Greetings. Welcome to Newpark Resources fourth quarter and full-year 2022 earnings conference call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Ken Dennard. Thank you, sir. 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 and full-year quarter 2022 results. Participating from the company in today's call are Matthew Lanigan, Newpark's President and Chief Executive Officer; and Gregg Piontek, Chief Financial Officer. Following my remarks, management will provide a high-level commentary on the financial details of the fourth 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 run through. There'll be a replay of today's call. It will be available on the company's website at newpark.com. There will also be a recorded replay telephonically until March 3, 2023, and that information on how to access is included in yesterday's release. Please note, the information reported on this call speaks only as of today, February 17, 2023, and therefore, you are advised that time-sensitive information may no longer be accurate at the time of any replay listening or transcript reading. In addition, the comments made by management during the 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 or reader 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 comparable GAAP financial measures are included in the quarterly earnings release, which can be found on the Newpark website. And now, with that behind me now, I'd like to turn the call over to Newpark's President and CEO, Mr. Matthew Lanigan. Matthew?

Good morning, everyone. The fourth quarter provided a strong finish to 2022 for the company, with the successful closure of our key strategic divestitures and solid operating performances across our ongoing business segments. As we stated earlier last year, we had three primary objectives for 2022. One, monetize our investments in asset-heavy, low-returning business units. Two, reduce debt levels. And three, repositioned the company for stronger returns and more consistent free cash flow generation. These structural actions enhance our flexibility to accelerate investment in high returning opportunities, while also allowing us to reengage in our share repurchase program, returning a portion of cash generation to our shareholders. In Q4, we delivered on all three objectives, generating $80 million of cash from divestitures, investing $9 million of growth capital in our Mat fleet, using $18 million to purchase nearly 5% of our outstanding shares, and exiting the year with net debt at roughly one times our EBITDA run rate. With these transactions largely behind us, Newpark is a simpler business, with all our served markets enjoying very supportive fundamentals, and we are well positioned for a stronger 2023 performance as a result. In terms of fourth quarter operational performance, consolidated revenues grew 2% sequentially to $225 million, driven by double-digit growth in our industrial segment, while adjusted EBITDA improved 9% sequentially to $21 million. The continuing strength of the electrical utility infrastructure market was a particular highlight, where robust demand and favorable weather conditions led to very strong utilization and improving pricing dynamics across our US operations. Total segment revenues came in at $57 million, generating an exceptional operating margin of 31%, and adjusted EBITDA of $23 million. I am very pleased that our team delivered sequential growth in revenues and operating income, while continuing to generate solid cash flows. The…

Thanks Matthew, and good morning, everyone. I'll start with the specifics of the segment and consolidated financial results for the quarter, before providing an update on our near-term outlook. As Matthew touched on, the sequential improvement in fourth quarter results were largely driven by strength in demand from the utility and industrial sectors. Total Industrial Solutions revenues increased 12%, both sequentially and year-over-year, posting fourth quarter revenue of $57 million, representing our strongest quarterly result in four years. The fourth quarter growth benefited from the robust demand from utility infrastructure projects, including a favorable revenue mix and improved pricing dynamics, resulting in an exceptionally strong 31% operating margin. Rental and service revenues improved 22% sequentially and 39% year-over-year to $40 million, including a quarterly record from the utilities and industrial sectors. Product sales contributed $17 million of revenues in the fourth quarter. So, this was lower than we typically see in Q4, as several utility customers unexpectedly diverted capital to purchase items delayed by supply chain disruptions earlier in the year. For the full year, Industrial Solutions generated $193 million of revenues, a 4% increase from 2021, which included a 13% improvement in rental and services. Product sales pulled back 12% year-over-year, reflecting the supply chain disruptions and utility customer spending patterns, as well as the prior year benefiting from the surge of activity in the wake of COVID shutdowns in 2020. Adjusted EBITDA improved 8% year-over-year, coming in at $66 million for the full year 2022, a 34% adjusted EBITDA margin. In Fluid Systems, while our fourth quarter was complicated by the effects of the multiple divestitures, the segment generated $168 million of revenues and adjusted EBITDA of $7.4 million in the fourth quarter, or a 4.4% adjusted EBITDA margin. This result was weighed down by our divested business…

Thanks, Gregg. As we entered 2023 with a more agile, capital-light, and simplified business, our focus will intensify around operational execution to drive enhanced returns and free cash flow generation, as we help our customers do the same. We achieved all of our key objectives laid out early last year, and are very pleased with the business transformation that has taken place to date. Our Industrial Solutions business delivered 13% growth in rental and service revenues in 2022, driven by our continued success expanding share in the multi-billion dollar utility infrastructure market, while also improving our EBITDA margin year-over-year. And as Gregg touched on, our Fluids business enters 2023 in a much stronger position, with a meaningfully smaller capital footprint, more focused and predictable end markets, and a greater ability to provide stronger returns on investment and consistent free cash flow generations. Our priorities for 2023 are clear. Firstly, with the meaningful organizational distraction of divestitures behind us, we'll focus on efficiency improvements and operating cost optimization across every aspect of our global operational footprint. With our simplified business model and enhanced focus on balance sheet optimization, we'll drive improvement in returns and consistency in free cash flow generation. Secondly, we'll continue to prioritize investment capital in the growth of our industrial rental and services business, where over the past three years, we've seen the strong market adoption of our specialty rental products and differentiated service offering deliver a 13% CAGR in revenues. Funding our continued expansion and supporting the utilities infrastructure market remains our highest capital priority as we look to build upon the $66 million of Industrial Solutions EBITDA generated in 2022. Within our Fluids portfolio, our CapEx needs are modest, with investments focused primarily on safety or productivity improvements, where we seek clear strategic opportunities, as our emphasis remains on return improvement across the portfolio. And finally, we are committed to returning excess cash generation to our shareholders. With leverage now within our target range, we plan to continually evaluate our cash flow generation and the foreseeable needs of the business, with a desire to return a substantial portion of our free cash flow to shareholders through the execution of our share purchase program. And with that, I'd like to close by thanking our shareholders for investing in us, and thanking our employees for their hard work and their continued focus on safety. We'll now take your questions. Operator?

[Operator Instructions]

Hey, Sherry, this is Ken. We got a couple of questions online through the email, so I'll go ahead and ask those first and while you're queuing up the next questions. Matthew, the first question is, you've achieved solid growth rate with your utilities infrastructure market penetration in recent years. How should we think about the growth rate in years to come and the total addressable market size?

Thanks, Ken. Look, I think if you look at our performance in recent years, we've seen low double-digit CAGR across that part of the business. And that was in the situation where we were somewhat constrained with some of the issues that the Fluids business was going through with everything going on in those markets. I think now that we're through our divestitures and see some smoother sailing there, we'd expect to see our growth rate continue to strengthen going forward. In terms of the total addressable market, I think we've called out a number of times, we see that market as around about a $3 billion market, several times larger in the T&D space than in the oil and gas space. So, while it's hard to get an exact number, I think that would kind of bracket it fairly appropriately. Thank you, Sherry.

Our first question is from Bill Dezellem with Tieton Capital. Please proceed.

Thank you. A couple of different questions. First of all, relative to the Mat business, would you discuss your capacity utilization, both at the plant level and with your rental fleet, please?

Hey, thanks, Bill. It's Matthew. Look, they're kind of figures that we don't really kind of publicize too much for competitive reasons. I think what I'd answer is, our utilization has been healthy. We called out in fourth quarter that the fleet utilization was healthy, and we are continuing to put CapEx into that, which would naturally suggest that we see some pressure on that, that we're going to alleviate through fleet expansion. And on the plant side of things, we've got capacity to service all of our customer and fleet needs at this point.

Yes, and the rental fleet utilization, we obviously see variability quarter-to-quarter as large projects come in and come off and you have a bit of seasonality, but fair to say that Q4, we saw a lot of things align, and the utilization of our overall fleet was probably running toward the top end of what's achievable.

And your comfort with the capacity at the plant to keep up with the demand that you see there, how would you characterize that? And really the spirit of the question is just thinking about future CapEx for the plant.

Yes, look, I think at this point, Bill, it's fair to say, we're comfortable. And as we look forward, we're not necessarily predicting any large capital expenditures there in the immediate term.

Yes, I mean, if we face the need for meaningful CapEx, that would be a pretty high-grade problem challenge to have with the business, so.

Excellent. That is appreciated. And then my next question is probably a bit counter to the way most people would phrase the question, but relative to your free cash flow returning and through share buyback, would you discuss how you think about that relative to, I'll call it hoarding the cash for future acquisitions? And so, maybe I'll give you an opportunity to discuss the acquisition strategy and how that would fit in relative to the free cash flow being returned to shareholders via share buyback that you referenced in the opening remarks.

Yes, I guess I'll start there. I think it starts with the target debt level. And again, there's - it's pretty clear in our minds that we need to have a disciplined approach to returning some portion of our profitability to the shareholders, providing return of capital. You know it is a good question on the acquisitions. You look at the longer-term opportunities, and I would think that if there were a very sizable, transformative type of opportunity, it's probably going to have an equity component. And in order to have an equity component, quite frankly, you have to have a reasonable value on your equity. And so, that's kind of how we view this. And so, again, when we look at this and we look at our current situation, we think that returning capital to shareholders is ultimately what leads to value creation.

That's helpful. Thank you.

Thanks, Bill. We had another email that had a question that says, as you've completed the recent divestitures in Fluids, what oil and gas markets are your primary focus going forward?

Yes. Thanks, Ken. I'll jump on that one. Look, I think as we break it down, North American land is an attractive market. It's a smaller market today, but as you look at the customer discipline, I think it's going to be a more stable market. That is helpful to us in terms of working capital fluctuations. So, that's a market that we're going to continue to look at to optimize. And then it's really EMEA. I think the European supply dynamics has dramatically shifted. It's providing some strong tailwinds to that region and our history in Europe, North Africa, and the Middle East position as well in those markets, and we'll continue to focus there.

Thank you, Matthew. We’ve got no additional questions in the queue. Do you want to wrap it up with some final comments?

Sure. I just wanted to thank everyone once again for joining us in the call and for your interest in Newpark, and we'll talk to you again next quarter.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.