Paul Howes - Chief Executive Officer Gregg Piontek - Chief Financial Officer Matthew Lanigan - President, Chief Operating Officer Ken Dennard - Managing Partner, Dennard Rupp Gray & Easterly, LLC.

Greetings! And welcome to the 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, Mr. 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 2021 results.

Participating from the company in today's call are Paul Howes, Newpark's Chief Executive Officer; Gregg Piontek, Chief Financial Officer; and Matthew Lanigan, President and Chief Operating 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 the normal housekeeping details to run though.

There will be a replay of today's call and it will be available by webcast on the company's website at newpark.com. There will also be a recorded replay telephonically available until March 04, 2022 and that information is included in yesterday's release on how to access that.

Please note that information reported on this call speaks only as of today, February 18, 2022, 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 causal results, performance or achievements to differ materially from those expressed in the statements made by management.

The listener is encouraged to read the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K to understand certain of those risks, uncertainties and contingencies. The comments today may also include certain non-GAAP financial measures.

Additional details and reconciliation to the most directly comparable GAAP financial measures are included in the quarterly press 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 COO, Mr. Matthew Lanigan. Matthew..

Good morning everyone. Before getting into the specifics of the fourth quarter I’d like to start today's call with a brief overview of our strategy, which is underpinned by three key priorities.

Priority one, reshape the company by transforming our fluids business into a more agile and capital light model, capable of generating cash across commodity cycles, while focusing capital allocation into higher returning growth markets.

Priority two, leverage our extensive product element and manufacturing experience and credibility to expandable our sustainable technology and service solution offerings; and priority number three, a laser focus on operating costs and balance sheet disciplines to maintain a flexible overhead structure and fund our growth as we reshape the company.

While we continue to execute across all three, prioritizing investment to higher returning markets is our primary focus. The impact of our efforts is readily evident in our industrial businesses 2021 full year results.

Specifically our industrial solutions business delivered $194 million of revenue and $60 million of EBITDA for the year, with more than 80% of the segment revenues derived from outside of historical E&P markets.

The revenue generation from utilities and other industrial markets reflects a record level for Newpark and a 10% cumulative annual growth rate when compared to 2018. As we have discussed throughout this past year, we are encouraged by the increasing momentum we are seeing, which positions us well for continued profitable growth for years to come.

Key to our industrial growth effort is our U.S. Geographic expansion to better serve a growing number of utility customers and contractors. After establishing a beachhead in the southeast region in 2020, we highlighted out first large scale T&D project in Florida on last quarter's call.

Building on this focus, we completed a tucking acquisition in December which strengthens our utility industry customer base and also enhances our footprint in the northeast region. We are now establishing a larger presence in the mid-Atlantic region to bridge our existing Northeast and Southeast operations.

As another aspect to our industrial growth strategy, we look to expand our manufacturing beyond a core matting product, leveraging our unique technical knowledge base and design, manufacture and product marketing to play a role in the growing circular plastics economy.

While we have been successfully recapturing and repurposing select post-industrial materials for some time now, we're in the early stages of the expansion of this effort and will provide updates as we progress.

In terms of our efforts to transform our fluids business to a more agile capital live model, the past two years have shown clearly that our historically model was not readily adaptable to the reduced activity levels and volatility of the oil and gas markets, particularly in the U.S.

During this time we’ve executed continued cost actions to right size our roofline and overhead structure, and we continue to assess all aspects of the business to create a flexible cost structure capable of generating cash through commodity cycles. With international fluid systems profitability approaching pre-pandemic levels, and our U.S.

fluids business benefiting from improving market activity and overhead cost actions, the fluid systems segment returned to profitability in the fourth quarter. With industry fundamentals continuing to improve and COVID related impact subsiding, we remain encouraged by the signs of the ongoing recovery in oil and gas market activity.

While the early beneficiaries in the U.S. land market have been more on the completion and production enhancement side, we're encouraged by the recent increases in drilling activity across our service markets.

With the improving activity, a key priority remains our ability to offset raw material and labor cost inflation and recover product margins through necessary price increases. Along with margin improvement, our near term action plan remains focused on optimizing the level of working capital and taking necessary action on underperforming operations.

As a part of our ongoing portfolio review discussed on last quarter's call, we highlighted two actions in yesterday's press release that are aligned to our strategic priorities.

First, despite our success, transitioning our oil field blending capabilities into the disinfectant and cleaning product market over the past 13 months, in light of completing priorities for financial and human capital allocation, we recently concluded that it's in the best interest of our shareholders to shut down this operation and pursue the sale of our facility and related assets located in Conroe, Texas.

The industrial blending business contributed $9 million of revenue in 2021, while incurring a $2 million operating loss and ended the year with $20 million of net capital employed. In addition, we have decided to explore strategic options for our ex-caliber mineral grinding business, which supplies ground barite and other minerals for our U.S.

fluids system operations, as well as third parties in oil and gas and industrial end markets.

Following the previously discussed roofline reductions and working capital actions which have contributed a nearly $1 million reduction in fluids net capital deployed over the past two years, we see this as another step to driving a capital light and agile model in our U.S. fluids business.

The mineral grinding business contributed total third party revenues of $36 million in 2021, yielding approximately breakeven operating income and ended the year with $47 million of net capital employed, including roughly $25 million of net working capital.

We believe these actions will unlock liquidity that can be redeployed to higher returning opportunities. In addition, as we simplify and streamline our operating model, we plan to continue driving efficiencies in our SG&A costs.

Meanwhile, on the international side we continue to progress our efforts in Saudi Arabia, where we intend to contribute our existing in-country business to establish a joint venture company with Taka as previously announced.

We anticipate completing the formation and begin operating under the joint venture arrangement around mid-year, which is a key step to support the evolving local content requirements and expand our presence in this important market. And with that, I'd like to turn my attention to fourth quarter results.

Consolidated revenues increased 18% sequentially to $180 million in the fourth quarter, benefiting from strong growth in both segments. Reported EBITDA for the fourth quarter was $10.5 million, which includes $1.8 million of charges highlighted in yesterday's press release.

Our industrial solutions segment generated $52 million of revenues in the fourth quarter, reflecting an 18% sequential improvement, benefiting from the anticipated year-end demand for product sales in the utility sector.

Aside from the charges highlighted in yesterday's press release, our industrial solutions operating margin was in line with our expectations generating $14 million of EBITDA. The fluid system segment revenues also improved 18% sequentially, driven by broad based growth across most key markets.

In North America, revenues improved by 17% sequentially to $83 million, including 21% growth from both U.S. land and Canada. International revenues improved 21% sequentially to $45 million in the fourth quarter with activities in North Africa driving the majority of the revenue growth.

As I touched on a moment ago, the fluid system segment returned to positive operating income, benefiting from the revenue improvement and ongoing cost actions and generated $5 million of EBITDA, which included nearly $1 million of restructuring charges as highlighted in yesterday's press release.

And with that, I'll hand the call over to Gregg to discuss in more detail the financials for the fourth quarter.

Gregg?.

Thanks Matthew and good morning everyone. I'll begin by covering the specifics of the segment and consolidated financial results for the quarter, before providing an update on our near term outlook. Total revenues for the industrial solutions segment improved by $8 million sequentially to $52 million in the fourth quarter.

The Site and Access Solutions business contributed $51 million of segment revenues in the fourth quarter, including $29 million of rental and service revenues and $22 million of product sales. Product sales increased $8 million sequentially, benefiting from the anticipated year end strength in the power transmission sector.

In addition as discussed on November's call the fourth quarter benefited from a few notable rental projects in the south region and our first large scale T&D project in Florida, which contributed to the modest improvement in rental and service revenues over Q3.

Though it is worth noting that the project activity pulled back somewhat around the year-end holidays. The industrial solutions segment operating income improved modestly from the prior quarter, contributing $14 million of EBITDA in the fourth quarter.

Although the segment benefited from the higher Site and Access Solutions revenue contribution, this was largely offset by the impact of raw material inflation, combined with a competitive pricing environment, as well as the prior quarter benefit of our industrial blending customer cancellation fees.

The fourth quarter result was further impacted by $900,000 of charges as noted in yesterday's press release. Comparing to the fourth quarter of last year, revenues from the Site and Access Solutions business increased $8 million or 20%, substantially all of which is attributable to higher product sales.

This increase was offset by a $7 million decline in Industrial Blending.

Looking at the full year 2021 performance for the industrial solutions business, as Matthew touched on, our segment revenue mix has shifted dramatically with the power transmission end market contributing more than half of our full year segment revenues, while our historical E&P market activity accounts for less than 20%.

Comparing 2021 to 2019, the strong growth achieved in the utilities and other industrial market has nearly offset the $56 million revenue decline from the E&P markets.

Now turning to Fluid Systems, total segment revenues improved $20 million sequentially to $128 million in the fourth quarter, reflecting broad based improvements in our global customer activity. Revenues from U.S.

land increased 21% sequentially to $62 million, significantly outpacing the 13% improvement in market rig count, reflecting improved revenue per rig, including a benefit from elevated fluid losses.

Revenues from the Gulf of Mexico declined by $2 million contributing $4 million in the fourth quarter, as a drillship mechanical issues caused further delays to customer drilling plans. In Canada, revenues increased 21% sequentially to $70 million in the fourth quarter, meaningfully outpacing the 6% market rig count improvement.

It’s worth noting that unlike most years, our Canadian operations didn't experience the typical slow down late in the fourth quarter as operators largely continued activities through the holidays.

Outside of North America revenues improved 21% sequentially to $45 million in the fourth quarter, with our operations in North Africa being the primary driver of the growth.

As Matthew touched on, with the sequential revenue growth in the fourth quarter, our fluid system segment returned to profitability despite incurring $900,000 of charges related to our ongoing restructuring efforts.

After consideration of both the third and fourth quarter charges highlighted in the press release, the sequential improvement in operating income reflects an incremental margin of roughly 22% on the $20 million revenue increase.

Although we continue to see meaningful inflation in our raw materials and transportation costs, we've been largely successful to-date in offsetting the impact through pricing actions. On a year over-year-basis our fluid systems revenues increased $48 million or 61%.

North America land revenues improved by $30 million benefiting from the recovery in market rig count, while Gulf of Mexico declined by $7 million. International revenues improved $18 million or 64%, benefiting from new projects start-ups and increased customer activity across most markets as COVID restrictions subside.

Corporate office expenses were $9.3 million in the fourth quarter, representing a $1.8 million sequential increase and a $3.4 million increase year-over-year.

The sequential increase is primarily attributable to elevated incentive expense, including long term incentives tied to Newpark’s three year share price performance relative to our peer group, along with elevated legal and professional spending, primarily associated with M&A activity and the restructuring of certain subsidiary legal entities within Europe.

Comparing to the fourth quarter of last year, nearly half of the increase is attributable to long term incentives, with fluctuations in Newpark share price performance versus peer group providing a benefit to Q4, 2020 and a charge to Q4, 2021.

The remainder of the increase is primarily attributable to the elevated M&A and other legal and professional spending, along with higher personnel expenses including costs associated with the CEO succession.

SG&A costs which include corporate office expenses were $27 million in the fourth quarter, reflecting a $2.8 million increase from the prior quarter and $6.3 million increase year-over-year. In addition to the corporate office impact, substantially all of the remaining $1 million sequential increase in SG&A is attributable to our non-U.S.

fluids business units. Comparing to the fourth quarter of last year, the increase in SG&A at the segment level is primarily attributable to the higher activity and the stronger performance broadly across both the segments. Interest expense declined modestly to $2.1 million in the fourth quarter.

Following maturity of our convertible bonds in December, our weighted average cash borrowing rate on outstanding debt is approximately 2%. The fourth quarter includes a $2 million income tax expense despite reporting a pre-tax loss. We are currently unable to recognize the tax benefits on our U.S.

losses and therefore the income tax expense primarily reflects taxes on foreign earnings. Our reported net loss in the fourth quarter was $0.04 per share, which compares to a net loss of $0.11 per share in the third quarter and a loss of $0.20 per share in the fourth quarter of last year.

All periods were impacted by charges as described in yesterday's press release. During the fourth quarter cash flow, net cash used in operating activities was $17 million, including $35 million of cash usage associated with the increase in receivables, largely reflecting the impact of the revenue growth.

Consolidated DSO’s remained elevated despite improvements in the international fluids business, driven by the timing of large projects and product sales within the quarter which impacted our U.S. operations across both segments.

Investing activities used net cash of $10 million in the fourth quarter, including $13 million associated with the landscaping acquisition completed in December with capital investments during the quarter being more than offset by proceeds from the sale of Mats and other surplus equipment.

For the full year 2021 investment in the rental fleet totaled $14 million, the majority of which replaced Mats sold from our rental fleet as part of our standard commercial model. Consequently, while growth capital expenditures totaled $22 million for the year, our net capital investments were only $6 million.

We ended the year with a total debt balance of $115 million and a cash balance of $24 million, resulting in a 20% debt to capital ratio and a 16% net debt to capital ratio. Our net debt increased by $28 million in the quarter, largely reflective of the elevated receivables, as well as the industrial solutions acquisition funding.

With the repayment of our convertible debt in December we ended the year with $87 million outstanding on our U.S. asset based loan facility and $28 million of other debt the majority of which is held within our foreign subsidiaries. Now turning to our near term operational outlook.

As we look ahead, although we continue to manage the near term supply chain challenges and significant inflationary pressures, we are very encouraged by the improving outlook for 2022 and the strength of the longer term fundamentals across all major energy sectors.

In the industrial solutions segment our opportunity pipeline is building, particularly as we expand our geographic coverage in the T&D Sector. Following the year-end low in customer projects we've seen rental and service activities ramp up in recent weeks, benefiting from the start-up of several large scale T&D projects.

We expect sequential growth in rental and service revenues in the high single digit percentage range in Q1 and with the benefit of some longer term projects now underway, we expect to see a similar growth rate in Q2, likely driving our Q2 rental and service revenues to their highest levels since mid-2019.

On the product sales side, although there is always a fair amount of quarter-to-quarter fluctuations based on the timing of customer purchases, we are very encouraged by the record $67 million in product sales achieved in 2021 and the opportunities that we see in 2022.

As is typical, we expect a sequential pull back in Q1 following the seasonal year end strength, which will be further impacted this year by the timing of certain customer shipments sliding to Q2.

Overall, reflecting the timing of the product sales activity, we anticipate segment revenues in the high-30’s range in Q1, then returning to the mid-40’s in Q2.

Prior to consideration of any impairments associated with our exit of the Conroe facility, we anticipate margins to remain in the mid to upper teens in Q1 depending on the pace of wind down of industrial blending expenses, then improving to roughly 20% in Q2.

In fluid systems, as we look at 2022 we are encouraged by the strengthening of global market dynamics following two years of industry under investment.

With our return to segment profitability in the fourth quarter, combined with a positive impact from pricing and cost actions, we expect the fluids business will remain profitable prior to consideration of any restructuring related charges.

For Q1 we expect to see modest revenue growth for the segment, with benefits of the improving market activity being somewhat offset by a more typical revenue per rig.

The primary drivers of the anticipated revenue growth include Canada, where we expect to achieve the strongest quarterly revenue since 2018, as well as continuing strength in Europe and North Africa. Total international revenues are expected to return to the upper-$40 million range in Q1, back in line with pre-COVID levels.

With the continued recovery in revenues and ongoing cost actions, we expect modest improvements in segment operating income though the fluids operating margin is expected to remain in the low single digits.

Looking beyond Q1, although Canada will be impacted by the spring break up in Q2, we expect this impact will be largely offset by the benefits of the strengthening U.S. market activity, as well as the start-up of several new projects in the EMEA region, which should keep the fluids segment in positive income territory.

First quarter corporate office expense is expected to revert back to levels similar to Q3 as the costs associated with incentive compensation and legal and professional expenses are expected to normalize. Looking beyond Q1, we anticipate our corporate office expense will further reduce in Q2, benefiting from the completion of the CEO succession.

Also it's worth noting that with the December settlement of our convertible bonds, we expect a meaningful step change in interest expense, with net interest expected to run slightly more than $1 million per quarter in the near term.

Regarding income tax expense, the near term is expected to remain fairly in line with recent quarters, largely reflecting taxes on foreign earnings.

For CapEx, while we anticipate gross expenditures likely in the $20 million to $25 million range for 2022, we expect our expenditure level will remain heavily dependent upon revenue driven opportunities in industrial solutions as we expand our Mat rental fleet to support the T&D and industrial market penetration.

Capital investments in the fluids business are expected to remain fairly limited as we continue to drive the capital light model. In terms of free cash flow, we expect positive contribution in the near term with the first quarter benefiting from expected reductions in receivables.

Inventories will likely grow modestly in the near term as we intend to maintain additional buffer stock in the uncertain supply chain environment. And now with that, I'd like to turn the call over to Paul for his concluding remarks..

Thanks Gregg. With this being my last earnings call, I’d like to leave you with a few parting thoughts. First and foremost, as I leave Newpark, I take comfort in the fact that we have a strong team who will continue the journey to reshape the company and drive at the higher levels of performance over the coming years.

With a strong balance sheet and improving market dynamics, the company is well positioned to drive profitable growth in both business segments. I’d like to reaffirm our unwavering commitment to safety and providing our customers across the energy sectors with products that work in harmony with the environment, a longstanding hallmark of Newpark.

As the world transitions to cleaner energy sources over the coming decades, Newpark stands ready to provide sustainable products and services to help meet the world's energy needs in a responsible manner.

And with that, I'd like to close what I've done for the past 16 years 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] Our first question comes from the line of Daniel Burke with Johnson Rice. You may proceed with your question. .

Hey! Good morning guys. .

Morning!.

Let's see, maybe a couple in the Mats business. Hey Matt, in your prepared comments you talked a little bit about looking to expand manufacturing beyond core matting, and I don't know if you're ready to expound on that or if it’s a stay tuned and that's as far as you want to go.

But I was curious about that and was that specifically related to your follow-up comment about repurposing and recycling or is it you know sort of two related, but separate initiatives?.

Yes, thanks for the question there. It is the latter. I think we have been working hard over the last few years to perfect post-industrial material usage in our fleet products, and as we look to expand that going forward, I think that'll play a larger part.

And then obviously an extension to that, which we are very early stages of, is when we look at our manufacturing capabilities, it does allow us to capture a really wide range of that post-industrial material that we would then look to for avenues and other markets beyond matting.

But I think as you touched on, it is early days and we’ll keep you up to speed as we move forward with that. .

Okay, that's helpful. And then maybe one on the outlook for Mats here. I appreciate kind of the forward-looking to the second quarter. You know Mat sales are hard to predict, but it looks like there'll be a decent deceleration, first half of ‘22 versus the tempo of ‘21 and even kind of second half of ‘20.

Anything in particular going on there? Again, I know it's a market where visibility is almost necessarily limited, but is there any sort of structural change underpinning that?.

No, another way of saying, I think as Gregg touched on you know we’re seeing some timing slip, particularly in some international markets that are pushing out of Q1 into Q2, but beyond that I think we’re seeing the typical kind of project flow and just balance of the timings of when customers need it for their projects versus their other days. .

Okay, got it. Alright, and then I guess on the service and rental side, you pick up some benefit from working with or from the new acquisition, so that'll be reflected on the service and rental side, fair enough. Maybe one on the proposed or the thought of exiting the mineral grinding business. I guess I just wanted to understand how that would work.

Would you be willing to make throughput commitments to a buyer? How does this impact how you think about your supply chain?.

Yeah, obviously one of the key considerations is making sure that as part of this we're protecting our businesses, particularly kind of in the Gulf coast region there and backing that out with supply agreements. So that'll be part of the consideration as we move through the process..

Yeah, I think the bigger issue here is just as you look at the scale of the operation and you know contrast it with what has happened in the U.S. oilfield, you don't have a volume requirement that is appropriate for that size of investment. .

Understood, understood, okay. Alright guys, well look, I'll leave it there for now, but thank you for the time. .

Thank you. .

Thanks Dan..

Our next question comes from the line of Bill Dezellem with Tieton Capital. You may proceed with your question..

Thank you. Let's start with the drill ships mechanical issue if we could please.

Is that corrected? And if so, when will or when did drilling begin?.

Yeah, thanks Bill. Yes, that is correct, and we're expecting sometime in sort of February for normal activity to return. .

And is that the beginning of long term usage of that drill ship or is this simply a single well program?.

No, it’s longer term than that, but what I will say is you know the schedules are subject to change by the customer. You know we know that this project would carry through Q1 and into Q2 and then beyond that point it is a function of their plans, which as we've seen in the past, they do change. .

Thank you. And then I know you characterized sequential growth in the North American fluids market or North American fluids business in Q1 versus Q4.

I'm hoping maybe you would be able to tie in the run rate that you're seeing in the first six weeks of the first quarter relative to that $128 million, and ultimately what I'm trying to understand here is the degree that a ramp is necessary in the second half of the quarter to meet that versus already really embedded in the numbers. .

I guess the way I’d frame it up is what we're seeing in the early part of the quarter, the first six weeks of the quarter is not inconsistent with the run rate that we've framed up here for the quarter.

Does that answer your question?.

Ah! That was broadly loose. .

What can I tighten up on there?.

Well, are you seeing basically – is your business mirroring the rig count essentially that you are just seeing a ramp as the quarter goes on? Is that essentially the way to think about it?.

I think it's fair to say we are seeing an increasing level of activity.

Now one of the things that you have to also consider when you look at that sequential comp though is as we had highlighted, the revenue generation on a per rig basis was elevated in Q4 and that provides a little bit of offset and I think that kind of balances out somewhat in the Q1.

But obviously the uptick in activity, that sets up well for Q2 and beyond. .

Right, okay, thank you.

And then one additional question; the M&A expenses that you highlighted for Q4, would you talk a little more in detail about what those were targeted towards, etc., in as much detail as you can please?.

Sure. It's really regarding the two transactions that we had noted publicly, the acquisition that we did in the Mats business which was completed in December, and then also the continued progress on the JV in Saudi Arabia. .

Great! Thank you both. And Paul, good luck in the next chapter of your life here. .

Thanks Bill. It’s been a great time with this company. .

This concludes our question-and-answer session. I would now like to turn the call over to management for any final comments. .

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

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference.

You may disconnect your lines at this time and have a wonderful day!.