Greetings, and welcome to the Newpark Resources Third Quarter 2017 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, Mr. Ken Dennard. 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 third quarter 2017 results. With me today are Paul Howes, Newpark’s President and Chief Executive Officer; Gregg Piontek, Chief Financial Officer; and Phil Vollands, President, Fluids Systems; and Matthew Lanigan, President of the Mats Business. Following my remarks, management will provide a high-level commentary on the financial details of the third quarter and outlook before opening the call for 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. It will be available by webcast on the company’s Web site at newpark.com. There will also be a recorded replay until November 14 and that information is included in yesterday’s release. Please note that information reported on this call speaks only as of today, October 31, 2017, and therefore you are advised that time-sensitive information may no longer be accurate as of the time of any replay listing 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 of reconciliation to the most directly comparable GAAP financial measures are included in the quarterly press release, which can be found on the Newpark Web site. 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. Before I get into the details of the quarter, I’d like to touch briefly on the recent hurricanes that have impacted the Texas and Louisiana Gulf Coast areas. Fortunately, our facilities in the region were spared any significant damage from the storm and the disruption to our operations was fairly short lived. However, many of our employees were personally affected and I want to take a moment to recognize the efforts of the men and women of Newpark in helping their fellow employees and others in the community impacted by Hurricane Harvey. Now turning to the quarter. We’re very pleased to report another solid quarter for both segments with consolidated revenues increasing 10% to 202 million in the third quarter generating EBITDA of 19 million and net income of $0.03 per diluted share. In Fluids, revenue gains were once again led by our North American operations. Despite the modest headwind created by Hurricane Harvey, our U.S. Fluids revenues improved by 10% sequentially, outperforming the rig count increase for the fourth consecutive quarter. The relative outperformance in the third quarter is largely attributable to the deepwater Gulf of Mexico, where projects with two IOCs contributed $4 million of revenue. Meanwhile, we continue to advance discussions with multiple customers regarding upcoming deepwater projects as we look to further leverage our recent investments in our Gulf of Mexico deepwater facility. In Canada, revenues also rebounded sharply in the third quarter, following the typical seasonal pattern after the Spring break-up, resulting in a 16% increase in total North American fluids revenue. Internationally, while activity remains somewhat suppressed, we’re beginning to see certain customers respond to the improving long-term outlook for commodity prices. Overall, our international fluids revenues remained relatively stable, as improvements in customer activity in…

Thanks, Paul. As Paul touched on, we’re very excited about this acquisition which is another key step to our diversification strategy. As we’ve highlighted in past calls, the penetration of non-exploration markets remain a significant growth opportunity for us. We’ve seen steady growth from these markets which contributed a record $27 million of revenues in the third quarter and over $60 million of revenues year-to-date. Building on this momentum, the acquisition will expand our service capabilities across markets which together with our existing mats offering will allow to provide a complementary bundle of products and services to our customers across geographic regions and targeted industry sectors. Our relationship with the Well Service Group goes back more than five years where they have operated with our key strategic partner in the Northeast region providing logistics, installation and complementary services for our industry leading matting systems. Based in Pittsburgh, Pennsylvania, the Well Service Group established a foundation as the leading worksite service provider to operators drilling in the Marcellus and Utica basins. In recent years, they have expanded geographically and across end user markets, including entry into the utility transmission and distribution sector and now maintain a footprint that covers the Northeast, Midwest, Rockies and West Texas. The combined Well Service and Utility Access Solutions businesses provide a variety of services that are complementary to our composite matting systems, including access road construction, site planning and preparation, environmental protection, fluids and spill containment, erosion control, and site restoration services. Through our long history partnering in the oilfield market, we’ve seen a strong alignment in company cultures which makes this acquisition a natural fit for us and provides a key foundation for success moving forward. The Well Service Group leadership team has done an outstanding job navigating the business throughout the cycle and…

Thanks, Matthew, and good morning, everyone. Before covering the details of our third quarter financial results, I’d like to first comment on the amendment to our asset-based credit facility. As Paul touched on, with the maturity of the 2017 convertible notes now behind us, the ABL facility amendment was a significant next step in terms of establishing our long-term capital structure. Comparing to our previous facility, the amendment provides us with several meaningful improvements including the increased size from $90 million to $150 million, a two and a half year extension to the term which now runs to October 2022, reduced cost both in terms of borrowing rates and unused line fees and improvements in facility limitations. In addition, the agreement includes an accordion feature which enables the facility to expand with our business up to a maximum size of $225 million. We are very pleased with this amendment which provides us with greater flexibility to execute our growth strategy and enhance shareholder value, and we appreciate the strong support from our banking group. Now turning to the specifics of the quarter, I’ll begin with an overview of our operating segments before finishing with our consolidated results and outlook. The Fluids Systems segment generated total revenues of $167 million reflecting an 11% improvement from the second quarter and an 87% increase year-over-year. In the U.S., revenues were $97 million, up 10% sequentially, which modestly outpaced the 6% rig count increase. As Paul touched on, substantially all of the relative outperformance was attributable to our offshore Gulf of Mexico operations where projects with two IOCs contributed $4 million of revenues to the third quarter. The remainder of our U.S. regions trended fairly closely with the overall activity levels which are pulled back modestly following the strong start to the quarter. We…

Thanks, Gregg. Before we take your questions, I’d like to provide you with a few closing comments. First, our Mats business had another solid quarter with operating margins exceeding 30%. With our continued momentum in this business, coupled with the recently announced acquisitions, it’s our expectation that we will see increased growth opportunities. Our DURA-BASE product line continues to gain acceptance across various end markets which we believe will accelerate with the acquisition of Well Service and Utility Access Solutions as they bring new capabilities and talent into the company. This is an exciting time for the Mats segment and we are proud of the progress we have made in transitioning this business over the last two years. Second, our Fluids business posted a solid quarter with both revenue gains and modest margin improvement sequentially. During the recovery we’ve grown our market share, which is important, given the continued focus of operators in maximizing footage drill per rig. Our focus on technology and service quality continues to benefit our business both domestically and internationally as we work to expand our Fluids business. I’m also pleased with the increase in revenue from the deepwater Gulf of Mexico market, a clear indicator that we are bringing unique value to our customers. Also important is our ability to grow share in a declining Gulf of Mexico market, a region that has been severely depressed over the last two years. We remain hopeful that we will be awarded our first complete deepwater well in the fourth quarter using our new technology Kronos, although the recent hurricanes in the Gulf of Mexico have delayed many operators’ schedules. Our long-term strategy remains unchanged to capitalize on our strong market position as the leading drilling fluids provider globally while adding complementary products and services to expand our offerings across the life of a well. And lastly, I’d like to mention the dedication of our employees and the relentless pursuit of excellence when it comes to taking care of our customers and working safely. With that, we’ll now take your questions. Operator?

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. Please ask one question and one follow-up question and re-queue for additional questions. Our first question comes from the line of James West with Evercore ISI. Please proceed with your question.

Hi. Good morning, guys.

Good morning.

Good morning.

Good morning.

Paul, on the Gulf of Mexico, obviously good success there in a tough market environment. I know you talked a bit about your discussions with additional customers going forward. So it looks like you’re expecting some additional growth. Is it fair to assume that that’s going to be really more share gains and not pricing or activity growth? And then at this point are you guys qualified with all the operators in the Gulf?

Hi, James. This is Phil here. Yes, well, the market does continue to be challenged. Any business that we get is indeed share gain and I would say that projects going forward would be both continuing – the nature of the projects that we’ve accomplished in Q3, but also going beyond that with regards to Kronos. The acceptance testing is complete and we’re just looking forward to that first opportunity to drill our first complete well with Kronos.

Okay. All right, fair enough. And then I know there were some timing issues with I guess Kuwait, Algeria, I think Albania as well as you mentioned. What kind of impact does that have on the fourth quarter or early 2018? Had those products been – the timing, has it been delayed to next year or are they starting up now? How should we think about just that international side?

This is Gregg. I’ll take that. In terms of the activities under the various contracts, it’s pretty typical that we’ll see ebbs and flows of the activity based on kind of the specifics of what’s going on in the site. And generally speaking they tend to balance each other out. In this case, we saw stronger activity in Romania that was offset by the other slowdowns that you had mentioned. It’s all transitory in nature. There’s nothing in terms of really a change in the overall activity levels and that’s why our expectation here in the near term continues to be kind of flattish for that region. I think the bigger question longer term is the sustainability of the improvements that we’ve seen in the oil prices and the way that the outlook trends.

Fair enough. Great. Thanks, guys.

Thank you.

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

Hi. Good morning, guys.

Good morning.

When we think about through the acquisition for this morning, I guess, one, could you talk about how much of that business is tied to the utilities, T&D market? And then two, can you talk about the kind of desire or need or desire to kind of accelerate growth through inorganic options or kind of as you move forward, are we going to just see more organic growth?

Hi, Praveen; it’s Matthew. I’ll take that one. If I address the first part of your question with regard to the contribution from Utility Access Solutions in T&D, it’s fair to say that that’s a fairly new business development there in early stages but gaining fairly rapid acceptance from its customer base. So at this stage, a fairly new contributor to revenues but expected to ramp up fairly significantly. With respect to our broader acquisition, ambitions I think at this point will digest what we’ve got here in this particular transaction and get that all working smoothly and then we’ll continue to evaluate opportunities as they present themselves.

Okay, perfect. And then I guess in term of the mat sales for the quarter, you mentioned one big order. Was this largely guys that have used the products before, or are we getting new customers in?

It’s largely guys that have used the product before, Praveen.

Okay, perfect. And then kind of last one for me in terms of the U.S., I know the rig count slowed a little bit. But can you talk about whether we’ve seen any – on the Fluids side, whether we’ve seen any kind of green shoots of pricing potential, or seeing that as the rig count was rising?

Yes, we’ve had modest improvements in pricing particularly as newer customers have come back on. But again, I’d articulate that as low-single digits. It’s still a competitive environment there and as you’ve seen the rig count has started to soften somewhat through the end of the quarter.

And again, I think it’s important to highlight that in the Fluids business, pricing is never a very significant lever either in the upside or the downside.

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.

Hi, guys. Good morning.

Good morning.

Just first question in light of your comments in Fluids on sort of modestly weaker product mix in the U.S., I was wondering if you could talk about uptake of some of the value-added technology in Fluids in the quarter?

Yes, sure, happy to. It’s still here. With regards to evolution in terms of percentage of sales, that remains strong. In fact, I’d say usage is up ever so slightly. And then we’re still finding new areas, new customers. In fact, we drilled and what our customer understands to be a 24-hour drilling record with a conventional motor in the San Juan Basin, New Mexico. In terms of margins, they’re holding at the traditional 500 to 900 basis point range lift. On the Kronos side, although we didn’t drill a full deepwater well, Kronos was used for quite a complicated P&A operation in the Gulf with multiple displacements and we’re exceptionally pleased with the performance of the fluid and it validates much of what we’ve already learnt in the lab.

Okay, great. And then on the 4 million in sales in the Gulf, was that being used on a trialing basis so there is less margin associated with it, or is that sort of just standard commercial sale?

Yes, product mix is a variable element of the business and one of the jobs in deepwater was what we would call a pump and dump or the top whole section that’s a very higher volume, slightly lower margin. And so that’s where that came into play.

Got it, understood. And then I guess on Well Service Group, I was wondering if we could just get a little color on how you guys are thinking about revenue and cost synergy opportunity there? And then, I don’t know if you can provide any more information on sort of revenue [indiscernible] current annualized revenue, but maybe like 2014 revenues and margins for that business?

This is Gregg. I’ll take that. First of all, in terms of the cost synergy side of it, while there’s definitely synergies with this acquisition, it’s not really based on the cost side as Matthew has laid out. This is very much complementary to our existing offering. They have a footprint that expands into areas that we don’t currently have a presence. So you don’t have a whole lot of roofline consolidation ranking along those lines. The synergy here is more so in terms of the revenue opportunity and what it does on the acceleration into these different markets. In terms of the magnitude of this business, we had pointed out the run rate of the business currently running about $65 million of revenue on the current year. And as far as the overall contribution to the business, again with it being a site service-focused business, we do expect it to drag a little bit on the overall consolidated segment operating margin, but be incremental or accretive to the operating income level to the business.

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

Good morning.

Good morning.

Just wanted to pin you down a little tighter on the acquisition. So you’re hoping to close that in November. Don’t want to be part of the problem by getting estimates too high, so should we assume this was going to be in results for maybe four weeks or six weeks, or just December or is it realistically going to be part of November?

This is Gregg. I think whether it’s four weeks, six weeks that remains to be seen because as is typical for a transaction like this, you have a number of steps that you have to complete before you close it. But as we had pointed out in the press release, it’s expected to be sometime in the next 30 days.

Okay. So hopefully before Thanksgiving.

Yes.

And then if you drawdown on the revolver, what’s the rate on your asset-backed facility for the cash portion?

Well, it’s a function of our overall leverage value – leverage level, however. But currently the borrowing rate is south of 5% all-in.

And so if you add in the cash portion of this, you’ll still be in the kind of 5% running rate on that?

That’s correct.

And then do these guys do any product sales or is it just very, very modest?

The business is primarily a service model rather than a sales model, Ken.

So is that something you could add to it? Obviously because you guys produce mats, you can sell mats. Is that one of the revenue gain opportunities or is it really just a different market from where you’ve been selling mats?

Primarily the focus is expanding it to different markets, getting the geographic footprint and the industry service out of it than at this point looking at product sales per se.

Yes, if you look at the business historically that we’ve worked with them on, they’ve been key to installing our mats up in the Northeast and they’ve had a very large presence in environmental protection and liners. They haven’t done things with moving a lot of heavy equipment or Caterpillar kind of stuff. So it’s more of a service model that is very complementary to our current mats business. And our hope again is to leverage that expertise and competency across the U.S. market.

Yes, you need to convince these people in West Texas to put these mats down. I see them all over in the Northeast, but I was just out in the Permian and I guess they just don’t worry about it that much there.

Different environmental protection requirements.

Absolutely. Well, too bad these sagebrush lizards don’t have a problem with water. All right, that’s all I got. Thanks.

Thank you.

Thanks, Ken.

Thank you. Our next question comes from the line of Stephen Gengaro with Loop Capital Markets. Please proceed with your question.

Thank you. Good morning, guys. Just a couple quick things; one, back to the acquisition. Your guidance for mats suggests what close date, or is the range based on the close date?

The range kind of factors in part of that as well. And so like I said, within the next 30 days is our expectation that this will be closed. So that’s part of the range and the other element, that’s part of the ranges also. As we’ve talked about in the past that year-end demand for mat sales which is a variable.

Okay. And back to the fluids side, when you think about the margin guidance that you provided there, you mentioned the third quarter was hurt by mix a bit and you may have addressed this a bit earlier. But that mix shift in the quarter, what – maybe you could address what caused it? But if not, how should we think about that going forward? Is that temporary? Is that a customer’s desire to shifting? What’s driving that and is that temporary in nature in your view?

Sure. It’s Gregg. I’ll take that one as well. As far as the mix shift in the quarter, as we’ve talked about historically we see some ebbs and flows from quarter-to-quarter based on the mix of the higher-end chemicals versus your base fluids. As Phil had pointed out here in this quarter we had the product sales into the deepwater Gulf of Mexico which was part of that weaker mix story. But overall, the mix it is a big transitory. It was about a half a point headwind there to the operating margin. And in terms of our guidance here as we look forward, we definitely would expect that the mix then rebounds to a more normalized level here in the fourth quarter. So you get a little bit of benefit there. But at the same time, we’re offsetting that looking at the tea leaves on the rig count which in North America total is 5% down from third quarter currently. And then you have that year-end seasonality question mark. That’s always a little bit tough to read. And so that’s where you come up with our outlook of likely to be a little bit softer but still staying near that mid-single digit range.

Great. That’s helpful. And just one quick one. Tax rate guidance for the fourth quarter or just give us any – I was thinking in 34% for a lack of a better idea, but do you have a better idea?

The tax rate in the near term is going to continue to be elevated. The fact that you’re hovering near the breakeven mark makes it difficult because we’ve got certain non-deductible items that fall straight through and that causes that rate to really jump up. And so my expectation in the near term is it continues to be in that 50% or50% plus range until we see a more meaningful lift on pre-tax earnings.

Okay. That’s helpful. Thank you, guys.

Thank you. Our next question comes from the line of Bill Dezellem with Tieton Capital Management. Please proceed with your question.

Thank you. It’s Tieton Capital. And a couple of questions. First of all, you had mentioned that one of the two Gulf of Mexico customers in the quarter was using your product for a complicated P&A activity. What was the other one for?

The other one was the top-hole section of the deepwater well known as the riserless section before the BOP is deployed on the seabed. So that’s a high-volume water-based fluid.

Thank you. And then the next couple of questions are relative to the mats business. First of all, I think you said in response to something about CapEx that you’re going to be pre-building for a rental opportunity and hoping you can talk more about that opportunity that you see. And then secondarily, you have alluded to the fact that one plus one with the acquisition is greater than two, both in terms of some efficiencies and things you can offer customers. And I’m hoping that you will dive into more detail on what you’re referring to there?

Sure. Okay, Bill, I’ll attack these one at a time. I think to categorize it, we’re seeing opportunities for expansion both domestically and internationally with our mat fleet. Our European business is seeing an uptick in transmission and distribution demand while here in North America we’re just seeing broad based demand across all of our service sectors. So that’s really how – why we’re responding with a build-in in mat fleet. In terms of the second question, the one plus one equals more than two, I think this comes down to the fact that we’ve really been – the Well Service Group in the Northeast at least has really been servicing our mat fleet up there and also providing a lot of environmental containment and protection through their own business line. Putting them together obviously creates some synergy for us there. And then expanding that liner-based activity or containment-based activity into West Texas will also support some of the activity we have going on out there. So really it’s just putting together more of these complementary bundles for our customers in there that draws more value for them and obviously pulls through some incremental revenue for us.

Thank you. And then given that you had referenced this strengthening that you’re seeing here in the U.S. and in Europe in the utility business there, should we be anticipating that the current Newpark mat business would be seeing strength next year and so that’s on putting – keeping the acquisition out of it so that we should be seeing revenue growth with the strength you’re talking about?

It’s fair to say that acceptance of the product continues to grow in that industry and we would expect to see that flow through in our revenue.

Yes, I think it’s important to note that again with these new targeted markets that we’ve been pursuing, while we’ve made good progress over the past two years we’re still in the early stages in a number of these markets. So, yes, you would anticipate that you’d see nice growth.

Great. Thank you both.

Thanks, Bill.

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

Thank you once again for joining us on the 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.