Good morning. My name is Todd and I will be your conference operator today. At this time, I would like to welcome everyone to the Newpark Resources Third Quarter 2023 Earnings Conference Call. Today's call is being recorded and will be available for replay beginning at 12:30 p.m. Eastern. The recording can be accessed by dialing 888-219-1276 for domestic or 402-220-4949 for international. It is now my pleasure to turn the floor over to Rob Krotee, Vice President of Investor Relations and Strategy. Please go ahead.

Thank you, operator. On behalf of the entire team at Newpark Resources, I'd like to welcome you to our third quarter 2023 results conference call. Leading the call today are Matthew Lanigan, our President and CEO; and Gregg Piontek, our CFO. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC. Except as required by law, we undertake no obligation to update our forward-looking statements. Our comments on today's call may also include certain non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures are included in our quarterly earnings release which can be found on our corporate website. There will be a replay of today's call and it will be available by webcast within the Investor Relations section of our website at newpark.com. Please note that the information disclosed on today's call are current as of November 1, 2023. At the conclusion of our prepared remarks, we will also open the line for questions. With that, I'd like to turn the call over to our President and CEO, Matthew Lanigan.

Thank you, Rob, and welcome to everyone joining us on today's call. I'm pleased to share that our team delivered strong third quarter results, while demonstrating continued execution on our multiyear business transformation strategy. Ongoing commercial growth and operational excellence initiatives across the enterprise contributed to significant year-over-year growth in net income, adjusted EBITDA and free cash flow in the third quarter, putting us on pace for a solid full year performance. We generated third quarter net income of $7.7 million or $0.09 per diluted share on revenues of $198 million. Industrial Solutions revenue improved 12%, delivering a 28% improvement in segment adjusted EBITDA, while divestitures and other actions within Fluid Systems are driving a more focused and profitable business delivering a 12% improvement in segment adjusted EBITDA on 16% less revenue. On a consolidated basis, year-over-year revenues declined 10%, including the impacts of fluids divestitures, while adjusted EBITDA improved 13% to $22.3 million in the third quarter and adjusted EBITDA margins increased 230 basis points to 11.2% in the period. Adjusted EPS came in at $0.09 per diluted share, increasing 71% from the prior third quarter. We generated $23 million of free cash flow in the third quarter as we continue to optimize our Fluids balance sheet which provided for a $13 million reduction of debt and a $6 million return of capital to shareholders through continued repurchases of our equity in the open market. The solid Q3 cash generation brings our year-to-date free cash flow to $47 million. I'd now like to provide a progress update on our commercial growth in the third quarter. Within our Industrial Solutions segment, we delivered the strongest Q3 revenue on record at $57 million, up 12% versus the prior year, driven by strong underlying demand across our core end markets, continued share gains and ongoing investments in fleet. Adjusted EBITDA margin increased nearly 440 basis points to 34.4% in the third quarter as we maintain our focus on sustained profitable growth in the segment. On a trailing 12-month basis through the third quarter, Industrial Solutions segment revenue and adjusted EBITDA have increased by 17% and 42%, respectively. As we called out on our Q2 call, we expected rental and service revenues to pull back slightly during the third quarter as the warmer summer months reduced maintenance activities on the transmission grid. This was somewhat amplified this year with record temperatures and widespread drought conditions across the country. Despite this, total Industrial Solutions revenue improved 19% quarter-over-quarter driven by stronger product sales as we maintained EBITDA within our typical margin range. Consistent with our stated strategy, we've continued to prioritize investment to support the expansion of our higher-margin specialty rental and service offering. During the third quarter, we invested $3 million in Industrial Solutions, primarily to expand our rental fleet. Over the trailing 12 months, we've expanded our rental fleet size by 12% as we've continued to gain share in the multibillion dollar market. We believe our continued organic investment in fleet expansion will equip us to drive sustained double-digit annualized revenue growth as we capitalize on accelerating demand in the utilities and critical infrastructure markets we serve. Within our Fluids segment, the third quarter was highlighted by yet another record performance from our Eastern Hemisphere team which generated $73 million in revenue and represented 52% of the segment revenues. Canada also delivered a solid seasonal improvement, posting 13% year-over-year growth in Q3, while our U.S. operations continue cost control efforts in light of the subdued market activity. At the same time, we've continued to take steps to harvest cash from the Fluids segment, reducing the net assets employed by a further $9 million in the third quarter, including a $13 million reduction in the U.S. Over the trailing 12 months, we have reduced our Fluids segment net assets by over $110 million or roughly 33%. Moving now to a progress update on our recent efforts to drive operating cost optimization and efficiency improvements across our global footprint. As outlined in our second quarter call, we've taken decisive actions to reduce the layers of redundancy across our organization while building an increasingly durable competitive business structure. While the third quarter included $2.3 million of costs related to long-term incentive plan adjustments, strategic actions and restructuring, our underlying corporate office expenses are trending lower, reflecting the impact of actions taken over the past two quarters, with further reductions expected following the completion of the fluids process. In addition to these cost reduction efforts, we've also continued to closely examine areas of the business that do not show a pathway to their returns exceeding their cost of capital. Consistent with our discussion last quarter, our exit of Gulf of Mexico and Chile operations are now effectively completed, while the exit of our Dampier Australia offshore facilities is expected to be substantially completed in the fourth quarter. Finally, turning to a discussion of our capital allocation priorities. We remain committed to maintaining a well-capitalized balance sheet that provides for organic fleet investments to support growing demand within our critical utilities and infrastructure markets and positioning the company to accelerate our growth plans, together with the return of capital through share repurchases. And with that, I'll turn the call over to Gregg for his prepared remarks.

Thanks, Matthew and good morning, everyone. I'll begin my remarks with a summary of our consolidated and segment level results for the third quarter, followed by an update on our near-term outlook. Our third quarter was highlighted by solid revenue growth in Industrial Solutions, the Fluids EMEA region in Canada, continued margin expansion and strong cash flow generation, providing for further debt reduction and return of capital to shareholders. Total third quarter revenues exceeded our expectations shared on our previous quarterly call with stronger-than-expected customer activities within Europe and Africa leading to yet another record revenue quarter for our EMEA region of the Fluids business. The Industrial Solutions segment revenue was $57 million in the third quarter with roughly two-thirds coming from rental and service and one-third from product sales. Rental and service revenue was $38 million for the third quarter, a 16% year-over-year improvement. Growth in rental and service revenues reflects continued organic growth across most of our served infrastructure markets, led by a 21% year-over-year increase from customers operating within the utility sector. Direct sales rebounded in line with expectations, contributing $19 million for the third quarter. On a year-to-date basis, rental and service revenues have increased 21%, while product sales have increased 13% year-over-year, supported by strong demand from the utility sector. Industrial Solutions segment profitability remained strong in the third quarter as reflected by the segment adjusted EBITDA margin of 34.4%, a nearly 440 basis point year-over-year improvement. Improved segment margin realization reflects growth in rental and product sales volumes as we maintain price discipline along with improved operating cost leverage across our rental operations. The Fluid Systems segment generated revenue of $141 million in the third quarter, representing a decline of 16% versus the prior year period, primarily reflecting the impact of last year's divestitures. Our third quarter Fluid Systems results were once again led by the record quarter from our EMEA region with our international operations delivering $74 million of revenues, an improvement of 14% sequentially and 35% year-over-year. Our U.S. operations contributed $50 million of revenues in the third quarter, a 17% sequential and 31% year-over-year decline. With the effects of lower U.S. market activity and our focus on pricing discipline, we continue to drive balance sheet efficiency, generating strong cash within U.S. operations. Revenues from Canada followed the typical seasonal trend, increasing 67% sequentially to $17 million in the third quarter which reflects a 13% year-over-year improvement. Segment adjusted EBITDA margin improved 180 basis points year-over-year to 7% in the third quarter. During the third quarter, we reduced our net assets employed in the Fluid Systems business by $9 million, including a $13 million reduction in the U.S., reflecting the solid progress driving working capital efficiency. As of the end of the third quarter, the Fluids business has nearly $200 million of net working capital, consisting primarily of inventory and receivables which represents roughly 85% of the segment's net assets employed. SG&A expenses increased on both a sequential and year-over-year basis, primarily reflecting the impacts of long-term management incentive programs and our strategic planning activities. Third quarter SG&A expense included a $1.9 million charge for long-term management incentives driven by a higher relative total shareholder return projection as well as $500,000 of strategic planning and M&A costs and $500,000 of severance costs. After consideration of these items, the remaining third quarter SG&A totaled $24 million including corporate office costs of $6.4 million. Interest expense decreased modestly on a sequential basis to $2 million for the third quarter, reflecting the effect of lower overall debt balances offset by higher borrowing rates. Tax expense was $4 million in the quarter, reflecting a 34% effective tax rate for the quarter and 35% year-to-date. Adjusted EPS was $0.09 per diluted share in the third quarter, a 71% increase from the third quarter last year, reflecting improved profitability within both segments, along with a 6% decline in our shares outstanding. In terms of cash flow, we generated $23 million of free cash flow in the third quarter which brings our year-to-date free cash flow to $47 million, a 74% year-to-date cash conversion of adjusted EBITDA. Operating cash flow was $27 million for the third quarter, while $4 million was used to fund our net CapEx, with the majority, once again, directed toward the expansion of our rental fleet in Industrial Solutions. We also used $13 million to reduce debt and $6 million to fund share repurchases. Let's now turn to our near-term business outlook. Our view on the respective markets and the opportunity remains largely unchanged. For Industrial Solutions, we continue to see strong fundamentals for utilities and critical infrastructure spending which we expect will provide a multiyear tailwind to support our growth plans. In Fluid Systems, while the U.S. market outlook remains somewhat challenged in the near term, we continue to feel confident in the mid- and longer-term outlook for Canada and Eastern Hemisphere markets as we position the business for future success. We anticipate fourth quarter Industrial Solutions revenue in a range of $54 million to $60 million. As Matthew touched on, we saw a more pronounced impact from the hot and dry conditions, impacting customer activities late in the third quarter with the effects carrying over into early Q4. However, we've seen a meaningful rebound in project bidding activity over the past month and are currently mobilizing to support multiple large-scale rental projects which we expect will drive a modest sequential improvement in rental and service revenues in the fourth quarter, barring any weather-related or end of year holiday disruption in customer activities. Regarding product sales, recognizing that Q4 typically provides seasonal strength, we are pleased with the quoting activity to date which indicates that our fourth quarter product sales could meet or exceed Q3 levels. Within our Fluid Systems segment, we anticipate fourth quarter revenue to decline sequentially to a range of $110 million to $120 million, primarily reflecting a pullback from the record quarter in the Eastern Hemisphere, along with declines in the U.S. and Canada, impacted in part by the typical late Q4 seasonal pause in activities. We anticipate total adjusted EBITDA in the range of $17 million to $21 million and interest expense of nearly $2 million, while the effective tax rate should be roughly 30% for the fourth quarter. In terms of cash flow, we expect free cash flow generation in the range of $12 million to $20 million in the fourth quarter, benefiting from solid EBITDA generation and reductions in net working capital. Beyond our continued organic growth investments in Industrial Solutions, we expect our fourth quarter cash generation will be primarily used to further reduce our debt, along with return of capital to shareholders through our share repurchase program providing greater flexibility to accelerate our growth plans. And with that, I'd like to now turn the call back over to Matthew for his concluding remarks.

Thanks, Gregg. As we move into fourth quarter, I'm very pleased with the progress we've made to drive organic commercial growth across the enterprise while continuing to build a more efficient, competitive business. Industrial Solutions continued to deliver significant year-over-year growth in revenue, EBITDA and margin realization. With our ongoing expansion in the multibillion-dollar global worksite access market, we remain optimistic about the near-term prospects for our business which has delivered $81 million of trailing 12-month EBITDA through the third quarter. In Fluid Systems, the EMEA region continues to deliver significant year-over-year growth in revenue and strong profitability, offsetting the declines in the U.S. land markets with the segment realizing significant improvement in adjusted margins and reducing net assets employed by $50 million since the start of the year. I'm immensely proud of our global Fluids business as they continue to navigate the changing global landscape with a laser focus on safety and exemplary customer service while improving margins and working capital efficiency. With respect to the fluid sale process, we're pleased with the level of interest from potential acquirers who recognize the high quality of our industry-leading technical expertise, service quality and established customer relationships. The process is progressing in accordance with our expectations for substantial completion in the first half of 2024. In addition to funding our Industrial Solutions growth, we've also continued to strengthen our balance sheet and repurchase shares, purchasing over 6% of our outstanding shares in the first nine months of the year. I'm humbled by our teams across the organization for their unwavering professionalism and commitment to our customers, consistent with the high-performance culture we have developed at Newpark. In closing, I want to thank our shareholders for their ongoing support, our employees for their dedication to the business, including their commitment to safety and compliance and our customers for their ongoing partnership. And with that, we'll open the call for questions.

Our first question will come from Aaron Spychalla with Craig-Hallum.

So first for me, can you just maybe talk about a little—how do you think about the trade-off between growth in volumes and kind of price and margins as you think about investing more in the industrial business given the value proposition there?

I'll take that one, Aaron. I would summarize it this way: if you look at the long-run margin profile of the business at an EBITDA level, we've managed in the low- to mid-30s up into the high-30s percent EBITDA margin as we continue to introduce fleet and expand our footprint. We expect to continue to manage within that range as we invest and expand.

Okay. And then maybe just a second. Can you talk about any impact you might be seeing from interest rates on project financing across your end markets and any impact that might be having on rent versus buy decisions?

On interest rates, at this point we are not seeing any material impact. Our large exposures are more around critical infrastructure and resources, which have not indicated any pullback in CapEx profiles associated with higher interest rates. In terms of mix, higher interest rates can push marginal purchasers toward renting rather than buying, but we are not seeing a material shift in our mix right now. It's something we are watching.

All right. And then could you provide an update on your recycling efforts? Maybe an update on internal capabilities, setting up the supply chain, customer conversations and a general update?

Absolutely. We are about five years into this program. We started in 2018 focusing on the material side of recycling, recognizing it's not just about adding recycled material into the process while maintaining quality and structural performance. We then moved into the processing side. Now that those elements are under control, we are expanding supplier relationships and securing reliable sources of consistent-quality material. Customer conversations are evolving; as we scale up we will continue to emphasize both economic and societal benefits of recycled versus virgin material. We're pleased with our progress and expect this to amplify over the coming years.

Understood. And then maybe, Gregg, one question for you on the free cash flow outlook. Can you talk about some of the moving pieces as we think about Q4 versus Q3? Is there more working capital benefit you expect from actions in Fluids over the past year?

Yes, we definitely expect that to continue. Q3 came in strong toward the high end of our expectation, and the overall second-half view remains largely unchanged from three months ago. In Q3 we saw timing effects, including timing of some third-quarter mat sales and stronger DSO performance in Industrial, which we expect to revert to more typical timing in Q4. So some of what you saw is a timing shift between Q3 and Q4. As Matthew mentioned, we are continuing to invest to accelerate growth on the rental side, and we are driving production through the plant to support our growth aspirations.

Our next question comes from Bill Dezellem with Tieton Capital.

Would you dive into a bit of detail relative to the $0.5 million that was spent on the strategic planning projects? I'm less focused on the dollars than on what you are in the process of evaluating and the implications that may have over time.

Bill, that's primarily spend associated with the fluids process. That's the vast majority of it.

That's super simple. Let me shift then to the industrial side of the business. Your guidance seems a little bit conservative relative to how we've historically thought about this business, which often has a strong fourth quarter with some pretty big mat sales. Would you talk about that conservatism or pragmatism?

Bill, we're calling it as we see the order book build. As Gregg said, we're encouraged by the quote levels we are receiving, but until those orders are booked, we're not going to claim them. The guidance reflects what we see today.

If you look back over the years, Q4 tends to have two aspects: seasonal strength and late-developing large sales, which means visibility is often limited until late in the quarter. So while we are encouraged by quoting activity, we prefer to be conservative in our guidance until orders are confirmed.

Okay. I'm going to put my own words to what you said: essentially your guidance is the number you feel quite confident you will hit, but you recognize that late in the quarter—which is hard to forecast—there have historically been larger sales that have taken place. You're not willing to assume those will happen every year.

Yes, Bill. I think that's fair. Given the interest rate environment and the broader macro picture, being overly bullish would be out of place. We're calling it the way we see it today.

Then relative to your tax rate being in that 34% to 35% range, once the Fluids business is no longer part of Newpark, where do you see that tax rate moving to?

That low- to mid-30s rate we're seeing today is heavily influenced by the geographic mix of the Fluids business. As the remaining business becomes more U.S.-centric, we would expect the effective tax rate to settle in the mid- to upper-20s range.

Congratulations on another nice quarter.

Thank you. At this time, we have no further questions in queue. I'll turn the call back to Rob for any closing remarks.

Thanks, Todd. That concludes our call for today. Should there be any questions or requests, please reach out to me using our e-mail, [email protected]. We look forward to hosting you all again on our next quarterly conference call.

Thank you. This does conclude today's call. We appreciate your participation. You may disconnect at any time.