Greetings, and welcome to the Newpark Resources' Second Quarter Earnings Conference Call. Operator provided instructions. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ken Dennard. Thank you, Ken. 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 second quarter 2021 results. Participating from the company in today's call are Paul Howes, Newpark's President and Chief Executive Officer; Gregg Piontek, Chief Financial Officer; David Paterson, President of the Fluids Business; and Matthew Lanigan, President of the Industrial Solutions business. Following my remarks, management will provide a high-level commentary on the financial details of the second quarter results and near-term outlook before opening the call for Q&A. But 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 that will be available via webcast on the company's website at newpark.com. There will also be a recorded telephonic replay available until August 18, 2021, and information on how to access that feature is in yesterday's release. Please note that the information reported on this call speaks only as of today, August 4, 2021, and therefore you are advised that time-sensitive information may no longer be accurate at any time of 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 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 made 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 CEO, Mr. Paul Howes. Paul?

Thanks, Ken, and good morning, everyone. Our second quarter results reflect another step forward in our strategy execution, as we continue to reshape and position the company for sustainable and profitable growth. Consolidated revenues improved 1% sequentially to $142 million, with a 28% increase in international Fluid Systems and a 15% improvement in Industrial Solutions rental and service revenues, offsetting the previously anticipated pullback in Industrial Solutions product sales that we discussed on our prior quarter call. Second quarter EBITDA generation was $7 million. Turning to the specifics of the segments, our Industrial Solutions business continues to demonstrate the value of our diversification efforts, as we expand our presence in the power transmission and other industrial end markets. As anticipated, coming off the exceptionally strong first quarter product sales, segment revenues declined 15% sequentially to $45 million in the second quarter, as Site Access product sales pulled back to $10 million for the quarter. Partially offsetting the product sales reduction, rental and service revenues improved 15% sequentially, contributing $33 million of revenue in the second quarter, including a record $25 million contribution from the power transmission and other industrial end markets, reflecting strong performance both in the United States and in the United Kingdom. Industrial blending revenues also pulled back to $2 million in the second quarter, reflecting the anticipated impact of product transition with our primary customer. With the lower revenue, our Industrial Solutions operating margins declined modestly to 22% in the second quarter, generating $15 million of EBITDA. Reflecting on our first half 2021 performance, it's worth highlighting that the power transmission and other industrial end markets contributed $75 million of our Site and Access Solutions revenues. This annualized run rate of $150 million represents a 30% improvement over the previous high of $115 million achieved in 2018, illustrating the continued momentum in our market penetration. Meanwhile, our historical upstream oil and gas end market contributed less than 20% of the first half 2021 segment revenues, reflecting the lower industry activity and our focus on the more stable industrial end markets. In the Fluids Systems segment, revenues improved 11% sequentially, benefiting from project start-ups, and the early phases of recovery within certain international markets, following the COVID-related disruptions that significantly impacted the previous four quarters. Our international revenues improved 28% sequentially to $35 million in the second quarter, benefiting primarily from improvements in Europe and North Africa. In North America, revenues improved modestly to $62 million, with a 19% improvement in the U.S., largely offset by the seasonal pullback in Canada. Despite the revenue growth and positive earnings contributions from our international businesses, the Fluids segment remained below EBITDA breakeven in the second quarter, impacted by elevated operating expenses, including employee severance and costs associated with our ongoing inventory rationalization efforts. In addition, the quarter was impacted by an unfavorable sales mix on U.S. land which we expect to normalize going forward. During the second quarter, I'm very pleased to highlight that we won two notable Fluids contracts, including a three-year award in Thailand to provide drilling and completion fluids on land, which reflects our first entry into the Southeast Asian market. This contract is expected to provide approximately $25 million of revenue over the three-year term with work scheduled to begin in the third quarter. In addition, as part of the latest Shell Oil tender in the Gulf of Mexico, we were awarded a contract to continue providing drilling fluids, reservoir drilling fluids and related services for two deepwater drill ships, which we expect will generate approximately $30 million of revenue annually. We believe the recent contract awards are a direct result of our continued focus on providing differentiated technology and superior customer service. As global activity improves in the energy market, we feel we are well-positioned to capture our fair share of the value chain, while also continuing to reshape our cost structure to generate profitable growth and provide an acceptable return on capital. And with that, I will hand the call over to Gregg to discuss in more detail the financials for the second quarter.

Thanks, Paul, 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 declined 15% sequentially to $45 million in the second quarter, which includes a $43 million contribution from the Site and Access Solutions business and $2 million from industrial blending. The sequential decline primarily reflects the anticipated $10 million reduction in product sales following the exceptionally strong Q1 performance, along with a $3 million decline in industrial blending product sales. Rental and service revenues improved 15% on a sequential basis, coming in at $33 million for the second quarter, which reflects our strongest quarter in nearly two years. The sequential growth was driven by robust demand in both the U.S. and the United Kingdom, with the U.S. benefiting from a few large-scale utility projects completed in the second quarter. As a result of the $8 million decline in revenues, the Industrial Solutions segment operating income declined by $3 million sequentially to $10 million, contributing $15 million of EBITDA in the second quarter. As highlighted in yesterday's press release, the Q2 result included a $1 million gain associated with the enforcement of our patent rights. Comparing to the second quarter of last year, revenues from the Site and Access Solutions business increased $16 million or 59%. This increase includes an $11 million or 50% improvement in rental and service revenues, along with a $5 million improvement in product sales. Looking at the first half 2021 for the Industrial Solutions business, as Paul touched on, it's notable that we're continuing to see a significant shift within our segment revenue mix. More specifically, the power transmission end market contributes more than half of our Industrial Solutions segment revenues, while our historical E&P market activity accounts for less than 20%. Turning to Fluids Systems, total segment revenues improved by 11% sequentially to $97 million in the second quarter. Revenues from U.S. land increased $10 million or 24% sequentially, reflecting the benefit of the 16% improvement in market rig count, along with an increase in market share, which stands at roughly 20%. All U.S. land regions contributed to the sequential revenue improvement. Revenues from the Gulf of Mexico declined modestly, contributing $8 million in the second quarter. In Canada, revenues followed the typical seasonal pattern through spring breakup, declining 61% sequentially to $5 million in the second quarter. Outside of North America, as Paul noted, we are beginning to see the early signs of recovery, particularly in Europe and North Africa. International revenues improved $8 million sequentially to $35 million in the second quarter, as delayed projects moved forward. Although it's worth noting that COVID-related restrictions continued to suppress customer activity, particularly in the Middle East. The Fluids Systems operating loss improved slightly on a sequential basis, coming in at $7 million for the second quarter, which includes the $600,000 of severance charges called out in yesterday's press release. As Paul touched on, while our international Fluids business performance was relatively in line with our expectations, our U.S. operations were negatively impacted by elevated expenses in the quarter, along with an unfavorable sales mix. On a year-over-year basis, our Fluids Systems revenues increased $22 million or 30%. U.S. land revenues increased by $21 million or 74%, which significantly outpaced the 16% increase in market rig count over this period. The strong revenue growth primarily reflects our increased market share and improvements in customer spending per well, along with higher barite sales and our continued expansion into stimulation chemicals. Gulf of Mexico revenues declined $6 million or 44% year-over-year, driven primarily by the changes in customer drilling and completion plans, including a strong contribution from completion fluids in the prior year quarter. International revenues improved $6 million or 22% year-over-year, benefiting from new project start-ups and the recovery of customer activity in several European markets and Algeria, while the Middle East remained roughly $2 million below prior year levels, reflecting the ongoing COVID challenges. SG&A costs were $23 million in the second quarter, which includes $6.9 million of corporate office expenses, reflecting a $2 million increase from both the prior quarter as well as the second quarter of last year. The sequential and year-over-year increase is primarily attributable to higher long-term incentive expense, including awards tied to our relative share price performance as well as the April 1 restoration of certain austerity measures, including the company matching contributions to our U.S. retirement plan. Interest expense decreased modestly to $2.2 million in the second quarter, nearly half of which reflects noncash amortization of facility fees and discounts. Our weighted average cash borrowing rate on our outstanding debt is approximately 3.5%. The second quarter includes a $400,000 income tax expense despite reporting a pretax 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 net loss in the second quarter was $0.07 per share, which compares to a net loss of $0.06 per share in the first quarter and a net loss of $0.29 per share in the second quarter of last year, which included $0.09 of charges. Turning to cash flow, net working capital changes used $7 million of cash in the second quarter as we saw DSOs return, as anticipated, to a more typical level from the unusually strong performance achieved in the prior quarter. With the higher working capital, cash used in operating activities was a modest $2 million for the quarter. Investing activities again used less than $1 million of cash in the second quarter, with $2 million of capital investments, largely offset by proceeds from sales of used mats from our rental fleet and other underutilized assets. We ended the second quarter with a total debt balance of $78 million and a cash balance of $35 million, resulting in a modest 14% debt-to-capital ratio and 8% net debt-to-capital ratio. As highlighted in yesterday's press release, we have satisfied the requirements to include $24 million of eligible rental mats in the borrowing availability under our ABL facility, which increases our total ABL availability to $108 million and provides sufficient capacity to fund the $49 million convertible note maturity later this year. As such, the convertible notes are now classified as long-term debt in the June 30, 2021 balance sheet. Now turning to our near-term outlook, as we look ahead, we are encouraged by the improving longer-term fundamentals in both business segments, though we continue to see significant inflationary pressures on raw materials and transportation. We are also closely monitoring the evolving situation with the COVID variants around the world. In the Site and Access Solutions business, while we are very pleased with the strong growth rate in targeted end markets, we expect the near-term market activity in the utility sector will face the typical seasonal slowdown seen in past years as utility companies reduce project activity during the period of high electricity demand associated with the elevated summer temperatures. Although we are continuing to execute our geographic expansion efforts, we anticipate that Q3 rental and service revenues will return to near Q1 levels. Looking beyond Q3, we continue to be encouraged by the robust pipeline of opportunities as we execute our growth strategy. On the product sales side, although it is always difficult to predict the timing of sales activity, we expect revenues will remain relatively in line with Q2 in the near term, with the fourth quarter expected to benefit from the year-end strength in the utility sector. Meanwhile, revenues from industrial blending are expected to remain fairly limited in the near term, as our primary customer in this business has recently informed us that they are experiencing a decline in demand for their disinfectants and cleaning products in the wake of the evolving COVID recovery in the U.S. In total, we expect Q3 revenues for the Industrial Solutions segment will pull back modestly to roughly $40 million. And with the seasonal slowdown in rental project activity as well as our ongoing investments to support our growth strategy, we expect operating margins to decline into the low to mid-teens for the third quarter, which should reflect the softest quarterly result for the year. Beyond Q3, we expect both revenues and operating margin will rebound in Q4, benefiting from the year-end product sales demand and our ongoing penetration in the power transmission and other industrial markets. In Fluid Systems, we continue to expect our international markets will recover through the second half of 2021, ultimately returning to pre-COVID levels by the end of the year. With the lingering effects of COVID, particularly in the Middle East, we expect international revenues will increase by roughly 10% in Q3 with a more pronounced improvement in Q4. In addition, we expect to see strong quarter-over-quarter growth in North America in Q3, led by a robust recovery in Canada from the seasonal trough and the continued improvements in U.S. land. In the Gulf of Mexico, we expect Q3 revenues will remain fairly in line with the second quarter, as a Q3 start-up on the second deepwater drillship will likely offset the decline in completion fluids products which are excluded from the recent contract award. In total, we anticipate our Fluids segment revenues will grow by a low-teens percentage in Q3, which should bring the segment closer to breakeven operating income for the quarter, with a return to positive income expected in Q4. With regard to CapEx, we expect expenditures in the near-term will remain fairly limited, with investments focused on growth opportunities within the Industrial Solutions segment. Corporate office expense is expected to increase by roughly $1 million from the Q2 level, largely reflecting the timing of long-term performance-based incentive expense, along with the full lifting of salary austerity measures put in place during 2020. And now with that, I'd like to turn the call back over to Paul for his concluding remarks.

Thanks, Gregg. Overall, I'm pleased with the continuing progress we've made in the second quarter. Looking ahead, there are obvious ongoing market hurdles to navigate, including meaningful cost inflation as well as the elevated uncertainty regarding the impact of the COVID variants around the world. With that said, we remain encouraged by the longer-term market fundamentals in all of the key industries that we serve, which we believe provides the opportunity for sustainable and profitable growth over the long term. Further, with our very modest debt level and our capital-light fluids business model, we are well positioned to fund growth objectives and generate strong free cash flow over the long term. Our key priorities remain unchanged, beginning with our expansion and diversification of the Industrial Solutions business. As we continue to execute on our strategy, we're very pleased with the growing market awareness of the unique value proposition that we provide within the multibillion-dollar power transmission market. Benefiting from our strong utility sector growth, our Industrial Solutions segment contributed 35% of our first half revenues, while consistently generating strong profitability and returns. Expanding this business remains our highest priority, including expansion of our geographical reach and investing the necessary capital to support our targeted growth plans. On the industrial blending operations, although we are disappointed by the shift in outlook that our primary customer is seeing in the demand for disinfectants and cleaning products, it's important to highlight that we view this reduction in near-term demand as a typical challenge for a new business. Over the past year, the surge in cleaning product demand associated with the fight against COVID provided us an opportunity to quickly penetrate the industrial blending market and showcase our agility and capabilities. During a period of extreme urgency, our ability to move quickly, execute every facet of the manufacturing process and deliver quality and consistent products was met with extremely high praise from our customers. Our near-term priority for this business remains unchanged, to capitalize upon our proven capabilities to build a diversified industrial and specialty chemical blending business. In Fluids Systems, we are proud of the efforts of our global team in reshaping the business while maintaining the highest quality of service for our customers. Internationally, with the worst of COVID hopefully behind us, we feel we are well-positioned to benefit from what many expect to be a robust multiyear growth cycle. It's important to note that prior to COVID, our international operations maintained a long history of stable and profitable performance. And despite the challenges of the past 18 months, we've continued to build upon our global relationships, expanding in key markets where we expect to play a meaningful role going forward. We've also added to our extensive resume in geothermal drilling, a small but growing area that we believe will see a tailwind in the energy transition. We expect our international Fluids growth will outpace North American market in the years to come, driven primarily by our extensive geographical footprint in the EMEA region and our expanding presence in Asia Pacific. In the U.S. Fluids business, while the market outlook continues to strengthen, we are taking further actions to scale the business for what we expect to remain a structurally smaller market in the future. In addition, with the U.S. oil and gas industry now benefiting from stronger commodity prices, our near-term focus also includes driving the much-needed price increases. We expect both of our cost and pricing actions on U.S. land will continue through the second half of the year as we strive to generate consistent cash flow and acceptable return on invested capital. With that, I'd like to close the call as I always do, by thanking our shareholders who are investing in us and thanking our employees for their hard work and dedication to Newpark as well as the continued focus on safety. We'll now take your questions. Operator?

Operator provided instructions. And our first question is from Daniel Burke with Johnson Rice & Company LLC.

Let's see. Maybe on the Fluids side, you referenced unfavorable sales mix in the U.S. market. Can you help me better understand that impact? And ongoing inventory rationalization, that makes sense, but with the word ongoing, what's the duration of that program? I would imagine it's helpful to the top line, and obviously less so to the bottom line. But help me understand the interplay of those dynamics on the U.S. side.

Okay. This is David Paterson. On the first point on the product mix, Q2, we saw, I would say, an unusually high amount of liquid oil-based mud in the product mix, significantly higher than we would traditionally expect. We see that normalizing into Q3. There was a lot of operations with downhole losses. So that inflated the consumption of the liquid mud, and that has a negative impact on the margins.

Yes. And I would add to that, and that's a particularly commoditized area. And then I think adding to that, you just have our ongoing efforts to rationalize our excess inventories. We've talked about that in the past. This is an area that's going to take several quarters to bleed off, and we're just continuing to work through that. So you have not only the sale of that excess inventory, which negatively impacts the overall margin, you have additional cost, transportation, those sorts of things that factor into it as well. So it hits you on a number of fronts. But ultimately, what you're doing is working your working capital down, you're monetizing the asset and then holding at that level going forward.

Got it. That's helpful. And then, Gregg, maybe just to revisit the Fluids margin guidance. I think you'd framed the margin guidance in terms of operating income since the EBITDA breakeven bogey has been out there before. Is breakeven EBITDA possible in Fluids in Q3? Or is that also a Q4 ambition, assuming I heard the guidance correctly?

Yes. Overall, as I mentioned, with the top line growth, we get closer to that operating income breakeven level and then back into positive territory in Q4, recognizing there are the various issues that we're navigating, the challenges that we're navigating, we would expect that top line growth to be enough to get us to EBITDA positive here in Q3.

Okay. And then maybe another question just spanning both segments. No surprise to hear references, of course, to cost inflation. But any way to kind of address where cost inflation is most acute? Raw materials, I assume is where you'll see it on both sides of the business and what you can do to mitigate that, what discussions are like in terms of passing through those escalators to your customer base.

Yes. I'll take that first, then I'll have the two operating presidents comment a little bit on that. But clearly, on the raw material side, that's where we're seeing it, but then also on transportation, that's the other area where we're seeing inflationary costs. But more specific to the business, Matthew, on Industrial Solutions?

Yes, Daniel, look, I think it's most acute in our business on the product sales side with raw material price increases there substantial on a year-over-year basis. We can manage that through discussions with passing on that pricing where possible. The other ways we could do it is look at alternate chemistries in the construction of the mat to help dampen that down. So we have a couple of levers that we can look at there, but still a reasonably strong headwind at this point.

Yes, Daniel, same in Fluids. It's a very strong headwind. We're seeing pressures across the supply chain, given the hike in oil price. A lot of our products are oil derivatives, so there's been a sharp increase in base oils, et cetera. Freight cost and container shortages are also having a significant headwind for the business. And also, polymers, a big part of our water-based mud supply chain, have seen a lot of pressure. We've already started having proactive, and I would say, meaningful conversations with our customers to pass that on. Our teams are very focused on doing that today. And also, we're looking at how we diversify the supply chain going forward in the future, so a lot of proactive actions happening in Fluids to mitigate against these headwinds.

Okay. That's helpful. I'll cram one last one in, guys. On the mat side and of course, specific to utilities and to an extent power transmission and industrial. I would imagine those customers, as opposed to oil and gas customers, have better visibility into sort of their longer-dated plans. And so I won't even call it a hiccup, but you got the seasonal dip here in Q3 2021. But as you look to 2022, is there any reason why you all shouldn't continue to enjoy some pretty good structural growth in that business?

Yes, Daniel, it's Matthew again. Look, I think at a macro theme that is—you are absolutely correct there. Obviously, COVID variants and supply chain issues that are caused by that will affect timing because utilities are not going to start projects and take grids down until they've got all their ducks lined up with all of the components they need for that, permits in place, et cetera. But as a macro theme, you're absolutely correct. It's just going to be around any variability that COVID throws their way.

Yes. So if you look at 2022 or 2023, certainly, the whole energy transition, there's not sufficient capacity in the electrical grid across this country to put a lot of EVs on it. And so the macro trends, not just in 2022, but 2023, we feel that they're very solid long-term trends in this sector.

Got it. Okay, guys, I'll leave it there for now.

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

I have two questions. First of all, would you remind us, last quarter, the CapEx was much larger. What was that designated for? And did we understand correctly here today, you said that the level of CapEx in the Q2 was more normal going forward?

Yes. This is Gregg. Yes. So in terms of the CapEx that we had in Q1, it was heavily concentrated in the mat business and particularly supporting the rental fleet. And a lot of that was to meet the demands. I mentioned a couple of large-scale projects here in Q2. That was the reason for those additions. Obviously, as things have now slowed down, those large projects have completed. We're going into the season that's naturally a little bit softer. We don't see a need for any meaningful CapEx here in the near term, and so we would expect it to be very limited.

And then would you give us an update, please, on the completion and stimulation fluid penetration efforts?

Okay. So Bill, David Paterson here. From a stimulation perspective, we had a pretty solid quarter, actually globally. We actually were involved in fracking in more stages than we did in Q1, which was a strong quarter. Revenues were down slightly, but I think we did a very nice job, both expanding our customer footprint in West Texas, but also expanding our geographical footprint on U.S. land, picking up some work in the Northeast, which was a first. I think we also continued to demonstrate some excellent performance with our new transition series of high-volume friction reducers. These are designed to be used in produced water applications, so some very good ESG benefits associated with that, reducing the amount of freshwater. We just completed a successful trial with a large independent customer in the Delaware, so I think very pleased to see the traction that we're getting with that. Also, our business in stimulation, although still quite small, continues to gain traction in the Middle East. And actually, we had our first sale in Continental Europe. So overall, I think steady progress made there. Completion fluids globally, it continues to be an integral part of our integrated Fluids offering. We were not awarded the completion fluids contract in the Gulf of Mexico, but we were awarded a second deepwater rig. Very pleased to get the second deepwater rig, because this has been designated as the exploration work rig for Shell and probably drilling the most challenging wells that we see in the Gulf of Mexico. So I think it's really a testament to the trust in our team, our technology and the performance of what we're doing in the Gulf of Mexico.

David, that's really helpful. Let me take that one step further, if I may, coming back to the stimulation chemicals. What is it about the characteristics of your offering that's leading to this success in multiple regions?

I think it's the tailored offering, Bill. We're staying very close to our customers. The technology where we really differentiate is in produced water applications. We're avoiding the use of freshwater because our high-volume friction reducers perform extremely well in terms of carrying capacity in the brine plays. Obviously, with ESG pressures ramping up on U.S. land and globally, this is a key property where we actually are in a very strong competitive position in the market.

Yes, Bill, the HVFRs are the high-volume friction reducers. That allows you to get more of the frac sand up into the well and frac more efficiently with produced water. So it has tremendous ESG benefits; you're starting to see some regions thinking about moving away from freshwater. So it gives us kind of a tailwind on a product that we feel very good about.

And ladies and gentlemen, this does conclude today's question-and-answer session. Therefore, I would like to turn the floor back over to management for closing remarks.

All right. 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 next quarter.

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