Newpark Resources Inc

NYSE:NR

Earnings Call Analysis

Quarterly Revenue Decline and Strong Fourth Quarter Outlook

In the third quarter, the company's revenue fell 23% year-over-year to $44 million, driven by seasonal slowdowns and unexpected maintenance at a key facility, impacting adjusted EBITDA by nearly $5 million. However, a rapid recovery in activity since late September positions the company for a strong finish to 2024, with record rental volume achieved in October. For 2025, the company anticipates a shift toward higher-margin specialty rental services. Revenue guidance for the full year is revised down to $217-$223 million, and EBITDA guidance is adjusted to $77-$81 million, with a focus on optimizing cost structures and regional expansions.

Third Quarter Performance Overview

In the third quarter of 2024, the company experienced a notable decline in revenues due to several adverse factors, including a seasonal slowdown in the utility sector and reduced activity in oil and gas. Total revenues fell to $44 million, representing a 23% year-over-year decrease. A significant contributor to this decline was a decrease in rental project activity, particularly in southern markets, where customers shifted their focus from transmission to renewable generation projects. Unplanned maintenance at a Louisiana manufacturing facility further exacerbated the situation, resulting in a $5 million reduction in adjusted EBITDA for the quarter, which fell to $7.5 million.

Impact of Maintenance and Revenue Breakdown

The unplanned downtime at the Louisiana facility, which lasted approximately six weeks, involved both repair and maintenance operations that led to unabsorbed fixed costs. Rental and service revenues dropped by 11% sequentially and 15% year-over-year, with product sales also declining from previously recorded highs. Notably, service revenues decreased 21% due to reduced service intensity on rental projects during 2024. Despite these challenges, product sales grew by 20% year-to-date, indicating some resilience in this segment.

Strategic Transformation and Future Outlook

Looking forward to 2025, the company is focused on a strategic transformation to narrow its operations exclusively to specialty rental and services for critical infrastructure markets. Following the completion of the Fluid Systems divestiture, which was a significant part of this transformation, the management is pursuing industry reclassification with the NYSE and aims to rebrand the company accordingly. The outlook is optimistic, with expectations of a strong rental revenue finish in the fourth quarter, bolstered by a record level of rental volume achieved in October.

Revised Revenue and EBITDA Guidance

The company has revised its full-year revenue guidance downward from $230 million-$240 million to a new range of $217 million-$223 million due to the impacts experienced in Q3. Accordingly, the adjusted EBITDA guidance has been adjusted from $80 million-$85 million to $77 million-$81 million. Despite these adjustments, there is a strong expectation for recovery in Q4, majorly driven by robust project backlogs and new customer activity particularly in the utility sector.

Cost Optimization and Financial Position

Cost optimization is a priority, with anticipated SG&A reductions as the company streamlines its overhead following the divestiture. The aim is to achieve a $5 million cost saving by early 2026. Furthermore, the company reported a solid cash position of $43 million, alongside $14 million in total debt, resulting in a net cash position of $29 million. Additionally, the company noted $56 million available under its U.S. ABL facility with no current borrowings, reflecting a robust liquidity position.

Market Opportunities and Growth Potential

The management remains bullish about long-term market opportunities, especially within utilities and critical infrastructure sectors. As more customers reprioritize projects towards renewable energy solutions, the company is poised to capitalize on these trends. The strategic focus includes expanding sales efforts and investments in the rental fleet to align with projected demands in these growing sectors. Recent customer feedback highlights an improving outlook for investment and activity moving into 2025, underscoring a potential for growth.

Earnings Call Transcript 2024-Q3

[Operator]

Good morning. My name is Jamie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Newpark Resources Third Quarter 2024 Earnings Conference Call. Today's call is being recorded and will be available for replay beginning at 12:30 p.m. Eastern Standard Time.

The recording can be accessed by dialing [phone] for domestic or [phone] for international. [Operator Instructions]. It is now my pleasure to turn the floor over to Gregg Piontek, Chief Financial Officer for Newpark Resources.

[Greggg Piontek, executive]

Thank you, operator. I'd like to welcome everyone to the Newpark Resources Third Quarter 2024 Conference Call. Joining me today is Matthew Lanigan, our President and Chief Executive Officer.

Before handing over to Matt, 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 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 @newpark.com. Please note that the information disclosed on today's call is current as of November 8, 2024. 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.

[Matthew Lanigan, executive]

Thanks, Greg, and welcome to everyone joining us on today's call. I'll begin with an overview of our third quarter performance, followed by an outlook for our fourth quarter and an update on our strategic priorities entering 2025.

The third quarter came in below our expectations as 2 notable factors combined to impact our results after a very strong second quarter. While third quarter generally tends to be a seasonally slower period of the year for our business, this year was more pronounced as a few key customers shifted their priorities during the quarter from scheduled transmission projects to renewable generation-related projects.

This, combined with unusually dry weather conditions in the southern region, limited the need for matting on individual projects. As a result, lower rental project activity, which was particularly acute across the southern markets, together with a softer oil and gas customer activity negatively impacted rental revenues in the quarter.

The quarter was also impacted by an unplanned maintenance event at our Louisiana manufacturing facility that resulted in one of our production lines being offline for approximately 6 weeks during the period.

This time-line included approximately 2 weeks of delays due to logistical challenges for our third-party technicians caused by Hurricane Francine. The facility has been operating at normal production levels since the start of the fourth quarter.

In total, the seasonal pullback in rental revenues and 6 weeks of facility maintenance impacted third quarter adjusted EBITDA by nearly $5 million. The impact of the facility maintenance included both unabsorbed fixed costs and incremental maintenance expenditures during the 6-week shutdown period.

As a result, our total third quarter revenue came in at $44 million, a decline of 23% versus the year-ago period as rental, service and product sales revenues all declined. Including the effects of the pronounced seasonal softness in facility maintenance, our adjusted EBITDA decreased to $7.5 million, a decline of $4.5 million versus the year-ago period.

While our third quarter was below expectations, it's worth highlighting that we experienced a sharp rebound in late September and October, reflecting a strong resumption of activity, combined with a modest lift from emergency response customers supporting hurricane recovery efforts, primarily in Florida, Georgia and North Carolina. We achieved a record level of rental volume in October, positioning us for a strong finish to 2024.

Now, let's turn to our outlook for 2025. In the weeks since completing the Fluid sale, we have worked diligently on aligning the final pieces of our transformation from an oilfield services business to a vertically integrated specialty rental and services business servicing critical infrastructure markets.

By narrowing our strategic focus exclusively to site access solutions, we're migrating towards a simpler, higher-margin, more profitable business profile, one that we believe will benefit both our customers and shareholders alike.

To that end, immediately following the sale, we've worked with the New York Stock Exchange to provide the necessary documentation to request the appropriate industry reclassification of the company.

Based on the indicated time line, we are hopeful to have that process concluded during the fourth quarter. At the same time, we have moved through the preparations to rebrand the company, a process that we anticipate will align with the timing of our industry reclassification.

We're also taking steps to optimize our overhead structure, removing duplication and costs that are no longer required post the Fluids divestiture.

A key piece of our optimization effort is the retirement of our heavy cost legacy IT systems. And while we were very pleased with the team's progress in moving through the planning and design phases, we recognize that these projects take time and will likely be substantially completed with benefits being realized in early 2026.

And finally, we're also pursuing options to enhance the value of our Katy office facility. Over the past few years, we have been working to transform this facility to a multi-tenant model, which has reduced our net facility costs and also helps provide optionality through a potential sale of the asset, recognizing that proceeds from the sale could be better deployed to fund our growth plan.

We are firmly committed to reviewing all aspects of our structure and associated costs to ensure we are aligning the future business for growth and operational efficiency. As we continue to navigate the final stages of separation and solidify our go-forward operating structure, we anticipate achieving a $5 million cost savings by early 2026, with SG&A as a percentage of revenue reaching a mid-teens range with further improvement possible as we grow and leverage our streamlined cost structure.

In summary, with the sale of Fluids behind us, our entire organization is now solely focused on the significant market opportunity we see in site access solutions. We are building a leaner, more efficient stand-alone platform, one well-equipped for both organic and inorganic growth.

The secular megatrends underpinning demand for our solutions remain significant from multibillion-dollar investment programs focused on improving the nation's aging electricity infrastructure to the exponential growth in advanced computing data centers to the combined onshoring of entire industry segments. It's an exciting time for our business and our industry, one we intend to capitalize on.

And with that, I'll turn the call over to Greg for his prepared remarks.

[Greggg Piontek, executive]

Thanks, Matthew. Building on Matthew's commentary, I'll begin with a discussion of our third quarter results, followed by an update on our outlook for the remainder of 2024 and capital allocation priorities.

As highlighted in yesterday's press release, with the sale of Fluid Systems completed, our historical financial statements have been restated to reflect the reclassification of Fluid Systems to discontinued operations. And all of my commentary will relate to our continuing operations only.

As Matthew touched on, our third quarter revenues came in softer than expected as a pronounced seasonal slowdown in the utility sector activity in the southern regions and a pullback in oil and gas led to a decline in rental revenues. Total rental and service revenues declined 11% sequentially and 15% year-over-year to $32 million in the third quarter.

Revenues from product sales also pulled back from the record Q2 results coming in at $12 million for the third quarter. On a year-to-date basis, as a result of the headwind of the more pronounced seasonality in Q3, rental revenues are up 1% over prior year, reflecting increased rental volume, offset by a modest reduction in pricing.

Service revenues were down 21%, while revenues from product sales are up 20% over the prior year. As discussed last quarter, the lower service revenues are attributable to lower service intensity on rental projects in 2024 as compared to last year.

By industry, the utility sector contributed 60% of our year-to-date revenues, including nearly 55% of rental and service revenues and roughly 2/3 of our product sales. In terms of Industrial Solutions operating income, our third quarter was unfavorably impacted by the unplanned downtime events at our manufacturing facility, which provided an estimated $1.3 million unfavorable impact on operating income in the quarter, reflecting a combination of unabsorbed fixed costs and incremental maintenance expenditures.

Consequently, our third quarter adjusted EBITDA margin declined to 28.3% in the third quarter. SG&A expenses were $11 million in the third quarter, reflecting a 14% sequential reduction and a 21% year-over-year reduction.

The sequential and year-over-year improvements in SG&A are primarily attributable to the effects of lower performance-based incentives and other personnel costs. Interest expense was $900,000 for the third quarter, relatively in line with prior quarter and prior year.

Income taxes provided a $14 million benefit in the third quarter, which included a $14.6 million benefit from the release of valuation allowances on U.S. net operating losses and other tax credit carryforwards following the sale of Fluid Systems.

Adjusted EPS from continuing operations was breakeven in the third quarter compared to $0.10 in the second quarter and $0.03 in the third quarter of last year. Operating cash flow was $2 million in the third quarter, unfavorably impacted by growth in Fluids working capital prior to the divestiture, which we expect to recover through the post-closing true-up process.

Net CapEx used $8 million in the quarter, primarily reflecting investments in matting fleet expansion in response to the recent surge in rental demand. With the completion of the Fluids divestiture, we ended the third quarter with total cash of $43 million and total debt of $14 million for a net cash position of $29 million.

Additionally, we have $56 million of availability under our U.S. ABL facility, which currently has no outstanding borrowings. Further, it's worth noting that as of the end of the third quarter, we have more than $15 million of net assets related to the Fluid sale, including the net working capital true-up in a $5 million interest-bearing note receivable.

We also have approximately $28 million in U.S. federal net operating loss and other credit carryforwards that are available to offset future U.S. federal cash tax obligations.

And as Matthew touched on, our corporate office asset base includes our Katy, Texas administration building, which is now largely occupied by third-party tenants and carries a net book value of approximately $23 million.

Now, turning to our business outlook, despite the pronounced seasonal slowdown in Q3, we remain highly constructive on the near-term and longer-term outlook for utilities and critical infrastructure spending.

As we exited September, we experienced a swift seasonal rebound in customer activity to more typical levels, particularly within the utility sector. Further, as we progress through October, we experienced additional demand from hurricane-related infrastructure projects in the Southeast.

As a result, our U.S. rental volume set a new monthly record in October. With the strong start to Q4 and current backlog of projects, we expect very strong fourth quarter rental revenues.

We are also encouraged by the level of quoting activity for product sales as certain customers seek to exhaust remaining capital budgets for the year. While we are still fairly early in the quarter, we are confident that we'll see a sequential increase in product sales in Q4.

As referenced earlier, our Q3 performance was impacted by a combination of customer resource allocation changes, unfavorable weather and the extended downtime at our Louisiana plant. Given the combined impact of the Q3 headwinds as well as the lower service intensity throughout the year, we're reducing our full year revenue guidance from a range of $230 million to $240 million to a range of $217 million to $223 million.

While full year Industrial Solutions adjusted EBITDA is revised from a range of $80 million to $85 million to a range of $77 million to $81 million. Regarding our corporate office, we expect our near-term operating expenses will modestly increase relative to the third quarter levels as we absorb certain fixed infrastructure costs that were historically carried by Fluids and continue to fulfill our service obligations to the divested business through our shared service infrastructure.

Beyond Q4, we expect our SG&A costs will steadily decline throughout 2025 as we seek to optimize all facets of our overhead structure. In terms of capital allocation priorities, we continue to prioritize investments into the organic growth of our rental fleet. We expect to continue to pace our rental fleet capital investments based upon our longer-term view of the rental market penetration and growth opportunities.

Beyond our organic investments in the rental fleet, we expect our free cash generation in the near term will be primarily used to build liquidity or through a return of capital to shareholders through our programmatic share repurchase program. It's also worth noting that in the coming months, we expect to evaluate alternative revolving credit facilities that can provide us with greater liquidity to support our strategic growth plans.

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

[Matthew Lanigan, executive]

Thanks, Greg. Despite the unexpected challenges in third quarter, we are highly encouraged by the strong start to the fourth quarter and the robust outlook for our customers entering 2025.

As previously highlighted, we've continued to invest in our commercial sales force with a targeted focus on key growth regions, markets and accounts that best position us to accelerate our organic growth strategy. We've seen early success with our expanded sales coverage model while making solid inroads with previously underserved opportunities.

During the third quarter, we conducted an in-depth customer survey that collected both qualitative and quantitative feedback on their business outlook. Encouragingly, respondents highlighted an improving outlook and an expectation for increases in investment and activity moving into 2025.

As market conditions further strengthen, we're confident that Newpark is well positioned to capitalize on the demand, particularly as we demonstrate the unique value proposition of our solutions offering. As we move ahead, our priorities remain unchanged.

First is the execution of our plans to grow our leading pure-play specialty rental business through organic expansion of our presence while exploring inorganic opportunities that help us to deliver more value and increase revenue density with our growing customer base.

Second, we'll drive further efficiency improvements across all corners of the organization, positioning us to realize improved operating leverage.

Finally, we remain committed to a returns-focused capital allocation strategy that includes a combination of internal investment, inorganic growth and return of capital to our shareholders.

With total liquidity approaching $100 million, we are well positioned to advance our capital allocation priorities. We have $50 million of share repurchase authorization to support our return of capital program, which we are looking to resume now that the Fluid sale process has been completed.

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]

[Operator Instructions] We'll go first to Aaron Spychalla with Craig-Hallum.

[Aaron Spychalla, analyst]

Maybe first for me on the project shifts. Can you just maybe quantify the impact of those? And then how long does that last until those projects come back? And then kind of secondarily, just can you talk about the guidance kind of for the fourth quarter, just some of the puts and takes there and then just overall confidence in that outlook?

[Greggg Piontek, executive]

It sounds like you're pretty confident. Yes. Thanks, Aaron. On the projects, yes, I guess the best way to put them into context is they were shifted.

For the most part, those projects were shifted from third quarter to a future quarter. So, I think impact on the quarter in the vicinity of $1 million or so within the quarter, thereabouts.

And as at this point, we haven't got any line of sight to when they're back on the slate to be carried out. But based on the communications with the customer, that's the projects that need to be done at some point in the future. So hopefully, that answers the first question for you.

On fourth quarter, yes, I think as Greg and I both touched on, the spring back at the end of Q3 was strong. And so, we are very optimistic that will continue through the quarter and support our confidence there. Product sales is always a bit of a swing, but what we've seen here is encouraging to date.

So, that's really underpinning why we think Q3 was an anomaly for the year and that we'll be back on track for Q4. If I break it down and look at it, the things we've been focusing on, we've been focusing on rental growth. We feel good that at the end of the year, we'll demonstrate that by the end of the year.

We feel good that our product sales we'll also demonstrate good growth year-over-year. And the thing that we've been focused on is looking at the profitability of our service work. We touched on that last quarter. We don't want to do a lot of activity that doesn't yield a lot for us.

And I think that's where you'll see the majority of the pullback in top line, but not really impacting the bottom line as much because of the product mix and the fact that we've been very focused on our operational efficiency here to make up for it, which is why disappointing to revise the EBITDA guidance down slightly, but we've been managing that as actively as we can.

And it's really the plant there that we don't feel like we can make up given the length of time left here in the calendar year.

[Aaron Spychalla, analyst]

And then, yes, on the plant, can you just talk about what work ended up being done there? Is there any other planned maintenance to be aware of? And then just on kind of CapEx and capacity. Can you just kind of remind us what capacity looks like and how you might be thinking about 2025 CapEx given the growth outlook?

[Greggg Piontek, executive]

Look, I'll start on the plant for you. Effectively, what happened is it was on our original plan, which has been around for a while now. We had known that our heating system or our hot oil system was in need of some maintenance.

Unfortunately, that and had planned that in future years. And so unfortunately, that came to the 4 in the quarter. We made the call at that point that we would not only repair the system but upgrade it to the quality that we had planned on upgrading it to in future years.

And so, we feel good now that we've not only repaired the issue, but increased reliability through a better design of that system moving forward. As it stands now, that was in a future year upgrade, maintenance upgrade there, that's now off the table.

We've taken care of that this year. So, feeling good about that side of the plant. And as we touched on in the call, when we got it back up and running, it's been running well and running smoothly ever since. So, it seems like that worked.

[Matthew Lanigan, executive]

Yes. We did take the opportunity with that Q3 downtime to pull forward some other things that were in there for Q4. So, that does help with the Q4 production schedule somewhat. In terms of the utilization of the plant is running, we're back here since the start of the fourth quarter. We're back at the level that we had been running throughout the full year. We don't disclose our specifics of our manufacturing capacity, but our production level is something below full capacity.

[Aaron Spychalla, analyst]

Any kind of early read on CapEx for 2025?

[Greggg Piontek, executive]

I think much like this year, it's going to be all about the growth in the fleet. Here, we had in the third quarter, obviously, with a lower utilization, we had subdued additions there as we went through much of the quarter, but we had additions late in the quarter, which was really the surge in the demand that we saw in Q4.

So, I think we'll continue with that. I think overall, I would say an expectation as I look out a year is not much different than what we had in 2024. So obviously, as we get into our next year planning and finalize, I would expect we would have a more concise estimate for 2025 in next quarter's call.

[Aaron Spychalla, analyst]

And then just maybe last for me. You've talked about kind of the pipeline growth in the past, mid- to high teens. Can you just maybe give us an update there, just considering the fleet expansions and what the outlook sounds like as well?

[Greggg Piontek, executive]

Yes, I think encouragingly, we're still seeing the same trends. I think quoting activity is strong. I think we've touched on it before, we are seeing some slight elongation in that pipeline between quote and actual project start date, which I think is consistent with what we've been seeing and discussing in prior quarters. But in terms of net volume, it's still encouraging the level of growth that we're seeing quarter-over-quarter, year-over-year.

[Operator]

We'll hear next from Sameer Joshi with H.C. Wainwright.

[Sameer Joshi, analyst]

Just one quick question on the shift. Could you give some color on what the move towards renewable generation projects from transmission projects entails? Like is this a permanent move? Are these projects lost? You said that they were postponed, but just would like to understand what it means?

[Greggg Piontek, executive]

Yes, Sameer, when we went into the quarter, we were on the understanding that the yen customer is going to be prioritizing some transmission work, which is what we put in our forecast during the quarter.

During the quarter, they looked at their resourcing and capital allocation and made an election to prioritize the completion or substantial completion of some solar renewable projects that they were working on, which shifted that capital and labor from the transmission project. So, that's obviously the decision they chose to make during the quarter.

But again, I would just reiterate that those projects were mutually exclusive and the transmission work is still expected to go ahead. And as I touched on in responding to Aaron's question, at this point, they haven't given us a definitive start date on that, but we know that's the project work that needs to be done.

[Sameer Joshi, analyst]

So, your customers are just reallocating priorities at this point, they will come back to this work later?

[Greggg Piontek, executive]

That's our understanding. And I will say, while it was more pronounced this quarter, the shifting of projects, that's not an unusual element. It's something that we regularly see with our customers as they're looking at their supply chain, their resources, et cetera, and they'll shift their scheduling around.

[Sameer Joshi, analyst]

And then just on the $18 million in receivables or notes, I should say, is there a milestone-related payment, pre-payment? Or is there a certain cadence for this repayment? Or is this like a billet prepayment at some future point?

[Greggg Piontek, executive]

Yes. The majority of it actually relates to the working capital, the final working capital conveyed at closing, and that's a process that now gets finalized here in the next few months.

And so the majority of it, you'd think would be resolved here, call it, over the next quarter. Beyond that, there is the $5 million note receivable, interest-bearing note receivable that's in there. It is a longer-term and that they have the ability to pay it off sooner than that.

[Sameer Joshi, analyst]

And I think you laid out your capital allocation or yes, including organic growth and repurchase. You did also touch on strategic growth. Do you have a pipeline of potential candidates for acquisition? And what areas are you targeting? Like just a qualitative lay of the land there.

[Greggg Piontek, executive]

Yes. Sameer, I'm not probably going to jump into a lot of detail here. Yes, there's a pipeline of things that we're working on. I will say nothing that I would describe as imminent. So, I think it's important to clarify that as we build out our thesis of geographic growth priorities, if you will.

And again, we're really focused on consolidating ourselves as an access provider here. So, you should expect that if and when anything happens there, it will be within that kind of swim lane.

[Sameer Joshi, analyst]

And just one sort of accounting balance sheet question. The PP&E number has not changed much. Is this after the divestiture? Just wanted to understand, will this be updated or like what was included in the PP&E?

[Greggg Piontek, executive]

No, I think that's more so of a reflection that the PP&E really resides on the Industrial Solutions business. I mean when you look at the large components, we have our manufacturing facility. We have our rental fleet. I talked about the Katy facility, and then you have your field equipment. The fluids business did not have a large PP&E component.

[Operator]

We'll hear next from Gerard Sweeney with ROTH Capital.

[Gerard Sweeney, analyst]

I'm going to start with the easiest shortest question first. Plant downtime for repair work. It sounds as though that did impact revenue, but it was just unabsorbed overhead.

[Greggg Piontek, executive]

Absorive ahead and repair costs, yes. Yes, you had some maintenance in there maintenance expenses. But, yes, didn't impact top line.

[Gerard Sweeney, analyst]

Getting into some meter questions. So obviously, political landscape has changed this week on a bigger level than maybe some people anticipated. Just curious if you have any thoughts on what this does to the business, right? Because we have traditional T&D repair and replacement, but I think there's even a portion of your business connecting some solar-related projects and some of those may be in crosshairs with funding, et cetera. That's what we're hearing. But I'm just curious if you had some puts, takes, positive, negatives on what's going on?

[Greggg Piontek, executive]

Yes. I mean we probably know the same as you on that one, Gerry. I think the macro trend, I think, is bipartisan in terms of needing to upgrade the reliability and expand the electrical grid.

Renewables have always been on the economic spectrum, a little more touchy there. I think what's interesting is most of those projects are in red states. And so, to the extent that politics is going to play a role, there'll obviously be some sort of adjudication going on there. Look, we see this as a net neutral to positive on the political side at this point.

[Gerard Sweeney, analyst]

That's what I was leaning towards, but I was just curious on that front. And then I apologize. It's been a long week. Also, maybe just road map, you kind of touched upon it, the Fluids business, the divestiture, that was a huge undertaking.

As we go forward, it's reinvestment organic growth. I think we have some rebranding potentially and then maybe some MSCI code changes. Just road map, what are the short-term sort of opportunities you see to continue this sort of transition? And when should we keep an eye out for that?

[Greggg Piontek, executive]

Yes. I think you touched on all what I'll call the logistical items there, and we're hoping to have them largely wrapped up here in Q4, Gerry. So, that will complete all of those. And then, I mean, in terms of the road map, as we've called out, we still see the opportunity for more regional organic expansion.

I'd say that would be the priority of our focus where we think we can accelerate that through a buy versus build scenario, we'll be very open to considering that. And then just with the amount of activity that we see through the next few years, that will largely underpin the confidence in leaning into fleet expansion and growing through that mechanism. So hopefully, that answers your question.

[Matthew Lanigan, executive]

I think the one test that's a parallel path item that you didn't mention was our efforts on operational efficiency and driving that. And I think of all of them, that's probably the longer tail item.

Again, we have to work through some transition services. We have a cost structure that we have to adjust, but it's going to take us some quarters to get there. So, I think that's really a '25 effort that will span.

[Operator]

We'll hear next from Alexander Rygiel with B. Riley.

[Alexander Rygiel, analyst]

Nice quarter. A couple of questions here. First, what is the market value of the Katy facility?

[Matthew Lanigan, executive]

That's a great question. We don't have a clear market value on it. So, the best reference point I can give you is the book value.

[Alexander Rygiel, analyst]

So, does that mean that it's not an option for sale at some point?

[Greggg Piontek, executive]

No, I think it would be. I think we just haven't gone to the effort of getting a market valuation on it that I can quote you. I think what we've been focusing on is diversifying the rental base in there, making that the multi-tenant facility, finding a tenant that values some of the more technical aspects of that building in the laboratory and then optimizing the office component of it, really just setting that up as a better looking rental asset for somebody that values that space, if you will.

[Alexander Rygiel, analyst]

And then the working capital true-up with the Fluid divestiture, how much was that again? And when might that play out?

[Matthew Lanigan, executive]

So, again, that process is something that should play out here over the next couple of months. And that is, call it, the low teens of that number is made up represents the working capital true.

[Alexander Rygiel, analyst]

And then when you talk about the pro forma, the election being neutral to positive is that sort of negative on renewables, neutral on transmission and positive in oil and gas? Is that how you think about that?

[Matthew Lanigan, executive]

Yes. I mean I think that's the case. I just don't know yet how negative it would be on renewables. You would hope that, that's going to be based on economics rather than politics.

And as most of those renewable projects are in red states, I think, hopefully, that's the result we would see. But, yes, we think generally on traditional fuels, this would be a net positive. The transmission, we don't see any change in that. I think that's a bipartisan effort. So, we would expect that to continue. And then on some of the technologies that have more marginal economics, we would expect kind of market forces to dictate that.

[Operator]

We'll turn now to Bill Dezellem with Tieton Capital.

[William Dezellem, analyst]

Yes. Just to be clear on one of your answers to the last questions, working capital true-up, so that is a check that you would anticipate or cash that you would anticipate receiving from the buyer. Is that correct?

[Matthew Lanigan, executive]

Correct.

[William Dezellem, analyst]

And so sometime in the next couple of quarters, we should expect low teens millions showing up in your bank account?

[Matthew Lanigan, executive]

That's correct.

[William Dezellem, analyst]

And then a couple of additional questions. First of all, would you dial in a little deeper into the surge in activity here in October?

[Greggg Piontek, executive]

Yes. I think what we've seen most of the pullback in Q3, Bill, was in the sale. And I think what we're seeing literally almost at the end of the quarter was a resumption of activity in that region. So, a lot of projects kicking off there that required matting.

Also modestly, the hurricane impacts that we're seeing in those affected areas have also played a part. So, I think it's just broad-based that Q3 was a pretty unusual seasonal pullback in the sale. And then late September, early October, we've seen a reversion to what we see as more normal, but with some strong projects in there that our confidence in Q4.

[William Dezellem, analyst]

And then relative to the plant, you spent $9.5 million on CapEx this quarter. How much of that was excess that was not originally planned for Q3?

[Greggg Piontek, executive]

Yes. I mean, overall, that's a tough one to answer because the big piece within our CapEx in the same case this quarter was the Mat additions to the fleet. And there, again, you're flexing it based upon what you see the demand, the near-term demand in the project. So, that's the piece that I didn't expect to spend at that level.

[William Dezellem, analyst]

But in terms of the plant build, I'd say it's kind of less than $1 million that I would say was sort of unforecast, if you will, if that was the question.

[Greggg Piontek, executive]

Right. That's what I was getting at, but something more interesting than the question, which was you see demand picking up enough that, that led to you spending extra CapEx on building new mats?

[Matthew Lanigan, executive]

Yes. Yes, deploying mats into the fleet. And again, as you came through September, as we had talked about with the Swift rebound and the level of project activity in October, we deployed the additional mats to support that October. And as we had touched on, October was a record volume month for us.

[William Dezellem, analyst]

And then, you gave guidance for the year, which essentially just allows us to do a little math for revenue and EBITDA for the quarter. And if I'm doing that math correctly, your EBITDA margin in the Q4 is going to be greater than the Q2 and the Q2 was a very strong quarter for you.

[Greggg Piontek, executive]

Yes. I think that makes sense. And the reason why is you've got a mix issue, the very strong mix in Q4, as we mentioned, with rental being your highest incremental margin stream, that's what drives that higher margin expectation.

[Matthew Lanigan, executive]

And if you look back historically, I'll just point to one reference point, Q4 of 2022 was a quarter where similarly, we had very strong rental in that period and you had very strong margins as well.

[William Dezellem, analyst]

And then one additional question, if I may. You talked about one of your priorities being organic regional expansion. And I don't think I fully understand what it takes to expand regionally. I mean, I could be kind of loose with my comments and say, gosh, all you need to do is hire a semi throw some mats on the truck and send them off to the hinterland wherever the new customer is at while they rent them.

But I suspect there's something more to it than that. Would you talk through the practical activities of expanding regionally?

[Matthew Lanigan, executive]

Absolutely. And I think we kind of have, Bill, when you look at we're focused on our sales force expansion first. Now when you move into these regions, it's important that you have trust and confidence in your counterparts. So, we tend to go in there first with our regional sales footprint, start to build the relationships, then start slowly in terms of developing confidence with our counterparties there in terms of our ability to safely and efficiently fulfill on their project requirements.

And then once you prove that out, typically, those projects will increase in scale and complexity, and that's when we move more assets more permanently into those markets or that project location. So, just moving the math there, maybe helps with your transportation logistics when you get the work, but you need to do the prework there to prove yourself out.

[William Dezellem, analyst]

And where are you at with the regional salespeople? Is that part of the work that you're in progress on now?

[Greggg Piontek, executive]

Yes. I think last quarter, we touched on that we've fully built out our national sales footprint there. So, we achieved sort of people in market last quarter. Now, we're just ramping up on the calling efforts, the calling planning, the various pieces of the execution of that, Bill. So, we feel good about our footprint. Now, it's just kind of starting to see the results of that play through.

[Operator]

And ladies and gentlemen, as there are no further questions standing by at this time, I'd like to turn the floor back over to the management team for any additional or closing comments.

[Matthew Lanigan, executive]

All right. Thanks for joining us on our call today. And should you have any questions or requests, please contact us at [e-mail]. We look forward to hosting you again next quarter. Thanks.

[Operator]

Once again, ladies and gentlemen, that will conclude today's call. Thank you for your participation. You may disconnect at this time, and have a wonderful rest of your day.