Good morning. My name is Jim, and I will be your conference operator today. At this time, I would like to welcome everyone to the Newpark Resources Second Quarter 2024 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 888-219-1263 domestic or 402-220-4943 International. All lines are currently muted. And after the prepared remarks, there will be a live question-and-answer session. It is now my pleasure to turn the floor over to Gregg Piontek, Chief Financial Officer of Newpark Resources. Please go ahead, sir.

Thank you, operator. I'd like to welcome everyone to the Newpark Resources second quarter 2024 conference call. Joining me today is Matthew Lanigan, our President and Chief Executive Officer. Before handing over to Matthew, I'd like to highlight that today's discussion contains forward-looking statements regarding 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 is current as of August 6, 2024. At the conclusion of our prepared remarks, we will open the line for questions. And with that, I'd like to turn the call over to our President and CEO, Matthew Lanigan.

Thank you, Gregg, and welcome to everyone joining us on today's call. Our second quarter results were very pleasing, with a sequential 6% improvement in revenues and a 10% improvement in adjusted EBITDA on a consolidated basis, underpinned by an exceptionally strong revenue contribution from our Industrial Solutions business, including a record $30 million of product sales in the quarter. We've remained laser-focused on our multiyear business transformation plan during the second quarter as we continue to invest in the growth of our Industrial Solutions business, which remains the central driver of our long-term value creation strategy. As we've stated on prior calls, we believe that the multibillion government programs focused on improving the nation's aging electricity infrastructure, combined with the onshoring of several industry segments and growth in AI data centers, will provide a significant and sustained investment cycle in the electrical grid to support these programs, creating long-term demand for our worksite access solutions. With regards to the fluid sales process, our entire organization has worked tirelessly on all aspects of diligence and separation planning with an eye on a midyear completion. While our international business continues to operate at a very strong level, contributing more than 70% of the fluids segment's revenues and on pace for a record year in both EBITDA and returns, the natural complexities of the global business are extending the process timeline beyond our target date. While impacting our timing expectations, we remain committed to achieving a resolution to our strategic review process and continue to work diligently to achieve this goal in the third quarter. With that overview, let's take a deeper look at our second quarter performance. On a consolidated basis, second quarter adjusted EBITDA increased 10% sequentially and 18% versus the prior year period. We also delivered both sequential and year-over-year growth in consolidated adjusted EBITDA margin during the quarter, led by the strong performance of our Industrial Solutions segment. Within our Industrial Solutions segment, we delivered $67 million in revenues for the quarter, representing a 36% quarter-over-quarter and 39% year-over-year improvement. The quarter also saw a 12% sequential and 9% year-over-year increase in rental revenues, largely reflecting the benefits of our fleet expansion efforts, although the quarter was again impacted by a small number of key project delays due to permitting issues that we are hopeful will be resolved in Q3. Service revenues pulled back somewhat in the quarter, impacted by rental project mix and project delays. Benefiting from the strong product sales and rental revenues, Industrial Solutions delivered an adjusted EBITDA margin of 37.1% in the second quarter. We also continued to progress the build-out of our commercial sales team and sales force effectiveness toolkit in the quarter, fully resourcing our national sales coverage models with a targeted focus on key growth accounts moving forward. During the second quarter, we invested a further $5 million in the growth of our matting fleet, with the majority of that spend focused on our UK fleet expansion, where we see continued strength in critical infrastructure project activity over the several years. The fluid systems segment second quarter performance was generally in line with our expectations discussed on our first quarter call. The second quarter was also highlighted by $22 million of free cash flow, which includes more than $10 million from further efficiencies achieved in fluid systems working capital management, reducing our net leverage to 0.3 turns of adjusted EBITDA. And with that, I'll turn the call over to Gregg for his prepared remarks.

Thanks, Matthew. I'll begin with a summary of our consolidated and segment-level results for the second quarter, followed by an update on our outlook for the remainder of 2024. Our second quarter was highlighted by strong revenue growth within our Industrial Solutions segment, including a quarterly record in product sales contributing to a 6% sequential improvement in consolidated revenues and a 10% sequential improvement in adjusted EBITDA. Free cash flow was also solid in the second quarter with contributions from both segments. The Industrial Solutions segment revenues were $67 million in the second quarter, reflecting 36% sequential and 39% year-over-year improvement. Product sales contributed $30 million of revenues in the second quarter, with the majority of those sales through traditional timber mat fleet operators, reflecting a continued shift from wood to composite matting and robust demand for our DURA-BASE product and utility infrastructure projects. Total rental and service revenues were $36 million for the second quarter. While rental revenue improved 12% sequentially and 9% year-over-year, lower service intensity on rental projects served to offset the rental gains resulting in a 3% sequential growth and 9% year-over-year decline in rental and service revenues. Benefiting from a strong start to Q2, the rental fleet utilization improved modestly on a sequential basis but trailed off as we progressed through the quarter, reflecting the earlier than expected release from multiple large-scale projects, while expected start dates for other planned projects have been delayed. For the first half of 2024, Industrial Solutions revenues are up 11% versus the prior year, including a 60% increase from product sales and a 5% increase in rental revenues, while service revenues have declined 20%. By industry, nearly two-thirds of our segment revenues, including roughly 55% of rental and service revenues and the substantial majority of product sales in the first half of 2024. Comparing the first half of 2023, rental and service revenues from the utility sector are relatively flat, reflecting the effects of higher rental offset by lower services, while oil and gas pipeline and other industries declined. Industrial Solutions profitability was strong in the second quarter with the segment delivering a 37% adjusted EBITDA margin, fairly in line with both prior quarter and the second quarter of 2023. The fluid systems segment generated revenue of $112 million in the second quarter. Our Eastern Hemisphere region delivered another near record quarter contributing $66 million or 59% of our total fluid systems revenues in Q2. The second quarter demonstrates a sustained trend of near record performance with revenues fairly in line with both prior quarter and the second quarter of last year. Revenues from Canada decreased 37% sequentially to $13 million in the second quarter, reflecting the seasonality of spring breakup. Notably, this was the highest Q2 revenue posted by our Canada business, reflecting a 28% improvement from the second quarter of last year. Our U.S. operations contributed $33 million of revenues in the second quarter, reflecting a 7% sequential improvement and a 46% year-over-year decline. The year-over-year decline is primarily driven by a combination of the continued softness in the U.S. market activity, lower market share, and a decline in average revenue contribution from the rigs serviced. Fluid segment adjusted EBITDA margin was 4.6% in the second quarter, with the sequential and year-over-year declines driven by the lower revenue levels, somewhat offset by the benefits of the year-over-year margin improvements from our international business and continued cost efforts within the U.S. business and division overhead. SG&A expenses were $26.4 million in the second quarter, including $8.4 million of corporate office expense. The second quarter 2024 SG&A includes $1.9 million related to the fluid sale, elevated costs associated with long-term performance-based incentive programs linked to the company's share price, and an elevated credit loss charge in the international fluid systems business. The sequential and year-over-year increase in SG&A is substantially driven by these second quarter expenses, with the year-over-year comparison somewhat offset by the effects of cost rationalization efforts in the U.S. fluids and corporate office. Interest expense was $1.28 million for the second quarter, in line with prior quarter but down modestly on a year-over-year basis, primarily reflecting the effect of lower overall debt balances. Tax expense was $3.3 million in the second quarter, reflecting an effective tax rate of 29%, which includes a favorable impact from previously unbenefited U.S. NOL carryforwards. Adjusted EPS was $0.12 per diluted share in the second quarter compared to $0.10 in the first quarter and $0.08 in the second quarter of last year. Operating cash flow was $28 million in the second quarter, including more than $10 million derived from reductions in fluids net working capital, while $6 million was used to fund our net CapEx, substantially all of which was directed toward Industrial Solutions matting fleet expansion as we seek to capitalize on our longer-term growth opportunities that Matthew mentioned. We ended the second quarter with total debt of $58 million and cash of $35 million, resulting in net debt of $23 million, a 0.3 times net leverage ratio. Let's now turn to the business outlook. As before, we remain highly constructive on the multiyear demand outlook for both businesses. Within Industrial Solutions, we continue to see strong long-term fundamentals for utilities and critical infrastructure spending, which remains our largest customer market. Our full year 2024 expectations for the Industrial Solutions segment remain unchanged. We continue to forecast 2024 Industrial Solutions revenues in a range of $230 million to $240 million, with segment adjusted EBITDA in a range of $80 million to $85 million and segment CapEx of $30 million to $35 million. While we continue to see robust project bidding activity, the third quarter is typically our softest revenue quarter from a rental and service perspective, as the extreme heat and associated power demand on the grid typically reduce utility transmission maintenance projects. Further, as Matthew touched on, we are continuing to see delays on certain projects associated with permitting and other issues which provide some uncertainty on our near-term project timing. We expect Q3 total rental and service revenues to reflect modest year-over-year growth, including a stronger rental contribution somewhat offset by lower service intensity. In fluid systems, we expect Q2 to reflect an inflection point with Q3 total segment revenues and profitability more in line with Q1 results. Sequentially, we expect Canada to benefit from the seasonal rebound along with modest improvement in market share within the U.S. In terms of capital allocation priorities, our view remains relatively unchanged as we continue to prioritize investments into the organic growth of our rental fleet. We expect our second half 2024 net capital investments will remain dependent upon the longer-term view on rental revenue growth opportunities. Beyond our continued organic growth investments in the rental fleet, we expect our free cash flow generation this year will be primarily used to build liquidity for inorganic growth opportunities or through a return of capital to shareholders through our programmatic share repurchase program upon completion of the fluid sales process. And with that, I'd like to turn the call back over to Matthew for his concluding remarks.

Thanks, Gregg. Our priorities for 2024 remain unchanged. First is the execution of our plans to grow our leading pure play specialty rental business through organic expansion of our presence, while exploring inorganic opportunities that help us deliver more value and increase revenue density with our growing customer base. Second, we will continue to work diligently to bring closure to the fluids process in the third quarter while also driving further efficiency improvements across all corners of the organization, positioning us to realize improved operating leverage. Finally, we remain committed to a return-focused capital allocation strategy that includes a combination of internal investment, inorganic growth, and return of capital to our shareholders. With a modest 0.3 times net leverage and anticipated additional liquidity upon the completion of the fluids process, we are well-positioned to advance our capital allocation priorities. We have $50 million remaining on our share repurchase authorization to support our return of capital program, which we expect to resume following the completion of the fluid sales process. 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.

Gentlemen, thank you. We'll hear first from Aaron Spychalla at Craig Hallum.

Yes. Good morning, Matthew and Gregg. Thanks for taking the questions. First for me, you obviously had an all-time record in product sales. Can you just talk about that? Was that 1 or 2 large projects or a little more balanced? And I know quarters can be kind of lumpy on the product side, but just talk a little bit about how sustainable this dynamic could be moving forward?

Yes, thanks, Aaron. Look, a couple of lines to answer that question. The actual sales itself was concentrated in a large customer during the quarter, which is a very positive sign in terms of that customer, as Gregg touched on, has traditionally operated purely timber mat fleet. So encouraged by the move to composite there, which I think speaks more to the sustainability than just the individual customer order itself.

And then, maybe second, you kind of talked about permitting and supply chain. Are you seeing any improvement there? Is it still pretty steady state? I know Congress is looking to implement some permitting reform. And then maybe just talk a little bit about any change in the political landscape, how that might impact things?

Look, I think with the projects we're calling out that are delayed have been delayed for the last few quarters, Aaron. So we're just continuing with that commentary. There's really only 1 or 2 projects that are in our portfolio at this point that are falling into specific delays related to permitting. What we have seen really if we go back almost post-COVID is the time from quote to commencement is elongating slightly year-over-year. So, that trend continues. I think what we're positive with at this point in time is our pipeline continues to build. We touched on our build out of our commercial resources. I think the more we're putting them in the market, the more activity we're seeing, the more flowing activity we're seeing, which is helping kind of continue to build that pipeline while some of the timelines look to be elongating slightly. As far as the political situation goes, we're not seeing any impact from that at this point in time, still early to tell. And so I think we'll just continue to watch that and see how it plays out.

Our next question will come from Amit Dayal at H.C. Wainwright. Your line is open.

So the services component within the rental segment looks a little bit under pressure. Could you clarify this dynamic for us, please? I am not clear on the year-over-year decline in the rental segment.

Look, I wouldn't say it's under pressure. I think what's playing out here is if you go back to last year, there were a handful of projects that we undertook that were very heavy in the service element with the thesis that we could get them to pull through incremental rental revenue. That didn't necessarily work out the way we had hoped it would. So, they were quite high in their service component or ratio of the revenue contribution there. As we have looked at that market moving forward, we find that the margins on that kind of work aren't really what we want. So we've started to de-prioritize taking that. So you're seeing kind of what we call one off, large service revenue projects not being followed up year-over-year, which is looking like a drop off in service revenue intensity. Part of that is actually deliberate. The other thing we're seeing as we grow our rental fleet here, Amit, is we're utilizing partners to help expand the rental revenue there. And in those cases, our contribution of service is not as high, where they're picking up some of that service revenue. So we're really focused on growing our rental footprint, the conversion of the market from timber to composite. And I think you're just seeing that play out there on the service revenues rather than being under pressure. I think when you look at our traditional service rental mix, where we're performing the service, it's pretty much as it has been historically.

Thank you for the clarification. With respect to the $1.6 million in expenses related to the fluid systems transaction you are working on. Is that sort of a one-time thing or is this going to be recurring quarterly until this sale is completed?

Yes. I think the way to characterize that is obviously, there's a lot of consultants and support that you have in place when you're going through a process like this, various lawyers, tax advisors, bankers, etcetera. And so, I think it is fair to say that we would have a continuation of the cost until we get the resolution of the process.

Of the $30 to $35 million in CapEx allocating towards the rental business, how much of that has been spent? And are you potentially even looking to up that number given sort of the positive visibility you have with respect to the macro drivers for this business?

Yes. I think so first of all, in terms of what's been spent, of the first half CapEx, close to $19 million has been within the Industrial Solutions business. Of that, almost $17 million, I think, is going into the mat fleet. So we did have some elevated more front-loaded CapEx that we had in Q1, and that was really supporting some of the strong utilization and volumes that we had entering Q2. Also talked about adding to our fleet in the UK. In terms of the spend, we're holding with the $30 to $35 million range. Obviously, we will continue to evaluate the longer-term mid and longer-term view on this and adjust our CapEx accordingly as we see it.

I'll stop here, guys. I have other follow ups, but I will bring those end of follow-up. Thank you so much.

Alex Rygiel with B. Riley, your line is open.

A couple of questions here. First, as it relates to sales growth in mats, how do you think about over the next 12 months sort of market growth versus mats share gain versus wood to mat conversion versus just general market share gains?

Yes, look, I mean, we look at the market as growing at sort of between 8% and 10% from a CapEx spend perspective, on a long-term trend. So, we look at that kind of number as being, if we keep pace with that on our sales, we're keeping pace with market growth and anything over that, we're taking share. Obviously, our primary focus is trying to take share from the traditional timber product. And so, it's hard for us to parse out exactly those pieces, but at a macro level, that's where we look at it. I don’t know 8% or 9%, you keep this with industry and anything beyond that is taking share from the competitive timber set.

And I know we've talked a lot about that. The expectation on the mix and do we see a shift between rental and service versus product sales. I don’t think obviously this quarter’s data point bucks that trend a little bit here with the product sales being about 45% of the revenues. But I wouldn't say that we're seeing a real shift here that changes our longer-term expectations. So I would think it would kind of go back to that norm.

And then, can you quantify for us what the working capital within the fluids business is today?

So working capital is about $160 million at the end of the second quarter.

And then although you're seeing some projects get delayed, how has your view on 2025 across the utility space sort of changed over the last 3 months at all? Has it improved a little bit or not based upon kind of the delays you're seeing?

Yes. So again, the delays we're seeing are the projects that are delayed. I do want to call out that we've got a number of projects that are starting on time as predicted. But because I feel like there is a heavy focus on delays across that industry commentary right now. When we look at 2025, it looks like it's going to be a solid year in terms of either dialogue we're having with customers around their expectations or some forward quoting activity where they are anticipating. So our view on 2024 remains robust.

Did we understand correctly that the mat sale, or sales of roughly $30 million, was primarily to one customer that has historically used wood mats?

That's correct, Bill.

And then let me shift if I may to the fluid operating margins. How was it that you increased those margins on the revenue drop? I mean, that's generally very counterintuitive and congratulations.

So which comparison when you say we increase the margins because as the margins are often both the sequential and year-over-year. Now what you do have, I guess, on the sequential comparison is more of the Canada effect than anything. The Canada seasonality is your biggest driver there and that's flowing through at typical margins. Year-over-year, I will say that you do have some offsets overall here on your overall margin because of the fact that you do have the international pricing kicking in that we had talked about in the past that had improved. And also you had the continued cost actions that were ongoing on the U.S. side of things that had helped offset the decline in volume.

Okay. So is there additional pricing action that you would anticipate?

I think, I mean, I don't know that there are specific actions. Obviously, at any point in time, Bill, you're re-pricing some of your work to the market. I think what we're seeing now is some of the contracts that we had been calling that would roll on to better pricing. We're seeing more and more contribution from them as more rigs are rolling on to those new contracts. So, I'm not going to suggest that that's going to be a significant shift up, but we should see that continue to bolster the Eastern Hemisphere margin profile moving forward.

And Gregg, the operating margin that I was looking at was the GAAP number of Q1 versus the year-ago. And I suspect what you're going to say is that due to the extraneous factors, we really ought to be looking at that adjusted margin?

Yes, last year you had specifically some impairments from the exit of the business in Australia as well as the continuation of the facility exit cost in the Gulf of Mexico.

And we have no further questions from our audience at this time. I'd like to turn it back to our leadership team for any additional or closing remarks.

All right. Thanks again for joining us on the call today. Should you have any questions or requests, please reach out to us via email at [email protected]. We look forward to hosting you again next quarter. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. And we thank you all for your participation. You may now disconnect your lines.