NPK International Inc. (NPKI) Q2 2020 Earnings Report, Transcript and Summary

Greetings and welcome to the Newpark Resources Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A 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, Investor Relations for Newpark Resources. 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 2020 results. Participating from the company on today’s call are Paul Howes, Newpark’s President and Chief Executive Officer; Gregg Piontek, Chief Financial Officer; Matthew Lanigan, President of the Mats business; and David Paterson, President of the Fluids business. Following my remarks, management will provide a high-level commentary on the financial details of the second quarter results and near-term outlook before opening the call for Q&A. Before I turn the call over to management, I have a few housekeeping items to cover. There will be a replay of today’s call. It will be available by webcast on the company’s website at newpark.com. There will also be a recorded replay available until August 18, 2020. And that information is included in yesterday’s press release. Please note that information reported on this call speaks only as of today, August 4, 2020. 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 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?

Thanks, Ken, and good morning, everyone. While the impact of COVID-19 and the unprecedented market collapse over the past 4 months is unlike anything we have seen in our lifetime, our highest priority remains the health and safety of our global workforce. I am pleased to highlight that while we continue to deliver our essential services for our customers, the precautionary measures we have taken as a company have translated into only a limited number of confirmed COVID cases among our global employees. Additionally, I am pleased to note that our commitment to working safely has not wavered through these volatile times as we achieved a total recordable incident rate of 0.35 through the first half of the year. I remain extremely proud of the performance of our entire organization as we navigate through the one-two punch of the oil and gas industry dislocation, amplified by the COVID-related economic shutdowns. The impact of COVID has proven to be longer in duration and deeper than we originally anticipated, with logistical restrictions and limitations associated with government-led shutdowns around the world having a meaningful impact on planned commercial activity. As we progress through the second quarter, we experienced an elevated effect from COVID, most notably within the EMEA region of our Fluids business where restrictions on movements of personnel and products, along with uncertainty regarding the timing of a COVID recovery, caused activity disruptions and project delays. In our mats business, we’ve also seen the impact from COVID expanded in the second quarter, with the timing of planned energy infrastructure projects being impacted by delays in the issuance of governmental permits as well as supply chain and logistical restrictions. In response to these challenging market conditions, we have moved quickly to take actions aimed at rightsizing the organization in markets where longer term softness is expected. We have aggressively managed our working capital in order to drive positive free cash flow generation while, at the same time, maintaining our commitment to our strategic growth markets, most notably our Mats utilities business and our international fluids business. As we discussed in last quarter’s call, we moved quickly to adjust our cost structure beginning in the first quarter and have now reduced our global workforce by 25% in the first half of the year, including a 50% reduction in the Fluids U.S. land business. These workforce reductions combined with temporary salary reductions for the majority of our U.S. employees, plus the suspension of the company contribution to our U.S. retirement plan and the implementation of furloughs, have resulted in roughly $65 million of annualized savings, representing approximately one-third of our total personnel expense. In light of the current market softness, we are further streamlining and reducing our operational footprint in the U.S. Fluids business with a total of 12 site closures now completed or underway. As a result of these actions, our second quarter results included $3.6 million of charges for employee separation costs and facility closures, substantially all in the Fluids business. We also recognized an $8.3 million non-cash write-down of our Fluids Systems inventory. In addition, we have continued our aggressive management of liquidity, eliminating all non-critical capital investments and driving reductions in working capital balances. For the second quarter, we generated $21 million of free cash flow and reduced our total debt by $27 million. Despite the unprecedented market challenge, it’s important to highlight that we are making strategic progress in both operating segments, positioning the company well for the eventual market recovery. Within the Mats segment, one of our key strategic initiatives has been the expansion of the non-E&P customer base aimed at improving the stability of cash flow through end market diversification and reducing the impact of commodity cycles. To that point, I’d like to note that we are seeing tangible progress on this front with our non-E&P customer base growing by roughly 15% within the past year. And although COVID has contributed to an 11% year-over-year decline in the first half non-E&P revenues, we see the expanding customer base beyond traditional E&P customers as critical to accelerating future growth when the market eventually recovers. In our Fluids business, the changes in the global market have resulted in a shift in our geographical mix, expanding the relative contribution from our international and offshore Gulf of Mexico markets. This shift can be seen in our second quarter results with the revenue contribution from U.S. land declining 38% of total Fluids Systems revenues, while the revenue from the Middle East, a strategically important market for us, has increased to 17% of the total segment revenues, a new high watermark. I would also like to highlight that our Fluids business is continuing to receive recognition from customers for our unique value proposition. According to the latest report from Kimberlite International Oilfield Research, I am proud to report that Newpark ranked number one globally in customer satisfaction within every drilling fluids performance category, including customer responsiveness, technical support competency of field personnel, product quality and availability. This is a testament to our fluids-focused approach and our commitment to providing differentiated value to our global customer base. This is what we refer to as the Newpark Service Advantage. Now, turning to the specifics of the quarter, our Fluids Systems segment posted second quarter 2020 revenues of $75 million, reflecting a 44% sequential decline. With a combined impact from the collapse of the oil and gas market and the COVID-related disruptions, revenues declined sharply in all major regions with the exception of the Middle East, which improved 9% over Q1. North American Fluids Systems revenues declined by $41 million sequentially, which included a $30 million reduction in U.S. land markets and a $10 million decline in Canada. Outside of North America, revenues pulled back by $17 million for Q1, reflecting a larger-than-anticipated impact from COVID restrictions combined with lower commodity prices. In the Mats segment, the increasing COVID-related disruptions attributable to customer permitting delays and logistical restrictions led to a $6 million sequential decline in rental and service revenues in the second quarter. Product sales increased modestly, although order activity continues to be negatively impacted by customer uncertainty. And with that, I will hand the call over to Gregg to discuss in more details the financials for the second quarter. Gregg?

Thanks, Paul and good morning everyone. I’ll begin by covering the specifics of the segment and consolidated financial results for the quarter and provide an update on our near-term outlook. In the Fluid Systems segment, revenues from U.S. land declined 52% sequentially to $28 million in the second quarter, tracking in line with the reduction in U.S. rig count. The impact of the market collapse was felt broadly across all U.S. land basins, with the exception of the Northeast. While the market activity decreased sharply in the period through reductions in both the rig count and in the number of wells drilled per rig, it’s worth noting that the changing competitive landscape led to a gradual improvement in our market share. Despite executing the necessary cost actions and facility closures, we exited the second quarter with more than a 20% share of the active rigs, a record level for the company. As we anticipated on last quarter’s call, our Gulf of Mexico business fared considerably better than U.S. land, generating revenues of $14 million in the second quarter, reflecting an 11% sequential decrease. In Canada, revenues declined 77% to $3 million in the second quarter. Despite the sharp decline, our performance compares favorably to the overall market rig count, which declined 87% sequentially. Outside of North America, as Paul touched on and as we discussed previously, COVID has had a dramatic impact on customer activity levels, most notably in the EMEA region where restrictions on movements of personnel and products within a number of countries have resulted in significant activity disruptions and project delays. We experienced some level of pullback in all key international markets, with the exception of the Middle East, which contributed $13 million of revenue in the quarter, benefiting from strong activity in Kuwait and higher completion chemistry product sales into Saudi Arabia. Total international revenues pulled back 37% sequentially to $29 million in the second quarter, with operations in North Africa and Italy contributing $12 million of that decline. As we touched on in May’s call, Italy was the hardest hit market from a COVID perspective. And while we’ve seen signs of recovery following the near complete shutdown early in the second quarter, customer projects remain meaningfully curtailed from pre-COVID levels, with planned projects in the region continuing to experience delays. On a year-over-year basis, our Fluids Systems revenues declined 57% compared to Q2 of 2019, with the majority of the reduction driven by U.S. land. U.S. land revenues, declined by $73 million or 72%, driven by the collapse in rig count, while the Gulf of Mexico activity has remained relatively stable, declining only 14% year-over-year. International revenues also declined $21 million or 43% year-over-year, with declines seen across all markets except the Middle East, which benefited from our growth in Kuwait as well as product sales into Saudi Arabia from our Cleansorb acquisition last November. As discussed on May’s call, we’ve continued our aggressive cost actions, reducing our total U.S. Fluids workforce by more than 35% in the second quarter, while also implementing salary reductions and furlough programs to retain key talent. Combined, these and other cost reduction programs have reduced our U.S. personnel expense by over 40% from the beginning of the year. We are also exiting several of our U.S. facilities, and as highlighted in yesterday’s release, our Fluids Systems second quarter results include $11.7 million of charges related to inventory write-downs, employee separation costs and facility closures contributing to a $25 million operating loss for the quarter. Turning to the Mats business, total segment revenues declined 14% sequentially to $27 million in the second quarter, reflecting the COVID-related impacts that Paul touched on as well as continued softening in the E&P activity on U.S. rental and service projects. With scheduled projects being pushed back, rental and service revenues declined $6 million to $22 million in the second quarter. Product sales improved modestly to $5 million for the quarter, although several customers continue to defer purchasing decisions citing COVID uncertainty. From an end market mix perspective, $19 million of revenue was derived from Energy Infrastructure and other non-E&P markets, representing more than 2/3 of our total segment revenue. Of the $8 million in revenues derived from E&P customers, the majority was generated within the gas-focused basins in the Northeast. Compared to the second quarter of last year, Mats segment revenues declined $17 million, largely reflecting a $13 million decline in E&P rental and service and a $3 million decline in non-E&P rental and service. In response to near-term market weakness, our Mats business implemented certain cost actions, including roughly 10% reduction in workforce in the quarter. With a $4 million sequential decline in revenues, the Mats segment operating income declined $2 million, resulting in second quarter operating income of $1 million and EBITDA of $6 million. Total corporate office expenses declined modestly to $6.5 million in the second quarter as compared to $6.7 million in the first quarter. Both periods included a modest impact of severance charges. The sequential decline was driven primarily by the impact of workforce reductions and other austerity initiatives. On a year-over-year basis, corporate office expenses declined by $4 million, primarily driven by $2 million of strategic planning costs incurred in the prior year, along with a $1.5 million reduction in personnel costs. SG&A costs were $21 million in the second quarter compared to $25 million in the first quarter. The sequential decrease primarily reflects lower personnel expense attributable to the workforce reductions and other austerity measures, partially offset by an increase in severance charges. On a year-over-year basis, SG&A cost declined $7 million, largely reflecting lower personnel expense, strategic planning costs and legal and professional spending. During the quarter, we continued the execution of our debt reduction plans, purchasing a total of $18.6 million par value of our 2021 convertible notes for $15.3 million, representing a $3.3 million discount to par. The purchases required a $2 million non-cash write-off of associated unamortized debt discount and issuance cost, resulting in a $1.3 million gain on the extinguishment of debt. The purchases bring our year-to-date total to $33 million of par value retired, leaving $67 million of convertible notes outstanding at the end of the second quarter. With the benefit of the decline in interest rates and the note repurchases, interest expense declined to $2.9 million in the second quarter, which includes $1.2 million of non-cash amortization of facility fees and discounts. As of the end of the second quarter, the weighted average cash borrowing rate on our outstanding debt was approximately 3%. The second quarter benefit from income taxes was $6.7 million, which reflects a 20% effective tax rate for the second quarter and 14% for the first half of 2020. The low tax benefit rate reflects the impact of the geographic composition of our pretax losses, where the tax benefit received from U.S. losses are partially offset by the tax provision on foreign earnings, which carry a higher rate than the U.S. Our net loss in the second quarter was $0.29 per share, which includes $0.09 of charges, as highlighted in yesterday’s press release. This compares to a net loss of $0.14 per share in the first quarter, which included $0.02 of charges. Net income was $0.05 per diluted share in the second quarter of last year. Turning to cash flow, second quarter cash provided by operating activities was $21 million, which included a $35 million net reduction in working capital. Our working capital reduction benefited from strong collections of receivables in the U.S., although the COVID-driven shutdowns of customer offices in the EMEA region led to an elevation in days sales outstanding. Investing activities had a minimal impact in the quarter, as the cash generation from the sale of used Mats and the disposal of other assets offset our capital investments, further demonstrating our ability to adjust our course in managing our net capital investments and cash flow. Our cash balance declined $6 million, reflecting our continuing progress in repatriating excess cash from our foreign subsidiaries. Our cash generation, including the impact of the repatriation efforts in the quarter, was used to pay down our debt balance, including a $19 million reduction in convertible bonds and a $15 million reduction in our U.S. asset-based loan facility. With the benefits of the debt repayment, our total debt balance declined to $136 million, while our cash balance ended the second quarter at $43 million, resulting in a total debt-to-capital ratio of 21% and a net debt-to-capital ratio of 15%. Our primary debt components include the remaining $67 million of convertible notes due December 2021 and $64 million outstanding on our U.S. asset-based bank facility, which runs to 2024. Substantially, all of our $43 million of cash on hand resides in our international subsidiaries. We plan to continue to repatriate excess cash to further reduce our outstanding U.S. debt in the coming quarters. Now, turning to our near-term outlook, in Fluids, we don’t anticipate a meaningful change in revenues in the third quarter. In North America, we expect the lower market activity, reflecting the full quarter effect of the Q2 rig count decline should largely be offset by our recent market share gains along with a modest uptick in disinfectant products revenues as our chemical blending facility continues to ramp production volumes. In the Gulf of Mexico, although customer activity is remaining stable, we have seen some COVID and weather related activity disruptions in recent weeks, which puts a modest headwind on the third quarter. Looking outside of North America, although the recent improvements in oil price is making for a more constructive outlook, customers are moving slowly to reengage with planned activities, particularly as we see countries reinforcing some of the previously relaxed COVID restrictions. Consequently, we are expecting our international revenues in the third quarter will remain fairly in line with Q2 levels until our customers gain further confidence in their ability to execute their plans. Looking beyond Q3, we anticipate that international revenues will begin to recover in the fourth quarter, likely returning to pre-COVID levels in early 2021. In terms of operating margin, while we are continuing to take cost actions in the U.S. and targeted international markets, we anticipate that Fluids Systems EBITDA will remain below breakeven for another quarter. In the Mats segment, we’ve seen a pickup in customer bidding and planning activity, but visibility remains limited at this point as demand continues to be highly dependent upon our customers gaining confidence in the post-COVID economic recovery. In light of the uncertainty and the timing of customer projects, we have pulled back on our Mats production levels as part of our cash management strategy. Based on our current outlook, we anticipate third quarter revenues will remain near Q2 levels, with operating margin remaining in the single digits. As we look further ahead, we continue to expect we will see fourth quarter strength in Mats sales in the utility sector as well as a rebound in activity when the economy ultimately reopens. Corporate office spending should remain near the Q2 level in the near term. With respect to taxes, we expect the effective tax rate for the remainder of the year to remain relatively in line with the first half 2020 results. With regard to cash flows, with more than $230 million of net working capital, we expect working capital reductions to provide a tailwind to cash generation for the next several quarters. The most immediate impact should be seen in international receivables, which are expected to show strong collections following COVID office closures and delays in Q2, while inventory is likely to work its way down more gradually over the next several quarters. Meanwhile, consistent with our Q2 results, we expect very limited net capital investments for the remainder of the year. As illustrated by our second quarter actions, we are continuing to take steps to manage the December 2021 convertible note maturity, with one-third of this debt having been retired over the past two quarters. We currently anticipate that our available cash on hand, cash generated from operations, including working capital reductions, and remaining capacity under our U.S. asset-based loan facility to provide sufficient liquidity to support our ongoing operations and satisfy our U.S. convertible note maturity. As we have noted in the past, it remains our intention to fund the maturity without accessing public capital markets. It should also be noted that we have additional sources of liquidity available should the need arise. We have meaningful U.S. real estate as well as assets within our European operations that can be used to create additional liquidity through secured financing or alternative arrangements. And with that, I would like to turn the call back over to Paul for his concluding remarks.

Thanks, Gregg. As we navigate through these turbulent times and the uncertainty of when the economy will restart in full, we remain committed to taking the necessary actions to position the company to benefit from the eventual market recovery. So in closing, I would like to share a few thoughts with you on our business. First, I want to highlight that we will remain focused on safety, our most important core value. Second, as we emerge from the current downturn, we will be a leaner organization on U.S. land that will enable us to react more efficiently to fluctuations in the oil and gas markets. Specifically in Fluids, we have moved quickly to right size our U.S. business for a significantly lower rig count. Although the rig count has stabilized in recent weeks, we remain committed to taking additional actions to reduce our footprint further by streamlining the organization, reducing the number of facilities where we operate and optimizing our working capital. Third, our Mats and our international fluids business remain well positioned to take advantage of the eventual market recovery as the COVID pandemic subsides. Our strategy in our Mats business remains unchanged. We will continue to focus on penetrating the Energy Infrastructure markets, predominantly the utility transmission segment. Our Mats business is firmly built on providing differentiated products and services to help our customers reduce their total cost and lower their operating risk while simultaneously having a positive impact on the environment. This has been the foundation of our strategy for many years, which we believe will serve as a growth engine going forward. Similar to our Mats business, we also expect that our international fluids business, particularly in the EMEA region, will rebound to pre-COVID levels once the pandemic subsides. Despite the near-term headwinds from COVID, there’s a notable shift underway in our revenue mix, reducing our dependency on the volatile U.S. land market toward the historically more stable international markets. During the second quarter, the Fluids Systems revenue contribution from offshore and international markets increased to 62%, while the revenue contribution from national and international oil companies increased to 54% of segment revenues. And the latest example of that shift is the recently announced multiyear contract award from Wintershall, the largest German E&P company, which provides our first entry point into the North Sea. And last, we remain committed to generating positive free cash flow through the oilfield industry cycles. As we have proven in the past, our flexible and capital-light business model, along with our ability to liquidate working capital from the balance sheet, allows us to generate free cash flow through market cycles. We’ve seen the benefits of this in the second quarter. With more than $300 million of receivables and inventory on the balance sheet at the end of the second quarter and only limited capital expenditures on the horizon, we expect to continue to generate positive cash flow for the remainder of 2020. With that, I would like to close the call, as I always do, by thanking our shareholders for investing in us and thanking our employees for their hard work and dedication to Newpark as well as their continued focus on safety. We will 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.

Thanks and good morning, guys.

Good morning.

I guess if we could start maybe on the international fluids side and how we should think about the guide for 3Q, you mentioned that we should probably remain below breakeven on an EBITDA basis for 3Q. I guess I was curious as to whether that entails you guys holding on to unabsorbed costs, given your outlook for international to recover in 2021? And how we should think about your confidence in that forecast?

Sure. So this is Gregg. I will start in terms of addressing the overall margin profile and then kind of hand it over to David to give a little more color on the international outlook and what he sees moving there. But in terms of the cost structure, there’s obviously been a lot of actions taken to date. With the cost takeout that we have done, this business is now, call it – its EBITDA breakeven is roughly $350 million annualized revenue level. Obviously, where we are running right now is about $300 million. So still a modest cash burn coming from the business at the current level. In terms of the margin progression from there, I think it follows the kind of traditional 20s range of incremental margins. Obviously, there is a couple of pieces to it. We have got the COVID issues and the way that, that plays out, you have the overall market activity in the U.S. and to the extent that, that activity starts to pick up, and then as Paul touched on, also acknowledging that we still have some areas of focus on the cost.

Hey, good morning, Praveen. This is David Paterson. Looking at the international, Q2 was very challenging. And I think Italy, especially mainland Europe they were the first geographies to really feel the first throes of COVID. And it was a very swift impact. A lot of operations were shut down really across that whole geography, including North Africa. We are seeing a sort of slight resumption of some activity, but most of the operators are moving very slowly. I think COVID lurks in the shadows. There is some recurring spikes in terms of COVID cases. So I think Q3 in terms of activity will remain fairly flat. Q4, we are definitely seeing some potential upside in activity. And I think it’s really going back into Q1 where some of the recent tender successes we have had in the international markets start to kick in. These projects have been delayed initially probably from mid-Q2, delayed by COVID and then starting to resume mid-Q1 2021, and that’s when we get back to our previous levels.

Okay, that’s helpful. So maybe if we think about getting back to positive EBITDA in the business, obviously, Q4 seems far away, so does Q1. But do you think we can turn EBITDA positive in Q4? Or should we think of it more as an early 2021?

Yes. Obviously, with the variables that I mentioned the unknowns on COVID and the caveat there on the overall ramp of the market activity, I would say our best crystal ball would be that it’s in the EBITDA breakeven range in Q4 and then improving from there. And as David touched on these international projects, that’s where we see – expect to see a more meaningful pickup with some of these projects that were originally slated for Q2 kind of getting pushed back to around the beginning of the year.

Right, great. Okay. And then just last one from me on working capital. You mentioned, not surprisingly, that days spiked, that’s as expected. I guess, how should we think about the target for where they should level out, especially given the reduction in North America and just thinking about how we should think of it in more normalized times or how we should think of maybe a target for end of ‘21?

Yes. I mean, as you look at it – at our Q2 performance, I mean, our recent history, we have been running overall DSOs around 110 range. Obviously, the international business is what lifts it. U.S. is – generally runs below that. When you look at the Q2 performance, with the slowdowns that we saw in the international market, it’s spiked to 125. So 15 days is roughly $15 million of additional receivables, if you look at it that way. And that’s where we see as the offices, the customers’ activities start to open up again, that’s where we would see that bubble, if you will, kind of work its way back down.

Okay, great. Thank you.

[Operator Instructions] Our next question comes from the line of George O’Leary with Tudor, Pickering, Holt & Company. Please proceed with your question. George O’Leary: Good morning, guys.

Good morning, George. George O’Leary: With respect to the North American onshore fluids landscape, it seems like there’s a lot of changes going on with some very large global players that kind of play in that sandbox. You guys have done a good job of taking costs out of the system. I realize, fixed cost absorption just get you at when revenue levels move lower to the degree that they have already. But how would you describe the changes to the competitive landscape today? I mean, clearly, it’s benefited you guys from a market share perspective. Is there more share to capture? And does this maybe allow for better North American incrementals going forward or is there still just too much capacity even – in the market even if we get to some normalized level of activity in the U.S.?

Hey, George. This is David Paterson. U.S. land had a heavy challenging quarter in Q2. There’s a dramatic drop in activity, but we were able to, obviously, gain share in the quarter. And I think if you look at the swift actions we took on the cost lines, significant roof line reduction, significant headcount reduction, other austerity measures through personnel costs, we are definitely positioning ourselves stronger as there is a recovery, right? We are not – I don’t think we are not planning any V-shaped recovery in Q3, Q4. But I think with the market share decision we have, we are well-placed. From a competitive decisioning point of view, we stay very close to our customers. We have been very responsive to their needs, and we deliver best-in-class service quality, right? So I think we remain extremely focused through the quarter. And I think some of our bigger competition and some of our smaller competition lack that focus. And that really underpinned our market share success.

Yes. And just to follow-on a little bit with that, George, clearly, there has been a lot of competitors leaving the space in drilling fluids on U.S. land, which gives us more opportunity to continue to take market share. And as the market recovers, we obviously would see that as providing some wind to our back on revenue. George O’Leary: Great. And then my follow-up question is just on the Mats side of the business, clearly, margins have been a little bit depressed of late. How – just frame for us how you think about long-term margins in that business from an operating margin or an EBITDA perspective? Where do you think we get back to once these kind of COVID issues abate and some of the logistical hurdles abate and revenue kind of normalizes?

Yes. As you look at the Mats business, although we have taken some cost out, we mentioned the 10% reduction in the overall workforce, there isn’t a significant change in the cost structure of the business. So I think the old – the constructs that we are working under still holds. I think your longer term normalized margins, when you get to a reasonable level of activity and utilization on your fleet, etcetera, still holds in that 20% north range. But what remains unclear is just kind of that path of getting back to that. Obviously, there’s a large opportunity on the Energy Infrastructure side, and that’s what we’re continuing to focus on. George O’Leary: Great. Okay. That’s a good segue into my last question. If you think about kind of underlying activity absent COVID levels or underlying kind of shots on goal from a project award perspective, given a lot of those Energy Infrastructure and kind of more industrial end market projects are longer term in nature, how are discussions with customers and how is the kind of marketing strategy going for that business if you think about 2021, 2022, 2023? Just kind of forgetting they are here and now for the moment, given all the noise in the space, just longer term, how are discussions with customers on the outlook for those types of projects on the Mats side?

George, it’s Matthew. I will talk to that one. Look, I think we covered it a little bit in the script. We are continuing to build our customer base there. We have seen some meaningful increases in the number of customers we are talking to. We have also seen sort of – mid-Q2, we saw a drop in activity on the bidding and proposal side, as I think a lot of customers retrenched to working at home, and we have seen that turn around again. So we are feeling more positive about the overall market activity in a – from two things in a post-COVID world, when and if we get to that, but also the nature of the projects that need to be undertaken, we cannot sort of not do critical maintenance on our electricity grid. That’s an essential part of the economy, obviously. So we feel that the critical nature of the projects and the general conversations we are having in bid activity reflect that we will get back to a more robust activity level move forward.

Yes. So looking longer term, we don’t see any fundamental changes in this business. Our strategy is consistent pre-COVID, post-COVID and believe that we have got a robust business that once the utility sector comes back, revenue and profitability will come with it. George O’Leary: Great. Thank you very much for the color.

You are welcome.

There are no further questions in the queue. I would like to hand the call back to management for closing remarks.

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

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