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, Ken Dennard, Dennard-Lascar Investor Relations. 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 fourth quarter and full year 2018 results. With me today are Paul Howes, Newpark's President and Chief Executive Officer; Gregg Piontek, Chief Financial Officer; and Matthew Lanigan, President of Mats business. Following my remarks, management will provide a high-level commentary on the financial details of the fourth quarter and outlook before opening the call to Q&A. Before I turn the call over to management, I have a few housekeeping details to run through. There will be a replay of today's call. And it will be available by webcast on the company's website at newpark.com. There will also be a recorded replay available until February 22, 2019 and that information is included in yesterday's release. Please note that the information reported on this call speaks only as of, February 8, 2019, 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 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 Newpark’s website. And now with that behind me, I’d like to turn the call over to Newpark’s President and CEO, Mr. Paul Howes. Paul?

Thank you, Ken, and good morning, everyone. Before I cover the specifics of the fourth quarter, I’d like to begin by reflecting on the achievements in the recently completed year, starting first with the review of our safety performance. Here at Newpark, employee safety is of critical importance to our leadership team and the companies that we serve. 2018 provided a unique challenge to us as we expanded our North American work force and integrated the largest acquisition in our company’s history. Although we saw a modest increase in our total recordable incident rate, which came in at 0.62 for the year, I would nevertheless like to thank all of our employees for their unwavering commitment to working safely. Turning to the year-end financial results, we’re very pleased with the improvements in both segments in 2018, but also recognize that there is more work to be done to improve our returns on invested capital, particularly in fluids. Revenues for the full year 2018 improved by 27% year-over-year to $947 million, while EBITDA improved by 56% to $108 million. Beyond the improvements in our financial performance, we also continue to take meaningful steps in the execution of our long-term strategy. In fluids, our full year 2018 revenues were $716 million, reflecting a 16% year-over-year increase, while operating income improved by 46%. Meanwhile, we remain focused on our total fluid solution strategy, expanding our product offerings, further penetrating key IOCs around the world and becoming a recognized global leader in fluids chemistry. A primary objective as we enter 2018 was to break into the deepwater Gulf of Mexico market with our Kronos system. The risk profile in deepwater requires countless hours of effort to qualify every aspect of our technology, systems and facilities and we successfully broke through in 2018 with Shell…

Thanks, Paul. And good morning everyone. I'll begin by discussing the details of our operating segments, before finishing with our consolidated results. The Fluids Systems segment generated total revenues of $178 million for the fourth quarter of 2018, reflecting a 2% sequential decrease from the third quarter and a 9% improvement year-over-year. In the U.S., revenues were $107 million, flat sequentially and relatively in line with the 2% increase in U.S. rig count. As Paul touched on, although, we continue to make meaningful progress penetrating the deepwater Gulf of Mexico market, we experienced a sequential pullback in Q4, as the start of the shell projects were delayed into the first quarter of 2019. On a year-over-year basis, U.S. revenues have increased 19% from Q4 of 2017 roughly in line with the 17% improvement in average rig count. In Canada, revenues were $15 million for the fourth quarter, reflecting an 11% sequential decline relatively in line with the 14% reduction in average rig count. Despite the challenging market conditions, Canada's year-over-year comparison reflects the benefit of our expanding market share, as revenues improved 11% year-over-year, meaningfully outperforming the industry rig count, which declined 12% over this period. Turning to our international regions, revenues in the Eastern Hemisphere were $50 million in the fourth quarter, relatively flat to prior quarter levels. The sequential comparison primarily reflects the anticipated impact from the wind down of the current contract in Kuwait and project time in Albania. These expected declines were largely offset by broad based improvement across other markets in the region, most notably Algeria and Australia. On a year-over-year basis revenues from the Eastern Hemisphere improved by 4%, with the benefit of the Baker Hughes integrated services project in Australia and growth in Germany somewhat offset by declines in Kuwait, Romania and Algeria.…

Thanks, Gregg. As we look ahead to 2019 we are optimistic for our business. While some near-term headwinds remain, we continue to be focused on becoming the global technology leader in Fluids Systems, while building on our strong position in Mats and generating free cash flow for our shareholders. In our Mats business we continue to see the benefits of our diversification strategy. While we’ve experienced significant revenue growth from non-E&P markets in recent years, it’s important to note that we’re still in the early stages of penetrating those markets. We believe this provides us with a significant opportunity for growth in industries that have historically been less volatile than the oil and gas industry. In Fluids, I continue to be encouraged by the expanding opportunities, particularly with our deepening relationships with IOCs and NOCs. And to that point, I can’t think of a better example of the traction we are developing than the recent recognition award as a Supplier of the Year with Shell Oil. This award speaks volumes about our technology and service quality. We were honored to be considered for such an award, much less win it. Remember, when we are competing for work with IOCs, we are competing against some of the largest service companies in the world. As the large service companies try to commoditize the fluid space, our customers have a different plan. We are aligned with our customers and are shared belief that fluids can and will be an integral part of driving efficiency and lowering total project cost whether they are drilling in shale or deepwater. And speaking for a moment about technology, we firmly believe that as our success from the eight offshore wells we drilled in 2018 with the Kronos System builds, so will our reputation and relationship with other…

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

Good morning, guys. Congrats on the very strong quarter.

Thank you.

I guess, if we could start maybe on the mat side, just in thinking about the sales and obviously there's a year-end impacts to it, but I guess can we kind of further break it down in terms of do you see additional customers ordering it, there were existing customers ordering more. And maybe if you could talk obviously there is southern impact with the weather. But what was a geographic dispersion like?

Hey, Praveen, its Matthew. I'll take that one. Couple of questions in there. I think generally there were more customers purchasing promising Q4. If you look at that over half of those sales were into utilities customers than sort of spread between that general construction few pipeline customers and some oil and gas customers in there as well. So, really pleased with the diversification in that sales footprint. Geographically, I think it's fair to say they were all over the country, as utility customers primarily focused in the Northeast from the sales perspective or in the North, and then sales throughout the country from there. So really pleased with the way that's developing.

That’s great to hear. And, I guess, just in terms of small follow-up the weather related impact in 4Q. How much do you estimate that to be?

I think it’d be sort of a high-single digit on that, Praveen, when you look at it primarily just the extension of jobs that we had planned that otherwise would have been picked up. So not insignificant, but not very meaningful.

And as -- this is Greg. As I touched on in my comments earlier you know that weather benefit also impacted not only the rental and service side, but also the timing of some of the orders. And that's what led to Q4 being such a strong quarter on the Mat sale side.

Right. And then, I guess, final question just in terms of capital allocation, you guys are obviously pretty well capitalized and you looked like you're going to generate some pretty good free cash flow in 2019. A lot of competitors especially private, seems like they're less well capitalized. And the volatility seems like it's adding a little uncertainty. How do you think about M&A in this environment given kind of your better capitalized nature? Is it attractive, are there opportunities?

Yes, this is Gregg. In terms of the M&A opportunities, as we've always discussed, they're part of the picture, we evaluate what opportunities are out there. Obviously, our history speaks for itself in terms of where we choose to invest. Most of our investment goes to organic investments. And we have a number of initiatives here. That's really the primary focus of our capital spend with most of it being really on the mat side on the diversification efforts there.

Perfect. Thank you very much, guys.

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

Hey, good morning, guys. Congrats on the quarter. Just to start it off. Paul, you mentioned some efforts around trying to drive increased returns specifically in the Fluids business. I was just wondering if we could get a little more color on some of the specific actions that you guys are taking in the Fluids business to try and drive increased returns? And then, what sort of metrics are you looking at? Is there a particular threshold that you'd like to achieve that you can share with us?

Yes, certainly covering our cost of capital is the most important thing. And roughly we get the Fluids business around 11% margins, we're covering our cost of capital. In terms of some of the levers that we're looking at, certainly where we have our largest amount of invested capital, as you probably know, is in the Gulf of Mexico in the Port of Fourchon. And that's why we're very excited about the work that we've got with Shell Oil the recognition from Shell Oil, the new contract with Fieldwood. As we begin to fill up those facilities, that'll be a natural pull to get us back up close to those 10% operating margins. Gregg, any other comments?

Yes, I mean, you look at there's several elements to it, the growth initiatives that Paul had touched on, whether it be the deepwater Gulf of Mexico, the stimulation chemicals, et cetera. There's also buckets the cost optimization continues to be a focus of ours. We've taken some additional actions here in the quarter. And that will remain a focus as we continue to refine the business to match the activity levels overall. Pricing is another level that we continue to focus on. I think it's broadly understood that the pricing levels in the industry as a whole are still in a top territory. And so discipline on the pricing side is absolutely critical. And then the last lever is really the working capital side. We have done a lot here as we’ve progressed through 2018, Q4 was a strong quarter in that sense, but there's more work to be done specifically in fluids, when we look at the inventory levels, they've grown pretty substantially in 2018. So we see that as an area of focus in 2019.

Got it. And then relatedly, could you just remind us about the amount of costs that you're carrying in the Fluid business you mentioned in your prepared remarks. When do you expect to see those to -- see those fade?

Yes, the cost that we're carrying associated with the growth areas it continues to provide a headwind of around a point of margin in the Fluids business. And really it's a matter of those investments and costs that we're carrying ahead of the revenue stream. And so, it's once we start generating the sustainable revenue in those areas that you really see that alleviate.

And that's why we were encouraged by our first field trial and our simulation business that was successful again being able to leverage our brand equity, brand identity with our drilling fluids customers to be able to get on and frack fleet. Get our technology tested, have an opportunity to prove its efficacy. And so we believe, obviously we're going to be seeing sales this year in the stimulation, chemical space.

Got it. Appreciate the color. Thanks, guys.

Thank you. Our next question comes from line of Ken Sill with SunTrust Robinson Humphrey. Please proceed with your question.

Yes, good morning. Nice to see a green stock on the screen today. Enjoy…

Thank you.

I got a question on the stimulation and completion fluids. Could you describe the kind of volume opportunity and margin opportunity relative to traditional chemicals? Trying to figure out is this something that -- it's really more about pushing more volume to the facilities which improves returns or is it going to drive better margins too?

It’s a combination of both. I’ll let Gregg take it first and then I’ll also comment.

I mean in terms of the margin profile, I think it’s fair to say that it’s -- in terms of the incremental margins of those areas, it’s similar to what we see in the drilling fluids. We have always talked about the drilling fluids providing somewhere in the 20s range of incremental margins, stimulation chemicals, completion fluids. Once you get rolling and get some critical mass with it, you would expect to see a similar lift from those areas. Obviously early on it’s a little bit different because you don’t have that consistency in the revenue stream and that makes it a little more cost inefficient.

So if you look at some of the fixed assets that we have in place, our Conroe facility that we’ve build a few years ago is running at I wouldn’t say low utilization, but there’s a lot of available capacity. And as the stimulation market and sales grow, our goal is to be able to fill up that facility. So that again will help on return on invested capital.

Okay. And that’s what I was trying to get at. And then in terms of the total revenue dollar potential, I know stimulation chemicals are a small volume that goes into the stimulation fluid and I’m not actually is up to speed on what goes under production chemicals, but drilling fluid is a big volume business.

Yes. I mean the way to frame it up here is in terms of the overall stimulation chemical market. A single frac fleet, it can range depending on the specifics, but a single frac fleet can consume 5 million to 10 million of stim chemicals per year. So that gives you a sense of the size of the market overall. And on the completion fluid side, I think the way to frame that up is when you look at the anchoring off of the drilling fluids, experience that we have, when you look at the spend of drilling fluids versus completion fluids, it’s kind of an 80-20, 80% drilling fluids, 20% completion fluids in that mix.

Okay. And then I’m just kind of curious a lot of people sell chemicals and stuff. Is the strategy -- is there much in the way of proprietary chemistry or is it really, look you can have a single point supplier of your stimulation and -- I mean your drilling stimulation and production chemicals, right? Or completion, I am sorry, not production or is it [Multiple Speakers]?

Yes. On the stimulation side, there is some proprietary technology, but again there is also some that’s more commodity based, an example would be like bio sides would be more commodity-based, maybe some of the friction reducers, flow back enhancers have a little more proprietary technology in them. And another piece of this obviously is the service element. And again, that’s something I think we do exceptionally well in the company.

Okay. All right, that’s all. Thanks.

Thank you.

Thank you. Our next question comes from the line of John Hunter with Cowen & Company. Please proceed with your question.

Good morning, and thanks for taking my question.

Good morning.

So first one I had is just on the Kuwait oil contract. Is this -- I know that you had signed one back in 2014. So my first question is, is this a follow on to that same contract and are you offering anything incremental should we be thinking about this as apples-to-apples? And then from a revenue perspective same question is the $165 million similar to what the 2014 contract was?

Yes, in terms of a follow on part of that is yes, part of it’s not. In the Southern part where we have our existing facility that is a follow on of the existing work that we’ve been doing. What we’re also excited about is that we’ve won a new contract in the Northern part of Kuwait, which is the high temperature, high pressure regions, which obviously requires a different level of technology. Our hope is a different level margins as well, higher service intensity. And so that is new work that we’re doing. And as Gregg had referenced in his comments was that that’s roughly about an $8 million plant that we’ll end up building.

Yes, and in terms of the reference to the volume or revenue potential as compared to the previous work, I think I would frame it up as although the contract award value is a little bit less than what we had been running more recently on the previous contract. What we found in working with them is their drilling plans change over time and just like in the last contract, we ended up running at a much higher rate than what was originally anticipated. And so, there's some of that goes into our thinking, as we -- the comment that I made earlier, it's our expectation that once we hit our full run rate with the addition of the second base of operations in Northern Kuwait, we think the run rate will be mostly higher than the previous contract.

Got it. Okay, thank you. And then my second question is just on use of cash, you should be generating a good amount of free cash flow in the next couple of years. So, how do you weigh paying down debt versus buying back your stock?

Our approach on that does not change. We've always been thoughtful and prudent with our capital deployment, maintain a modest debt load. We're pleased with where we're at now, with our leverage ratio back on the 1.5 times EBITDA. With putting the share buyback program back in place, it just provides us the flexibility to use excess cash. And just as we've done in past years, pre-downturn using that as a maintenance program where each quarter we evaluate what's our leverage level, what's our near-term outlook in terms of cash flows. And then based on that, you'll use the access to repurchase shares on our maintenance program.

Very good. All right. Thank you very much.

Welcome.

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

Thank you. I had one question for each of the two businesses. First of all, relative to the Fluids business, you had a 4.6% operating margin in the fourth quarter and yet the full year was 5.6%. Can you help us understand -- I feel like the slow pony here why that business was lower margin in the fourth quarter? And then relative to the Mats business, the seasonal strong purchases from the utility business. We understand what about the other sales, were those also year-end seasonal buys or is there something different going on there?

You want to take the Mats one first?

Yes, Bill, it’s Matthew. I’ll take that one on the Mats. Look, I think it was a combination of a lot of project activity we mentioned part of it being driven by the weather, I think there was some significant project activity also going on that pulled forward people's purchase requirements not so much year-end driven as we see typically around that utility space, but project related as well.

And with regard to the fluids margins out of the 4.6% that we had in the fourth quarter. Now that includes the $2.5 million of charges. Obviously if you normalize for that in the 6-ish range. Now, as far as that comparing to the overall year. Now, if you look at our flow through the year Q1, Q2, we had some very strong mix that we had talked about in those few quarters. And then, as we got into the end of the year, we have had a little bit of a transition, we started to see the transition of the Kuwait contract coming to an end. As well as the issue of continuing to add costs as we progress through the year associated with these targeted growth areas. So that's what's weighing on the margins a little bit on the back-end of the year.

Thank you both.

All right.

Thank you. Ladies and gentlemen that concludes our question-and-answer session. I'll turn the floor back to management for any final comments.

All right. Thank you once again for joining us on our call and for your interest in Newpark Resources. And we'll look forward to talking to you again next quarter.

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