NPK International Inc. (NPKI) Q4 2016 Earnings Report, Transcript and Summary

Greetings, and welcome to the Newpark Resources Fourth Quarter 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, Brian Feldott. Thank you. You may begin.

Thank you, operator, and good morning, everyone. We appreciate you joining us for the Newpark Resources conference call and webcast to review our fourth quarter and full-year 2016 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. Following my remarks, Paul will provide a high-level commentary on the fourth quarter. 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 quarter. Paul will then conclude the discussion before opening the call for Q&A. 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 newpark.com. There will also be a recorded replay available by phone, which will be available until February 24, 2017. That information is included in yesterday’s release. Please note that the information reported on this call speaks only as of today, February 10, 2017, 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, and good morning to everyone. Before I cover the specifics of the fourth quarter, I would like to take a step back and reflect on the achievements in the recently completed year. First and foremost, I would like to highlight our safety performance in 2016 an area of critical importance to our leadership team and the company that we serve. 2016 was one of the most challenging periods for our entire industry requiring us to continue our aggressive cost management, while asking our employees to do more with less. And despite this challenging environment, I would like to commend all of our employees for their unwavering commitment to working safely as we again achieved a new company record in safety performance with a total reportable incident rate of 0.35, eclipsing our previous record set in 2015. Our recordable incident rate reflects world-class performance in our industry and I would like to thank all of our employees for this achievement. Another area of significant focus was cost management. The first-half of 2016 was marked by aggressive reductions, while in the second-half, we worked to maintain our lower cost position as activity began to recover. As we enter 2017, I’m pleased to highlight that our North American operating expenses are running approximately $40 million lower on an annualized basis than they were a year ago. This achievement speaks to our organization’s ability to be creative, make the difficult decisions, and move quickly in a volatile environment. In each of our segments, there were several milestones achieved in 2016, which tied directly to our long-term strategy. In fluids, noteworthy accomplishments include the completions of the world record setting ultra-deepwater well in offshore Uruguay drilled in over 11,000 feet of water, a project that Total recognized as an operational success. Also, I’m pleased with our continued penetration of key IOCs and NOCs around the world. Our international share gains and the relative stability of this customer base proved to be very meaningful to Newpark, with IOCs and NOCs contributing over 40% of our fluids revenues in 2016. We’ve also been successful in gaining market share in the North American land markets. Over the past year, we continued to improve our position in North America, where we now stand firmly as the number two drilling fluids provider, reflecting a record level for our company. Furthermore, we made significant progress towards our efforts to penetrate the deepwater Gulf of Mexico working closely with customers in advancing qualification efforts in all phases, including our facilities, products, and people. Now turning to the Mats business. In light of the extremely challenging market in our traditional oilfield applications, we moved quickly to expand into new markets and diversify our revenue streams. For the full-year 2016, non-exploration customers accounted for 70% of the total segment revenue. And despite the 21% decline in revenues the prior year, we delivered full-year operating margin just shy of 20%. We also made progress with efforts to expand our product offering, launching our patented EPZ matting system, which provides an innovative electrical grounding solution to meet customer needs for the power transmission market. And finally, I would like to touch on our balance sheet. As we discussed throughout the past year, protecting our balance sheet and our shareholders has remained our highest priority throughout this challenging cycle. To that point, we made significant strides in 2016. In the second quarter, we entered into a new $90 million credit facility, which expires in March of 2020. This facility eliminated the challenges and distractions associated with quarterly covenant compliance and provided added liquidity allowing us to focus on the execution of our long-term strategy. And more recently, we completed the issuance of $100 million of new notes maturing in 2021, while also retiring nearly half of our outstanding convertible notes due later this year. This latest step was the final piece to address our 2017 maturity, providing sufficient liquidity to support our needs for the foreseeable future. Another element of protecting the balance sheet has been the effective management of working capital. For the full-year 2016, we continued our efforts to rationalize inventories generating over $20 million of cash flow from U.S. inventory reduction, while also recovering nearly $30 million of cash from the carry back of our 2015 U.S. tax losses. The execution on cost management and working capital reductions has allowed us to continue making strategic investments in our business. Most noteworthy, we’ve invested $28 million in key infrastructure projects in our Fluids business, which significantly enhance our competitive capabilities. Now, turning to the fourth quarter. Building on the improvements that began in the third quarter, we’ve seen the momentum continue through the fourth quarter, particularly in North America, where revenues have steadily strengthened over the past six months. Capitalizing on our strong share position, our North American fluids revenues increased by 49% sequentially, significantly outperforming the overall market. Despite the very strong top line result, the impact of the revenue growth to operating income was somewhat muted by a softer sales mix along with the timing of certain operating expenses. On the international front, fluid revenues increased 6% sequentially, driven by improvements in our EMEA region. As they have throughout 2016, the key NOC contracts in Nigeria and Kuwait have been a stabilizing force in a very difficult market. Our mats segment also posted a strong sequential revenue gain with a 65% improvement from the third quarter, resulting in the segment’s strongest revenue quarter in nearly two years. Segment revenues were $26 million in the fourth quarter benefiting from $10 million of mat sales. With that, now let me turn the call over to Bruce Smith who will review the performance of our Fluids business. Bruce?

Thanks, Paul, and good morning. In the fourth quarter, the Fluids Systems segment generated total revenues of $112 million, reflecting a 25% improvement from the third quarter and a 14% decrease year-over-year. Our strongest sequential improvement again came from North America, where revenues increased by 49% sequentially to $59 million in the fourth quarter. In the U.S., revenues were $48 million, up 42% sequentially, nearly doubling the 23% rig count increase. The fourth quarter benefited from broad-based improvements in all land basins, partially offset by a decline in the deepwater Gulf of Mexico where the third quarter had been benefited from elevated product sales. The revenue improvement significantly outpaced rig counts possibly reflecting our increasing market share and modest improvements in customer well complexity. Fourth quarter revenues, however, included a weaker product mix relative to the third quarter driven in part by elevated sales of commodity products, including oil-based model losses. On a year-over-year basis, U.S. revenues were down 21%, in line with the 22% reduction in rig count, reflecting unfavorable well complexity and pricing, partially offset by improvements in market share. In Canada, revenues followed the typical seasonal pattern improving by $5 million over the product quarter and outpacing the improvement in rig count. On a year-over-year basis, revenues were relatively flat, while the markets saw a 3% uptick in activity. Turning to our international regions, Latin America posted revenues of $7 million in the fourth quarter, down slightly from Q3 and down 10% compared to last year. Both the sequential and year-over-year comparisons reflected the impact of lower Petrobras activity in Brazil, partially offset by a small contribution from Chile, following the late fourth quarter startup of the five-year contract with ENAP, which we discussed last quarter. The year-over-year comparison also included a modest benefit from the strengthening Brazilian currency. Revenues in the Eastern Hemisphere, which includes our EMEA and Asia-Pacific regions, were $44 million in the fourth quarter, reflecting an 8% improvement from Q3. The sequential improvement is primarily attributable to broad-based improvements in North Africa and Kuwait, partially offset by a modest currency headwind from the stronger U.S. dollar. The Shell project in Albania also provided a modest lift to revenues in the fourth quarter. The stability of our key NOC customers in Algeria and Kuwait continue to benefit us in the fourth quarter accounting for approximately 60% of the total Eastern Hemisphere revenues. On a year-over-year basis, revenues from the Eastern Hemisphere were down $5 million, driven by the completion of our deepwater Black Sea contract, lower market activity in Australia, and modest currency headwinds partially offset by a $6 million improvement in Kuwait and Algeria. As highlighted in yesterday’s press release, due to the ongoing weakness and outlook for drilling activity in Australia, we’ve recorded a $2.6 million inventory impairment charge. In addition, we substantially completed our exit from Uruguay and the fourth quarter included charges of $2 million, reflecting the final redeployment costs and asset impairment. Adjusting for the Australia and Uruguay charges, the segment operating loss was $2.9 million in the fourth quarter. Despite this strong revenue growth in Q4, the operating margin impact of the higher revenue was somewhat muted by a weaker sales mix and the timing of certain operating expenses in the US. The fourth quarter included approximately $2 million of charges for items which included a multi-year sales tax audit and recent changes to state tax laws, elevated transportation costs resulting from efforts to rationalize inventory levels and other year-end adjustments. On the technology front, we are continuing to see customers showing more interest as they become increasingly focused on driving operational efficiency in the prolonged low commodity price environment. Revenues from our evolution family of systems trended closely to the overall revenue increase. As we’ve discussed previously, despite the current market environment, we are maintaining our focus on developing differentiated fluid technologies, which we see as a distinct competitive advantage as the market evolves. Turning to our near-term outlook, we expect to see a continued modest strengthening in total segment revenues, primarily driven by improvements in North America. We expect that U.S. revenues will continue to track fairly closely to overall rig count, which through the first five weeks of the quarter is nearly 20% ahead of fourth quarter levels. Outside of North America, we don’t anticipate any significant changes to current activity levels until we see a further recovery in commodity prices. In terms of our segment operating margin, we expect to see a stronger than typical incremental margin driven in part by the weaker mix and elevated expenses that we saw in Q4. Barring any unforeseen challenges, these improvements should drive the first quarter segment margins back to positive territory for the first time since 2014, albeit in the very low-single digits. Finally, I would like to comment on the status of our preparations in the deepwater Gulf of Mexico. Our focus throughout 2016 has been on positioning ourselves for the eventual market recovery. This includes clearing all of the qualification hurdles for our customers, including facilities, products and people. Regarding our Fourchon facility, we are nearing the final stages of this transformative project, which will provide us with industry-leading capabilities. We’ve also continued to build out our deepwater team while also working closely with several operators to qualify the extensive line of fluid systems required to operate in technically challenging deepwater environments. So although the recovery of the deepwater market has not yet begun, our work and preparations are now largely behind us positioning us well to capture share in the market. With that, I’ll now turn the call over to our CFO, Gregg Piontek.

Thank you, Bruce, and good morning, everyone. I’ll begin by discussing our Mats business before finishing with our consolidated results. The Mats business reported fourth quarter revenues of $26 million, which reflects a 65% improvement from the third quarter and a 25% improvement from the fourth quarter of last year. Sequentially, the revenue increase is primarily attributable to a $9 million improvement in mat sales. On our October call, we noted the increased level in customer interest heading into year end. Ultimately, the fourth quarter came in with $10 million in mat sales, which is our strongest sales quarter in two years, largely benefiting from customers looking to use the remaining budgets to purchase mats prior to year end, as well as our first meaningful revenues from our recently launched EPZ matting system. Rental and services revenues came in at $15 million for the fourth quarter, reflecting an 11% increase from the third quarter. The quarter benefited from the continued modest recovery in exploration activity, particularly in the northeast U.S. market. The northeast revenues further benefited from an elevated level of pass-through third-party service revenue driven by a small number of key customers requesting our Mats business to manage their broader wellsite needs. The improvements in the northeast were partially offset by declines in other regions, most notably the Gulf Coast, where dry weather conditions in the fourth quarter negatively impacted customer demand in both oilfield and non-oilfield markets. Overall, non-exploration markets contributed approximately 70% of total segment revenues in the fourth quarter, including $8 million of rental and services revenues and substantially all of our mat sales. Comparing to the fourth quarter of last year, mat sales improved by $3 million while rental and service revenues increased by $2 million. Segment operating margin came in at 24% for the fourth quarter compared to 6% last quarter. As we discussed on our last call, the third quarter included charges to recondition customer mats, which resulted in the third quarter margins dipping into the single digits. Turning to our near-term outlook, while the market environment in North America continues to show signs of life, we expect our revenues to pullback from Q4 levels mainly driven by the non-recurring nature of the elevated end of year mat sales. Recognizing the segment is always a challenge to predict, particularly for the timing of mat sales, we expect first quarter revenues and operating margins are both likely to pull back into the high teens. Longer-term, we continue to be encouraged by the increasing level of planning activity for projects across most of our target markets. Turning to our consolidated results, I would like to begin by addressing the recently completed convertible debt issuance. As we announced in December, we issued $100 million in convertible senior notes due December 2021, while also retiring $78 million of our convertible notes due in October of this year. The 2021 convertible notes carry a coupon of 4% and have a conversion price of $9.33 per share. Upon conversion, the notes may be settled in cash, Newpark shares, or a combination of cash and shares. It is our intention to settle the $100 million principal balance in cash. Accordingly, under GAAP requirements, the 10.7 million shares underlying the convertible notes will be excluded from our diluted shares outstanding for EPS purposes. When the share value exceeds the $9.33 conversion price, only the shares representing the incremental value above the conversion price will be included in the diluted shares outstanding for EPS purposes. However, somewhat offsetting this, GAAP also requires the option value associated with the conversion feature to be included in interest expense. For 2017, this option value will add approximately $4 million of non-cash interest expense to the income statement, which is incremental to the $4 million of cash interest associated with the 4% coupon. Now, turning to our consolidated results for the quarter. For the fourth quarter of 2016, we reported total revenues of $137 million, representing a 31% sequentially improvement and a 9% decline year-over-year. SG&A costs were $21.8 million, relatively flat sequentially, but down 14% year-over-year. The year-over-year decline is primarily attributable to lower legal and professional support costs and the benefits of cost reduction efforts. Total corporate office expenses were $6.8 million in the fourth quarter compared to $6.9 million in the third quarter and $13.6 million in the prior year. Consolidated operating loss was $8.2 million in the fourth quarter compared to the $15.1 million loss in the third quarter and a $94.3 million loss in the fourth quarter of last year. The fourth quarter 2015 operating loss included $83 million of impairments and other charges. Foreign currency exchange netted to a $300,000 gain in the fourth quarter compared to an $800,000 loss in the third quarter and a $400,000 gain in the fourth quarter of last year. Fourth quarter interest expense netted to $2.6 million, which compares to $2.1 million in the third quarter and $2.5 million in the fourth quarter of last year. The sequential increase is primarily due to the non-cash interest expense associated with the convertible notes issued in early December, as I highlighted a moment ago. This non-cash component is expected to be about $1 million per quarter going forward. The provision for income taxes in the fourth quarter of 2016 was a $10.8 million benefit. As highlighted in yesterday’s press release, this includes a $9.3 million benefit associated with restructuring the investment in our Brazilian subsidiary. Partially offsetting this benefit, the fourth quarter provision was unfavorably impacted by pre-tax losses in Australia and Uruguay for which an income tax benefit is not recorded. Net loss for the fourth quarter was break-even on a per share basis compared to a loss of $0.16 per share in the previous quarter and $1 per share in the fourth quarter of last year. As noted in yesterday’s press release, the fourth quarter 2016 results included a $0.06 net benefit associated with the matters identified in Australia, Uruguay, and Brazil. Now let me discuss our balance sheet and liquidity. During the fourth quarter, operating activities used cash of $19 million, including a $33 million increase in receivables associated with the growth in revenue. We used $5 million to fund capital investments, substantially all of which was spent on the Gulf of Mexico deepwater infrastructure project in the Port of Fourchon. The December convertible debt issuance and repurchase provided net cash of $19 million. Also, we used $7 million to repay local debt in our Brazilian subsidiary, which allowed us to reduce our US restricted cash balance that was serving as security on that debt. As of the end of the year, total debt was $156 million, substantially all of which relates to our outstanding convertible bonds, including the $83 million of bonds that mature in October. No borrowings are currently outstanding under our credit facility. We ended the year with cash of $88 million, resulting in a total debt to capitalization ratio of 23.8% and a net debt to capitalization ratio of 12%. For the full-year 2017, we expect total capital expenditures to be in the $15 million to $20 million range, which includes approximately $6 million of spending related to the completion of the deepwater shore-based project. Meanwhile, we intend to continue to aggressively manage our working capital as activity recovers. While receivables will likely trend closely to changes in revenue, we still have some progress to be made in terms of normalizing our inventory levels. In addition, as we did last year, we intend to carry back our U.S. operating losses for 2016, which we expect to generate more than $35 million of cash in 2017. We expect our available cash on hand, cash generated from operations, including U.S. tax refunds and availability under our credit facility to be sufficient to fund our current operations and the $83 million debt maturity in October. And now, I would like to turn the call back over to Paul for his concluding remarks.

Thanks, Gregg. Although 2016 was a very difficult year for Newpark and our industry, we made significant progress in several key fronts that will pay dividends once the industry fully recovers. They include, strengthening of our balance sheet and addressing the October bond maturity; the buildout of our deepwater infrastructure in the Gulf of Mexico, diversification of our revenue stream in our Mats business with non-E&P customers representing 70% of the annual revenues; our unwavering focus on technology and service quality exemplified by the Total ultra-deepwater project; record high drilling fluids market share on U.S. land reaching the number two position; completion of our R&D center for our Mats business; a major step in developing the next generation DURA-BASE and expanding our product offering; increasing our reach to IOCs and NOCs around the world, exceeding 40% of our total fluids revenues in 2016; expansion of our product offering, launching our patented EPZ matting system for the power transition market; and last but certainly not least, our new global safety record reaching a total recordable incident rate of 0.35. As we look to 2017, we remain cautiously optimistic. We are encouraged with the increasing rig count in North America, but realize that without sustained improvements in commodity pricing, global activity levels will remain under pressure. Our strategy is sound. Our team is strong, and our commitment to our customers is unwavering. We have the strength of focus and are uniquely positioned to capture more than our fair share of the industry recovery when it occurs. With that, we’ll now take your questions. Operator?

Thank you. We will now be conducting a question-and-answer session [Operator Instructions] Our first question comes from the line of Praveen Narra with Raymond James. Please proceed with your questions. Praveen, check if your line is muted. Praveen now your line is live. Okay. Our next question comes from the line of James West with Evercore ISI. Please proceed with your questions.

Hey, good morning, guys.

Good morning.

Paul or maybe Bruce, a question on what side of the business you have such a relentless pursuit of increased service intensity to build up longer laterals that are being drilled everyday in the U.S. land market. How is this changing the discussion of the customers about the implementation to Evolution and your other water-based solutions for U.S. shales?

Okay. It’s certainly beginning to happen now. If we look at the revenue increase we had in the U.S. compared to the 23% rig count increase quarter-over-quarter, if we gap that piece, probably 20% of that piece was on well complexity, what we’re calling, well complexity, which tends to suggest what you’re talking about that wells are becoming a little more complex, a little longer, and so on. Another half of that, or fully half of that gap was market share gains that we’re having with our customers. So that covers the majority of that gap from the 23% to the 42%. We are beginning to see more and more customers now beginning to have conversations again back to technology, back to operational efficiency, drivers, so we are at the early stages I believe of seeing that coming back to play more than it has done recently.

Okay. That’s a great color. Then maybe a follow-up here. Are there any shales in the U.S. that are exhibiting faster water-based mode adoptions than others? I mean, which of those do you think – which shales do think present the biggest opportunities for you today?

Well, Permian certainly is a big one. As Permian comes back…

Sure.

It’s a big one. But quite honestly, every basin, we are seeing upticks in every basin in terms of interest in the technology.

Okay, great. Good to hear. Thanks, guys.

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

Hey, good morning, guys.

Good morning.

I just had a question on the Mats business. So how should we think about the sort of go-forward steady said margin in that business in terms of absolute margin or incrementals in light of, I guess one, the mix shift towards some non-oilfield markets, and then secondly, some of the elevated pass-through revenues that you were talking about in the press release? And really, do you think in light of all of that, you can get back to sort of that 40%, 45% EBITDA margin that the business showed in 2011 through 2014?

Yes, sure. This is Gregg. I’ll take that one. In terms of the margin progression in this business, as we’ve shown historically, with it being having the large rental component and therefore a fairly significant fixed cost structure, the incrementals and decrementals have been fairly high, significantly above that 50% mark. The pass-through revenue that we had talked about here, that’s now becoming a little bit more of a factor here, particularly as things recover in the Northeast. That’s what’s dragging that incremental margin down into the closer to a 50% mark. But putting that pass-through activity aside, your normal rental activity is still well north of that 50% mark. In terms of your other question, though with the longer-term expectation, that 40% plus margin that we had through the last up cycle, I mean, that was a very strong period, and one during at the time that we said we felt there would be pricing concessions at some point that would bring that down, and we kind of pointed to a longer-term expectation when things are going well and you have utilization at a strong level of in the 30s. And that’s probably a better long-term expectation in this business a bit.

EBIT. EBIT margin.

Yes. That’s right.

Okay, understood. Thank you. And then secondly, I was just wondering, could we get an update on how you guys are thinking about how it’s shaping up the pipeline of international contracts? So you’ve got a good string of signing new ones. I guess, even if you can’t speak to specific opportunities, maybe just qualitatively how that pipeline looks?

Yes. We expect in the international business, we expect to stay strong throughout this year. A part of that will be with the growth in existing contracts that we have. Some of it will be with new contracts that will come throughout the year, but we are expecting continued strong performance from our international group.

Yes, I mean we’re – we continue to see tenders internationally. I think to see any real growth in the tenders, we need to see some recovery in the commodity pricing going forward.

Okay. And then I guess a follow-up on that. Any sense as to what price level you think we need to go through before you start seeing meaningful pickup in tenders internationally?

Yes, I mean, there’s a lot of folks that – I don’t have any crystal ball that’s unique to our company. But I would say once you start breaking over $60 a barrel.

Okay, great. Thanks, guys.

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

Hi, good morning, guys. Can you hear me?

We can hear you, yes.

Hi, sorry about that. When we think about the fluids market, I guess, one of the things we have seen in the downturn was some of your bigger competitors kind of going through a bundling package on their fluids. At this point in time, have we seen that kind of abate? Have they stopped using it as a loss leader, or how do we think about that going forward?

I think if you go back in history a little bit, these things cycle like our industry cycles. And we are not seeing anything that’s out of the ordinary that’s been done in the past. We’ve been very competitive against that in many areas around the world, and we expect to continue that. It tends to be in areas where there’s not so much infrastructure, and so some of the more remote international areas, we are not seeing much of it here domestically.

I mean, I think the strongest indicator that we’re not seeing a lot of that is our continued growth in market share.

All right, perfect. And then in terms of kind of operators looking for more efficiency gains versus just using those commoditized products, have you seen a pickup in interest from operators in terms of selling technology, in terms of selling the rate of penetration, or on the Evolution products in North America, or is that still something that that comes later on in the cycle?

It’s beginning. We’re certainly having more conversations now and in the fourth quarter and now than we were having previously. So I think we are at the beginning of the operators going back looking now, less at pricing and more concerned with operational efficiency.

Perfect. Thank you very much, guys.

Thank you.

The next question comes from the line of Stephen Gengaro with Loop Capital. Please proceed with your question.

Good morning, gentlemen.

Good morning.

I guess, two things. One, you talked on the fluids side about the kind of the muted incrementals in the fourth quarter and then you kind of gave some very specific guidance on the first quarter so we can work that into the incrementals. But as you go forward, should we think about incrementals in that business being more with – more in line of historical norms? And then maybe as part of the answer, have you seen much on the pricing front yet and what do you think it takes to get there if you haven’t?

Yes, I’ll take the first part and then hand it over to Bruce on the pricing element. But in terms of the incremental margins, as we’ve talked about in the past, the norm for the fluids business is in that 20s range, that 25 to 30 range, and that continues to be our expectation. I think one of the big question marks that we have in terms of performing better than that is really that transition and the mix of technology and whether we can make more progress on that front. We’ve seen the impact that that can have in the past, in particularly a few years ago when we saw the very strong penetration with the Evolution family of products and that drove incrementals well north of the 30%. So that mix is a big element there. But in the normal ongoing mix, as we have it today, it’s really in the 20s. And then on the pricing, Bruce?

Yes. On the pricing side, we really didn’t see much change in pricing between Q3 and Q4. We are, of course, increasing pricing wherever we can and strategically wherever we can. And we haven’t managed to do that across the board yet, but in certain areas we are making progress on that.

As a follow-up to that, Bruce, I’m not sure if you are willing to share much on this front. But if you were to – and I know mix matters. But if you were to look at sort of absolute pricing from sort of rig count peak to rig count trough on the fluids side, would you say you gave up 20% to 25% range, or is that too high a number? I know it’s much different than obviously some of these much more commoditized areas. But can you give us any sense for the degree of change kind of trough to peak?

Yes. Actually this is Gregg. I will take it. In terms of the overall pricing there, it’s definitely well under that 20% mark. We’ve talked in the past and while there’s definitely been pricing erosion through this, it’s been much more modest and part of it’s because of the fact that the fluids business is a variable cost business. It’s not as though you have a fixed cost infrastructure that you’re just trying to generate any revenue with it, and therefore, you will take massive cuts in pricing. So it’s definitely well below that 20% mark.

Okay, great. Thank you for the answers.

Thank you. Our next question comes from the line of Neal Dingmann with SunTrust. Please proceed with your questions.

Good morning, gentlemen. My first question is really just on the offshore, maybe Bruce or either Paul can jump in. You mentioned not surprised that the Gulf being a bit little weaker, but then it certainly sounds like internationally you continue to catch a fair number of things. I know how talking with Gregg and Paul over the years, how you guys plan ahead on that. How do you kind of view the offshore for the better part of this year, the overall mix when you balance that the Gulf with the success you’ve had internationally, or will have internationally?

Yes, I think in the deepwater or Gulf of Mexico region, the planning cycles are much longer in deepwater. And so initially, as we are entering this market, our revenue stream is a little sporadic. But as we are now moving forward with Kronos being evaluated and accredited by some of the major oil companies, once that’s completed, and I think we’re nearing that completion, then the revenue cycle from deepwater operations becomes a little more predictable, and we expect as this year goes forward to grow our revenue in that deepwater market.

Yes, I mean, the Gulf of Mexico rig counts obviously have been declining offshore. But we believe that we will be able to take market share this year in the Gulf of Mexico. Internationally speaking on deepwater, we do some. Our biggest position there, as you know, is in Brazil, where we’ve got roughly 50% of the Petrobras business. But we could see some additional international deepwater work in 2017, but really, the expectation for growth in deepwater is going to be in the Gulf of Mexico.

No, that’s certainly. And then just lastly, just on sort of bidding activity. While you guys continue to show an impressive market share in the U.S., how do you kind of -- two questions around that, how do you – you continue to see a fair amount of bidding activity as we hear about CapEx going up? And along with that, do you assume that you will be able to push pricing a bit with that?

The answer to the first part in bidding activity is, it’s becoming more prevalent now. And the market share increases that we’ve had during the last 18 months and perhaps more particularly this – the year of 2016. We’ve gained that market share while increasing our pricing to a small degree, so on U.S. land particularly.

Yes. You mean, will we get some more pricing? Hopefully as the intensity of the market and the additional rigs come into play, yes obviously, we are going to work to get pricing up. Buts it’s premature to say we will at this point.

Great. Paul and Bruce, thanks so much.

Thank you.

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

Thank you. I have a couple of questions. First, starting with the U.S. market share gain. Is something changing in the U.S. for your business, because the decline that you experienced in revenues relative to the rig count versus Q4 of last year was in line, whereas sequentially, you had roughly a double the rate of growth? Can you talk through what seems to be an inflection point here for your market share?

Yes. I think you have a few things that are going on there. First of all, in terms of the overall market share, we’ve seen that fairly steadily improve quarter-on-quarter throughout the past six to eight quarters. And so that’s been kind of a gradual improvement. The other element that you are bringing into this though is the revenue contribution basically per rig. And I will say when you take a look back, Bruce had called out the sequential improvement and noted that we are seeing some modest improvements right now in terms of the revenue generation, which is in part, because drilling depths are improving and basically the drilling is becoming a little more complex. However, when you take a step back and you compare that to fourth quarter of last year, while improving, we’re still well below where things were a year ago. So that’s a little bit of a headwind that you have there when you do a comp on a year-over-year basis.

Thank you. And then mat sales, you had mentioned virtually all of those are or were outside of the oil and gas industry in the fourth quarter. Would you talk about what industries you saw that -- the sales into please?

Yes. The most prevalent industry continues to be the utilities, the transmission distribution segment. As you know, the oilfield historically, we’ve had strong sales into the international markets, and I think that’s an area that’s, like Paul mentioned earlier, on other international projects, we need to see some more further improvements in the commodity prices before we would expect to see that market return.

Thank you. And then lastly, the timing of certain expenses that you referenced to the Q4, can you talk about what those expenses were and what impacted the timing?

Yes. So, Bruce, actually had called out the specific items that made it up, and you always have some timing of expenses that impact your overall quarter results. It just happened in this quarter, we had several things hit. First and foremost, the business was continuing to take actions to rationalize inventory levels and so we did have elevated transportation costs as we were getting creative to move inventories around to get that consumed. In addition, there was a couple of issues on the tax front, a multi-year tax audit that resulted in a charge in the period, and also some Louisiana tax law changes that had some retroactive impact. So that charge came in the quarter as well as some other things. There are certain reserves and other things that you only true up on a year-end basis. So a couple of things hit there that were smaller. So it was all those things together, and as we had talked about you put them together and that was about $2 million of expense.

Thank you and my apologies for missing that in the Bruce’s earlier comments.

Thank you, Bill.

Mr. Feldott, there are no further questions at this time. I would like to turn the floor back over to you for closing comments.

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

Ladies and gentlemen, thank you for your participation. This does conclude today’s teleconference. You may disconnect your lines and have a wonderful day.