Greetings, and welcome to the Newpark Resources Second Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ken Dennard, with Dennard Lascar. 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 second quarter 2019 results. With me today are Paul Howes, Newpark’s President and Chief Executive Officer; Gregg Piontek, Chief Financial Officer; and Matthew Lanigan, President of the 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 to Q&A. Before I turn the call over, I have a few housekeeping details to cover. 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 telephonically available until August 14, 2019, and that information to access is included in yesterday’s release. Please note that the information reported on this call speaks only as of today, July 31, 2019, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of 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, which can be found on Newpark’s website. And now with that said, I’d like to turn the call over to Newpark’s President and CEO, Mr. Paul Howes. Paul?

Thank you, Ken, and good morning to everyone. Before I get into the specifics of the business, I'd like to first begin by touching on a leadership change in the Fluids business, which was announced a few weeks ago. Earlier this month, we welcomed David Paterson to the Newpark family as our new President of the Fluids Systems business. We are excited to have David on board, and we believe that his extensive global knowledge of the fluids market, combined with his leadership skills, will be a significant asset as we continue our progress on becoming the recognized leader in fluids technology. While Dave is currently traveling and getting up to speed on the business, we expect he will participate in our future quarterly calls. And with David's arrival, we've also announced the retirement of Bruce Smith who served as our Fluids President from 2000 to 2017 and most recently stepping back into that role on an interim basis late last year. Bruce has been instrumental in transforming Newpark from a regional U.S. fluids player into a globally respected fluids company. I'd like to personally thank Bruce for his outstanding leadership and significant contributions over the past 20 years. Now turning to an update on our strategic efforts. I'm very pleased to announce that we're continuing to make meaningful progress in the execution of our strategic growth plans across both businesses. In Fluids, our deepwater Gulf of Mexico market entry is continuing to gain traction with the second quarter benefiting from several deepwater projects. Each project serves as an opportunity to demonstrate our industry-leading capabilities and technology. And I'm pleased to report that we have recently been awarded another deepwater rig with Shell Oil with work expected to begin by the end of the third quarter. In addition, we're also…

Thanks, Paul, and good morning, everyone. I'll begin by covering the specifics of the segment and consolidated operating results for the quarter followed by an update on our near-term outlook. The Fluids Systems segment generated total revenues of $173 million for the second quarter of 2019, reflecting a 7% sequential increase and a 4% year-over-year decrease. Revenues in the U.S. increased 14% sequentially to $117 million despite the 5% reduction in U.S. rig count. As Paul touched on, we are continuing to gain traction in the deepwater Gulf of Mexico, which contributed a $9 million sequential revenue increase primarily benefiting from our ongoing work with Shell and Fieldwood. In addition, U.S. land revenues also improved by $6 million with most areas contributing to the sequential improvement, largely reflecting a rebound in market share and increases in drilled footage per rig. On a year-over-year basis, U.S. revenues also outpaced the broader market activity, increasing 12% from Q2 of 2018 compared to a 5% reduction in average rig count over the same period. Consistent with the sequential comparison, the year-over-year improvement is primarily attributable to increases in the Gulf of Mexico, along with improvements across most U.S. land regions. In Canada, revenues followed the typical seasonality trend through spring breakup with revenues coming in at $5 million for the second quarter, reflecting a 62% sequential decline, relatively in line with the 55% reduction in rig count. On a year-over-year basis, Canada revenues declined by 56%, which compares to a 24% reduction in rig count. The year-over-year comparison is impacted by exceptionally strong prior year performance from our Canadian business as Q2 of 2018 included a greater concentration of revenues from areas that drill through spring breakup. Turning to our international markets. Following the transitory issues discussed on last quarter's call, our international…

Thanks, Gregg. While the market conditions are certainly less than ideal, the softness in U.S. land continues to validate our strategic direction in both businesses. As I’ve stated before, we are not your typical oilfield service company in many respects. Most notably, we are not relying on increases in E&P capital spend to drive revenue growth. We are executing our strategy to capitalize on sizable market expansion opportunities in both businesses, which we believe will ultimately improve our returns on invested capital and provide increased stability in our long-term cash flow generation. And while organic efforts take time to fully develop, we believe this is the best approach in terms of creating long-term shareholder value. We have laid a solid foundation over the past several years, and we are now beginning to realize the benefits of that effort. We are also different in terms of our unique value proposition. Whether in Fluids or in Mats, our reputation for providing leading technology is becoming increasingly recognized as our customers across industries are seeking partners that can provide them with valued solutions to help them achieve their goals, whether these goals are reduce – are to reduce their total project cost or to reduce their environmental impact when completing their projects. Another differentiating characteristic of Newpark is our consistent cash flow generation. Over the past year, industry discussions have increasingly focused on investor demands for free cash flow generation. To us, consistent free cash flow has always been the expectation of our business. In fact, even as we navigated through the most challenging downturn the industry has faced, we generated free cash flow nearly $50 million over the period of 2015 to 2017. And our ability to generate free cash has continued in 2018 and 2019 despite the fact that we are making meaningful capital investments to support our growth initiatives. As Gregg touched on, our long-term strategic planning effort is progressing well. And while this effort will continue through the third quarter, I think it’s worth noting that the work completed to date has largely served to validate our course while also surfacing new opportunities to provide additional value to our customers and helping to refine our commercial approach. To capitalize on identified opportunities, we’re continuing to expand our organizational capabilities. While this servers as a modest headwind to current operating results, these investments are necessary to drive sustainable growth and enhance stability in our cash flows and returns on investment. Our goal at Newpark remains the same: to maximize long-term shareholder value by driving growth and consistency in cash flow generation while improving our return on invested capital. With that, I’d like to close the call, as I always do, by thanking our shareholders for investing in us and thanking our employees for the continued hard work and dedication to Newpark as well as their continued focus on safety. We’ll now take your questions. Operator?

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

Good morning, guys. The 7% margin in Fluids was impressive, so I guess I want to stick on that, maybe if we can talk on the lower 48. Obviously, activity is falling, but it seems like you guys are able to be more returns-focused. I want to kind of hear about more how you see the competitive dynamics and how your peers are acting. They also seem like they’re more returns-focused. But are you seeing that? And do you expect that to continue to be the case or to be the case as activity falls through the remainder of 2019? Or is that going to be a headwind?

Hi, Praveen. I’ll take that one. Certainly, on U.S. land, it’s always been, I think, a very competitive market, and so I don’t see that really changing. I think from our perspective, our whole approach on our total Fluids solution is a unique opportunity for us to grow our revenue and improve our profitability even if there is some pressure, say, on the drilling fluids side.

Okay. Great. I guess in thinking about that total Fluids opportunity in growing the stim chem, you mentioned the qualification process. I guess, could you go into that a bit more in terms of the time frame it takes to get a customer through the door, through trials and then into kind of a revenue generating -- significant revenue-generating piece? And then how has what you've seen so far kind of changed the way you think of the pace of that ramp?

In terms of the qualification in what we had expected going into the stimulation chemicals market, I don't think any of our view has changed at all. In fact, I think we're continuing to validate the opportunity that exists there and the size of that addressable market. If there's any headwind in that at all and slowing that down, it really is the kind of the slowness in the stim chem market, the fracking market right now. So…

Okay. Perfect. And then if I could just squeeze one more in, on the Gulf of Mexico, obviously great to hear about the deepwater rig. At this point -- 2Q was obviously great. But at this point, are we seeing those margins in Gulf of Mexico as accretive to the overall Fluids business? Or how does it stand today?

Yes, this is Gregg. I'll take that. Yes, with the ramp-up in the revenues, yes, it is fair to say that, that business is now accretive to the overall Fluids margins. Now the key here as we move forward is to continue to build on this momentum and create a consistent revenue stream from that business.

Yes. One of the things, too, Praveen, as you know, we made a fairly significant capital investment in the Gulf of Mexico and we haven't filled that facility up. As we look out to the end of the year, it's our expectation that we could see another contract award from another player in deepwater, but that revenue probably wouldn't come to 2020. So that's another part that will continue to provide lifting the margins in the overall Fluids business as we fill out that facility.

Great. Thank you very much guys.

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

Hey, I’ll help out there. It's Bill Dezellem with Tieton Capital. A couple of questions here. First of all, would you talk in a bit more detail, and maybe you had just did that relative to the deepwater Gulf of Mexico projects that you -- or rigs that you have line of sight that you might be on through the remainder of the year and even into the first half of next year. So I think you just mentioned that you believe you'll be -- could be awarded one at the end of the year.

Yes, by the end of the year and certainly the revenue probably wouldn't come to 2020. Really, if you look at what we're doing in the Gulf of Mexico, I think we've created a unique opportunity for the company. We have, I think, really good technology. I think we have a very differentiated operating facility in Fourchon, the investment that allows us to turn OSVs faster, which provides unique value to the operators. I think the quality of our engineers that are on the rigs are exceptional. And on top of that, our tech service group in our Katy lab that works on real-time problems, I think, were providing a total solution for the deepwater operators that they haven't seen in a while.

And this rig that you believe that you may end up on the new operator, would that be for drilling and completion fluids?

Getting at this point, it'd be probably drilling, though we continue to work hard on the completion side as well because there is a value that the operators like to see those together, so it creates efficiency for them on the rigs. But I think initially, it would be on the drilling fluids side. Gregg, do you want to comment?

Yes, I was just going to add to that. I mean I think this comes back to the discussions we've had in the past quarters about the qualification process and particularly with the successes that we've had with Shell, in particular, that's been a bit of a catalyst to help advance some discussions with other operators. So we continue to go down that path, and we feel optimistic that it will ultimately be successful in expanding our share.

Great. And I would like to shift to the Mats business quickly, if I may. Can you talk about the delayed international sales in the Mats business, what the dynamics were there? And then also discuss the transmission and distribution work that you're expecting to start here in the second half. That sounds like that's a bit more meaningful than your typical contract.

Sure. I'll start and hand it over to Matthew. In terms of the project delay – the delivery delays, I think that comes back to the commentary that we've made in the past and continue to reaffirm is while we have a pipeline of order activity and opportunities, nailing down the specific timing of that is always a bit challenging. We did have a few sales here that we expected to fall into Q2. The timing of those deliveries ultimately slid into Q3, and that's what created this little dynamic of a dip in Q2 and then rebound in Q3. As far as the other question, I'll turn it to Matthew.

Yes. I mean as you look at the T&D build that we're talking about into Q3, I think what's interesting to us in terms of contextualizing, if you look last year, Q2 to Q3, we would typically see the seasonal drop that I think Gregg referenced earlier in the call there. Last year was in the vicinity of a 15% decline. As you look into the Q2, Q3 build in 2019, we're expecting to see roughly a 10-plus-percent growth in that area. So we've been able to, by moving into the other geographies and markets, sort of more than offset what we would typically see in a seasonal decline into Q3.

And then if you'll take one more question. what would you like to share with us about the outcome of the strategic planning process?

Bill, that's a good question. Really, it comes down to we had a lot of ideas on the table and in terms of where we thought the growth opportunities lie within this business, obviously, in the total fluids solution for the Fluids business and the energy infrastructure. And I think what we've seen so far through the process is the validation of our thinking, our strategy, our direction. And at this time, it's really about developing additional momentum and moving into these new markets or new product lines and increasing the rate of penetration.

Yes. And I guess I would add to it, as far as what we've learned to date, we kind of touched on this in Paul's closing, but we definitely learn more about the nuances of our value proposition with some of our new market opportunities. And that's helping us to really refine our approach in our commercial strategy to penetrating these markets.

Great. Thank you all.

Thank you, Bill.

This concludes the question-and-answer portion of the call. I would now like to hand the call back to management for final comments.

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

This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.