call and are very encouraged by the team's progress in this area with respect to both project costing and time line.

Our second focus area remains on driving organizational efficiencies across the business. The completion of the rollout of our new ERP system in early 2026 concludes the key structural steps of our multiyear streamlining of our overhead structure, and our focus now shifts to leveraging the new system to drive further improvements in our business processes as we approach our mid-teens SG&A as a percentage of revenue target.

And our final priority is the allocation of capital beyond our organic requirements. With a strong balance sheet and a disciplined approach, we remain committed to our share repurchase program while also continuing to evaluate core strategic inorganic opportunities that increase our market coverage, value and relevance to customers in key critical infrastructure markets.

We are very pleased with the Q4 acquisition of Grassform in the U.K., which clearly demonstrates our approach to acquisitions with a disciplined view on growth potential, value and prudent financial leverage. Now 3 months post the acquisition, the integration is proceeding smoothly as our teams work through the internal and commercial processes to leverage our combined capabilities and strengthen our position and execution within the U.K. market.

We continue to believe that like the U.S., the U.K. is in the early stages of a multiyear period of increasing investment in critical infrastructure and our growing scale and capabilities in that market will support our long-term growth. With robust market outlooks in our served geographies, a clear strategic focus and a pristine balance sheet, we are optimistic that 2026 will be another strong year of growth for our company.

Our guidance for the year reflects our commitment to investing and growing our rental and service businesses and continuing to lead the market conversion to longer life, fully recyclable composite matting solutions, which we believe provides superior economic returns to incumbent timber-based products.

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] Your first question comes from Aaron Spychalla with Craig-Hallum.

First for me, can you just kind of talk about the visibility you have into the guidance, low to mid-teens growth in rental and service, kind of square that with the 30% growth in the pipeline. You kind of talked about just kind of timing and start times and things like that. But just visibility into that? And then how much is incorporated for Grassform in that as well?

Yes, I'll start, Aaron. When you look at the pipeline growth, 30%, I think if I break that down, about 2/3 of that, I'd say, is really focused on our share of wallet expansion with existing customers and just maybe just above 1/3 of that in new territories that we've been focusing on. So what you're naturally going to see there is a difference in conversion rates as you're breaking into territories, you'd expect those conversion rates to be a little lower as you prove yourself out. And that's why that you're kind of getting that discount from the 30% down. Obviously, as the year plays out, we'll continue to update that and shape it. But really, that's kind of where we see this breaking out at this point in time, and that's what's driving it.

Go ahead.

I was going to say I think as it pertains to your question in the U.K., I think the similar growth rates on the R&S side of what we're anticipating in that market as well.

Yes. I mean if you look at what we had published when we announced the acquisition, they had a high teens revenue on a TTM basis. And that really just kind of goes into the baseline and gets back to that double-digit growth expectation on the combined business as well.

And the other thing I was going to add is just highlighting that we had talked last quarter about the successes we've had, particularly with one of the large utilities here in 2025. And to Matthew's point, as we move into 2026, replicating that success with others and diversifying that customer base is a key focus of ours.

Understood. And then on the EBITDA guidance, implies a good step-up in margins as we think about '26. Can you talk about some of the drivers behind that, some maybe puts and takes with some of the cross rent and just how you're thinking about that as new capacity comes on more into 2027?

Yes. I think cross rent, we don't see being a major change year-over-year. We expect that we'll continue to have a fairly healthy level of cross rents in the mix. Ultimately, you have some flexibility on your investments because if you don't have the growth rate, well, then you're just displacing cross rents and you're getting the EBITDA contribution. I mean if you take a step back and look at the EBITDA growth year-over-year, it's really just what that top line carries in terms of that incremental margin on the R&S side. And then you also have that pullback of -- on the SG&A line. We know we've been carrying the elevated incentives in 2025. You have a reset here in Q1 of '26. So you have probably roughly $3 million drop year-on-year just from that item in the SG&A.

Your next question is from Liam Burke with B. Riley Securities.

Your CapEx is predominantly growth CapEx. Is there anything that changes the return dynamics on the mats? Or are we -- could we expect the same type of ROI -- incremental ROIC that we saw this year on the rental fleet?

I think it's fair to assume it will be the same as last year, Liam.

Yes. And based on the guide that we provided, you see the profile of our CapEx in '26 looks a lot like 2025.

Yes, it does look like a rewind, and that's a good thing. Gregg, with the buyback, there's more of a balance here and looking at return. With the investment in the rental fleet, is there any change in your view of buybacks?

I don't think there's really any change in it. I think from our perspective, it's always looking at your longer-term capital needs. We've talked about you're thoughtful to what inorganic opportunities are out there. We have the other projects in play here that Matthew touched on in terms of the manufacturing expansion. So you're looking at your capital needs. But then beyond that, it's always, okay, any excess that you have beyond what your foreseeable needs are, then that's where the buybacks come into play. So really no change in philosophy there.

And then I think 2025 really illustrated kind of how we view it. I made the comment, programmatic, opportunistic. It's a programmatic approach that you take, but it's structured in such a way where you're particularly moving when there appears to be a dislocation in markets, so.

Your next question comes from Min Cho with Texas Capital Securities.

First question, just given the growing demand, does your 2026 guidance contemplate any price increases? Or is it all just growth from increased fleet and utilization?

Yes. I mean I think what we're seeing is early stages of some improvement in pricing in the market now. I think that would be expected when you look at the need for capacity expansion. So there is an element of that in there, which is obviously encouraging to see.

Yes. I would say, overall in the guide, it's really more so about volume growth. The pricing is a relatively minor contributor to our expectation in '26.

Okay. And then also, how should we think about seasonality and quarterly phasing of revenue and EBITDA in '26, especially given just kind of utility project timing and the Grassform integration?

Yes. Look, I think at this point, we still anticipate Q3 and summer activities to be the major seasonality impact on the business. I think we get some offset from activities in the U.K., but obviously, with the bulk of the density of our work being here in the U.S., you should expect to see that. So you will see a dampening, I expect with the U.K., but largely following the same trends as historical.

Yes. And I kind of go back to our historical perspective that we've always maintained. It's easier to call the business on a year than it is on a quarter. Just due to the fact that you've always got strong quarters, softer quarters within, and it's really project timings, and it's really tough to call those project timings. But as we start here, Q1, I would say the way the year is starting out feels a lot like the pattern that we saw in 12 months ago, where it started out on the soft side coming out of the holidays naturally and then picking up steam, so.

Your next question comes from Sameer Joshi with H.C. Wainwright.

This U.K. acquisition, I think I heard you mention it contributed around $2 million for the quarter, and I'm supposing it is in the month of December. Should we annualize that from the high teens that you had said and be over $20 million for next year for 2026, I mean?

Yes. I mean I will say from our perspective, it's -- I mean, it's -- we don't get that fine with it, quite honestly, as we look at the business, we roll that in. Like I said, that baseline, what that business was on a TTM basis, that goes into our base that we expect double-digit growth off of. And so it just rolls into that with the overall U.K. business.

Understood. So in that light, it seems that the revenue guidance broad range -- the lower end of that range seems pretty conservative relative to the acquisition and just organic growth from your pipeline that you're already seeing?

Yes, it's a fair point. And I think the one thing that to highlight there in terms of that broad range is your biggest wildcard is the product sales side. And it kind of goes back to my commentary there about the project-centric nature of it. So that's where the guide -- the revenue guide is a little bit wider for this next year.

Understood. And then I think, Matthew mentioned the strategic objectives, priorities for this year and included capacity expansion as number one, and then allocation of capital in terms of share repurchase or others as the third. Should we expect that the focus will be on that manufacturing plant rather than any other initiatives?

Yes. I think Gregg summed it up in his previous answer. There's a hierarchy that we need. We've got to go through what capital we need to spend to support the growth of the business. That will be fleet expansion, that will be capacity expansion, any inorganic opportunities that we see that are accretive. Beyond that, if we have the surplus cash, that's when we'll look to the buybacks, Sameer. So I think the way Gregg laid it out is exactly how we think about it on an ongoing basis.

Your next question comes from Gerry Sweeney with ROTH Capital Markets.

Looking at -- obviously, there's a lot of demand, but you also capacity constraints on the mat side. Are you looking to maybe deemphasize product sales in favor of driving more rentals?

We don't need to, Gerry. I think, is the answer I'd give you there. You said capacity constrained. I don't think we're capacity constrained at this point. Our planning basis for '26 says we have everything we need to achieve our plan. So we feel pretty good about that. I think strategically, at the margin, you would prefer a mat to go into your rental fleet than to be sold. That said, we've never really had to make that decision, and we don't see that happening. I think our timing on our capacity expansion will work nicely into that.

Got you. And then -- sorry, go ahead, Gregg.

I was going to say, our focus has always been really driving that rental side and the product sales side, it's going to happen based on the market's adoption. Now what I will say here is when we look at 2025, what was encouraging was north of 80% of our sales were going to utility companies directly, and that's where you're just seeing that continued adoption by the end user. We see that as a good thing for the overall business.

Got you. And then I know historic -- or not historically, you've been looking to push longer rental terms. Where does that stand? And is there still an opportunity for that? Obviously, you get less turnover, maybe lower margins but less turnover, but just better longer-term utilization. Just wondering if there's some upside there as well.

Yes. I think good news on that front, Gerry, we've still got room to evolve there. But certainly, as we closed the year out, all of the metrics measuring our progress there, we're moving in the right direction. So I think that's a part of the strategy that's working well.

Your final question comes from Bill Dezellem with Tieton Capital.

Would you please discuss the options that you were considering for your manufacturing expansion?

Yes, Bill, I'm probably not going to get into a ton of detail around the specifics of the options. But I think we touched on it in the previous call. You've got a balance of location and technology. And I think as you go through the various permutations and combinations that, that presents you, that's where we wanted to be thoughtful on that. So more to come on that in Q1. I think that will be a more appropriate time to jump into a lot of detail on that.

All right. I'll try to be patient. And would you -- I'd like to explore the guidance relative to the quote level. So you'd mentioned that your quotes include a disproportionate amount of territory expansion quotes. What's been your historic win rate as you try to enter new markets versus existing markets? And then with -- actually, I'll just pause there.

Yes. I mean, specifics are going to vary market to market. But I think it's fair to say your conversion rate on a new client is going to be well under half of an existing client. And so once you get into that sort of repeat business with your existing clients, it gets quite strong, but it takes a while to build that up. We've signaled that consistently in our earnings calls that we expect this to be a proof-based scale growth in these markets, and I think everything is very consistent with what we're seeing there.

I will just say it wasn't -- the proportions maybe I wasn't clear, 2/3 of what we're seeing is really in our growth in share of wallet with more existing or targeted strategic customers and 1/3 is really coming from those developing territories, Bill.

I had that backwards. And so relative to your historic win rate, presumably the industry at large is more aware and interested in conversion to composite mats than they maybe would have been historically. And presumably, you all are more of a known quantity than you would have been historically. So that having been said, does that improve the probability that your quote rate -- pardon me, your quote conversion rate will increase versus that historic sub-50% that you just referenced?

Look, I think I'd maybe put it another way. I don't know that I can give an accurate comment on that. Obviously, the more well known you are, the more confidence your customers have in your ability to provide what they need. So that should be reflected in your win rates. What we are seeing as we mature some of our historical new territories is those growth rates are conforming more to our longer-term relationship type profile. So it's a truism that the longer you're in the market, the more you prove yourself, the more you deliver exactly what the customer needs, that will reflect in conversions. The actual ratio that's going to play through this year, Bill, we kind of -- we did our best to impute that into our guide.

Congratulations on a good quarter.

There are no further questions at this time. I'll now turn the call back over to Gregg for any closing remarks.

All right. Thank you. Thanks for joining us on the call today. And should you have any questions or requests, please reach out to us using our e-mail of [email protected], and we look forward to hosting you again on our next quarterly call.

Ladies and gentlemen, that concludes today's conference call. Thank you for participating. You may now disconnect.

Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the NPK International Third Quarter 2025 Earnings Call. [Operator Instructions]. Thank you. It is now my pleasure to turn today's call over to Gregg Piontek. You may begin.

Thank you, operator. I'd like to welcome everyone to the NPK International Third 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 on today's call may also contain 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 October 31, 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 encouraged by our third quarter performance that continued to showcase the robust outlook for our served markets and our ability and agility in responding to our customers' needs. The quarter produced very strong year-over-year growth that reflects the strengthening demand for our products and services. We also saw modest quarter-over-quarter growth, a result of our purposeful focus on maximizing our rental asset utilization during a traditionally slower seasonal quarter. Our total third quarter revenues of $69 million is very pleasing given Q3 has traditionally seen a more meaningful pullback in utility activities during the warmer summer months. On a year-over-year basis, our total revenues improved 56%, while rental and service revenues improved 37%.

Focusing on our rental and service activity, which we believe represents the stickiest and highest long-term driver of returns, we recently achieved our highest rental fleet utilization on record as we responded to multiple short notice project extensions and expansions. As we have mentioned in the past, we are proud of our fleet scale and our operational flexibility to be able to meet these changing customer demands. However, the combination of short notice, accelerated start times and high utilization does lead to certain transportation inefficiencies as matting inventory is relocated. While we expect some level of this inefficiency due to changing customer demands, the timing and extent experienced late in the third quarter led to approximately $1 million of elevated costs that negatively impacted our gross margins in Q3.

We anticipate some carryover impact of these elevated costs in early Q4. However, we believe they will be recovered over the project term, allowing us to maintain our typical gross margins over the longer term. Product sales activity also remained robust, generating $25 million of revenue, reflecting continued strength in demand from multiple utility customers. Given the continued demand and robust outlook across our served markets, we maintain our commitment to the expansion of our rental fleet, investing a net $12 million in the third quarter and increasing our full year fleet investment by $10 million to meet the anticipated demand growth as we approach 2026. I also wanted to highlight that with the strengthening market outlook underpinned by continued upward revisions in forecasted utility transmission spend as well as a strengthening midstream and general infrastructure outlook, we accelerated our manufacturing capacity expansion planning efforts during the quarter.

We expect these efforts to continue into early 2026 before moving on to procurement and construction activities. We are also making progress with our previously mentioned debottlenecking activities at our plant, which are being executed in parallel with the manufacturing capacity expansion planning. Notably, we recently completed process modification, achieving roughly 5% increase in production levels, which further supports our growth plans and operational efficiency objectives. Finally, I wanted to touch on cash flow generation and capital allocation during the quarter. We are once again very pleased with the strong cash generation in the third quarter with cash provided by operating activities of $25 million and free cash flow of $13 million. During the quarter, we used $3.4 million to repurchase more than 400,000 shares at an average price of $8.45, while also building our cash balance by $10 million. 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 third quarter and year-to-date results, then provide an update on our outlook and capital allocation priorities for the remainder of 2025. As Matthew touched on, third quarter revenues came in above our expectations, benefiting from our strategic focus on maintaining strong rental utilization through the seasonally slower summer months, along with several late quarter large-scale mobilizations and robust product sale demand. Total rental and service revenues were $44 million for the third quarter, with rental revenues down 7% sequentially through the seasonally slower Q3, but improving 57% year-over-year, while associated service revenues were flat sequentially and improved 9% year-over-year.

Revenues from product sales also remained robust at $25 million for the third quarter, up 12% sequentially and more than doubling the third quarter of last year. For the first 9 months of 2025, rental and service revenues have increased 29% year-over-year, while revenues from product sales increased 21%, both primarily driven by significant demand growth in the power transmission sector. Turning to gross profit. The third quarter result was impacted by roughly $1.7 million of costs in the quarter, related to the late quarter transportation costs required to meet customer project time lines, along with manufacturing planning projects and other charges. Gross margin was 31.9% in the third quarter, down from 36.9% in the second quarter and up from 27.5% in the third quarter of last year.

Third quarter SG&A expenses totaled $13.3 million, a decrease of $400,000 sequentially and a $2.3 million increase compared to the prior year. The third quarter was again impacted by elevated costs associated with performance-based incentives, including long-term incentive programs linked to the company's share price as well as those tied to 2025 revenues, profitability and other performance targets. The third quarter SG&A also included roughly $500,000 of project costs associated with strategic planning efforts and our ongoing ERP implementation.

Income tax expense was $3 million in the third quarter, reflecting an effective tax rate of 33% as our year-to-date effective tax rate increased modestly to 28%. Adjusted EPS from continuing operations was $0.07 per diluted share in the third quarter compared to $0.11 in the second quarter and breakeven in the third quarter of last year. Turning to cash flows. Operating activities generated $25 million of cash in the third quarter, including $16 million from net income adjusted for noncash expenses and $9 million of cash provided by a net decrease in working capital. Net CapEx used $12 million, which includes $10 million of net investment in fleet expansion. Additionally, as Matthew touched on, we used $3.4 million to purchase 402,000 shares under our repurchase program, reflecting an average purchase price of $8.45 per share.

Looking at year-to-date cash flows for the first 9 months of 2025, we've generated a total of $55 million of cash from operating activities, along with $14 million of additional proceeds from the fluids divestiture using $31 million to fund net capital expenditures and expanding our mat rental fleet by approximately 13% from the end of 2024, while also using $20 million to repurchase 3 million shares at an average purchase price of $6.70 per share reducing our outstanding share count by nearly 4% from the end of 2024. We ended the quarter with total cash of $36 million and total debt of $10 million for a net cash position of $26 million. Additionally, we have $144 million of availability under our bank facility.

Now turning to our business outlook. As disclosed in yesterday's press release, considering the continued strength in rental project activity and robust product sale demand, particularly within the utility sector, we have increased our full year 2025 expectations with total anticipated revenues now in the $268 million to $272 million range and adjusted EBITDA of $71 million to $74 million. The midpoint of our 2025 range reflects 24% revenue growth and 32% adjusted EBITDA growth over 2024. Breaking our full year revenue expectation down further, we expect total rental and service revenues to grow by a mid-20s percentage and product sales to grow by a high teens percentage range relative to 2024 levels. With the current strong demand and outlook carrying into 2026, we're increasing our full year net CapEx expectation for 2025 to $45 million to $50 million with over $40 million invested into the rental fleet.

As for the near-term outlook, we expect to see Q4 rental revenue set a new quarterly record, surpassing the level achieved in Q2. On the product sales side, we expect Q4 revenues to pull back from the exceptionally strong third quarter, likely in the upper teens range. Q4 gross margin is expected to return to the mid-30s range, which includes some continued transitory impacts of the elevated transportation and cross rerent activity. In terms of SG&A, we expect Q4 incentive-related expenses will remain elevated in light of our share price performance and projected full year results against 2025 performance targets. Additionally, we expect Q4 SG&A will also be impacted by costs from the ongoing strategic planning and ERP implementation projects, which will likely keep SG&A around the Q3 level in the fourth quarter.

Our goal of mid-teens SG&A percentage of revenue following the completion of our ERP implementation in early 2026 remains unchanged. Though it's worth noting that we expect 2026 SG&A will continue to carry elevated incentive costs associated with the company's 2025 share price performance. In terms of taxes, we expect our effective tax rate to remain in the upper 20s range. Though with the benefit of existing NOLs and other tax carryforwards, along with accelerated deductions under the recent OB3 legislation, we expect our cash tax obligations will remain limited for the next several years. In terms of our capital allocation strategy, we continue to prioritize investments in the growth of our rental fleet and expect to continue returning a portion of free cash flow generation to shareholders through our share repurchase program. And with that, I'd like to turn the call back over to Matthew for his concluding remarks.

Thanks, Gregg. 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 U.S. and U.K. markets. Over the course of 2025, we have focused heavily on our commercial front-end scale-up to drive our geographic expansion, and we remain very pleased with the team's continued strong execution.

Our quoted volume is growing meaningfully year-over-year, while our award rate remains in line with historical levels, resulting in a 40% year-over-year growth in rental revenue for the first 9 months of 2025. To support this growth, we remain committed to expanding our mat rental fleet, which grew by approximately 13% in 2024 and by an additional 13% in the first 9 months of 2025 as we continue to build on our leading position within the rental market. As I touched on in my opening remarks, in light of what we see as a strengthening multiyear capital cycle for our utility customers and the sustained market conversion from timber to composite, we have also kicked off manufacturing expansion planning.

Our second focus area is on driving organizational efficiencies across every aspect of our business. During the quarter, we began the rollout of a new ERP system, a process that will continue into early 2026 as we look to further streamline our overhead structure and achieve our targeted SG&A as a percent 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 remain committed to our programmatic share repurchase program while also actively evaluating several core strategic inorganic opportunities that increase our market coverage, value and relevance to customers in key critical infrastructure markets.

As we close out the final quarter of 2025 and sharpen our focus on 2026, I'm exceptionally proud of our team's execution and how we have positioned the company. Now a full year removed from our disposition of the fluids business, we have a world-class team, meaningful growing scale and manufacturing capacity and a strong balance sheet to support our capital allocation priorities. We expect to deliver over 20% revenue growth and 30% adjusted EBITDA growth in 2025. And with the building blocks in place and a robust outlook in our key served markets, I believe we are positioned to continue to deliver double-digit growth in 2026 and beyond. 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 partnerships. And with that, we'll open the call for questions.

[Operator Instructions]. Our first question comes from the line of Aaron Spychalla with Craig-Hallum.

First for me, you're obviously increasing expansion in the rental fleet and a lot of your customers are increasing CapEx plans. You're starting to get incrementally better project visibility from some of these longer duration projects. Can you just talk about how the overall pipeline has been growing year-over-year or just some kind of figures as you kind of look towards 2026?

Yes. Thanks, Aaron. I'll take that one. Look, if you look at the rate of growth that we have kind of commented on a year-over-year basis, it's fair to assume that the pipeline growth is in line with that, maybe a little outstripping that. What we are seeing is with these longer duration projects, we're getting a little bit longer to look at those. So we are seeing some elongation of the time to award as part of that. So kind of encouraging on both fronts, pipeline building in that kind of range that I quoted there and then longer duration visibility that you mentioned earlier in your question. So I think all of that is shaping up well into '26.

Got you. And then on the capacity expansion plans, I mean, accelerating the efforts there. Can you just give some more detail on what this might add from a percentage standpoint and any details on kind of cost potential and timing?

Yes, it's a little early for us on that one. We've ticked off the planning. I mean it's -- we will continue to work through it, but I would expect that we would be putting something in line with about half of our existing capacity in that range is what we would be looking at, at this point. And then we're really working hard on the cost, Aaron. It's a pretty wide range. So I'm nervous about getting anyone fixated on a given figure. The outside cost that we're looking to bring down would be what we spent on our last plant expansion. We continue to think we can do better than that. So we feel like it will be south of that figure.

Our next question comes from the line of Laura Maher with B. Riley Securities.

My first question, 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?

Yes. I would say that we're kind of -- they don't play a big part in our business at all really, Lauren. Most of everything we do is direct to the end customer rather than intermediated. I mean, at the margin, there are the occasional time, particularly international sales, not that they've played a big part in this year. But at this point, we're not really seeing it as a meaningful influence on our strategy.

Yes. I think one of the things to highlight here is, yes, on the product sales side, that's one of the major changes that we saw over the past year. As we had talked about in 2024, a lot of our product sales went to operators that had fleets. This year, the sales are much more concentrated with end user utility companies, which is really the preferred end customer that we're looking to build the relationships with.

Okay. And then maybe just one more. Is the fleet expansion CapEx tracking proportionately with revenue growth?

It's -- over the long term, it should. This year, it's short -- there's a couple of things to that. Number one is we have really improved the level of utilization. So we're basically getting more revenue generation from our existing fleet. And then obviously, you also have a gap here that we're filling currently with cross rents. And that has the margin compression impact, and that's in part why we're accelerating investments into the fleet to help drive that cost reduction and get a better margin on that.

Next question comes from the line of Gerry Sweeney with ROTH Capital.

Sticking top line, you called out transmission and distribution and midstream being strong. But curious how much of growth is industry growth? And how is that coming into play as well as the opportunity to continue to expand maybe geographically as well as maybe with additional customers?

Yes. Good question, Gerry. I mean, we are seeing some increased traction in the areas that we did kind of see with our commercial. During the quarter, I think the Mid-Atlantic, and we've called out the Midwest a few times. We did see meaningful quarter-on-quarter growth in those areas. Again, when you're coming from a smaller base there, those numbers aren't as material as some of our historical basis, but we're very encouraged with the progress we're making there. So I would say our commercial efforts to grow our -- the breadth of our distribution geographically is paying off. And then this quarter, you could definitely see we called out large projects, extensions, et cetera. They were more in our established territories. So that I would put more as an industry growth. So I feel there's a nice blend of both, probably industry-leading over the geography at this point on an absolute basis.

Yes. I think -- and that also plays into that the whole material conversion, the composite to wood. I think that it is important to note that we don't see that mix changing dramatically this year because everyone is just keeping up with the industry growth as we the rest of the year.

Yes. Then separately, on the margins, I think you obviously called out the transportation side. But you also made the comment that you may pick that margin back up. I wasn't sure if the margins will return to, we'll say, the mid-30s or whatever the exact number is, just as they're getting settled on a go-forward basis or there's an ability to maybe make up some of that lost margin. I'm not sure if that was pricing or other opportunities.

I think this kind of goes back to our commentary that we've made in the past of the business we need to look at over the course of the year and mid-30s, maintaining mid-30s as we grow is our expectations. But within that, you're going to see some exceptionally strong quarters, such as what we saw in Q1, where it was 39%, and we said that's when everything is hitting mass or down high utilization, all that. And then you have the quarters such as this where it's obviously the seasonally slower, so that builds in some inefficiencies. And then just the timing of projects, we talked about as we hit the higher utilization levels, we found ourselves having some elevated transportation. That's -- we don't expect that to continue. There's some level of that noise always in there, but that's why we expect Q4 to be back in that typical mid-30s range.

Okay. I'm going to squeeze in one quick one. I know you said 2. But just on that front, logistics, transportation, et cetera, was this more of a strategic move to get in with more clients, keep bigger clients happy and you saw longer rental times with some of these projects or juxtaposed to maybe at some point in the future, you can build in some better pricing and stuff to manage some of these shorter-term projects? Quickly accelerating projects, I guess.

Yes -- late. Yes. This was wholly and solely around a key strategic customer that had some needs very late in the quarter that we felt compelled to respond to and we'll continue to do so for this customer, Gerry. So on the long term, that relationship is a very healthy one, one that continues to return well for both of us. So we'll continue to protect that. I think what we're doing on the margin recovery, it goes to the capacity expansion. It goes to kind of helping coordinate better across our network to make sure that we can stage our inventory a little closer. To be honest, in this case, some of the matting we thought we were going to be able to help them with didn't come off other projects. So that's why we're in a scramble when we planned, it all looked good on paper. And then as projects got extended and we couldn't get that inventory off the ground, that's why we had to go to kind of plan B here. So it wasn't our intention to always kind of compress margins this way. It just happened to be the case. And so we'll continue to kind of look at our logistics efficiency and manage it going forward.

Your next question comes from the line of Min Cho with Texas Capital.

Congratulations on a strong quarter here. So a couple of questions. So in terms of your raising CapEx, I know that you're talking about -- you're planning for some new manufacturing capacity. Is that more in terms of adding lines at existing manufacturing locations? Or are you actually looking to expand your location as well?

Yes. Min, I'd say we're not kind of settled on that one yet. Part of the planning that we're doing is to look at what the right answer there is. There's obviously a lot of pull towards the [indiscernible] facility based on the space we have at the site and the investment we already have there. But I'd say we're not settled on that one yet as we continue to look at optionality.

Okay. And then obviously, just given these plans, should we assume that directionally CapEx for 2026 will be higher than 2025?

Tough to say that. I think we'll talk more about our 2026 expectation in the next call. Obviously, we stepped up the CapEx here in the current year, which will now get us upper teens growth in the fleet. I think our '26 expectation is going to be a function of how we see the year shaping up as we get closer to it. But I think it is important to highlight that's one of the important pieces of this business is we can adjust our CapEx in the fleet based on the demand that we see in the marketplace.

All right. And then just finally, I know you don't talk about your U.K. business a lot, but what percentage of revenue was U.K.? And can you just talk about the growth dynamics you're seeing there?

So yes, the U.K. business, I mean, as you look at it on the rental and service side, it's a high single-digit percentage contributor to the overall portfolio, so the smaller pieces. But a lot of the same dynamics as what we see in the U.S. They have a lot of infrastructure projects, a lot of plans here in the coming years that's going to require an increase in spend and also an increasing recognition in the marketplace of the differentiation of the composite mats over the alternative products.

Your final question comes from the line of Bill Dezellem with Tieton Capital.

Well, let's start with the name. It's Bill Dezellem. And I have a couple of questions as you probably would guess here that the utilities, would you talk to us about their mindset towards rentals versus purchases today with this accelerated demand versus how they may have been thinking in the past, if there's any difference at all?

Yes, Bill, there's no one answer across the utilities here. I think, generally speaking, utilities have shown us that they have an appetite to purchase some portion of their fleet requirements. Again, we talk to the economic incentives they have internally to spend capital and get a return of and a return on, on that. So we see that trend continuing. I think what we're seeing is with the scale of what they're needing to achieve here over the next few years, they're also recognizing that they need strong rental partners to help them, strong rental and service partners to help them through with that workload.

So we're seeing them lean on both sides. It's been like that. I mean I think coming out of COVID, we saw them pull back on sales a little bit as they were looking to spend their capital on things that the supply chain was saying were perhaps more strained. So they wanted to secure those items to make sure they had what they needed for their projects. I think as supply chains are opening up a little bit, they're looking more broadly at their potential capital categories and matting is certainly one that we've seen this year, they're bouncing back towards. So I hope that answers your question, Bill.

That is helpful. And then relative to nonutility markets, are you seeing any new or other markets that are demonstrating meaningful potential? Or is the opportunity really centric on utilities?

Yes. I think we called it out. I mean midstream has been very dormant for many years. Previous administrations, I think, were very much curtailing activity in that market space. We're seeing a lot more activity there. Again, the majority of that activity is met with a different matting technology that we don't have in our fleet for the mainstreaming operations there, but definitely around laydown areas and egress and so on, we have a role to play. So generally speaking, the stronger that industry, the more opportunity we will have there. And so -- but when you really think about it, the majority of the spend and focus will be around the electrical utility transmission spend over the next few years, the way we see just the relative contributions.

Yes. And when you look at the year-to-date numbers year-over-year, the growth on the RNS side, it really is coming from the utility sector. As Matthew touched on, midstream is strengthening, but it's coming off of a pretty small base. And really, when you take a step back, that's offsetting really the -- what has been a modest pullback on the upstream side of things. So overall, oil and gas there is kind of flat year-on-year.

That's helpful. And since then the last question, I'm going to keep going here a little more, if I may. The M&A, you referenced that your eyes are wide open. Would you provide kind of some strategic insights in terms of what you are looking to accomplish with the M&A?

Yes. I think we've covered this on previous calls, Bill. Our focus now is really on close core, what we do today and then just looking to see how we can accelerate our penetration of markets where we believe that we could play a bigger role. So I think you can expect that to be where we're spending our time.

Nothing has changed there.

Correct.

And then one additional question, please. So as you -- I think this is the second quarter this year that you have had some inefficiencies tied to customers changing project scope, time line, et cetera. Does that imply that ultimately, you want your inventories to be higher and to give you more flexibility to respond to these situations? And then if the answer is yes, do you even have the capacity with the level of activity in the market to increase your inventories enough to solve the riddle that we're talking about here?

Yes. I think I'd say the answer is yes, Bill. Obviously, the higher our utilization gets, you're more responsive to moving things further than you would ideally like to. And that's what happened to us in Q3 here. So the CapEx that we're spending on our fleet, the planning we're doing on manufacturing expansion is all designed to help manage that challenge and get the margins back into the business. When it comes to capacity, if we look at '25, we ran -- we started running the plants 24/7 in April.

So year-on-year, we're going to have incremental capacity going into '26. We talked about our debottlenecking activities, which give us incremental capacity. We've always got the cross-rent flex that we've been working. So we feel comfortable that we're able to meet our growth requirements and get better at our planning efficiency. But honestly, Bill, it's during a quarter, projects you planned on coming up to speed new projects. If that doesn't happen exactly the way it was planned, you're always going to have a level of inefficiency. And I would say when you're running at the high utilizations we are, that's a heightened challenge for you. So -- but we feel like we can manage it.

Good luck with the ongoing high-class problems.

And with no further questions in queue, I will now hand the call back to management for closing remarks.

Great. Thanks for joining us on the call today. Should you have any questions or requests, please e-mail us at [email protected], and we look forward to hosting you again on our next quarterly call. Thanks.

Thank you again for joining us today. This does conclude today's presentation. You may now disconnect.