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Newpark Resources (NR)

Q2 2012 Earnings Call

July 27, 2012 10:00 am ET


Ken Dennard - Founder and Managing Partner

Paul L. Howes - Chief Executive Officer, President and Executive Director

Bruce C. Smith - Executive Vice President and President of Fluids Systems & Engineering

Gregg S. Piontek - Chief Financial Officer, Chief Accounting Officer and Vice President


James M. Rollyson - Raymond James & Associates, Inc., Research Division

Neal Dingmann - SunTrust Robinson Humphrey, Inc., Research Division

Michael J. Harrison - First Analysis Securities Corporation, Research Division

Douglas Garber - Dahlman Rose & Company, LLC, Research Division

Michael R. Marino - Stephens Inc., Research Division

William J. Dezellem - Tieton Capital Management, LLC



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Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Newpark Resources Second Quarter Earnings Conference Call. Following the presentation, the conference will be open for questions. [Operator Instructions] This conference is being recorded today, Friday, July 27, 2012. At this time, I'd like to turn the conference over to Ken Dennard with DRG&L. Please go ahead, sir.

Ken Dennard

Thanks, Fritz. Good morning, everyone. I appreciate you joining us for Newpark Resources conference call today to review 2012 second quarter results. We'd also like to welcome our Internet participants that are listening to the call simulcast over the web.

Before I turn the call over to management, I have the normal housekeeping details to run through. For those of you who did not receive an e-mail of the release yesterday afternoon and would like be added to my list, just call our offices at DRG&L, (713) 529-6600, and we'll get you on those lists. There will be a replay of today's call. It will be available via webcast on the company's website, and that's There'll also be a recorded replay available by phone, which will be available for -- until August 10, 2012, and all the contact information there is in the press release.

Please note that the information reported on the call today speaks only as of today, July 27, 2012, and therefore, you are advised that time-sensitive information may be no longer accurate as of the time of any replay listening. In addition, the comments made by management today of Newpark 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 management of Newpark. 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. Listeners are encouraged to read the company's annual report on Form 10-K, its quarterly reports on Form 10-Q and current reports on Form 8-K to understand certain of those risks, uncertainties and contingencies.

And now, with all of that behind us, I'd like to turn the call over to Newpark's President and CEO, Mr. Paul Howes. Paul?

Paul L. Howes

Thank you, Ken. Good morning to everyone. We'd like to thank you for joining us today for our second quarter 2012 conference call. With me today are Bruce Smith, President of our Drilling Fluids business; and Gregg Piontek, our Chief Financial Officer.

Following my opening remarks, Bruce will provide an update on our Fluids business, and Gregg will discuss the Mats and Environmental Service businesses, as well as the consolidated financial results of the quarter. I will then conclude with a discussion of our market outlook before opening the call for Q&A.

Now turning our attention to the second quarter. We are pleased with the improvement in profitability from our U.S. Fluids business, which was up considerably from a very difficult first quarter. While revenues were flat sequentially, our U.S. operating income improved by more than $5 million from the first quarter. As we stated in the first quarter call, the decline in profitability was attributable to several factors including: increased barite cost and delays in passing these through to customers; the reduction in third-party barite sales; weakness in our completion services and equipment rental business in the Mid-Continent region; cost inefficiencies associated with the accelerated transition from dry gas to liquid regions; and support costs associated with our ERP system implementation.

In the second quarter, meaningful progress was made on all fronts, contributing to the $5.6 million sequential improvement in operating income. While our performance strengthened in the U.S. Fluids business, these gains were offset by declines in other regions, including: spring break-up in Canada, where we saw a sequential revenue decline of $11 million; delays in North Africa due to the timing of customer projects; and the transition to a new contract with Sonatrach in Algeria resulted in an additional $5 million sequential revenue decline. In addition, operating expenses increased in North Africa in preparation for the ramp-up in activity associated with new contracts. The combined effect of these items decreased our second quarter revenues by about $16 million and net income by about $0.04 per share.

Our Evolution system continues to see strong results in key U.S. markets. Evolution sales are $27 million in the second quarter, up from $23 million in the first quarter and $18 million in the second quarter of last year. We're seeing an increased level of interest in our technologies as inquiries about Evolution have broadened beyond the usual independent drillers to include the major international oil companies. In addition, we expect to see Evolution used for the first time outside North America by the end of the year, which whould represent a significant step as we look to introduce this technology into the international markets.

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