Greetings, and welcome to the Newpark Resources Third 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's now my pleasure to introduce your host, Ken Dennard. Thank you, Mr. Dennard, 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 third quarter 2018 results. With me today are Paul Howes, Newpark's President and Chief Executive Officer; Gregg Piontek, Chief Financial Officer; Phil Vollands, President of the Fluids business; and Matthew Lanigan, President of Mats business. Following my remarks, management will provide a high-level commentary on the financial details of the second quarter and outlook before opening the call for Q&A. Before I turn the call to management, I have the normal housekeeping details to run through. There will be a replay of today's call. It will be available on the webcast on the Company's website that's newpark.com. There will also be a recorded replay available until November 9, 2018 and that information is included in yesterday's release. Please note that the information reported on this call speaks only as of today, October 26, 2018, and therefore you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading. 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 Newpark's actual results, performance or achievements to differ materially from those expressed in the statements made by management. The listener or reader is encouraged to read the 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. The comments today may also include certain non-GAAP financial measures. Additional details and reconciliation to the most directly comparable GAAP financial measures are included in the quarterly press release which can be found on the Newpark website. Additionally, you may have received an email invitation from me in the past week or so for Newpark's 2018 Analyst Day to be held on Thursday, November 29, 2018 just outside Lafayette, Louisiana. If you have any questions or did not receive your invitation, please contact me by email or by phone. The space is limited, so please RSVP as soon as possible. And now with that behind me, I'd like to turn the call over to Newpark's President and CEO, Mr. Paul Howes.

Thank you, Ken, and good morning to everyone. We're pleased to report that both segments are continuing to make meaningful strides in the execution of our long-term strategy, although our Fluids Systems segment experienced some softness in the quarter. Consolidated revenues were $235 million for the third quarter, relatively flat with Q2. In Fluids, third quarter revenues for the segment came in at $181 million, a 1% sequential increase. North American revenues improved by 7% sequentially, as improvement in the North American land markets were partially offset by a reduction in Gulf of Mexico. We successfully completed our second Kronos deepwater project with Shell Oil during the quarter and I'm pleased to report that we have since been awarded two additional wells which are scheduled to be drilled over the next two quarters. However, we did experience some project delays with other offshore customers, which negatively impacted the Gulf of Mexico revenues for the quarter. Eastern Hemisphere revenues declined by $5 million sequentially from the near-record level achieved last quarter, primarily reflecting the anticipated pull back in Romania, Kuwait and Australia. Following the strong margin improvement in the prior quarter, our Fluids operating margin declined to 5% in the third quarter, reflecting the impact of the $2.5 million of charges as identified in yesterday's press release. In addition, the quarter's result was also impacted by the timing of certain expenses including elevated bad debt charges primarily related to our foreign operation. Meanwhile, as we've talked about in previous quarters, we're continuing to make organizational investments in order to support our strategic expansion into new markets include the deepwater Gulf of Mexico, both in drilling and completion fluid, as well as the North American stimulation chemicals market. We are seeing tangible progress on multiple fronts as we execute our total Fluids…

Thanks Paul and good morning everyone. I'll begin by discussing the details of our operating segment or finishing with our consolidated results. The Fluid System segment generated total revenue of $181 million for the third quarter of 2018, reflecting a 1% sequential increase from the second quarter and a 9% improvement year-over-year. In the U.S. revenues were $107 million, up 3% sequentially outpacing the 1% increase in U.S. rig count. As Paul touched on, although we continue to benefit from market share gains in the U.S. land our offshore Gulf of Mexico revenue remains somewhat inconsistent driven by the timing of individual projects as we penetrate this market. On a year-over-year basis, U.S. revenues had increased 10% from Q3 of 2017, roughly in-line with the 11% improvement in average rig counts. In Canada, revenues were $17 million for the third quarter, reflecting a 50% sequential improvement and achieving our second strongest Q3 performance for this business unit. On a year-over-year basis, revenues improved by 24% despite a relatively flat market rig count over the same period largely driven by elevated mud losses. Turning to our international regions, revenues in the Eastern Hemisphere were $51 million in the third quarter, reflecting an 8% decline from the near record level achieved in Q2. The sequential comparison primarily reflects the expected decline in Romania and Australia as well as Kuwait. The decline with KOC is primarily driven by limitation on a current envelope as we approach the end of the contract. These reductions were partially offset by an increase in revenues from Shell contract in Albania. On a year-over-year basis, revenues from the Eastern Hemisphere improved by 8%, benefitting from a higher contribution from Albania and the Baker Hughes integrated services project in Australia, which was somewhat offset by declines in Algeria. In…

Thanks Greg. As we move into the fourth quarter, we remain optimistic about our outlook and strategic direction in both of our segment. The larger oilfield service companies that noted some near-term headwind in specific parts of their U.S. portfolio, we expect to see these market trends to have a fairly limited impact on our business over the coming months. Our strategy has been consistent over the years, and I believe it is useful to provide a recap for those of you who are new to our story as well as for those who have been with us for years. Our primary focus has been to improve the stability of our revenues and profitability by expanding our geographical footprint in the Gulf of Mexico and international market, extending our fluids business offering into adjacent chemistry and diversifying our Mats business into non-E&P market. With that said, here is where we stand in both of our business. In our Mats business, we're coming up on the one-year anniversary of the acquisition of the Well Service Group, the largest acquisition that the Company has made in the last decade. I'm proud to say that the team has done an outstanding job of integrating this acquisition into our business, which is never an easy undertaking. The addition of the Wells Service Group is enabling us to drive operational efficiencies for our existing customers, deliver further advancement of our industry-leading composite matting system, accelerate our penetration of targeted end-user market and create additional value for our shareholders. Now, it's time to take that focus and energy to further expand the business into our key market. And to that point, throughout 2018, we've continued building out the team in the Mats division to manage the industry verticals we've created in oil and gas, utility, transmission…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Praveen Nara with Raymond James. You may proceed with your question.

Good morning guys. I guess I just want to start on the Mats side, obviously there is a lot of hurricane relief efforts going on now similar a bit to last year. So I guess could you kind of help us quantify or give us some sort of guide in terms of what we should expect from an impact of that? And then at the same time it seems like the Mats business is more diversified than just hurricane relief efforts on the utility side. So could you talk about the geographical distribution of your Mats business on the utility side?

Praveen, its Mathew. I'll take that one for you. I think it's fair to say at this point related to the hurricane, it is still somewhat early days as people are going in and assessing the damage. We are not seeing a material uptick yet on the rental and service side. I think as people are getting themselves organized on the project relief if you will. On the Mats sales side, we have seen a modest bump from customers in that area requiring some matting projects specifically. I think the Q4 is going to be more of a combination of that and also the seasonal weather that we've had down here on the Texas, Louisiana, Gulf of Coast really requiring a heavy load. Beyond that, I think we are seeing broad-based demand throughout our network. I wouldn't call at any specific location.

Right, perfect. And I guess for my follow-up, a lot of growth opportunities out there. I am curious on the levels of investment needed to actually access those. You talked about the bundling of fluids in 2019. There is likely a growth in the mat. So can you talk about the capital needs and capital growth opportunities for 2019? And what we should be expecting in terms of how much we should spend year-over-year?

Sure. This is Gregg. I'll take that one. With regard to our capital needs in the business, I think it's going to be a similar theme to what we saw in 2018. Maintenance CapEx continues to run about $20 million for the business. The Fluids needs are not real significant as we expand into targeted areas, you know similar to what we are doing with the completion fluids expansion in Fourchon. We will have investments here and there that tend to be in the $3 million to $5 million range for each one of those. So, that's fairly limited. On the Mats side, it's really going to be more driven by the rental growth overall. And just as we've done this year, we will continue to feed that rental fleet as the revenue growth warrants and you calibrate that accordingly.

Just in terms of the bundling with the completion and drilling fluid in the Gulf of Mexico, we had an existing facility that had not been used a lot. It was kind of an oil-based mud plant that was for inland marsh drilling, and so very limited revenue coming out of that facility. That's the one we are converting over to our completion fluids facility. So, really minimal capital to do that, but well our hope is that that facility will go operational at the end of this year and that we can start bundling both drilling and completion fluids with deepwater in 2019.

Perfect. Thank you very much guys.

Our next question is from James West with Evercore ISI. Please proceed with your question.

Good morning guys.

Good morning.

Good morning.

Paul, obviously the clear success here with Kronos and eight wells already completed, we get two additional wells coming. Can you remind us the financial impact of a Kronos well versus some of your more normal technologies? What the differentiating factor is there and kind of how we should think about the acceleration of uptake here going forward?

I mean if you look at it in terms of the mix of our other product lines, it's relatively in the same level in terms of profitability, maybe slightly higher incremental margins. But the real value from our perspective is the differentiation of value is providing to our customer. That's why we're getting what I think is a significant fraction and repeat business with Shell Oil is what we are doing from them or doing for them from an operational perspective. Phil, would you like that?

Sure. James, from a technical point of view, the Kronos product is Flat Rheology systems that it performs at a high level across a range of temperatures. It's very valuable to the customer and also has a very low ECD or equivalent circulating density. And those are the critical parameters that customers are appreciating.

And it's interesting, too. I mean, certainly we are very proud of the technology that the Kronos is bringing, but also our service quality that we are delivering as well. I think one thing that we are doing an exceptionally good job on it is interfacing like with the petrophysics department at the IOCs, and understanding issues they're having down hole and challenges, and that I think is provided some unique value as well.

Okay. Got it. That's great to hear. And then Paul, on Brazil obviously Petrobras rolling off here, but I mean just an enormous amount of interest in the Brazilian market from the IOCs. Now admittedly, we have an election over the weekend that can change that pretty quickly, but it seems to me that if all things go well, that market starts to really explode. And so, how are you thinking about your position there, the marketing to the IOCs which of course include one of your key customer Shell? And assuming, we don't have a hick up here with the political situation. How do you see the outlook for that as we go through the coming and probably about the quarters in probably coming years?

Hey, James. This is Phil here. We see an uptick coming in next year – late next year and into 2020. And our strategy there we're winding down currently at a sizeable proportion of our population down there. What we will retain are the key elements to maintain and support and win new business down there. Over the years, we've actually developed quite a history – quite a resume of deepwater drilling and drilling so many wells there, the Petrobras and IOC down in the area. And infrastructure is very well located and our technologies are very applicable to the need down there.

James, it's interesting too from my perspective is that the fact that we're now driving Kronos into the deepwater Gulf of Mexico. Historically, we have not drilled Kronos in Brazil. So we're already having some discussions with IOC in Brazil about the Kronos technology. And so that's one of the exciting things in my perspective is the ability to reverse leverage that developing success in the Gulf of Mexico with IOCs into that Brazilian market. And we are going to maintain an operational presence there, the facilities, as business comes we'll be ready to serve it.

Great. And is the Kronos, is there anything about the geology in Brazil that makes Kronos more applicable than the Gulf of Mexico or is it about the same?

I would say it's roughly the same. The pre-salt – you have some different challenges obviously than you do, but I would say it's roughly equivalent. But once we get in and we've not drilled a well there with Kronos, but that would be my thoughts.

And our high performing water-based technology has also been successful down there today.

Okay, got it. Okay, great. Thanks guys.

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

Good morning, guys.

Good morning.

Picking up the incremental wells of Shell is certainly encouraging and speaks to the performance there. My understanding is there are other partners on that well. I just wonder what the process is there. And I understand you have to get qualified with each of the kind of main operators of these projects. Would the processes and any line of sight to winning work with some of those other offshore players via the experience with this Shell Kronos as well – handle the Shell Kronos as well?

Hi George, this is Phil here again. Primary partners with the IOCs, I mean we are in a position now where there is just a very broad-based awareness of Kronos. And the technical folks in the other IOCs as we leverage the success from Shell is the other major IOC. We are getting beyond general qualifications with them into more project specific testing and qualifying. To answer your questions, there is a broad-based awareness now increasingly with the Shell successes.

A lot more discussions with the IOCs, and obviously a much shorter qualification process than we had with Shell. We hope to have another IOC in 2019 absolutely.

Got it. That's very helpful. And then, I know you guys recently in your last investor deck or two, there is some good color on the opportunity on the Mats side. I wonder if you could just one step back in and on the call frame for us the opportunity you see in that non-oil and gas portions of mats from a total market opportunity and the Newpark opportunity set within that. And then also kind of where you sit today, so how much running room is left? And then long winded question, but also on the pressure pumping side, how big are you in that business today and how much running room is there for Newpark on the Mats side in pressure pumping?

George, it's Matthew. I'll take that. Look, I think the way we frame up the – we've always play to some extent outside of the E&P markets in the transmission and distribution and pipeline size. But as we saw in those markets up, we view them as multiple times the size of the E&P, so from that perspective we consider there is considerable run room and we are only just beginning that journey as we formalize the verticals that Paul has touched on earlier in the call. So we are quite confident that there is a healthy run room in those particular industries. On the pressure pumping application, that's a largely driven. I know there is some pressure there from about some slowdown in that market, but what we are seeing is the technology ship, the gravity-fed systems from the pneumatic systems is heavily favoring our matting technology. And so with that, relative growth in that market where we're continuing to see a healthy outlook in that space.

And in terms of the overall size of the well, well that has been the key area of growth within the E&P components of the mats revenue and it still remains a smaller piece of that overall portion.

Got it. And then I sneak in one more if I could. You guys have also been attacking those non-oil and gas markets like with increased vigor and focus. And I am just curious if you could kind of provide some more color for us on the strategy there and how you guys are trying to push your mats into these markets where other forms of mats be that wooden or steel-based. If you look over in the U.K, tend to have the lion's share in the market today? What kind of that the strategy is to get into those markets to get further penetration in those markets?

Look I think, I mean I think the Mats in some ways speaks for itself. A lot of the advantages that we're seeing from a transportation, from a longevity, from an environmental impact, from the service quality that we have as a business unit really played to those spaces as well as they do in areas where we've had historical success. So it's generally just resourcing ourselves up to be able to go in there and have a presence that's more meaningful than we've had in the past and then beyond that. As I said, I think our service in the Mats side, credibility speaks for itself.

Great. Thanks for the color guys.

Our next question is from Jacob Lundberg with Credit Suisse. Please proceed with your question.

Good morning guys.

Good morning.

I guess first to start on Gulf of Mexico couple ones. The incremental wells that you're doing with Shell, are those following the same rig or is that on a different rig? And then in the press release and in your prepared remarks today your reference some offshore delays. Could we get some color on the magnitude of that impact topline operating income in the quarter? And is that just gets shifted into 4Q or how should we think about the impact there?

Thanks, Jacob. It's Phil here. In terms of the Shell rig, actually it's a different rig. It's a new award on the Ursa TLP deepwater tension like platform. Beyond that, we continue to bid additional projects and also being introducing our new completions product line to show and other IOCs.

And in terms of the revenue contribution from the Gulf, obviously there is always some level of shifting that goes on with these larger scale projects. But ultimately that area we saw a few million pullback from Q2 to Q3 with the current projects that we have in the works, we are expecting that to rebound here in the fourth quarter.

Got it. So the 4Q guidance or so commentary around revenue takes into account some sort of snap back there?

That is correct.

Okay, cool. And then follow-up just on some of the other fluids that you guys have been talking about. Can you just kind of provide some color on the opportunity to generate revenues from completion fluids as well as stimulation chemicals in 2019? Should that be a meaningful impact next year is that something we should expect to kind of see show up in the numbers?

In terms of completion fluids, we did actually have some early wins in the quarter, in Q3 little shy from $1 million, but it was a smaller independent. In terms of next year, we're already bidding some integrated work and bundled work, both drilling and completions fluid it. And so, we would expect something material.

I would expect there as we progressed through 2019, we would begin this year a more meaningful impact from those two growth targets.

One thing about that completion fluid is that the qualification period there is very short because you are selling more of a molecule with calcium bromide. So there is not a lot of qualification on the chemistry itself, it's more about have you stood up a facility that's operational and that's where we've been adding people that provide some modest headwinds to the margin. So going into 2019 the completion fluids, we think there is a really unique opportunity to then bundle our drilling fluid with Kronos technology with completion with IOCs and we are always trying to bid on tenders.

All right. Appreciate the colors. Thanks guys.

Our next question is from Ken Sill with SunTrust Robinson Humphrey. Please proceed with your question.

I was curious on the weather related boost to Q4, I know I've been hearing that the flooding in Central Texas, there been some issues out in the Eagle Ford. We've obviously had a lot of rain in the Houston. Where you guys seeing the biggest impact on the weather related? Is it in Texas or is it across Texas, Louisiana and into – all the way into Florida?

Ken, it's Mathew. I think we touched on a little earlier is that the Texas, Louisiana, Gulf Coast there is – as a broad geographies as where we thing the most uptick at this point.

So not much in Central Texas?

Not at this point.

Okay. And then I want to see if you can give us a little bit more color. One of the things you guys cited in the quarter was Gulf of Mexico projects being delayed. Are those coming in Q4, Q1 and kind of are they bigger than a bread box? How big were the projects that were delayed?

This is Gregg. This is kind of as we touched on a little big ago, you've got two different projects that have been moving around. Some of that has been delayed from Q3 to Q4, and yet another element that kind of pushed into next year. But again, as you take a step back and you look at the overall expectation here that that area saw a few million pull back here in Q3 and were we currently expect that to rebound in Q4.

Okay. That clears that up. And the my last question, as you guys start ramping up the completions fluid business, is that going – are you going kind of provide the detail on what's coming from completion's fluids or will it all just be bundled into the drilling – into the fluids business as one product?

I would expect, well we'll definitely get color in terms of how much it's driving on overall growth. It will be reported as a fundamental element of our fluids business. And it's worth noting today that in the international market, there is a number of markets where we have completion fluids today. It's just naturally bundled with drilling fluids in certain regions.

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

I actually want to continue down the delayed Fluids business, how many different customers were those delays with?

Two.

And were those Shell and someone else, or two new customers?

No. Not, Shell, they were other customers.

And so that would imply two new customers, is that correct, or am I reading that wrong?

They've been ongoing offshore customers, one deepwater, one shelf.

But this would be their first time using the Kronos technology

Thank you. Especially that additional insight. And then secondarily how are you thinking about acquisitions today?

I mean obviously we're always looking for opportunities to add on to our product line where there are synergistic opportunities. And as you know, we're really at this point trying to build out those concentric rings of chemistry around our total fluids strategy from an organic perspective, but we're always searching and I typically don't comment on.

And the only thing I would add is our history shows that we've very selecting in terms of finding the right opportunities. It has to be an opportunity that is clearly synergistic and fits within to our overall strategy.

Thank you and really what I was trying to drive at is do you see more opportunities in the current environment than you have in the past or would you consider this a typical timeline – timeframe?

I would say in terms of the opportunity set that's out there, there is probably a higher volume of opportunities out here, but again you know we're very careful and thoughtful on how we screen these and look at you know the fit in our strategy and the ability of any acquisition to advance our – or accelerate our strategy execution.

Ladies and gentlemen, we have reached the end of our question and answer session. I would like to turn the call back over to management for closing comments.

Alright, I'd like to thank you once again for joining us on the call and for you interest in Newpark. We look forward to seeing many of you at our November Analyst Day and also talking to you again next quarter.

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