NR Newpark Resources

Ken Dennard Dennard Lascar
Paul Howes President and Chief Executive Officer
Gregg Piontek Chief Financial Officer
Matthew Lanigan President-Mats Business
Praveen Narra Raymond James
Bill Dezellem Tieton Capital Management
Call transcript
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Greetings, and welcome to the Newpark Resources Second Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ken Dennard, with Dennard Lascar.

Thank you. Mr. begin. may you Dennard,

Ken Dennard

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

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

Before the and replay details at And website webcast turn available telephonically information of be call I by a over, XX, company’s recorded is access to call. few to a yesterday’s until August I There housekeeping included it today’s that will available in the have will will be cover. XXXX, release. also There on a replay be

advised July no the of replay Please and therefore, note only speaks or time that as are time-sensitive the call information XX, reading. as transcript of XXXX, this listening be accurate on that information today, of reported you longer may

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

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

financial comments today non-GAAP measures. may The include also certain

be the which most the measures GAAP financial details website. are can included Newpark’s reconciliation quarterly in Additional on comparable and directly press, found to

Newpark’s And now like Howes. Paul? over I’d said, turn and to to with Mr. call CEO, President Paul the that

Paul Howes

and you, everyone. Ken, to morning Thank good

business, which of a the weeks few change was into Fluids ago. get specifics touching on announced like the leadership begin in first I'd by a the I business, Before to

President we Fluids the business. David month, new of the Paterson as our this to Systems Earlier welcomed Newpark family

have believe asset are leader his progress fluids we and we to will a the on significant market, continue his excited global We of becoming David our in fluids extensive board, the combined be with as leadership knowledge on skills, that technology. recognized

Dave stepping traveling of the our speed year. And arrival, getting in our he Fluids we back quarterly basis participate currently announced role and Bruce the XXXX While is an XXXX served who that retirement calls. and up Smith recently into as to on on to President will most business, we've late with future expect David's last also from interim

the U.S. Bruce over transforming Newpark player XX instrumental contributions regional a outstanding company. globally in to leadership like his and has respected fluids significant personally thank a from fluids for Bruce been into years. I'd past

second quarter update our is businesses. continuing entry of make very an of with to progress in benefiting both I'm Fluids, meaningful Gulf announce across gain on our strategic the efforts. to traction several Mexico execution to projects. growth turning plans pleased to strategic deepwater continuing market Now that our deepwater In from we're the

the to awarded been work demonstrate have we Shell to Oil another and of deepwater serves with report to quarter. as with our by third opportunity pleased Each that capabilities begin project I'm And recently end the an rig technology. industry-leading expected

startup completion in Mexico Gulf progress offshore our of following of fluids portfolio year. In we're addition, also the facility earlier this our Fluids expansion seeing meaningful

Shell deepwater We wells second quarter, combined received with covering fluids two during first award package Oil. the our

is The fourth first the in expected the begin well scheduled third quarter with a to for project second quarter.

well expands allows meaningful package not it also completion stabilize drilling in that our and us completion our but between customers only because operators stream the move expansion and each our provide into completion as phases. combined value, reminder, helps revenue As to is it and revenue because a potential fluids drilling

reminding gain Meanwhile, like organic to bear time we our minimizes continuing investment, worth will this Mexico make are expansion we the our of product Gulf U.S. qualify test and stimulation traction, also are our product work our this our fruit see line entry. I'd and initiative. everyone on capital strategic with to to to take to that very land, Newpark chemical while progress thank as customers more it entry pleased that offering. It's also We penetration market employees the supporting with means to approach market many meaningful

a South As successfully for trialed stimulation you in major the our chemicals recall, operator quarter, Texas. we may U.S. first during

provided for customer successful also the that product customers. we other in continue wells several quarter, with advance the we Following to trial, three stimulation second qualifications chemicals and to

Although, our for approach to entry will organic very take develop, opportunity stimulation time remains a expansion significant chemicals market some Newpark. long-term

roughly year, presentation highlighted estimate stimulation alone be last late As Analyst in our $X chemicals market U.S. billion. we Day to the in the addressable for

U.S. be in pipeline business. in activity further the the in energy particularly transmission progress Turning sectors. non-E&P validate which business, softness diversifying on by strategic front, that our encouraged are E&P the to continue electrical distribution Mats our we serving we continued to to On our and The infrastructure penetrating and focus space, includes is markets. making

larger offering decision-making allocation. our and requires our than With scale-up a historical market energy regarding space, disciplined opportunity size our fleet the markets in infrastructure these addressable E&P significantly

discussed by but of magnitude this expanding of growth projects. area stability of in and cash and terms past, typical we've of are benefits rental clear, the our As many E&P are projects larger providing revenue size not our in predictability flows. orders than also improving in revenue The the opportunity, utility the duration only rental of and

as fleet production. highlight penetrate providing a to of is assets dedicate meaningful order In markets, well service increasing must soften as E&P through pleased portion our to that rental very shifting benefits. our our these opportunity mat the I'm by both to markets we tangible approach as

towards of progress we access benefits to revenue which we the expect and the we time, to rental is utility mix our strategy year our space energy shift Over more expanding, into provide XXXX. half rental and projects stable expect markets. general infrastructure as scheduled will and continue Our second the in the service through

a Before gas key U.S. I'd touch financial largely we work few in expanding consolidated million the improved turning quarter. the X%, key Gregg, in the the market the and revenues representing Canada, the of Despite oil call and over and the highlights quarter, on revenues like of markets. breakup to the softness of the on generated $XXX to in deepwater continued second rebound in In by sequential a impact Fluids, international improvement. reflecting impact X% spring

segment to of impact a benefit ongoing and increase meaningfully reflecting X%, Fluids operating As of improved our efforts. also the improvement revenue expected, margins the margin

committed of to In Mats, and flooding in line infrastructure rental to causing quarter. delays certain activity basins E&P in continues remain Meanwhile, scheduled operating rental projects, prior particularly within flow. our where cash their resulted energy infrastructure heavy expanding customers with areas in remain scheduled despite non-E&P in gas-focused rental rains soften, to projects, energy activity

to sales count. Meanwhile, by delivered as positive somewhat deliveries free shifting an in from difficult continue with operating of of pleased anticipated XX%. these our operating be the QX. we continued to Direct to QX are continuing Mats discipline result international impacts, cash Despite our segment predict approach mat been return share is year, into margin free strong flow than flow to disciplined cash With to mat substantially sales we half of the of a which our which first the our has of generation. million in X% performance, more share the outstanding $XX through X million utilized shareholders all QX of shares, we repurchases. first value half, Through generated repurchased represents

call over the And discuss with detailed quarter. the that, Gregg? to turn Gregg to of I'd the financials like to

Gregg Piontek

sequential Thanks, of followed good reflecting by rig quarter $XXX Revenues near-term results and X% the consolidated the specifics XXXX, the outlook. an $XXX covering U.S. the sequentially the Fluids segment quarter decrease. in despite XX% total and the morning, year-over-year X% by segment X% revenues increased update begin to second reduction in on Paul, of and for count. The Systems U.S. a increase everyone. I'll generated million for operating of million a our

primarily gain in Mexico, continuing contributed with on, Shell the are Gulf we increase work and touched deepwater $X from ongoing As a to revenue benefiting Fieldwood. Paul which million sequential traction of our

U.S. market with most largely increases $X areas reflecting land and in million per also contributing sequential the share improvement, a by rebound In to addition, improved rig. in revenues drilled footage

the regions. outpaced in revenues year-over-year year-over-year broader Mexico, the sequential with activity, primarily Consistent period. the XX% QX U.S. also from basis, the of of rig land average XXXX the along comparison, reduction U.S. across Gulf is a increases most attributable improvements in improvement market with over X% On increasing to a same count to compared

sequential XX% at XX% rig in revenues followed XX% decline, with comparison as of for count. through with areas reduction the a the Canada line second rig by Canadian seasonality The exceptionally breakup in breakup. that performance by declined On coming Canada, XXXX revenues reflecting spring reduction trend year-over-year quarter, XX%, a business which In in to compares through $X a million basis, relatively revenues year-over-year in count. our drill from the is included typical prior concentration QX strong from year of greater spring impacted a revenues

markets. international Turning to our

our is the quarter's Romania, across XX% markets, quarter, second Italy Kuwait. sequential including last driven on the rebounded The gains and sequential Fluids reflects transitory by call, $XXmillion discussed which increase international in issues improvement. revenues a Following several to Tunisia,

reflecting largely contract our basis, revenues in the Kuwait. year-over-year and Brazil, declined XX%, transitions by international a On Algeria from regions

our remains activities maintained drilling. focused the we've contract activity position transition on the in strong more rather Although than Kuwait, heavily customer market completions through

the in X.X% the and for second first last X.X% Fluids coming with expectations improved quarter Consistent at X.X% operating compared of call, our year. on the quarter last second margin quarter's in sequentially, the quarter discussed segment in to

a with higher prior down margin inefficiencies quarter. increase transitions of the combination cost the wind contract driven on, the is touched Paul associated As by of revenues in and sequential the

to ongoing realize we from U.S. benefits the improvement continuing addition, the In are in efforts margin

in segment million $XX XX% the revenues majority the $XX of second reduction Turning in Mats year-over-year. service contributed decline, revenues million second a to in quarter. the at the and sequential representing business. decrease and were the for $X coming decline XX% A a sequential quarter, rental million Total

projects. touched Paul E&P infrastructure in was scheduled although by customer are strengthening delays impacted continuing on, of weakness we activity, which large-scale the with energy a see As conditions primarily caused flooding projects, regions, along quarter of certain second to in softness rental

remained from Despite and revenues million revenues impacts, quarter, sales $X driven these million service $X from benefiting penetration. international market project our non-E&P from delays sales. down the flat sequentially, in for first ongoing quarter, direct were weather-related the Meanwhile, mat relatively rental by

second by direct quarter million. mat year, the sales in decrease $X includes last in service, declined million of and Comparing rental XX% $X to revenues the an while decline also

E&P U.S. from service energy Northeast revenues project a more than infrastructure activity to by increased well our was markets and as improvement as related in from rental declines timing this European Although U.S. reduction business. year-over-year, offset the

the With the margin segment second second the softer to revenue for and XX% the compared was first quarter XX% for Mats for operating of level, year. quarter last quarter XX% the

to consolidated Turning results. our

quarter $XXX of last were costs Second SG&A year-over-year. and quarter year. million were million a XXXX $XX $XX million compared the second from million, $XX X% in and quarter revenues the first with X% decline improvement in the quarter quarter the representing prior in second

call. SG&A increase to strategic reminder, on a the with effort primarily associated quarter, in quarter these first with attributable severance sequential costs. quarter's spending charges and included discussed in $X.X planning associated the As as modification policy million is last million second our Adjusting our of for employee retirement SG&A $X the charges,

On the a and $XX.X strategic performance- second offset last $X planning to year-over-year quarter first primarily by the second office the Total year. costs. based in SG&A quarter the in corporate lower in attributable reduction expense compared were basis, incentive million the quarter partially $XX.X million in is expenses million to of

with spending included million of strategic first effort, quarter year. second was compared $X.X second $X.X the Interest million retirement the the quarter the associated previous expense to quarter Second with associated policy included million and modification. quarter both the the planning quarter $X.X while million in a last our $X charge in

quarter XX%, in noncash of income The includes in for interest, in compares second million an in million, income The second quarter relates provision with cash year. the the expense compares primarily XX% $X.XX $X.XX to million of quarter for expense, bond. $X.X of share $X.XX along and to which quarter reflecting Net second interest was convertible our the first per rate second quarter which $X $X.X effective which was the quarter of taxes XXXX. quarter diluted to per second share XX% and per first share, of for the last the tax

Turning to cash flow.

flows rebounded cash the quarter nicely. second As anticipated,

which investing million, in includes activities Second million quarter million by was net $XX decrease in cash working of $XX Cash operations, the in used activities was operating from with capital. provided along $X $XX $XX net $XX cash in million financing during borrowings, quarter. quarter facility along our Cash million, used X.X program. in activities with purchase million the $XX bank largely decrease totaled to repurchase shares used under reflecting the million million

a modest resulting of end with debt-to- million and a a of as quarter, leverage of ratio XX% remained of and in debt total $XX of Our debt-to-capital total net balance cash million second of the XX%. a the capital ratio balance $XXX

Now, turning and quarter expect In flat outlook. relatively to our operating we to remain second near-term levels. revenues income Fluids business, to the segment

Gulf Although activity be Mexico. softening by improvement largely and offset will we U.S. projects the timing expect customer deepwater seasonal this anticipate in the of typical the we market land Canada, of the in in

into activity, quarter fairly line which our from additional with to that the primarily Mats opportunities In move QX. levels. from we QX Internationally, we QX tendering provides revenues expect to general expectation near-term into see QX, in remains as direct second slid segment, benefiting we while strengthen activities XXXX, sales increase a relative in

a be earlier. demand, we of including expanding projects, softness On side, to terms and share, has the the by rental slowdown for project of a of period although T&D few our in anticipate us electrical this rental seasonal mentioned historically market large-scale startup the QX been as Paul service substantially offset year

to total to demonstrated, said, in the segment project expect the low- revenues the operating margin is mid-XXs That direct to generating As bit a always start low-XXs an of second date be range, quarter QX currently range. in the and sales timing we challenging predict.

of to of this spending behind Regarding in quarter. the majority although to level corporate the the is us, office project effort planning spending, our strategic third expect related continue now we some

modification with quarter grant third by associated of include our timing the our adopted will following expense accelerated QX the Directors the earlier equity recognition addition, policy In year. Board of retirement this

somewhat we likely $XX elevated to spending office corporate $X remain in will result, As expect million range. a the in QX, million

penetration half Regarding make infrastructure free our of expect the although year. to cash the flow continue cash we in of flow, further continue to the generating energy market, we positive investments to rental second

remains the $XX capital range. to Our investment in full year expectation million $XX million

will mat opportunities. outlook near-term we year, based support majority to continue efforts, prior fleet although flex the of investments will with XXXX Consistent expect particularly diversification growth our our our and investments in rental Mats, identified on we and

Finally, regarding in our currently XXXX. the tax expect remain effective low taxes, rate the mid-XXs will for to we of remainder

I’d And over Paul? with Paul that, like back remarks. to to concluding for turn the call his

Paul Howes

Gregg. Thanks,

conditions market in businesses. the certainly the our While both less continues than ideal, direction strategic in land softness U.S. are validate to

Most revenue As typical many stated are spend relying we notably, in not on before, we increases service your E&P drive in to oilfield I’ve not respects. growth. company capital are

generation. cash believe returns while in which And strategy best our to expansion stability on is our fully value. will market We we on both we in our invested this executing take time flow terms in creating develop, the of and ultimately shareholder long-term long-term to improve increased approach efforts provide are capitalize sizable businesses, opportunities capital believe organic

beginning and are have the foundation We the solid of realize a past laid years, to over that we several effort. benefits now

goals to environmental are them project when provide to partners are reduce that can also achieve projects. in our We in industries whether recognized technology their reduce total their with customers increasingly to for reduce across cost value them our as terms are completing in unique impact their goals, proposition. help Fluids valued solutions becoming of providing is different seeking reputation are their or these our – or leading Whether Mats,

cash is Another differentiating characteristic consistent flow generation. Newpark our of

flow expectation free flow been free for past year, industry on cash generation. focused always business. Over has increasingly our cash have discussions the consistent of To us, investor the demands

XXXX flow we as the are continued over even ability fact, despite XXXX and capital making to we in XXXX. the growth has faced, we to cash In nearly of generated the navigated downturn cash meaningful And $XX has industry generate XXXX to through most the investments free million fact our challenging initiatives. period that support free our

well. this touched course work capitalize new our customers largely to the that to will effort while planning and third approach. has identified think noting long-term continue Gregg it’s completed helping effort our also opportunities, the progressing served on, we’re I quarter, our is worth to commercial And strategic to validate As through to while value our on refine our additional opportunities provide expand to surfacing To capabilities. continuing organizational date

necessary investment. headwind investments a and sustainable as and modest these this growth are on returns operating drive results, enhance cash While in servers current stability our to flows to

consistency while value remains driving capital. Newpark maximize and invested in at return goal the by same: on generation to cash shareholder long-term our growth flow improving Our

that, like your With hard investing on us as their thanking the close employees always our for and call, dedication I’d Operator? our take as continued safety. work to questions. as I the shareholders for thanking Newpark by focus to now We’ll and do, in well continued


Thank Instructions] of with the Please proceed Raymond Praveen question. Narra comes James. you. line question your Our with [Operator first from

Praveen Narra

also Fluids impressive, seem to to kind And you continue want be maybe that Good to going falling, through that? margin that guys. be more competitive about how the of is be but to as like like falls do Obviously, that, can returns-focused. or But a talk activity want peers to morning, is case remainder activity you acting. your the see the Or to the and of expect dynamics you they’re are headwind? be They are seeing case more returns-focused. XXXX? more are The hear was we I guess on I how guys on able the X% it to in lower you I stick if so seems XX.

Paul Howes

changing. one. been, don’t so think, U.S. really Hi, market, I it’s see I very a competitive Praveen. and always I’ll on take land, that Certainly, that

solution there our Fluids from to approach our on whole a side. even think is us unique some if on our drilling the fluids revenue grow our is pressure, and improve say, opportunity our for perspective, total profitability I

Praveen Narra

I more the a guess in seen ramp? revenue thinking the of of And then terms the process. in stim the go about I bit significant qualification that to of Great. trials Okay. piece? generating a changed into could of of get what the you frame kind in guess, Fluids -- think and has growing through that chem, kind a you've the takes you customer door, you opportunity then into so total way mentioned far how revenue-generating time pace it that through

Paul Howes

of terms what we the I In our has at all. expected don't qualification in chemicals market, view the had of into going think stimulation changed any

In fact, exists it I in market. addressable now. fracking down, that validate at headwind that kind the of of there think market, really right we're the If any slowness the chem stim the and and that size continuing slowing there's is to opportunity that the market in all the


Praveen Narra

one Okay. to more Mexico, Gulf does those Perfect. was -- if hear I are Mexico the this as at At great stand on about in deepwater overall the But margins And of in, squeeze business? point, to the we how just great. XQ accretive then rig. Gulf of today? Or it could point seeing obviously obviously this Fluids

Gregg Piontek

to overall Gregg. is the take Fluids Yes, that business ramp-up revenues, the it is fair in I'll the with say is this yes, to accretive now margins. Yes, that, that.

stream key that create a as business. on continue forward and revenue the momentum build we Now from is here to consistent this move to

Paul Howes


investment Praveen, the things, in facility of a know, we too, haven't significant fairly Gulf we you Mexico as filled One of that and capital up. the made

award probably to another another we we come from that the our but expectation deepwater, revenue the it's XXXX. of out in look to year, could player contract wouldn't that see As end

that the we will overall that part the out another business continue provide that's to facility. in fill lifting Fluids as So margins

Praveen Narra

Thank Great. much very guys. you


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

Bill Dezellem

Dezellem Hey, Bill with A I’ll help out Capital. of couple there. It's Tieton here. questions

a of first First Mexico have line the through that even did and of on deepwater year. you might to that maybe remainder of half of next and you talk you -- you the bit that relative projects had year of the all, or in rigs Gulf detail, would that you the sight into just be more

think could be you one the at year. just I you awarded So you'll believe mentioned end that -- be the of

Paul Howes

and in unique the to come look for opportunity by the created I end probably doing at Mexico, wouldn't we're certainly Really, the Gulf revenue the of year Yes, you if of what company. think a the XXXX. we've

good We really technology. have, think, I

have I the investment very provides the facility turn operating faster, us think differentiated to a Fourchon, that OSVs we to in which allows value unique operators.

on that operators for on our I think works our of in lab our quality a on haven't are seen think, while. in that the group rigs service problems, that, are that the Katy tech real-time I top And solution exceptional. deepwater they of engineers were providing a total the

Bill Dezellem

on fluids? that would the this And believe end completion operator, new and for rig you that may you that drilling up be

Paul Howes

side Getting I see work the at on that probably you do them we point, efficiency on drilling continue though it'd be drilling, value it hard it initially, comment? on there because those rigs. like would side. this for But together, Gregg, to well to as completion so the be fluids operators think want the is the to a creates

Gregg Piontek

and to of this with the particularly that Yes, about that's process think just discussions to catalyst the comes with going past qualification other help I we've mean the I had particular, Shell, been to in successes had that. bit some the a we've operators. discussions to was advance back I a quarters in add with

be So expanding in we share. that continue ultimately to go will optimistic down successful feel and it that we our path,

Bill Dezellem

meaningful that Great. I shift dynamics half. Mats more And contract. business, like delayed business distribution that's sales what were That typical And start talk expecting the the discuss and if international work about bit here in second the to than sounds to to then you the your would there? I also you're the quickly, Mats a transmission Can like in the may.

Gregg Piontek

it Sure. I'll Matthew. over hand and to start

did we expected continue ultimately commentary into of the that's then have of �� We down timing a activity challenging. opportunities, bit order terms project a past of of in delay specific in QX this while that and the and to fall and In always delays, the have is the of nailing and comes a QX, The that in rebound few sales little here I QX. we've that a dynamic reaffirm timing into created to the QX. slid delivery back is to think pipeline that we what those dip deliveries made

As far as the it Matthew. question, other to turn I'll

Matthew Lanigan

Yes. I interesting typically mean the as T&D Gregg XX% terms seasonal referenced about we're you Last build into decline. last at you year earlier of to the I that there. a us what's look of look think if year, QX in QX, think contextualizing, the to talking in I would that see QX, in call drop the we was vicinity

we're look into XXXX, the a XX-plus-percent that growth expecting see As in area. QX QX, roughly to in you build

geographies markets, into So what we a more seasonal would sort able we've decline other by than the typically and been to, QX. see in moving of offset into

Bill Dezellem

process? outcome share And us strategic about more the you of what then to planning if you'll the would like question. take with one

Paul Howes

increasing a the rate about Bill, so that's this on time, business, at of lot seen energy the of and our is we've thinking, had fluids what of within this And lines penetration. Really, a and moving additional Fluids markets far solution new we product think really it's the ideas our new these through opportunities the I momentum our into process for the growth And strategy, validation infrastructure. developing where or thought in it of direction. the question. the terms business and obviously, good to lie down comes we in total the and table

Gregg Piontek

our to And that's And proposition approach the opportunities. far what on our in more learn our refine to about I these commercial us it, penetrating Yes. our of really kind of closing, we we date, I with we've add markets. as definitely guess helping to this touched learned nuances market Paul's of to value strategy would as some new but in

Bill Dezellem

Thank Great. all. you

Gregg Piontek

Bill. you, Thank


the concludes to portion the call. for management I of would call hand to like final comments. now back question-and-answer This the

Paul Howes

look Resources, to again Thank for joining in and quarter. All right. interest we and once for speaking Newpark forward the you you us again with your call next on


conclude teleconference. does This today's

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