Greetings, and welcome to 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. 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 fourth quarter and full year 2017 results. With me today are Paul Howes, Newpark's President and Chief Executive Officer; Gregg Piontek, Chief Financial Officer; Phil Vollands, President of the Fluids business; and Matthew Lanigan, President of The 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 to management, I have the normal housekeeping details to run through. 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 until February 23rd, and that information is included in yesterday's release. Please note that the information reported on this call speaks only as of today, February 09, 2018, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading. In addition, the comments made by management during this conference call may contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views of Newpark's management. However, various risks, uncertainties and contingencies could cause Newpark's actual results, performance or achievements to differ materially from those expressed in the statements made by management. The listener 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 measures are included in the quarterly press release, which can be found on the Newpark website. And 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 take a step back and reflect on the achievements of the recently completed year. First and foremost, I'd like to start with our safety performance. Here at Newpark employee safety is of critical importance to our leadership team and the companies that we serve. 2017 provide a unique challenge to us as we expanded our North American workforce by nearly 80%, which includes the acquisition in our Mats business. Yet despite this challenge, I would like to commend all of our employees for their unwavering commitment to working safely as we again achieved world-class safety performance, with a total recordable incident rate of 0.5. Now for our financial results. We’re extremely pleased with the improvements in both segments in 2017 but also recognize that there's more work to be done. Revenues improved by 59% year-over-year to $748 million for the full year 2017, generating nearly $70 million of EBITDA. Also, we continue to take meaningful steps in the execution of our long-term strategy. In fluids, we remain focused on expanding our offering, further penetrating key IOCs around the world and becoming a recognized global leader in fluids technology. Through our focused approach, we've expanded our North American market share, where we now stand as the number two provider in drilling fluids. The strength of our share position has helped drive more than $200 million of year-over-year revenue growth in North America, which significantly outpaced the rig count improvement. In the international market, we've seen the benefits of our geographical diversification play out over the past few years as we've steadily expanded our international market share and outperformed the broader activity levels. The strength continued in 2017, where we grew our international…

Thanks Paul. And good morning everyone. I'll begin by discussing our operating segments before finishing with our consolidated results. The Fluids Systems segment generated total revenues of $162 million in the fourth quarter of 2017, reflecting a 3% decline from the third quarter but a 46% increase year-over-year. In the U.S., revenues were $90 million, down 8% sequentially, reflecting the impact of a 3% decline in U.S. rig count, along with the impact of elevated product sales into the deepwater Gulf of Mexico in the third quarter, as Paul mentioned. Overall, our revenues in key U.S. land regions trended fairly in line with overall industry activity levels. On a year-over-year basis, U.S. revenues have increased 87% from Q4 2016, significantly outpacing the 56% improvement in average rig count over this period. The relative outperformance was largely driven by an increase in well complexity, which resulted in higher revenue generation per well. In Canada, activity slowed down in the latter half of the fourth quarter as the operators exhausted their 2017 budgets. As a result, we didn't see the typical fourth quarter seasonal improvement as experienced in previous years. Total fourth quarter revenues came in at $14 million, flat to prior-quarter levels and relatively in line with market rig count. On a year-over-year basis, revenues improved by $2 million, also relatively in line with market rig count. Turning to our international regions. Revenues in the Eastern Hemisphere were $49 million in the fourth quarter, reflecting a 4% improvement from Q3. The sequential comparison primarily reflects continuing improvements in customer activity in Romania, Kuwait and India, partially offset by a modest headwind from currency rates. On a year-over-year basis, revenues from the Eastern Hemisphere improved by 8%, as improvements in Romania, Algeria and India were partially offset by declines in Tunisia, Albania…

Thanks, Gregg. 2017 was a year in which we saw our company emerge from one of the longest downturns in the history of the oil and gas industry, and I'm pleased to say that we emerged stronger and better positioned to compete on a global basis, having made significant progress in several fronts in both of our businesses. In our Mats business, we closed on a key acquisition, which expands our capabilities and service offering related to environmental protection while also expanding our U.S. geographical footprint. Meanwhile, we continue to expand and enhance our intellectual property portfolio with the award of seven new patents, including continuations. With a continued push into non-E&P markets, we're also improving the stability of segment revenues but also driving a rebound in the utilization of the manufacturing assets. And with the recent acquisition, we expect 2018 to start off on an annualized run rate of nearly $200 million, which would be a record level of revenue for the Mats business. In our fluids business, we saw our market share position in the U.S. increase, surpassing Schlumberger as the second largest provider of drilling fluids. This represents a major milestone in our U.S. drilling fluids business as we enter 2018. As we look ahead, we recognize the need to continue to drive our fluid margin back to double digits. To do that, we must continue to focus on growth on several fronts, including continued expansion of market share North American land; further penetration of international markets with key IOCs; share gains in the deepwater Gulf of Mexico; and the expansion of our product line offering into adjacent completions and stimulation chemistries to further leverage our global footprint and customer relationships. 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 conduct a question-and-answer session. [Operator Instructions] Our first question is from Stephen Gengaro with Loop Capital Markets. Please proceed with your question.

Thank you. Good morning, gentleman. I guess, my first question, when you look at your fluids revenue, specifically in the U.S. market, in 2015 and 2016, it kind of mirrored almost identically the declines in the average U.S. rig count. And in 2017, it was up dramatically more, right up about 130% versus like 70% increase in the rig count. Can you help us kind of understand the pieces of that outperformance? Was it market share? Was it price? Was it deepwater project? Can you help triangulate that a little bit as we think about it going forward?

Sure. Thanks, Steve. And it’s Phil Vollands here. Through the downturn, we did steadily grow market share and that continued through 2017. But what we saw in 2017 was the customers actually started to drill more challenging wells with longer laterals. And so there’s somewhat of a correlation between the well complexity and the amount of product that’s required downhole for things like lost circulation, and so on. We’ve continued to keep the foot on the gas with regards to new technology developments through the downturn, and so we started to yield benefits and results from that in 2017.

And as we look into the next 12-month period, do you think that outperformance versus the rig count continues?

I’m looking to…

I mean, it sounds like it has in January, so…

Yes. Look, this is Gregg, I’ll kind of touch on that. You look at this overall trend here. As it did come down through the cycle, we see that reduction in spend per well, and that went to the overall trend of them trying to minimize – the customers trying to minimize their investments as well. As Phil touched on, you’re seeing that reverse. And really, the question of whether you see that continues is really a question about the drilling efficiency. How many wells are they drilling per rig? And then really, it’s how much footage are they drilling per well, because that footage is really a key driver there in terms of our revenue generation.

Okay. Now that’s helpful. Thank you.

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

Good morning, guys. This is Blake on for James. Just a quick question on the completion fluids business. You mentioned that was a source of growth in the U.S. specifically. Can you just frame for us what the contribution is currently as a part, I guess, of U.S. fluid revenues? What inning you guys are in terms of growing that business to ultimately where you want to get it? And then qualitatively, what kind of impact will it have on the fluids margins business as a whole?

Yes. We’re just in the first inning on the completion fluids business. We’re really trying to build out some of the organizational infrastructure. So there’s no comment to be made on margins at this point or even revenue. So as a business that we’re seeing kind of a pull as we talked about internationally and with our customers being asked to bid on tenders, historically, there’s always been a mini bundle internationally with drilling fluid, drilling and completion fluids. And so we’re preparing for future growth with the organization at this time.

Yes. The one area that we’ve – that we are seeing a contribution has been from the contract in India with Cairn, and that was the one that started up here in recent quarters.

Okay, got it. And then just one more clarification. The market share, when you comment on market share, is that based on rig count? Or is that based on volumes?

Yes, it’s based on rig count.

Okay, thanks guys.

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

Thank you. Would you please discuss a little further your comments about being pulled further into completion fluids business and particularly, outside the U.S.? So I guess, there are really two parts to that question: one is the broader completion fluids, but the second is why outside the U.S. and not in the U.S. and what prognosis is there in the States.

Yes, this is not unusual, to see in longer contracts a bundling of drilling and completion fluids. And we see more of those sorts of contracts overseas, and so we’ve met those terms. And we’re starting to be more intentional here in the U.S. as we engage more and more with IOCs. That population is asking us to be more involved in this area.

So taking that a step further, is – are the completion fluids something that you would expect to be bundled with virtually all of your international contracts?

No, no, Bill. It’ll be selective obviously. In the case of India, we’ve had that opportunity. And we’ve been doing completion fluid in the international market, mostly in the EMEA region, for the last four or five years. It hasn’t been significant, and as Phil mentioned, we’re starting to ramp up that activity, adding more technical resources to that product line.

And I think Phil used the correct term there. We’re being a little more intentional here with our driven expansion into those areas.

Thank you.

[Operator Instructions] We have a follow-up question from Stephen Gengaro with Loop Capital Markets. Please proceed.

Thanks. Actually, two housekeeping things, then another question. But the charge on the corporate side in the quarter, the $700,000, that was in the corporate other line in the operating profit breakdown by segment, is that right?

That – it was in the corporate expense, correct.

Great, okay, okay. And as we look ahead any just quick depreciation guidance?

Well, the main driver that you have here is the contribution here on the – with the Well Services acquisition. In total, that acquisition is adding, call it, $7 million or so of depreciation and amortization on an annualized basis. We saw small piece of that here in the fourth quarter as we had about six weeks or so of them that contributed $1.3 million. And so that is the major change that we see here going forward.

Okay, great. That’s helpful. And then just back to that sort of the core businesses. The – on the Mat side of the business, and you gave some color on the first quarter already, but as you look out, and obviously, absent the mat sales piece, which is lumpy, but as you look out, how do you see that playing out relative to underlying activity levels?

Yes, it’s Matthew. I’ll take that one, Stephen. Look, I think it’s sort of great. And as you’ve correctly sort of identified the net, the puts and takes on mat sales, we’re seeing the diversification efforts for both the acquisition and prior to acquisition, we’ve put a lot of effort on start to make that look a little more stable than perhaps it’s been historically. So I think relative to a Gregg’s commentary around Q1 that seems to be a fairly stable run rate.

Okay. Great. Thank you.

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

Congratulations on being number two in drilling fluids in the U.S.

Thank you.

I’m curious, internationally, I mean, Baker’s kind of gotten out of the U.S. fluids business. It sounds like you’re doing the same internationally. Has there been any change in the competitive landscape besides that? Are there any other people besides you trying to fill in for the market share that Baker is giving up outside of Halliburton and Schlumberger?

No, I’d characterize it as fairly consistent internationally.

Yes, we – historically, that’s been Halliburton, Schlumberger, Baker Hughes and Newpark. And as you correctly stated, Baker’s pulled out a lot of the, not just the international regions, but also the North American market. That really leaves the three of us playing predominantly in the international sector.

Okay. And so obviously, the implication that is when international activity starts recovering, that should see a nice uptick for you guys. Am I correct in thinking that international margins are better than North American margins or are they pretty much in line?

Yes, this is Gregg. As far as that margin differential, historically, we have seen our international margins are stronger. There’s a couple of key factors there. One is it’s obviously – as you just pointed out, it’s a less competitive market relative to the North American market. But the other key difference there is in the international market, you tend to have longer-term contracts, therefore, much more stability, therefore, your cost, your operating cost efficiencies are much easier to drive than in the variable North America environment.

Okay, great. Thank you.

Thank you.

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

Thanks for allowing me to jump back in here. Just looking at the CapEx guidance that you gave and all the EBITDA that we expect to generate based on the annualized 4Q run rate, your leverage situation is improving substantially and quickly. What do you see in addition to growing your businesses, both domestically and internationally, as part of your capital allocation strategy moving forward?

Sure. It’s Gregg. I’ll start on that one. I mean, initially here, as we look at 2018, as you point out, while our debt – our leverage levels are coming down, I think we still have a little further to go in terms of continuing to rebuild that balance sheet coming out of the cycle. As far as the CapEx allocation, it’s been more weighted towards the growth on the mats side of the business more recently. And as we look at it going forward, I would expect to see that trend continue. However, we’re also continuing to pursue international opportunities in the fluids business, so you may have some growth capital that would need to be invested to support any of those contracts.

Yes. Then the other thing I’d just add to that, Gregg, too is as we look into expand into these adjacent product lines, whether it’s completion or stimulation, we may see some capital investments there and some infrastructure.

Okay, thanks.

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

All right. Thanks again for joining us on the call, and we look forward to giving you an update after the first quarter.

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