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NR Newpark Resources

Participants
Ken Dennard Investor Relations
Paul Howes President and Chief Executive Officer
Gregg Piontek Chief Financial Officer
George O���Leary Tudor Pickering
Bill Dezellem Tieton Capital
Praveen Narra Raymond James
Jacob Lundberg Credit Suisse
Call transcript
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Operator

Greetings, and welcome to the Newpark Resources Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ken Dennard. sir. you, Thank

begin. You may

Ken Dennard

today operator, Financial joining and and We you, and With morning, to and Newpark's Chief Executive good for the you Officer; me results. us XXXX call Piontek, second appreciate Paul Newpark Howes, review President Chief Thank Gregg quarter everyone. are Officer. Resources webcast conference

Q&A. my management will before the the of details and remarks, provide outlook on Following second the opening for call financial a high-level quarter commentary

in I have replay Before that few the Please information release. It XXXX no I newpark.com. to information information management, and also a There transcript on July note speaks as a reading. included turn advised to that on There details longer reported accurate be of will XXXX, webcast be of of is are XX, time-sensitive or through. the XX, you at recorded of a only run company's by the call replay housekeeping call. today, call website replay time the this will as August any be available may will available be therefore today's that and until yesterday's

statements during the These the by addition, made Newpark's contain meaning of reflect management. the conference statements United forward-looking the management comments may call forward-looking States In federal laws. within of this securities current views

could comments contingencies to understand uncertainties those encouraged Form financial expressed performance annual results, include reports and reports Form is report actual uncertainties the and today X-K current certain or differ Newpark's also The risks, risks, XX-K, statements the non-GAAP Form XX-Q of may in measures. those cause quarterly made materially read on to contingencies. various The from on and certain by However, on to listener achievements management.

over to the to comparable that call like directly included me, behind details CEO, and Mr. be on I'd the Newpark's found that measures Paul most are reconciliation the to turn website. in Newpark’s And quarterly Howes. Additional release GAAP the can and President with

Paul Howes

other to long report continue meaningful second revenues term you, morning Thank million our and $XXX the the in quarter by segments. segments improved net IOC first was performance, quarter, in good being the top point, this quarter. the completed strides to an successfully that Ken, solid line make both deepwater execution operating pleased per the improved time To well Benefiting our improvements we our completed diluted driven by on at And as another We're qualify Mexico, Gulf well the in-house that as quarter. penetrate with our third for customer Kronos important engineers Meanwhile, preparing during I'm the our an be service to in with continuing in second the that this market. well quality, to overall we the report of Kronos based a Kronos very from sequentially in our quarter Oil IOCs. performance we we of for of working in the expect to share. system strategy. Consolidated with now which are to pleased stronger our quarter, second was to million, system for X% increased both step to everyone. EBITDA Last Shell second $X.XX efforts for also income while Fluids, have $XX noted used efforts system to

not among up around more Gulf also opening establishing in broadly terms deepwater As we only important of the remains opportunity, stated credibility in of the target terms our significant IOCs but new market in world. Mexico the of an past, the

Algeria business. our stability serves now To highlight generated revenue. customers and IOC third our We with and NOCs pleased represent that Fluids to to provide I'm continue meaningful our point, to Fluids revenues IOCs total progress, in from make of approximately combined generated that expanding to from which Kuwait our targeted greater revenues one two NOCs key

In Fluids both seasonal quarter million, sales land a of at for Mexico activities and revenues impact offset rose gains Gulf break performance, X% in $XXX in came sequential fully U.S. in segment the in of operating revenues second the up increases also Canada. the terms modestly spring including of integrated our Internationally, benefiting increased improvement. driven increase Revenue primarily in our business from to our revenues. Australia. second along international quarter, Baker for a with We've offshore to the margins, progress by project impact Hughes with of made X.X% which improve efforts the in mix in strong in the also the Fluids

recognize we'll work is step another be also is in right this more done. the to there While that direction,

the to Turning Mats business.

benefits We continue both where market markets. E&P strategy and improved our to in non-E&P from diversification the revenues see sequentially

the revenues remained evenly $XX and Mats the as reflecting U.S. came with record broad sequential both balanced of a our in from at on markets in quarter gains a improvement revenues XX% quarterly Europe across most dollars discussed million April targeted markets. improvements The reflect between and non-E&P in QX line Second E&P Call. based outlook

we're this build and further market made upon efforts Newpark. gain expand and globally products share, foundation stable our to next in we've Looking strategies our differentiate to leverage generation business, to develop continuing investments the execute to the further industry specific

Earlier to Kenedy, business. to the I responders Before facility our distribution employees, fluids efforts as support our there that first in Gregg, recent officials. month, we on well want have were the by turning the Fluids very in areas fire. drilling and over and from a destroyed of express Kenedy touch as no appreciation the the received like from was surrounding our call for injuries. local this to We're warehouse our thankful Texas and I'd event

event with call the and this financials customers to over drilling detailed our provide to ability products contents services were and And discuss turn Gregg like Although to not quarter. to destroyed, fluids Gregg? the the the to the has of I'd impacted in area. warehouse its our that

Gregg Piontek

which sequentially strong average of rig revenues finishing revenues a the the sequential second with quarter. Thanks In our consolidated from the coming This count $XXX XX% the the spring favorably $XXX rig the to XX%, before performance revenues and towards On quarter begin million, revenues X% segments were to fell improvement improved U.S. rig second everyone. market details seasonal the that million XXXX, I'll primarily Paul, pattern with lower reflecting segment year-over-year and Systems In for good decline in from XX% improvement by drill of XX% Fluids a market a U.S. On increase have sequential operating XXXX, period. decline outpacing heavily by benefiting break a discussing of results. million deepwater up Canada, a increase same now in with year-over the a year-basis, areas modest through along XX% morning, for a improvement first quarter increased XX% revenues at reflects up $XX break X% despite through U.S. driven the The up. generated total project XX% more typical the levels count. changes QX. outpacing over is is by share our modestly year-over-year. in the weighted count relative spring in modestly basis, QX Shell. compares sequential in revenue from market which count the rig activity from mix, of The our

Australia, in with reflects activity Eastern Albania, XX%, levels Hughes in In America, from regions, year-over-year comparison primarily a and primarily the Romania from well improvement the international and offset Eastern partially Petrobras. from QX. decline benefiting our improvements X% improved Latin and basis, India. primarily Hemisphere in $XX revenues project were $X stronger to a revenues the by in The a revenues came On as million at in in the Australia, in pullback largely Baker Hemisphere second second sequential Romania, Services from quarter by reflecting Kuwait from reductions by anticipated the in the contribution as Turning offset quarter, the million, Algeria. Integrated Algeria

first Fluids $X X.X%. results second relatively reflect a consolidated but remained the increased from million sequentially segment by quarter Operating second improvement million the year. quarter in The $X income improving segment the the for operating to with margin quarter, line of last in second the quarter,

is in the of strong well by improved as touched the driven As Paul mix sales largely revenues. Eastern on, Hemisphere, as increase margin overall in the a impact the

Mats the in rental and to the improvement across from quarter, broad sales. by Europe. first were is the $XX sequential a as as as quarter sequential an at improvement the from as with came reflecting in increase the revenues most from activities mat total increase to XX% segment attributable the driven million The both representing Turning prior contribution U.S. Rental service improvements for improvement services in and $XX a record a revenues balanced well largely based XX% well a regions quarter. million, business, fairly

second $XX the over by Additionally, XX% by and revenues segment along from And exceptionally in at the XX%. year, also and last second in quarter. included million year-over-year. quarter to demand impact expansion revenues increased last XXXX of strong Mat transmission $XX the million in markets period, for sector. the from of distribution of second over the E&P Non-E&P flat sales Mats revenues service coming Comparing last increased by improved related reflecting operations. with our year. rental in relatively market $X of increased the acquisition by primarily revenues Rental million this Mat sales and were legacy the quarter year service quarter second weather utility

revenues revenue change sequester The sequential patent associated resolution while acquisition. operating contribution, year-over-year for the quarter increased improvement income the a XX% stronger $X revenue the Segment last a and was actions, in both the largely for the mix result second operating the was segment of With as of modest operating a basis. to as margin for XX% year. from quarter year-over-year attributable shift and the the the stronger by of enforcement the with well quarter largely margin on is first lift Mats XXXX two to compared late second XX% million favorable

turning results. our Now to consolidated

increases an costs a XXXX quarter spending quarter sequential to a charges, X% improvement $XXX sequential year-over-year. and increase attributable elevated year-over-year. support The increase prior X% representing million, both severance compared to increase SG&A as growth prior XX% personnel legal of and and million, expenses offset were is expenses. and partially by largely were SG&A a $XX increase year reflecting to revenues lower X% in Second

The share bonds. higher tax tax the favorably the in quarter quarters, with included previous the by effective approximately the approximately million employee income of quarter benefit for primarily reflecting second with $X.X impacted income in to of which in second convertible rate rate and for average prior by impact modestly share reflects Interest year. second expense the debt quarter’s an million, points. $X.XX $X.X Consistent was associated levels. rising price. XXXX excess million rate came the investing to Total quarter expense to our primarily percentage effective quarter per expense, driven prior compared second the percentage last the of and provision higher last diluted was costs share was the in first SG&A benefit at $X.XX in Net to per the quarters reduce XX%. The of second million, second quarter corporate effective of by million $X of year of and $X.X this year. compared the second in an of million This equity of quarter were $X.X compared office XX% the to in diluted the a XX% compensation in and the diluted serves first in in per X revenue, for taxes share As quarter annual the interest expenses quarter $X.X tax $X.XX increased with year. the associated both rates quarter tax interest second quarter non-cash

flow. cash to Turning

U.S. million, bank a We debt second a increase $XX borrowings. of capital in $XX fund of $X facility of including million the of in provided fleet During of XX% debt and $X ratio to million, to Mats all resulting Capital net cash $X cash expenditures consisting the including balance capital which $X expand our quarter, is the of totaled to a expansion our Cash of cash financing operations a the ratio of to with by and debt second of investments million used to half a $XXX hand by to million quarter, $XX by quarter Mat capital business a held reductions million XX%. the activities net in ended support net repatriating year the subsidiaries, total we million total in portion foreign facilitate of our of cash on $XX million million in working provided used and million used a which Substantially, to activities balance rental $X efforts. anticipate increase the of which was in back in was by debt. of second was generated capital. cash operating growth

near Now driven term revenues improvement in Fluids the term America turning Gulf as strengthen QX near seasonal as of from expect levels, largely the our in to to the business, In growth outlook. we including well in improvements Canada modestly North by Mexico. continued

We will consistent by segment to modest operating expect levels America be a the with relatively North fire. QX we internationally. pullback an expect income remain prior the will perspective, contribution somewhat improvements in offset From consideration recent of income

to the by more the following mix. strong quarter that to approximately the segment normal and borrowing fire of in should revenues related Mats In a charges it’s likely the discussed, modestly anticipate Paul expect reflecting $X the product second will million quarter pull As effect although We of to revenue offset primarily deductibles expectation or sales return above the a somewhat, dry hot higher levels, weather $X to back quarter associated recognizing first [ph] be we third programs. with still pattern. third caused unusually our business, quarter, million insurance the remain

peak T&D as companies seasonal we’ve typically of softness during in utility maintenance activities quarter As demand. year, see recent in the customer reduce years, third during highlighted each activity we some periods power

sales we activity, a although to challenging is the Mats a and timing pipeline solid continue of Regarding see opportunities always to bit while predict.

is strong third from decline the expect operating At in quarter volumes quarter. to expected this We level, mid-XXs. to second the the in Mats remain sales margin revenue the sales

investments both support our to will chemicals. reflect opportunities, international expenses support the primarily approximately stimulation we we CapEx any consideration in to fleet Fluids year. previously in the capital expenditures while announced of estimate and per full-year office expansion total, associated of retirement term In stable half expand million, Counsel. XXXX We in General investments full-year rental will U.S. well into our capital are of completion near relatively Mat response the with and efforts expect raising elevated our of as again the to approximately million to $XX our expansion remain markets, prior corporate $XX regard charges reflecting in investments expanding our With maintenance expenditures to to as approximately that remains and our growth expectation

range which a the heavily Paul the operations following U.S. mid-XXs, year, after which the we expect remain for which Reform, second Tax near increase remarks. our our is first rate. in effective be of benefits, the that, tax expected rate tax expect in We to the half over similar do half half concluding rate is I’d tax to to first to the Despite to the not foreign with for the few call to effective tax overall adjusting to And in recur. to lower like turn our weighted term profitability federal his serves back

Paul Howes

Gregg. Thanks,

strides our global remained in long term that quarter second meaningful make on In while our we technology quarter, to with in execution focused with delivering the Fluids, becoming pleased very strategy. results solid recognized the leader. both businesses continuing performance We’re of

upon business, We world. around build capital our to remains simulation in presence Mats markets North [Technical our continue expand and are moving And chemicals, ago, a investments strategy fluids moment look unchanged. with our Gregg drilling and focus to leverage of our mentioned Difficulty] and the America. key and in In to NOCs we as support as both expansion IOCs now the fluids and forward provider completion share we

that innovation. XX, contacting I’d segments located XXXX initial Day of at the outside an and On we’ll and date to R&D save announcement on an to diversify like the manufacturing that Mats Analyst continue be revenue just market facility in Louisiana. We November business, our expand Lafayette, two note, streams, grow drive make

center. call well the now Our Newpark, our continued strategy more the team months I’d for thanking and in-depth served management close have safety. of team for Mats Stay at work in from coming as on We’ll and R&D including on Lascar, Investor facility providing is business a update dedication that, our his level our Relations looking your both questions. forward take firm. IR and of manufacturing long like With Ken a by well as to high our tuned both as a segments, review state-of-the-art Dennard more information our Operator? of their our the as who hard as employee focus tour

Operator

Thank you.

We will now Instructions] [Operator be conducting session. you. a question-and-answer Thank

question. Our with first with proceed question your from Pickering. Please line comes O’Leary of George Tudor

George O’Leary

guys. Good morning,

Paul Howes

Good morning.

George O’Leary

strategic – but size the from Analyst gas I Mats of work know guess market anything not Day, you already have you’ve steal both equation if of frame guys the us? of curious could on I’m how done today and you a percentage for trying maybe guys from the have been to market work a the maybe you you perspective of – non-oil side believe opportunity doing I perspective. lot the up help based and to you date, captured kind what it’s on that to frame market

Gregg Piontek

Yeah, take this Gregg, I’ll is that.

share we’re of well again in transmission of still low remains the pipeline terms that as are today And the the both distribution single-digit these markets in as primary markets. utility in and those current our share range. markets, markets In the the targeting

the some simple and markets you size markets rough obviously of So that that math significantly we’ve been do a size historically. indicate you get traditional are that those in oilfield to larger that than market can just

George O’Leary

the for the me business Mats mix uplift change driven in and Fluids margins in That’s second helpful. in that or equation make increase pricing quarter? higher is to margin quarter-on-quarter so more And was throughput a terms On just Great. the stay there? this was, any there rentals in improvement or kind of drove what the understand on side, then of the side

Gregg Piontek

no the sales when take a across the as well we saw in that all uplift I an talked change is This services the well based components one really rental uplift end you as across that starting pricing guess as pretty we markets, consistent was Mats, it I’ll well. look side, dynamic. as Mat and board. was that with by at real broad of as about and kind Yeah, the as by geography it of

the sold issues know did products see lift Hemisphere. quarter as and of that Eastern see had, see stronger so that in we’ll the the was happened historically, where we’ll periods particularly the the that and terms ebbs some of we that flows in Fluids quarter mix just this a are you – in In of mix margin terms and sense it we

So we would expect the that third higher the here quarter, impact somewhat of revenue what to return mix typical a the more expectation. to offsets which in is

George O’Leary

Okay. get more equation, date could. Australia progress working Woodside kind working some side you and helpful. to That’s where of the deepwater if alongside huge, increasingly Gulf of I making in qualified nice are Mexico work the very One Obviously on in of the operators looks the government any what in guess with in timing standpoint, in but like duration? from sure I U.S. the qualified particularly can sure elsewhere varies a that you color are that globe. the on and process getting I’m I’m us majestic remind

Paul Howes

Shell I IOC you’re that with long be of announced we Yeah, deepwater the that Okay. with Oil. a can today period and major when first extensive wells certainly running the process mean That time. a was fairly in

was IOC on there that However that other were well.

center the been operations Fourchon two testing as as working and the last our their our as they’ve partners towards those we’ve other in facility get so technology for well We’ve laboratories. down And years. our with technology been well

period at for time. IOCs some work been of we’ve other been that’s ongoing So with

George O’Leary

color very Paul Thanks for and it. the Got Gregg. much

Paul Howes

Thank you.

Operator

Dezellem your of [Operator with next Tieton through Capital. question comes line question. proceed Instructions] Our Bill Please with

Bill Dezellem

actually questions three Thank you. I have today.

of would update Gulf deepwater you please detailed a more all, please? Mexico on the of give First

Paul Howes

outstanding Paul. our very of but the the well in Oil. Sure, Bill. is operations from certainly that expectations just people from met It first and Fourchon were we pleased not together Shell team Oil. This as seeing. of facility. They perspective, We technology. we’ve And perspective, drilled with we’re talk well more job trends technology got start with to a several work, result we an also And Shell to link as delivering be a did wells, of we’ll to the a with in about doing going the in start great additional we’re all what that

Bill Dezellem

work may. like the on shift Arabia for in-country? then with provide to And or to update I’d your Aramco what if you Saudi activities an prognosis Would and there I is additional

Paul Howes

construction. mentioned I a to But won continue update we that there’s that there time. small additional at this engineering it’s preliminarily mean – the we together work and of the contract we on Yeah, no putting beyond stages

Bill Dezellem

may well quarter Mexico with I Gulf if here quick go the when in be third And will anticipating drilled or Shell, real back are that you of it? to

Paul Howes

second here expect Yeah, the quarter. the in well completed third will be we

Bill Dezellem

lastly, please? give Thank charges detail in us reference And there increased some would you. then Great. to a you was around QX, severance that

Paul Howes

characterize Yeah, continuing But the here is making we form. any a continue of one you accordingly. would grow as and and much as to evaluate is structure, though I I you’re here optimize cost structure always as guess not based it’s challenges way broad your your organization to that have reduction changes an of the

Bill Dezellem

Thank you, both.

Operator

question next line Praveen with proceed Raymond from James. comes Our your question. Please of with Narra the

Praveen Narra

Hi, morning, guys.

Paul Howes

Morning.

Praveen Narra

a question moved I rig? know one this I rig I just clarifying different I just to At a incremental, well. it’s different to point this guess, Mexico at same or following a the guess are point Shell or but has the Gulf of location and on you second want ask we

Paul Howes

believe with the same I rig. it's

Praveen Narra

Okay.

rigs So be I or this forward likely contracts going potential probable guess when or for incremental we the forward, it capturing most think most or? going the about would awarded

Paul Howes

goal performance again our continue our saw we job the the in is right. And to so. first well, replicate certainly to that’s Well

Praveen Narra

Great.

usually don’t but have traction recently. about the Okay, pricing, it’s things about talked within market? the kind we we for perfect. even American propose pricing you Can progress about of When of gaining I North the know talk we one think

Gregg Piontek

we’re be of would say focus. continues that that to Yeah, area. I but slow progress an in area making it’s

story continued to remain the recognized and area part that it. of definitely we somewhat progress, quarter, modest but must we’ve last there a key focus double-digits to as return pretty it making about the We’re as talked

Praveen Narra

Right.

for one can down in of And capital, and Okay. more and working pretty move we get be can how guess scale certainly you receivables you talk this DSOs working and the where quarter. a balance of we particularly about just can capital capturing much that I on to or me. where good out? the terms kind squeeze sheet Can are took where

Gregg Piontek

Yeah, quarter as you noted, here in revenues, the growth we receivables in second improvement came saw where despite some actually overall down.

headed have right it So what’s the call growing challenging it’s revenue. it X as another invest the – offsetting is targeting We or as we’re really need direction. days probably to far in you’re so that of translates by that DSOs what negating you’re as more to

Praveen Narra

guys. quarter, Great Awesome.

Gregg Piontek

you. Thank

Paul Howes

Thank you.

Operator

Lundberg next comes Jacob the with proceed your with Suisse. of Our from Please Credit question. question line

Jacob Lundberg

good morning, guys. Hey,

Paul Howes

morning. Good

Jacob Lundberg

I on just little building for out some fluid, the so stimulation sort was color you a if effort more chemicals CapEx get wondering we you’ll and completion could that. be of around mentioned putting

might able it’s but for timeline thoughts of don’t of commercialize you’re I investing any be would early too Just if know when curious effort be that out sort to you great? and around where products some

Paul Howes

Sure.

stimulation adding the to comment we’ve this On But been that’s line resources point is to segment. that I region, product we’ve so perspective, bringing in investments. initial fluids started in product Then in personnel, revenues effect real the President any have lab in it’s those to we make the North managers American timing. President, largest line. technicians, obviously some to Global we with area obviously Vice here from on first been on have investments, yet of making would where investment But there, the which manage that in would where are an we within market look timing, we the terms Global the as at the Vice we’ve margins below brought agree premature business some stimulation

Jacob Lundberg

guess then you Okay. which you’re any the margin, fluids on Great. that magnitude in the for us so just can costs give of business And that? carrying impacting that, those is sense following-up I

Paul Howes

deterioration of areas broader roughly the stimulation that was a talked margin included cost quarter bit Yeah. structure. little deepwater, deepwater and the We point there well the the associated as a with last completions, about as that the

the question capacity Now to there’s see but still that revenue generate, for. from were obviously, far the we’re no starting that’s deepwater that built

Jacob Lundberg

Okay. it. gears. then I And switching Got guess

On to XQ? similar you Gulf them in you'll the you it XQ, one in of of that that deepwater in drill opportunity scope – to whether Mexico revenue well that provided is terms drill

Paul Howes

absolutely. Yeah,

Jacob Lundberg

great. then side, fleet, the I hurdles you're for some how And about on capital so think Mats investing just guess do CapEx? rental in incremental return Mats the Okay, you wondering the incremental into business,

Gregg Piontek

to to proper Mats with to of know that of you fleet business, capital. those of Well, the utilization always has you continuing the know returns. the performance we're continue barometer in the we'll our know getting obviously and above manage And invest levels to we're an the fleet area ensure that weighted perform cost continued average is that on, we that's you investments business our so the that gauge

Jacob Lundberg

do you a investments? And on for those payback have Okay. sense

Paul Howes

on markets again it's getting don't disclose. Well, and we depends that's detail into pricing going kind that of where specific the that in

Gregg Piontek

returns with but. the pleased We're

Jacob Lundberg

Good understood. quarter. Okay, Thanks for guys. color the

Gregg Piontek

thanks. Okay,

Operator

like floor back further for Thank over turn at management the you. It appears would we I comment. time. to this final now questions to have no

Paul Howes

for forward on thank in for interest and Newpark once right, us your again to All and joining quarter. you you call we Resources the the again talking third after look to

Operator

this and conclude today's Ladies does teleconference. gentlemen,

and your participation you disconnect may day. have for this your a Thank time. wonderful lines You at