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NR Newpark Resources

Participants
Ken Dennard Dennard Lascar Associates
Paul Howes President, CEO & Executive Director
Gregg Piontek SVP & CFO
David Paterson VP & President, Fluids Systems Business
Matthew Lanigan VP & President, Industrial Solutions
Daniel Burke Johnson Rice & Company
William Dezellem Tieton Capital Management
Call transcript
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Operator

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. Thank you, Ken.

begin. may You

Ken Dennard

company business. and Piontek, us operator, the Matthew webcast Solutions everyone. appreciate President Chief Fluids from We review Howes, the are Thank President of Financial Newpark's the good President Officer; Newpark Lanigan, Industrial joining and the Participating results. for quarter Officer; and and today's Resources you of call second Paul Gregg you, Executive XXXX morning, in Chief conference Business; to Paterson, call David

speaks few replay will XXXX, telephonic the Following also Please August on over on will yesterday's the in feature the on quarter newpark.com. Q&A. note will call before management be information turn my run details financial that results this the to to release. call that I XX, information and a will company's reading. the that access sensitive replay is reported There may outlook available that of commentary recorded to a through. available remarks, webcast via only website today's the high-level a management, be and I provide at call longer near-term X, August details time on no call until for second any of before housekeeping how accurate transcript time be of listening information are you or as be of have opening today, But therefore and There a of advised replay XXXX,

various of performance the X-K cause quarterly These non-GAAP uncertainties those The and by the reflect to could current certain Form management. Newpark's financial is States measures. reports current forward-looking within of statements in materially addition, from contingencies. statements achievements management and The on United management; XX-K, of contingencies on to actual this Newpark's risks, today Form annual and or comments contain may may laws. securities by reader the the during expressed the results, statements certain differ to on however, views encouraged In comments or conference include risks, reports made Form read call federal made meaning made the listener understand report those uncertainties XX-Q also forward-looking

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

Paul Howes

good and morning, Ken, Thanks, everyone.

and strategy forward the another as Our position second our $XXX we Consolidated revenues million, in improved sequentially X% results company for call. Industrial XX% quarter quarter profitable and a rental increase reflect sustainable improvement execution, and prior a in step growth. previously we to reshape continue in with revenues, pullback discussed in that Fluid on Systems offsetting our Industrial service Solutions Solutions XX% to the sales product international and anticipated

Second quarter generation EBITDA was $X million.

Turning expand markets. of to Solutions power end our other business continues diversification presence the as our and our transmission of segments, industrial in the the demonstrate we efforts, the value Industrial specifics to

with markets, XX% $X sequentially from our back improved in second declined in United power revenues Kingdom. to performance customer. the product the As in revenue Partially $XX product industrial record and strong product States second reduction, and quarter, as Access $XX revenues quarter. both pulled strong primary in quarter, a the impact to contribution Industrial reflecting and also second for quarter, of million sales the the to sales, end million the transmission including back other reflecting service the blending rental United anticipated Site off $XX sequentially, of million transition offsetting anticipated, pulled exceptionally in quarter the product million $XX first coming million contributing revenues the segment the sales XX%

Fluids in the performance, generating other it's million the XX% our revenue, more in end achieved industry transmission previous contributed XXXX Industrial Reflecting million $XX end our lower of half industrial half the of the stable the improvement penetration. markets, that end EBITDA. our In XX% international activity and million With Meanwhile, following on a oil previous that and market start-ups, disruptions revenues the second from and operating segment, and power $XX in significantly reflecting quarters. improved This than over highlighting the project our on the market XXXX COVID-related modestly quarter, our annualized impacted contributed our XX% revenues, the to lower sequentially, worth rate the first Solutions gas and declined upstream recovery historical represents first million segment run focus high markets less Site phases XX% of Systems XXXX, certain X markets. $XXX early momentum within benefiting revenues. of the of Access illustrating continued of $XXX the Solutions margins industrial

and associated efforts. Canada. Fluids below in the breakeven remained our revenues by inventory in pullback earnings America, Our in the including operating North EBITDA international modestly expenses, quarter, elevated North second million, million primarily Europe by a improvement growth revenues improvements from XX% improved $XX severance the and with In XX% segment revenue positive contributions to the benefiting in rationalization Africa. the second offset largely seasonal with the Despite our from employee impacted costs sequentially the in international to improved ongoing businesses, and U.S., quarter, $XX

U.S. quarter the was impacted forward. going which to addition, by expect an unfavorable normalize sales In land we mix on

which that won term $XX This quarter, to including second reflects completion the Thailand scheduled revenue approximately to the the Southeast very I'm provide in over contracts, provide X-year pleased into contract X-year with in is our award begin quarter. notable third first the of we on and work a million highlight Fluids drilling to X During expected to fluids market. land, Asian entry

tender a to fluids part were we contract our fluids, providing continued for the differentiated as Shell a services $XX the X deepwater drill addition, In and will revenue drilling providing of the contract in reservoir Gulf of on approximately expect generate direct Oil awarded we awards believe latest continue of Mexico, drilling related million We technology service. and annually. ships, result of focus superior customer which are recent

the Global energy and improves continuing the on acceptable feel our the we return with I capital. more also fair And growth will Gregg? reshape to while to provide capture detail share call are As well-positioned quarter. to our an of generate in in we that, Gregg for discuss profitable hand to cost value to activity the chain, the financials over market, second structure

Gregg Piontek

strong second $XX sales blending coming million benefiting our United morning, before second sequential service the The along declined strongest Industrial U.S. a update growth XX% our providing with quarter. for million quarter and the segment XX% quarter, by revenues in on following $X sequential utility the of the segment on sales. QX Thanks, financial outlook. I'll Total exceptionally demand Solutions consolidated $XX for Paul, projects which in quarter, and million product in good a and Rental for the the quarter decline an decline covering performance, everyone. includes the begin results specifics and in reflects and both business to basis, near-term second Site the million the at the nearly from completed million with a in Access industrial million robust Solutions sequentially $XX revenues anticipated $XX reduction reflects industrial the improved product large-scale blending. which contribution $X X years. the in a few from in U.S. by was primarily sequential Kingdom, and from The the driven

of Industrial As in contributing to million the million, in a operating by the $XX decline $X EBITDA $X result sequentially income million $XX of the revenues, quarter. Solutions declined second segment million

associated gain to an As revenues million and business $X highlighted in our the This service a or XX% increase Site the in yesterday's rights. or of product of the along QX release, $X press includes million patent sales. increased million and revenues, with quarter last $XX included rental improvement million year, Access result Solutions improvement enforcement with second the XX%. a from $XX in Comparing

Looking activity first within more see power on, a specifically, we're shift than our XXXX the revenues, the business, notable segment transmission than XX%. that market accounts revenue historical for mix. half continuing end it's Paul Industrial significant segment at the E&P our for our less contributes to market as while touched of Industrial Solutions half Solutions More

improved increase second sequentially, America, million sequential Outside with in market and Europe in particularly recovery, in the contributing the declined which delayed the Mexico of second million at $XX XX%. land quarter. million revenues improved quarter, of an total in roughly signs XX% In pattern XX% as early count, in modestly, the or All Africa. improvement. the the revenue U.S. sequentially second in Revenues U.S. quarter. the Systems, Fluids revenues seasonal reflecting see along spring increased rig declining the share, quarter. million to $XX by from to typical through XX% sequentially revenues followed of to North market beginning the of moved XX% Canada, noted, stands to $XX regions projects Paul benefit to contributed $X Gulf Turning we are sequentially million Revenues million to International breakup, forward. from second in land improvement North segment the as $X $X

East. worth customer Systems called in improved noting second suppress $X of the press out for in coming the operating The Although $XXX,XXX slightly release. a the it's loss severance quarter, COVID-related that activity, includes on at which Fluids basis, to particularly million sequential in restrictions Middle continued charges yesterday's

the share $XX increase revenues count in prior including the driven basis, primarily customer year-over-year and into with drilling higher along fluids while $XX year-over-year, below by ongoing project our on, completion prior continued customer million period. quarter, million $X.X $X the revenues increased in with Middle impacted benefiting The a increased reflecting year a the completion the $X both touched reflects second several office to million of by our were contribution $X this the XX% increase unfavorable well our price restoration business performance XX%, share April roughly last XX% or million increased our markets market The relative is and Fluids in retirement declined or of On Mexico strong mix. recovery barite second outpaced to the well improved $X sales remained expenses million U.S. from start-ups spending SG&A line as noncash and our expectations, reflecting certain our strong in XX%. our and Paul to austerity and International in tied as revenues to quarter measures, our a while well, from an significantly Fluids the or plan. which incentive Interest contributions U.S. stimulation Algeria, facility half operations the sales revenue COVID primarily relatively million prior elevated with negatively rig year higher in from year-over-year which modestly increase including X of and the chemicals. matching performance in was XX% awards year. in U.S. or primarily plans, which changes over revenues the European per nearly As by includes of Systems attributable the the quarter, expenses, Gulf including expense challenges. long-term sequential land market levels, of corporate as expansion year-over-year, quarter. $XX along million second in discounts. were customer of East international fees expense, growth as activity improvements million million company of and quarter, costs decreased $X.X reflects new amortization quarter

average is approximately rate debt outstanding X.X%. borrowing cash weighted on our Our

loss. a includes quarter $XXX,XXX despite second a pretax tax The expense reporting income

benefits the on foreign are currently expense unable our therefore, reflects taxes primarily U.S. We tax the tax earnings. recognize losses, to income on and

net loss in Our $X.XX net share, per per last of per $X.XX which quarter which $X.XX included share loss the the first a to $X.XX the share was in second quarter second loss of of charges. a and quarter of year, net in compares

we achieved cash second working Turning typical to cash used net anticipated, quarter. as the strong unusually of performance changes level the as $X saw in DSOs in the to from million a return, more flow, capital quarter prior

in cash million with activities by again total in of XX% $X a used for cash from debt-to-capital other than investments, ratio quarter. second debt the million $XX $X a fleet less sales higher million cash million, and with working used a offset operating modest Investing and modest largely net a assets. ratio. resulting mats second We of was With activities the $X the rental capital quarter, balance million $XX ended of underutilized proceeds used balance from of debt-to-capital and of our in X% the capital, quarter

and total As we provides million $XXX later satisfied sufficient include the ABL highlighted facility, the to requirements eligible this rental to the million availability availability in under note increases fund year. million our have $XX yesterday's press which $XX mats of capacity our release, ABL borrowing maturity convertible in to

balance are June now the XX, convertible long-term the debt in such, XXXX classified as notes As sheet.

improving to we in both Now and pressures significant fundamentals near-term see continue materials though our outlook, encouraged we raw inflationary ahead, look the turning are segments, longer-term by to transportation. as we business on

the We Site the rate are situation evolving pleased also we are expect COVID business, Access we targeted while strong high and closely market the markets, during the face near-term variants project reduce end Solutions slowdown growth the the years associated seen around with world. monitoring In demand temperatures. the the the the with very activity will in with summer electricity sector as in companies period typical past utility of seasonal activity elevated utility in

to near expansion we geographic levels. anticipate we rental continuing service return revenues and QX that execute Although will QX to efforts, are our

our the robust strategy. of opportunities execute QX, Looking we by pipeline to we encouraged as beyond growth be continue

our strength limited customer in On timing has of the line predict our this near with should they fairly third fourth reflect difficult strategy, to will QX we the the recently the the expected decline activity, with the result us year. as ongoing to $XX utility project disinfectants to back recovery expect near segment product a million. softest the relatively activity modestly in the experiencing slowdown operating from as year-end in for to in side, U.S. benefit expect that Meanwhile, for quarter, low the the and the industrial informed term, will business is COVID we sales total, In it investments we expected in decline sector. And remain revenues the our although to for to seasonal well evolving from cleaning the mid-teens as support growth roughly are the with blending products pull QX margins remain quarterly Solutions into rental the in demand their for in of wake sales are which revenues to the Industrial always primary in in expect revenues quarter term,

and power Fluid the will expect to In ultimately penetration pre-COVID other and Systems, revenues the the markets. product both second from demand expect in year-end rebound half the of by our end transmission we operating to recover of we international QX, our QX, and through levels returning ongoing Beyond margin industrial benefiting in markets sales will the year. XXXX, continue

Middle international roughly QX. XX% of East, expect by revenues with effects QX will COVID, lingering the With more increase particularly in improvement a in the we pronounced in

reflecting QX, anticipate recent offset should segment quarter, which closer fluids in In addition, are we improvements our Fluids full a the incentive and turn long-term over remarks. QX line of largely we place in for the led grow measures Canada lifting now completion level, in I'd his income in the increase QX revenues by Corporate total, as expenditures fairly call With to second is revenues opportunities operating focused to from robust will expect the will a Gulf to the performance-based the income from And regard in remain expect the quarter, percentage to a breakeven deepwater seasonal segment. in expected the in the to see on return million continued we Paul positive austerity along for during Solutions likely trough CapEx, near-term in expense, put by decline the strong U.S. will like that, Industrial quarter-over-quarter fairly with second In with expect segment growth expected growth office by QX in products remain back start-up $X we with the from land. QX. limited, to the the drillship which Mexico, XXXX. within low-teens North the the award. roughly QX, timing America excluded will on investments recovery salary with In expense of a contract with of in concluding to bring

Paul Howes

quarter. Thanks, the the Gregg. second continuing with Overall, I'm progress in we've made pleased

encouraged the market as that fundamentals hurdles ongoing there uncertainty of the as elevated navigate, cost the COVID impact around market industries are meaningful the we variants longer-term With ahead, the the remain that key all of which including Looking by in we obvious said, Further, regarding well level provides world. to term. capital-light fluids opportunity fund free the serve, sustainable for over term. the with we model, flow positioned the long and our and objectives long believe to our over debt very growth we growth are modest profitable business and strong generate well cash inflation

business. with beginning the priorities of diversification key Industrial expansion our remain Our Solutions unchanged, and

we our awareness As our sector Solutions on market. unique growth, very from power transmission Industrial strong to growing proposition value that we the the strategy, of execute Benefiting our pleased within we're continue of investing provide strong XX% half multibillion-dollar highest first this the utility with profitability and and our contributed of plans. geographical including generating capital our our our business reach consistently growth to revenues, necessary expansion Expanding the support remains segment while priority, returns. targeted market

the although and demand disappointed this near-term demand challenge a is On it's operations, our are by typical in products, industrial the business. that seeing shift in disinfectants highlight that customer we in cleaning primary to important for a as blending for reduction the view outlook new we

opportunity COVID year, the the the product cleaning Over capabilities. agility industrial demand surge and with past market in our and us blending fight quickly the showcase against to provided penetrate an associated

facet consistent from products praise extremely our of a During quality period was ability to manufacturing deliver every extreme of customers. high process with quickly, met and our urgency, move the execute and

with that role history specialty of see In a key to believe a meaningful in COVID, build unchanged, we performance. behind our the benefit Our transition. build past Internationally, in markets and prior important of from expect growth COVID but robust a our customers. forward. the stable to we business that are tailwind relationships, global to worst cycle. It's in in expect expanding near-term many our service proud capitalize global play also drilling, hopefully growing while industrial our of profitable Systems, quality to to And a be note international small to XX proven the maintained geothermal what despite to we we've operations feel diversified business going team challenges multiyear where of continued energy highest to are to us, priority will we upon reshaping the and maintaining for resume efforts of business. months, our chemical remains well-positioned the long we Fluids for area upon a We've our extensive a added capabilities this blending the the of

We In outpace expect our the extensive international we for taking continues expect to business strengthen, years EMEA while market Pacific. actions the presence remain market geographical scale the region North Asia growth American market outlook structurally will to our in the come, the footprint Fluids driven in in expanding primarily to and U.S. the our to further business, future. in Fluids what we are a smaller by

from U.S. with industry In gas much-needed commodity focus the addition, the also price prices, and driving increases. includes our oil now near-term stronger benefiting

and our questions. who now always continued cost employees of through are half return our do, as for continue on as We by as like well expect take invested focus the year call safety. the your land dedication that, consistent and the acceptable generate cash actions on the shareholders With second our close We'll strive U.S. pricing will flow both to capital. Newpark Operator? work of to and I on and I'd thanking as to in their hard investing thanking we us

Operator

[Operator Company question LLC. Daniel is Instructions]. & Rice Johnson from And our Burke with first

Daniel Burke

in rationalization, U.S. of inventory better unfavorable help Fluids impact? use makes you the on you ongoing but the that Maybe sense, see. that Can me referenced market. understand the Let's top dynamics word mix I and the program? the to sales side, helpful me would line. what's to of U.S. imagine bottom on -- ongoing those obviously that side. so less interplay But help the understand duration line, it's of And

David Paterson

Okay. This is David Paterson.

losses. than an point QX. in lot a mud liquid see first that high the product of higher expect. oil-based say, QX, saw, with downhole traditionally we was I we unusually We amount operations mix, There mix, the of normalizing the into on On significantly product would would

inflated that margins. has that and of consumption a So liquid the the mud, impact on the negative

Gregg Piontek

that's that, continuing Yes. add to And and This about a have I in that think particularly our area. you quarters we're efforts inventories. We've would that. to our ongoing to that's is then going just off, take I the that, and talked work past. to to to rationalize several through just excess bleed an adding commoditized And area

which additional the you not into have well. factor overall So the sorts have that of sale inventory, it margin, only negatively as transportation, excess of that those cost, you things impacts

going a doing then you're monetizing the you of number capital But level working you're hits it fronts. ultimately, and is asset that So your on at holding working what down, forward.

Daniel Burke

helpful. guidance. to Got just then, Gregg, it. margin the That's And maybe revisit Fluids

framed op you'd Fluids QX? think margin a in I bogey I heard there the has guidance since breakeven EBITDA correctly. QX guidance EBITDA is in been out in breakeven the inc. Or assuming the also of before, terms ambition, that possible is

Gregg Piontek

that Yes. we positive closer in op to QX. EBITDA then we and level into back various Overall, us top line that to we're to be here we're as that breakeven growth to in line are issues that navigating, recognizing get get QX, there top the would -- enough territory the challenges the I positive navigating, expect income mentioned, with we growth,

Daniel Burke

see are the And to mitigate base. But cost No mean, I course, address references, surprise any to maybe another most inflation sides you'll to what hear Okay. that, acute? both passing both Raw your then like do customer kind question of on it materials, of to I to segments. way cost in where terms those where spanning assume you and of escalators is is business discussions inflation. can through of just what

Paul Howes

I'll area more side, seeing to that costs. that's that's the Matthew, industrial we're comment but But on operating then business, specific other a inflationary that. take on on on transportation, clearly, X where the material little first, presidents But Solutions? I'll bit also the the have we're Yes. then where it, raw seeing

Matthew Lanigan

in raw acute manage side it's possible. business where the can increases year-over-year on substantial basis. most sales We think price with product pricing there I that our discussions material on with a passing through look, Daniel, that Yes, on

the The other alternate look construction ways help down. at the to in of mat we could chemistries dampen do that it is

we still but strong that a can this we couple headwind a have So there, of point. at look reasonably levers at

David Paterson

a We're Yes, supply given pressures derivatives, hike of mud our there's same part polymers. for headwind of headwind. A significant It's cetera. conversations oils, the with already sharp the of shortages lot in Fluids. also proactive, been there's across base strong chain, say, a seeing oil the customers our Daniel, in on business. oil cost, materials I that And a started in our also, a having to big Freight been so pressure are pass polymers, very would a price. raw container and increase meaningful lot We've products et chain, water-based supply on on. and having

of Fluids very are proactive looking happening on a diversify in also, actions lot these mitigate future, that the teams so in chain the today. focused doing forward going Our we're to headwinds. And at we supply how against

Daniel Burke

last in, one cram I'll helpful. That's one guys. Okay.

the side imagine and customers, sort and opposed and mat power plans. better gas and their extent On customers, or would I of have of those as visibility specific into industrial. longer-dated to transmission an to utilities oil to course,

growth to XXXX, as reason I here why good continue enjoy some you won't that all shouldn't look business? hiccup, the it a structural in there you in got 'XX. call so pretty QX any But seasonal And is even you but dip to

Matthew Lanigan

and there. the macro that all not COVID they correct will be all is Matthew components around grids to chain that absolutely cetera, absolutely place, variants it's COVID with theme, variability But Obviously, any you're macro just -- to down that their that by It's think at theme in -- that Look, cetera. their lined again. utility start up Daniel, issues for you're projects et Yes, got and caused that, I take are and they've a until going is throws the away. et a ducks of need going as correct. permits supply

Paul Howes

Yes.

whole not grid it. country capacity a 'XX, energy sufficient the this 'XX on look So EVs there's in if you electrical certainly, lot at the transition, of to or across put

not And we solid just 'XX, so the trends, trends feel sector. that this very in long-term 'XX, they're but macro

Daniel Burke

it. Got

Okay, guys, I'll leave it now. there for

Operator

Bill is Tieton Management. Dezellem Capital Our with next question from

William Dezellem

have I two questions.

First going designated we in of CapEx remind forward? all, normal quarter, correctly us, the larger. QX for? today, understand you And much the was CapEx said did that was that you last What was the level would here more of

Gregg Piontek

This is Gregg. Yes. Yes.

now be limited. a for have those softer. going things bit as we down, that's little Obviously, we to have additions. terms reason and the for in couple had in slowed here the QX, the very of QX. projects a CapEx large demands. lot any We particularly naturally heavily to here That near was fleet. see business it concentrated a the was term, in of mat completed. season CapEx We're into projects the mentioned the So of in meet that supporting meaningful don't that a need so large-scale and the I expect in rental would And those

William Dezellem

update, penetration you And give on an us and would stimulation completion efforts? fluid please, then the

David Paterson

Okay.

in globally. I customer but footprint So our Northeast, job, West we Bill, QX, in strong a We also pretty Revenues did first. work had U.S. a which in David did down a on think From picking were were both stim in we more some nice expanding slightly, than expanding which up involved in Texas, fracking a very a here. actually land, perspective, quarter. Paterson footprint our was was we but solid the quarter, stages geographical actually

amount transition to to reducing are we series water used good designed new These produced with some some the our excellent freshwater. of of think HVFRs. so continued also applications, that, be in I ESG performance with very demonstrate benefits associated

the very in a And trial with Middle so completed first East. I in to a Delaware, our large Continental think we quite in Also, the had traction our Europe. successful with that. gain Just continues getting although stim, in customer that the still to traction we're sale independent small, pleased see actually, business

Mexico, the So rig. overall, were I an We Gulf fluids not work Fluids Completion awarded fluids of see the be in wells of think, continues of has awarded a steady the second to part and but completion deepwater rig integrated in Gulf integral been the we were progress contract because probably rig, our we made get Very this offering. there. globally, the it that exploration deepwater designated as for most challenging Shell to Mexico. pleased second drilling the

really testament doing and technology it's Mexico. we're our in our think I and of team, a what the trust, the to of the performance Gulf So

William Dezellem

David, that's really helpful.

take leading of multiple characteristics chemicals. back What if regions? that's the to that your to me coming further, the it I one offering Let in step is this may, stimulation about success

David Paterson

in tailored we're have it's the produced we of staying use is a right? really very freshwater Bill, The We're in the we close think brine of capacity strong globally, Obviously, extremely our the we where applications. market. terms perform with in key a water competitive customers. position technology, ESG to offering, the well in differentiate because -- avoiding our pressures land I this U.S. So very plays. HVFRs is and up actually where on property the in a ramping carrying are

Paul Howes

high-volume Yes, are Bill, the friction reducers. HVFRs the

up then produced viscosity reducer allows to allows that efficiently well get the you -- water. and high more more of so the you into to sand friction with And the then frac frac

freshwater. to starting it away moving So benefits, regions some tremendous you're from thinking ESG about see has

a a it us on feel So tailwind product we good that gives about. very kind of

Operator

does this to And like to -- back ladies for management would the session. Therefore, have we over and question-and-answer closing remarks. gentlemen, today's conclude floor I turn

Ken Dennard

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

Operator

This thank conclude and for teleconference. does today's participation. gentlemen, your you Ladies

a may wonderful disconnect You lines have day. your and