Welcome to Newpark Resources' Second Quarter Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to your host, Brian Feldott. You may begin.

Thank you, Rob and good morning, everyone. We appreciate you joining us for the Newpark Resources conference call and webcast to review our second quarter 2015 results. With me today are Paul Howes, our President and Chief Executive Officer; Bruce Smith, President of our Fluids Systems Business; and Gregg Piontek, our Chief Financial Officer. Before I turn over the call, I have a few housekeeping items to cover. There will be a replay of today's call and it will be available by webcast on our website at www.newpark.com. There will also be a recorded replay available by phone which will be available until August 14, 2015 and that information is included in yesterday's release. Please note that the information reported on this call speaks only as of today, July 31, 2015 and therefore you are advised that time-sensitive information may no longer be accurate as of the time of the replay. In addition, the comments made by Management during this conference call may contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views of Newpark's management. However, various risks, uncertainties and contingencies could cause our actual results, performance or achievements to differ materially from those expressed in the statements made by management. The listener is encouraged to read our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K to understand certain of those risks, uncertainties and contingencies. And now with that said, I'd like to turn the call over to our President and CEO, Mr. Paul Howes.

Thank you, Brian. Good morning to everyone. We'd like to thank you for joining us today for our second quarter 2015 conference call. Following my remarks, Bruce will provide an update on our fluids business and Gregg will discuss the mats business as well as the consolidated financial results for the second quarter. I will then conclude with a discussion of our outlook before opening the call for Q&A. Turning to the second quarter, while the continuing decline in the U.S. rig counts provided a challenging headwind, I am pleased to see some of the positive developments, particularly in the fluids business. The fluids results were relatively in line with our expectations for the second quarter, despite the challenges associated with the continued decline in rig count, as well as some weather-related events impacting portions of the U.S. Overall, revenues from the U.S. fluids business came in 24% below Q1, comparing favorably to the 35% sequential decline in U.S. rig count. Meanwhile, we saw a meaningful benefit from our cost-reduction efforts. As we discussed last quarter, we took swift action to reduce costs late in the first quarter which helped drive a modest bottom-line improvement, despite the lower revenue levels. Outside of North America, our EMEA region continues to be a bright spot, generating a 15% sequential increase of revenue, benefiting from the ramp of activities in Algeria and Kuwait. Further on the international front, I'm very pleased to announce that we have been awarded another significant contract, as highlighted in yesterday's press release. As we previously stated, international expansion is a key element of our long-term strategy, in part to help diversify revenue stream and insulate us from the volatility of the North American drilling environment. This latest award not only serves to further validate our capabilities as a…

Thank you, Paul and good morning. In the second quarter, fluids systems generated total revenues of $140 million, reflecting an 18% decrease from the first quarter and a 42% decrease year over year. Looking at the second quarter by region, revenues from the U.S. were down 24% sequentially to $75 million, faring better than the 35% rig count decline over this period. As discussed on last quarter's call, the sequential comparisons benefit somewhat from the transitory issues that we experienced during the first quarter which have worked their way through the system, although weather-related challenges in Texas and Oklahoma did provide a modest headwind to Q2. On a year-over-year basis, U.S. revenues were down 50%, slightly better than the 51% reduction in rig count. As we progress through the second quarter, U.S. revenues have trended fairly closely to the overall rig count declines. Revenues in Canada followed the typical seasonal pattern for spring break-up, down 61% sequentially to $7 million, comparing favorably to the 69% decline in Canadian rig count. On a year-over-year basis, revenues were down 24%, faring significantly better than the 51% decline in rig count, benefiting from our continued gains in market share. Our EMEA region posted revenues of $41 million, an increase of 15% sequentially, primarily benefiting from a ramp up in activity with Sonatrach as we transition to the new contract, as well as continued activity increases in Kuwait. On a year-over-year basis, revenues from the EMEA region declined $8 million from the rapid level achieved in the second quarter of last year. However, the year-over-year comparison includes a $10-million headwind from currency translation, driven by the surge in U.S. dollar. Adjusting for currency, the region's revenues increased 3% over last year's record quarter, with revenue gains from new contracts being partially offset by some…

Thank you, Bruce and good morning, everyone. I'll begin by discussing the results of our mats business before finishing with our consolidated results. The mats business reported second quarter revenues of $23 million, down 36% from the first quarter and 25% year over year. Mat sales declined by $7 million sequentially, primarily driven by a slowdown in purchasing from our international E&P customers, as capital spending is being delayed in the current weak oil-price environment. Rental and service revenues declined $6 million from the prior quarter, largely attributable to lower activity levels combined with further pricing compression in our E&P markets. Most notably, we saw continued decline in our northeast rental market in the second quarter, driven by a nearly 20% reduction in the region's drilling activity and a slowdown in completions activity. This reduction in demand has also put further pressure on pricing in the quarter. Meanwhile, outside of E&P, activity levels also declined modestly to $6 million, primarily driven by declines in our UK rental business. As we noted on last quarter's call, we're still very early in our commercial entry into the non-exploration markets, resulting in an increased level of quarter-to-quarter revenue variability, including seasonality in certain markets and the timing of customer projects. On a year-over-year basis, segment revenues declined by $8 million, including a $7 million decline from E&P rental and services activity and a $1 million decline in mats sales. With the lower mat sales and weakness in rental utilization, operating income for the mat segment declined to $6.6 million in the second quarter, representing a 28.1% operating margin, down from the 42.8% last quarter and the 43.9% operating margin a year ago. I would like to highlight that, while we're still fine-tuning our production flow, we're now producing mats from our new manufacturing…

Thank you, Gregg. While Q2 certainly provided challenges, we're continuing to stay the course. A strong balance sheet provides us the flexibility to focus on the execution of a long-term strategy, being a recognized technology leader in both of our businesses. While we've moved quickly to reduce our operating expenses in the first half of the year, we remain vigilant in monitoring regional activities across the globe and if necessary, will respond as required. However, it's important to highlight that we're continuing to follow a balanced approached towards our organization by protecting and in some cases, investing in core capabilities to help ensure that we exit the cycle stronger than we entered. Meanwhile, we continue to execute on our strategic growth initiatives. Our new fluids blending facility for our proprietary products is on schedule for completion at the end of this year and our new technology center for our mats business is scheduled to open in the fourth quarter. Also, our deepwater facility upgrade in the Port of Fourchon is expected to be completed in mid-2016. And although the global price of oil continues to be under pressure, it's our belief that the competitive landscape is changing, particularly in the international drilling fluids market. Increasingly, large international oil and gas companies are seeking out Newpark, requesting our participation in their projects, including some of their most technically challenging areas. We have confidence this reflects two larger trends, first, the customers desire to have an alternative to the approaches taken by the larger integrated service companies; and second, recognition that Newpark is becoming the leader in technical innovation and service quality in drilling fluids. We're optimistic that these changes in the market will benefit Newpark over the longer term, as we seek to increase our global footprint and win business from our larger competitors. To that point, we believe our new contract in the Republic of Congo is the latest example of the changing landscape. With that, we'll now take your questions. Operator?

[Operator Instructions]. Our first question is from Stephen Gengaro with Sterne Agee. Please proceed with your question.

So, two things if you don't mind. To start with, when you look at your domestic fluids operations, how does pricing look for both the base product and Evolution? Even if you talk about it on a sequential year-over-year basis, what trends are you seeing there?

From our perspective, in North America, the pricing has stabilized to some degree now. And with our Evolution technology -- we're still receiving somewhat of a premium for that system.

And just going back to last quarter's comments, we had mentioned we saw mid single-digit pricing compression in Q1. Q2, the impact was actually less than that and really negated by our cost-reduction side.

So despite what you saw in 1Q and 2Q, you still were able to get a little margin lift, so that's obviously positive trajectory.

Absolutely.

And then, when we think about the international contracts, obviously, you had a good win that you announced today. How are you positioned there as we look into 2016? Should we expect more of this type of work? How does the bidding activity internationally look? And how should we frame that going forward?

Yes. As I said, we're starting to see a lot more interest from the IOCs and international markets in terms of their products and the services that Newpark provide there. So we're seeing a lot of activity right now internationally and we expect that to be pretty robust as you move into 2016.

Our next question is from Praveen Narra with Raymond James. Please proceed with your question.

So as you guys move into other regions, grow that footprint, can you give us some additional color on how these initial regional contracts impact the ability for future growth? And how does it make it easier or does it make it easier to grow your footprint and scale up in a region?

Yes, so for example, in the West Africa contract, that's certainly being the first entry point for us into the West African market. Having a footprint there gives us access to Gabon and other countries close by. And having a team in place there, obviously then you can do a lot more sales and marketing work and just get to know the customers and the region better. So yes, it's advantageous to have a footprint in each region.

Okay. And then, could you remind us where you think your offshore fluids market share is overall today?

We know generally speaking, it's relatively small in terms of the international offshore. That's where I feel pretty good about our 2016 opportunities. Offshore is the opportunity take some market share.

Yes. And really this goes back to -- our entire deepwater strategy and the efforts that we've been talking about over the past several quarters there. We see that offshore and particularly the deepwater market, as a large opportunity for us to gain share, in part because we have such a small position today.

Right. Absolutely. And if I could get one more in, could you give us some color on the mats margin decline? You mentioned a few different factors, but could you help us quantify how much of the correlated margin degradation came from pricing pressure versus underutilization versus rental sales mix?

Yes. The sales mix, as I had called out -- that was the biggest piece of it, the decline in the mats sales. But directionally speaking, the second largest contributor was the utilization side and that really gets back to the lower activity, particularly in the northeast which has been a very core market for us and then, the smallest piece is actually the pricing.

Our next question comes from the line of Georg Venturatos with Johnson Rice & Company. Please proceed with your question.

Just you had mentioned the Fourchon expansion, just wanted to get a little update there -- how conversations are going with operators in terms of opportunities set in the Gulf of Mexico? And then also, you mentioned that mid-2016 completion. Just wanted to make sure we're on the same page in terms of, there are going to be phases of completion with this expansion that will allow you to gain work ahead of that mid-2016 completion? Is that the right way to think about it?

That's exactly the right way to think about it. The 2016 completion -- we've gone back and taken advantage, I suppose, of the current situation and rebid some of the things that we were doing so you can get better pricing. But it hasn't really delayed us that much. But you are correct in your mid-2016 assumption. And there'll be further stages coming behind that.

And there's been also increased activity. The other question about with operators -- there certainly has been an increase in discussion with the large operators coming out to our technology center, understanding the type of engineering solutions and the products and the services that we provide.

Second one for me on the mat side of the business -- talked about in recent quarters, looking to expand that rental business outside of the E&P customers, i.e., utilities pipelines. Can you talk about maybe where you think that could go longer term, absent where we might be in the next couple quarters? But how big of a percentage of that rental business that could be over the next several years?

Yes, obviously we see it as a meaningful opportunity and that's why we're pursuing it. But in terms of a magnitude of how large can it be, it's a bit too early to say on that.

Our next question is from George O'Leary with Tudor Pickering Holt & Company. Please proceed with your question.

First question, just as oil has run back down from $60 to the sub-$50-a-barrel ballpark, just curious if there's been any shift in customer behavior or sentiment that you guys are seeing out there? And maybe any change you guys are seeing more specifically in the North American onshore part of your fluids and mats business, with regards to activity outlooks near term, Q3 and Q4?

On the first part of your question, the recent decline back to where it was some weeks back -- really we haven't seen any change in operator behavior based upon that to this point.

Yes. Again, looking out to the end of the year, it's hard to say. Some operators, as you know, have announced additional headcount reductions, cutting back on capital spend. So, a little premature yet to give any forward looking on that.

Okay. And then, secondarily, sticking with the opportunities outside of E&P for your mats business -- if I think about the pre-announcement that you guys had this last quarter, it sounded like some of the lost revenue in that business or the shortfall in revenue in that business, versus prior expectations with some of these outside E&P opportunities may be slipping out a bit. Is there any chance that those projects hit in the back half of this year? Or was that deferred longer term?

Yes. There are opportunities that we're continuing to pursue in this business. I think the bigger challenge that we have is, these are new markets. They do operate differently. The bidding process is different than our traditional oilfield work. They're new markets where you have to learn. So the opportunities are there. And as Paul said, there is no major structural shift longer term; it's just your near-term challenges of early in the market entry.

Yes. The opportunities haven't disappeared, they're still there. We're still working on them. But again, it's understanding that tender process of how long it takes to go through that and that's really what we're dealing with right now.

And then maybe one more quick one, if I could. You mentioned some strategic planning cost impacting corporate costs in the quarter. Is that going to continue in the back half of the year?

No, that activity is largely winding down now.

Our next question is from Neal Dingmann with SunTrust Robinson Humphrey. Please proceed with your question.

Maybe a question for Bruce, just on the Evolution side, your thoughts there? Seems like internationally, obviously you guys continue to do great, despite the headwind, just that's out there overall in macro. Internationally, overall you guys are doing a great job expanding. Your thoughts on expansion with Evolution and if there's particular regional areas you think might have exceptional growth?

There are opportunities all over the international marketplace. It's a little bit slower to have an impact there because the planning cycles are just so much longer and we don't have the concentration of wells that we have in North America, for example, being drilled. So it takes a little bit longer, but the opportunities are undoubtedly there and we're making progress.

And then, Gregg, just your thoughts on mats, just geographic expansion?

Well, it really goes back to the comments I made a moment ago in terms of the non-exploration markets. We're continuing to pursue those, but they will take time.

And then lastly, Paul, just your thoughts on M&A, in general? Obviously, the market continues to be a bit challenging, but as such, always does provide some opportunities. And balance sheet-wise, you guys are pretty decent shape. What's your thoughts there, overall?

Well obviously, we're very pleased with the strength of our balance sheet. Always looking for opportunities in these environments, but really can't comment on any specific things at this time.

Our next question is from Marc Bianchi with Cowen & Company. Please proceed with your question.

I was hoping you could offer some comments on the competitive dynamic in mats. I know historically the largest competitor was wooden mats, but just curious if there's any update there? And then also, if you could comment along the same lines as it relates to outside of the exploration market?

Yes. In terms of the competition, there really hasn't been any change in the competitive dynamics in the mat business. Wood obviously is still a competitor. There is another smaller composite mat company as well. So no change there on the competitive front related to the mats business. In the non-E&P segments, traditionally that has been serviced by wood mats and that's where we see the opportunities for our composite technology to be able to take market share.

And then just thinking about the sales impact to mats from the declining rig count, I'd suspect that maybe some of the customers have mats that are idle, that were buying mats and they'd need to put those back to work before they'd be prospects for new sales. How should we think about that and the sensitivity to the recovery in the rig count there?

Customers who own mats typically are going to be in the international market, right? That's where we typically sell. We do sell some domestically, outside the E&P markets. So it's very possible, international market they got mats that are idled; or, more importantly, their capital budgets internationally have been cut back and they are currently not purchasing.

Our next question is from Matt Dhane with Titan Capital Management. Please proceed with your question.

I was curious, the ENI contract, you called out that in 2016, you expect the revenues from that to be $10 million to $15 million. I was curious if you expect that to be peak revenues? Or is there further growth you expect in 2017?

The initial contract didn't stipulate a value, but as the contract runs its full course and the operator, of course, has a right to change his drilling campaign. But assuming it runs its full course, we expect the revenues to be somewhere in the $80 million to $100 million range and the 2016 piece is beginning ramp up, so it will increase from that point.

$80 million to $100 million over its term, not annualized.

No. Over its term.

So a sizable contract for us.

And then I was also additionally curious, how sizable are some of the international opportunities relative to your wins recently to date? You have some nice contracts you won now and I understand internationally, they can get even larger than you have won to date.

Yes.

Help me understand how large some of those opportunities are.

Certainly, we've gone through those and in my comments, I talked about this developing momentum. If you go back and look at the contract award in Algeria, the contract award in Kuwait, the contract award in the Black Sea, now the contract award in the Congo and we're continuing to have IOCs calling us in to discuss our technology and our services in regions we operate, in regions we don't operate. So, hard to comment on the size of future contracts, but what we like about the international business is the Congo contract. They're multi-year contracts, right? They give us an opportunity to drive efficiency versus the U.S. business which typically is well to well on a master services agreement.

There are no further questions at this time. I would like to turn the call back to management for final comments.

We would like to thank you once again for joining us on this call and for your interest in Newpark Resources. We look forward to talking to you again next quarter. Goodbye.

This concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.