NPK International Inc (NPKI) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, thank you for standing by.

Welcome to the Newpark Resources fourth-quarter 2011 earnings conference call.

During today's presentation, all parties will be in a listen-only mode.

Following the presentation, the conference will be opened for questions.

(Operator Instructions) This conference is being recorded today, Friday, February 17, 2012.

I would now like to turn the conference over to Ken Dennard of DRG&L.

Please go ahead.

Thank you, Alicia.

Good morning, everyone.

We appreciate you joining us for Newpark Resources' conference call today to review 2011 fourth-quarter results.

We'd also like to welcome the Internet participants listening to the call on the web.

Before I turn the call over to Management, I have the normal housekeeping details to run through.

For those of you who didn't get an email of the release yesterday afternoon and would like to be added to the distribution list, just call our offices at DRG&L, 713-529-6600; and we'll put you on that list.

Also, there will be a replay of today's call.

It will be available via webcast on the Company's website, www.newpark.com.

There's also a recorded replay available by phone which will be available until February 24, and that information to dial in is in the release yesterday.

Please note that information reported on this call speaks only as of today, February 17, 2012; and therefore you are advised that time-sensitive information may no longer be accurate at 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 the Management of Newpark; however, various risks, uncertainties and contingencies could cause Newpark's actual results, performance or achievements to differ materially from those expressed statements made by Management.

The listener is 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.

With that behind me, I'd like to turn the call over to Newpark's President and CEO Mr.

Paul Howes.

Paul?

Thank you, Ken.

Good morning to everyone.

We'd like to thank you for joining us today for our fourth-quarter 2011 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 fourth quarter.

Total revenues for the fourth quarter of 2011 were up 1% sequentially to $264 million and up 35% from a year ago.

Operating income came in at approximately $34 million, which was down about 13% sequentially, but up 37% year over year.

Our net income per diluted share for the fourth quarter was $0.22, compared to $0.23 in the third quarter of 2011, and $0.15 a year ago.

Looking at the results of our Fluids business, revenues increased 2% sequentially and 36% year over year to $221 million.

North American Fluids were up 4% sequentially to $164 million.

We continue to see exceptional strength coming from Canada where revenues rose 75% sequentially, building on a very solid third quarter.

As we've seen over the last several quarters, there continues to be a shift away from dry gas areas; and as our customers move bases to the more liquid plays, we have continued to shift our resources accordingly.

Currently our US revenue mix between oil and dry gas rigs is in line with the overall US mix with nearly two-thirds of our customers' rigs engaged in liquid-related drilling.

Sales from Evolution, our high performance, water-based, drilling fluids system, totaled $22 million during the quarter, up from $17 million in the third quarter.

We continue to gain traction introducing this system into new geologies, having completed over 600 wells with this system.

Our Mats and Integrated Service business completed its redeployment of Rental Mats outside of the Northeast region.

Our Rental Mats fleet in the Northeast was reduced by approximately 45% during the second half of 2011, with the Mats being primarily redeployed to the Gulf Coast and the Rockies.

Our Mats Sales activity continues to see strong international demand; however, sales were down 16% sequentially after achieving our highest sales level ever in the third quarter.

Revenues for Environmental Services were $13 million in the quarter, down 12% sequentially from the third quarter.

As we highlighted last quarter, the third quarter benefited from $2.2 million of revenues from several large disposal projects, which we did not expect to re-occur in the fourth quarter.

Without these projects, the fourth quarter would have posted a small sequential gain.

Now let me comment on how pleased I am with our performance for the full year.

Our consolidated revenues for 2011 totaled $958 million, a 34% increase over 2010, and a new record compared with the previous high of $858 million achieved in 2008.

Our earnings were $0.80 per diluted share in 2011, a record compared with the previous high of $0.46 per share earned in 2010.

Our operating income of $133 million in 2011 surpassed the previous high watermark of $78 million by 70%.

Fluids revenue from North America was up 38% from last year on a 21% increase in North American rig count; and our total Fluids revenue for the year was $799 million, a record for the business.

2011 was also a record year for Composite Mats Sales, which rose 78% from 2010.

Given our performance over the last two years, our drive to become a technology leader, and our ongoing proactive migration into the US liquid plays, we believe we are well-positioned to grow our business and gain market share both domestically and internationally.

However, as we have stated in the past, we do not expect the trajectory of our growth to be linear.

Finally, I would like to announce that the Board has authorized a stock repurchase program which allows us to purchase up to $50 million of our outstanding shares.

With that, let me now turn the call over to Bruce Smith, who will review the financial performance of our Fluids business.

Thank you, Paul, and good morning, everyone.

In the fourth quarter, the Fluids Systems and Engineering segment generated revenues of $221 million, a sequential increase of 2% and a year over year increase of 36%.

North American revenues were up 4% sequentially to $164 million and were up 52% from a year ago.

A portion of these gains were driven by exceptionally strong activity in Canada, which continued its momentum from the third quarter, posting a 75% sequential increase.

Looking at the US, revenues were down 3% from the third quarter, but up 38% from the year-ago quarter.

While revenues increased in most of our operating regions, we experienced softness in our Completion Service and Equipment Rental business in the mid-Continent region and a decline in the Louisiana Gulf Coast.

We continue to see strong, sequential gains from the liquid-rich areas, including the Eagle Ford and the Bakken Shales.

Revenues from the Haynesville and Fayetteville Shale plays were also up sequentially and year over year; however, we have seen declines in recent weeks as activity continues to migrate to the liquid plays, such as the Eagle Ford, Bakken, and Permian Basin.

Currently, The Haynesville represents only approximately 15% of our North American revenues.

Given the ongoing move towards oil and liquid plays, I would like to note that, other than our localized, equipment Rental business in the mid-Continent region, our primary assets are people, which allows us to be nimble regarding our mobility, following our customers to new drill sites with relative ease.

And since we cover 90% of the markets in the US, we are well-positioned to continue to migrate with the activity.

Turning to our international business, Europe, the Middle East and Africa revenues held steady at $30 million; and we continue to see stable performance from our Tunisian and Algerian businesses.

Sustained activity in Romania and our recent expansion into northern Iraq, along with share gains in Algeria, should provide future opportunities for growth.

Also, while our operations in Libya remain temporarily shut down, we remain hopeful that activities there will resume at some point in 2012.

In Brazil, revenue was down 7% sequentially to $18 million; however, operating income improved modestly due to improvements in our revenue mix.

As we've emphasized in the past, revenues can vary from quarter to quarter due to product mix and the timing of the customer activity.

We are very pleased by the significant turnaround in Brazil in 2011, as the business unit was profitable both for the fourth-quarter and full-year 2011, as annual revenue was up 23% to $76 million.

During the fourth quarter, we started two wells with an IOC, and we expect to continue supplying them with products and services through the first quarter.

Revenues in our Asia Pacific business, which began with our April 2011 acquisition, grew 11% sequentially to $9.5 million.

We continue to work on developing business both onshore and offshore, and we believe we are well-positioned to capitalize on the anticipated increases in activity in this region that would be required to support the large LNG investments.

Our Evolution system continues to see strong usage among our customers.

Revenue from Evolution was $22 million in the fourth quarter, compared with $17 million in the third quarter, with gains being achieved across most regions.

Although we don't expect Evolution's growth to track smoothly from quarter to quarter, we continue to be very encouraged by its results and expect to gain more customers going forward.

Looking at the Fluids segment operating profit, we reported operating income of $25 million in the fourth quarter, compared to $25.6 million in the third quarter and $16.8 million a year ago.

Our fourth-quarter results were unfavorably impacted by ERP system conversion costs, along with elevated employee health care costs.

Combined, these added $1.4 million of expense, negatively impacting our operating margin by approximately 60 basis points.

As a result, our 11.3% operating margin in the fourth quarter is down from 11.9% in the third quarter, but well above the 10.3% earned a year ago.

Finally, in keeping with our vision of remaining at the forefront of technological innovation, I would like to announce that we have received Board approval to construct a new, $30 million Technology Center dedicated to further development and growth of the Drilling Fluids business.

This new facility will be of great, strategic importance to Newpark, as it represents not only an investment to gain our technological edge through research, but also a means to train employees and customers and to affirm our commitment to excellence as a world-class drilling fluids organization.

The Technology Center will more than double our current lab space and have a much more efficient layout from which we can develop products and systems beyond our current offerings.

Construction is expected to begin in March and completion is planned for mid-2013.

We have already begun to fill critical positions for the new lab, hiring world-class talent to drive our future innovation.

With that, I'll now turn the call over to our CFO, Greg Piontek.

Thank you, Bruce, and good morning, everyone.

Let me begin by discussing our Mats and Integrated Services and Environmental Services segments, then wrap up with a discussion of our consolidated results.

The Mats business reported $29.4 million in revenues for the fourth quarter, a 3% sequential decrease, but a 43% increase year over year.

As Paul mentioned, we did complete the redeployment of our Mats from the Northeast region to meet customer demands in other areas, including the Gulf Coast and Rockies.

While Rental revenues were down in the quarter due to this transition, the fourth quarter benefited from a large site preparation project in the Gulf Coast.

As a result, total Rental and Service revenue increased 9% over the previous quarter.

Composite Mat Sales contributed $11.6 million of revenue to the fourth quarter, down $2.3 million from the record level of sales in the third quarter.

For the full-year 2011, composite Mats Sales were $42 million, reflecting a record level.

The Mats Segment had an operating income of $11.7 million in the fourth quarter, down 20% from the third-quarter operating income of $14.5 million and up 13% from the $10.3 million earned a year ago.

As we stated in the third-quarter call, we expected some margin compression due to lower utilization during this transition period, increased transportation costs associated with the move and lower rental rates in the new deployment areas.

Operating margin in the fourth quarter was 39.7%.

This compares to 48.1% operating margin in the third quarter and a 50.2% operating margin in the fourth quarter of last year.

Now moving on to the Environmental Services business.

Revenues of $13 million were down 12% from the previous quarter and up 17% from a year ago.

As Paul mentioned, the third quarter benefited from large disposal projects, which contributed $2.2 million of revenues in that period.

Operating income in the Environmental Services segment was $2.4 million, compared to $5 million in the third quarter and $2.6 million in the same quarter a year ago.

Our fourth-quarter operating margin was 18.1%, down from the 33.4% margin we achieved in the third quarter and the 23.4% margin achieved a year ago.

The fourth quarter included a $700,000 non-cash impairment charge for the write-off of one of our disposal wells which we plugged and abandoned during the quarter.

Now moving on to our consolidated results.

For the fourth quarter of 2011, we reported total revenues of $264 million, an increase of 1% from the third quarter and up 35% from a year ago.

Operating income was $34 million, down 13% sequentially and up more than 37% from the fourth quarter of last year.

The sequential decline in operating income is partially attributable to a $1.6 million increase in spending for supplemental resources, employee training and IT systems support costs following an October 2011 ERP system conversion in our US operations, along with a $700,000 increase in employee health care costs, which impacted all of our operating segments in the fourth quarter.

As we continue to fine-tune our business processes and provide supplemental user training on this new ERP system, we expect an elevated level of system support costs that continue through the first quarter of 2012.

Net income in the quarter was $21.9 million or $0.22 per diluted share as compared to $23 million or $0.23 per diluted share in the third quarter of 2011.

For the fourth quarter, our tax rate was 30.4%, compared with 36.5% in the third quarter.

The lower tax rate was driven by benefits from the strong Canadian results, along with certain US tax deductions now allowable as we become a cash taxpayer in 2011.

For the full year 2011, we reported revenues of $958 million, which was up 34% from 2010.

Operating income in 2011 was $133 million, a new record that topped last year's $78 million.

This $55 million improvement in operating income was achieved on a year over year revenue improvement of $242 million for an incremental margin of 23%.

Net income for 2011 was $80 million or $0.80 per diluted share compared to $41.6 million or $0.46 per diluted share in 2010.

Our tax rate for the full year 2011 was 35%.

Now let me discuss our balance sheet and liquidity position.

Total debt at December 31, 2011, was $192 million, resulting in a debt-to-total-capitalization ratio of 27.8%.

We ended 2011 with a cash balance of $25 million versus $63 million at the end of the third quarter.

In addition, we ended the year with $17 million drawn on our revolving credit facility.

The drawdown of cash and borrowing on our revolving credit facility was required in part to fund a $40 million increase in receivables following our ERP system conversion.

Due to the inherent process, reengineering, workforce training and early implementation inefficiencies that are typically encountered in an ERP conversion, our customer invoicing lagged revenue levels for much of the fourth quarter, causing DSOs in this business unit to increase by approximately 30 days.

Over this period we have continued to take corrective actions to accelerate our invoicing processes and have now been invoicing at a pace that is well in excess of revenue levels through the first six weeks of 2012.

However, while significant progress is being made, we expect that DSOs will not return to our recent historical levels until the second or third quarter of 2012.

Our fourth-quarter capital expenditures totaled $8.8 million and our depreciation and amortization expense was $7.8 million.

For fiscal 2012, we expect our capital expenditures to be in the $50 million to $60 million range, which includes the cost of the Technology Complex that Bruce described earlier as well as planned investments in facilities and equipment and the expansion of our Mat Rental fleet.

Finally, we expect our tax rate for the full-year 2012 to be between 35% and 37%.

Now I'd like to turn the call back over to Paul for his concluding remarks.

Thanks, Gregg.

2011 was an excellent year for our Company with record levels of revenue, operating income and earnings.

I'm very pleased with the performance of all of our business units and specifically our employees that serve our customers on a daily basis.

2011 also saw us acquire a drilling fluids company in the international market, something Newpark had not done for close to 10 years.

2011 was also significant for the number of wells drilled using our Evolution system, along with four top service awards from Energy Point Research for outstanding products and services, a clear indication that we are a leader in the segments we serve.

But keeping ahead of our competition means that we have to constantly reinvent ourselves by bringing new and innovative products and services to the oil patch.

To that end, as Bruce stated, we are extremely pleased to announce the building of our new worldwide Drilling Fluids Technology Center, a $30 million commitment to the future of Newpark and our leadership position in the drilling fluids industry.

And for the Mats business, 2011 was a year where we were successful in rebranding our mats as an environmental product line.

However, there is still work to be done to solidify the environmental benefits of our product with our customers.

To that end, we're working on product line extensions and enhancements to our existing mats.

We are also investigating the expansion of our international Rental business into other regions as we strive to broaden the reach of this product line.

Meanwhile, we continue to see solid demand for the sale of mats internationally.

However, with the current mild winter and the drop in the price of natural gas, we are seeing a few operators in selected US regions reduce the requirements for mats.

And as stated on previous calls, we do expect to see continued pricing pressure from competition.

In the Environmental Service business, we expect to maintain the volume and share gains that we achieved in 2011.

If we see a meaningful recovery of the Deep-water Gulf activity, we would also expect to see our fair share of that volume.

Now turning our attention to the market.

Similar to the domestic drilling market, our business continues to shift towards liquid plays, as we have seen over the past year.

As Bruce said, our primary assets are our people, so moving trained personnel to new areas is a relatively straightforward process.

We have and we continue to be proactive in relocating our people to follow rigs as they move out of dry gas basins into the liquid plays.

Although the state of both the domestic and worldwide economy remains uncertain, fundamentals for oil demand remain solid, and we expect oil prices to remain reasonably strong through 2012.

We expect the shift from dry gas to liquids to continue through the year; and while there may also be improvements in the Deep-water Gulf of Mexico, we are not anticipating that this will have a major impact on our total business.

In closing, let me thank the employees of Newpark for their outstanding results over the past year and their continuing efforts in making Newpark a world class oil field service Company.

With that, we'll now take your questions.

Operator?

Thank you.

(Operator Instructions) We do ask that you please limit yourself to one question and one follow-up question and then re-queue.

Our first question is from the line of Neal Dingmann with SunTrust.

Good morning, gentlemen, solid quarter.

Thank you.

Guys, first just on the Mats side would be my first question, just maybe either for Gregg or for you, Paul, just wanted, obviously we knew that the hit would come as you're reallocating and doing some things on the margins, you were pretty straightforward about that.

How do you see now the Mats margin going forward for the latter part of this year and into next year?

Let me take a shot at that.

Obviously, as we had mentioned, we had completed the redeployment.

We do have the Mats now back to kind of normalized levels in the various regions.

As Paul had mentioned here, it is a little bit difficult to predict as you run into a little bit of weather conditions that can impact the usage in certain basins, but overall, the expectation is for rental levels that are higher than what we had expected in the fourth quarter -- or experienced in the fourth quarter, rather.

A little more color, maybe.

It's our belief that in terms of the margins, as you're looking out at the end of this year, in that 30% range certainly is something we feel pretty comfortable with right now unless something changes in a larger way.

So we do continue to see, obviously, some competitive pressure, but we continue to work on product line extensions and create new features that will be valued by our customers.

Got it.

And then just for my follow-up, over on the Fluids side, both as it pertains to just the traditional Fluids and then to Evolution, either for you, Paul, or for Bruce, you've obviously continued to do a great job in migrating that over to oily plays.

Just wondering, as far as how that progress, and if you'll target new areas and how you see that migrating?

Question one, around that.

Do you see continued, less activity in the Haynesville, or is that about where you would expect?

And then, as you continue to migrate, do you anticipate picking up overall market share both for the traditional and for Evolution?

Our migration away from gas actually started probably a year ago.

Some of our first customers moved, and we began then to get a little proactive and start moving ahead of them and moving into where the liquid plays were.

That was both with conventional systems and with Evolution.

The Evolution sales increase in this quarter was really across most regions, not only gas, but in liquid plays, and it came through not only additional new customers, but it came through more Evolution business with existing customers, which, of course, is what we've been striving to do.

At some point you run out of new customers to go to, so we have to broaden our scope with Evolution with our existing customer base, which we managed to do in the fourth quarter.

In terms of the Eagle Ford play, which is obviously a big play as people have been moving from the Haynesville, we have recently put a new facility there to support that operation and to beef up the infrastructure that we already had there.

So, we feel we're very well-positioned there to take advantage of what the increases in rig count, the increases in our customers' activity as it goes forward.

So we are also looking now at some regulatory issues to deal with in the International marketplace so that we can begin to roll Evolution out into the International plays.

And the difficulty with that is not so much the system itself, it's just getting all the necessary approvals to get those systems into countries and accepted.

So, we're working diligently on that as well at this time.

Does that answer your question?

Thank you.

The next question is from the line of Jim Rollyson with Raymond James, please go ahead.

Paul, just to circle back to Mats, kind of a two-part question.

One, I heard you say, in the short run you've redeployed Mats, and hopefully the cost associated with that is over, but with some of the sloppiness in the market at the moment, given the gas situation, you've got some customers trying to reduce their mat count, I think you said.

Yes.

But earlier when we were talking about CapEx, I think I also heard you guys were planning to increase your Mat Rental fleet, which would suggest, at least over some period of time, you're expecting things to pick back up across the spectrum of the whole US.

So curious how you're thinking about, you gave us your margin commentary, but just thinking about Mat deployment utilization, et cetera, how you're thinking about it, and maybe what your regional breakout is for where your capacity lies today?

In terms of a longer view, longer-term view of our Mats business, we believe there's going to be continued growth there, so we need to be adding to our fleet.

That's something that we've committed to doing over the long term.

Certainly, as you said, the mild winter right now has created some difficulties in the short-term.

But longer term, we're going to continue to add to the fleet.

We're excited about some International opportunities that are coming forward, and so we're going to also look at moving some additional Mat into the International market here in the next couple quarters.

And the spread of where your capacity lies today?

(multiple speakers)

You know, prior to the redeployment, obviously, we had a very heavy concentration in the Northeast.

As we stand today, it's a pretty well-balanced mix between the Northeast, the Gulf area and up in the Rockies.

And most in the Rockies, our terminology, we also put the Bakken in North Dakota; that's in our Rockies Business unit, so most of the Mats are up in the North Dakota area.

Okay.

Last question, the Tech Center, once you get that up and running mid-next year, what should we think about for additional SG&A associated with that?

Or have you got that far yet?

Well, I don't think there will be a significant impact on overall SG&A.

I mean, the main focus here, as Bruce had mentioned, is on the lab and the R&D focus associated with it.

Certainly, our expectation is our business is going to continue to grow.

We're going to be adding more people, but our SG&A percentage will be in line with what we currently are running.

And I've got to tell you, we are really excited about that Tech Center and the ability to attract more talent to the Company.

So, Bruce, I don't know if you want to add any additional color on that?

No, no, I think you've covered it well.

We'll certainly add some personnel to the new facility as we go forward, but we'll be very specific how we do that.

We are looking for the best talent to help move us forward.

So, we see nothing but very positive things coming from that build.

And one of the things, too, Jim, you're maybe aware of, back at the very early conception of Evolution, a lot of that preliminary work was done on our drilling simulator.

That's one area that we're going to be making some pretty significant investments to increase the capability of our drilling simulator in the new Technology Center, as well.

The new center, also, if I may just add, Paul.

Yes, please.

The new center, also, as we've been developing our business internationally, we're finding we're having to support that to a larger degree.

So, as we grow internationally, we're going to need that additional effort and additional ability to support not only the growth in the domestic operations, but the growth coming in the international side.

So, for all those reasons, it's exactly the right move to make, I think, to secure the future of the Company.

Thank you.

The next question is from the line of Mike Harrison with First Analysis.

Please go ahead.

Hi.

Good morning, gentlemen.

Good morning, Mike.

Can you give us a sense of how your revenues in the Fluids business, how your revenues per well would differ between gas and oil?

Maybe talk a little bit, take a deeper dive on this shift, what you're seeing in terms of pricing dynamics in the oil patch versus gas wells?

And do you have opportunities to expand your service offering in the oil patch that maybe you wouldn't have had with dry gas opportunities?

Okay.

I'll try and get to all of those.

If I miss something, remind me of what I've missed.

Certainly in some of the gas areas, like the Haynesville, they were very large wells, very complicated wells; therefore, the revenue per rig, perhaps, on those Haynesville wells would be higher than any other conventional area.

However, there are also very significant wells in the liquid plays that demand also a high level of technology and a high level of commitment and focus.

So, the switch in terms of revenue per rig, perhaps slightly down as you move from gas to the liquid plays, but nothing that's going to have a major impact.

More of a minimal impact, I think, in terms of the revenue per rig.

In terms of our systems and our products playing in gas versus liquids, of course, we've designed everything to play across the board, so our systems and product lines play very, very well, both in gas and in liquids.

So, we certainly are not concerned about anything there.

We have been moving, as I mentioned earlier, away from gas for the past nine months at least to a year; and we've managed, so far anyway, to do that with minimal impact to our revenues, and we hope that we can continue to keep that the same.

Did I miss anything?

Have I answered what you wanted?

Price, any differences in pricing dynamics between oil and gas areas right now?

No, we're not seeing that.

All right.

And then if I could just follow up on the $1.6 million in ERP-related costs and the $700,000 that you referenced in higher health care costs, maybe just some additional details around that.

Were the health care costs one time or will they be ongoing?

And maybe how did the ERP-related costs break down across the three segments?

Sure, Mike, I'll take that.

In terms of the health care costs, it's somewhat typical that you have a run-up when you get to the end of the year and you have an employee base, before deductibles reset, et cetera, where you have a spike, and that's what we saw here during the fourth quarter.

And in terms of the overall allocation of these costs, the two items combined are approximately $2.3 million of charges.

The way that spreads across the business unit, the Fluids segment gets about 60% of that; and the balance of it really goes to the other segments in corporate, kind of evenly is the way it falls.

Thank you.

The next question is from the line of Doug Garber with Dahlman Rose.

Please go ahead.

Good morning, guys.

Good morning.

I wanted to ask you about the Mats division.

I'm a little -- I think the Bakken and more, even, the Canadian market could be an opportunity as they become more weather-impacted markets with the roads.

I was wondering if the Bakken would be more of a growth area going forward?

And also, I just don't really hear about the potential sales in Canada with the seasonality there, and I was wondering if that's an opportunity for you guys.

Certainly we do see the Bakken as an attractive market and have over the last year.

Historically, though, the sale of Mats into Canada back at 2006, 2007, we did sell Mats into the Canadian market.

We left that market, I think, in late '07, early '08.

So don't necessarily see a real opportunity in the Canadian market.

Maybe on the north side of the Bakken possibly, so.

Okay.

That's helpful.

I also wanted to touch on the Haynesville exposure.

As your customers move their rigs and their drilling programs out of the Haynesville, do you expect to go with those customers to the new locations so it's kind of a wash in terms of the volume of work that you get?

Well, an actual fact -- this is Bruce, by the way.

I'll talk for the Drilling Fluids side.

We've been moving from the Haynesville for nine months and we've managed to, as the rigs have moved, certainly as our customers have moved, we've followed those rigs as those rigs have gone into play somewhere else.

So we've been managing through that quite successfully to this point.

Okay.

That's helpful.

And just last one on the International business, in Libya, what was your previous run rate?

And when do you expect, if at all, to start ramping up that revenue during this year?

I'll let Gregg talk to the revenue.

In terms of when we expect we might get back in, I think probably we're looking at the third quarter or maybe even into the fourth quarter, and we're taking our lead really from our customers.

When they go back in, they've alerted us that when they go back in, they'd like us to come back in with them.

So third or fourth quarter, we're hoping, this year.

And as far as the volume from that region, historically it's been representing -- about between 10% and 20% of the overall region was coming out of Libya.

Thank you.

The next question is from the line of Joe Gibney with Capital One.

Please go ahead.

Thanks, morning.

Bruce, just a couple of questions for you on Fluids.

I just wanted to spend a little time on Brazil.

You referenced slight profitability in the fourth quarter.

Just trying to frame some expectations for our profit in 2012, as you look at the Brazil market.

Well, certainly we hope to be increased from where we were in 2011.

Part of what we had to do, of course, was get to profitability; and we have achieved that.

Now the focus is to increase that profitability throughout 2012, and we have many, many things in play to achieve that goal.

I guess drill down a little bit on the fourth quarter then.

What was the extent of the Op profit in Brazil?

You referenced a slight.

Just any granularity would be helpful.

Yes, I mean, it was a small profit.

It was a little under $1 million.

Okay.

Thanks.

And then one last one for me, just to drill down a little bit on the Haynesville, you referenced that as 15% of your North America Fluids revenues.

Just curious sequentially what was that change?

What was it in the third quarter, per se?

The third quarter, I can kind of do it -- (multiple speakers)

The third quarter, it's really not a big change in terms of the overall percentage from the third to the fourth quarter.

Okay.

(multiple speakers)

There wasn't much.

But if you go back a year ago, it was much higher, almost 30% of the North American revenue was coming from the Haynesville.

It's -- (multiple speakers)

Yes, at its high point in Q2 of '10, it was pushing 30%; and so, it's come down pretty dramatically over the past 18 months.

All right.

That's helpful.

Thank you, guys, I appreciate it.

I'll turn it back.

Thank you.

The next question is from the line of Rob Norfleet with BB&T Capital Markets.

Good morning.

Congratulations on a nice quarter.

Thank you.

I just had a question as it relates to Fluid margins.

Can you discuss a little bit of how you view the trajectory of margins as we move into 2012?

Clearly, last call you cited the tightness in the barite business, and I guess on top of that, we continue to see Evolution sales grow.

So, is the higher margin Evolution product somewhat being diluted by higher raw material prices, or when should we start seeing some of that enhancement in margins as we move into 2012?

Well, you're correct in that the short supply of barite continues to be a problem, and, of course, with short supply does come cost increases.

The issue of the difference between the margins in Evolution and all the other products is more one of a lag time and being able to pass on the cost increases quickly to our customers as we get them.

So we're working very hard to try and pass on those cost increases and get back to a level where we think we should be.

But, obviously we expect to build the margin in 2012.

That's our goal is to get the margins up in 2012.

And the more Evolution that we are all out and so on, obviously that helps that cause.

Okay.

Thank you.

And my second question just involves capital allocation.

You clearly announced the Technology Center and also the buy-back.

Where would share repurchase fall in terms of the scale of priorities for capital allocation for 2012?

Well, in terms of the share buy-back, the intention of that is really just a capital maintenance program in order to maintain the dilution of the shares.

As we look at the cash flow that we expect to generate and the capital expenditure plans that we have, we see that we don't have any issues in terms of funding this repurchase in order to maintain that dilution.

Yes.

The repurchase program really is just a solid kind of maintenance program.

There's obviously a share creep that occurs with the issuance of equity to employees in the Company, and so we need to get in and start taking some of those shares out of the market.

So just good maintenance program to have in place.

Okay.

That's helpful.

And lastly, you noted on the last call there was some operational delays in the Marcellus with Evolution.

Have you solved that?

You are, obviously, currently selling Evolution in the Marcellus?

No, it looks like it's going to be in the Springtime drilling campaign.

Most operators have said if we're going to do something new, let's do it when the weather's a little better and things are a little more even.

So we're looking at the Springtime drilling campaign, and we still have the same customers I mentioned in the third quarter getting ready to run it in that time frame.

Great.

Thank you.

Thank you.

The next question is from the line of Scott Burk with Canaccord Genuity, please go ahead.

Hi, good morning, guys.

Hi, Scott.

You talked about increasing market share in Canada.

How are you measuring that increased market share and are you seeing any competitive response by larger fluid providers?

We are one of the larger fluid providers in Canada.

So, to some extent we have our destiny in our own hands there.

And we measure it by looking at the overall market, looking at our share of the market by area, by customer, by rig, so we clearly identify what the market is and where we are in it.

It's rig-by-rig, area-by-area, customer-by-customer, so we have a fairly detailed knowledge of it.

And the competitive dynamics there in terms of response from larger fluids companies is no different than anywhere else for us.

As you know, we compete against some of the largest integrated service companies in the world and typically win, so no different.

Okay.

So the other gist of my question is, are you starting to see any kind of substitute products that they're trying to compete directly against your Evolution product line?

We've seen people trying to compete with it for over a year now unsuccessfully.

So, we're happy we still have a leading position with this type of high performance, water-based fluid, and, of course, we're going to work very hard at maintaining that leadership position.

Maybe a little more color I'll provide, too.

In terms of the large three integrated that we play against, a couple of them have introduced new water-based technologies, but quite honestly, they appear to be the old generation and really can't compete head-to-head with us.

Okay.

Terrific.

And is there -- can you talk about any kind of patent protection around what you have with Evolution that could give you maybe five or ten years, or what kind of length do you expect to maintain that technology lead?

Yes, certainly we have an active intellectual property management program here at the Company.

We did file for patents both domestically and internationally.

We have not received our first office action at this time, so it's in the queue.

We've certainly put the stake in the ground in terms of the inventions, and believe that we'll be able to protect it going forward.

Okay.

And then I wanted to ask a couple of questions about seasonality.

First of all, what do you expect the impact will be from Spring breakup on Q2 results?

And then also, you had seasonal issues, or perhaps seasonal issues in your completion services.

Was that what drove the softness in completion services this quarter?

No, the completion services was simply a moment in time, and we don't expect that to occur in the first quarter.

It was a moment-in-time issue.

Okay.

It's nothing to do with seasonality.

Up in Canada, the Spring breakup really, the impact of that depends on when it comes.

It has been fairly mild up there, but to this point, it hasn't impacted us too severely.

But it really just depends when the breakup comes.

Okay.

Thank you.

Thank you.

The next question is from the line of Bill Dezellem with Titan Capital Management.

Please go ahead.

A couple of questions.

First one, just to make sure we're clear relative to your accounts receivable increase, that was entirely a self-inflicted phenomenon as you brought your new ERP system in place, and if we understand correctly, basically you stopped billing for a period of time?

Yes, I guess you could refer to that as a self-inflicted wound in terms of the ERP conversion.

But yes, to some extent, it's natural to have a slowdown in activities internally as you bring in a completely new system and retrain your workforce on a new system, new processes, et cetera.

It did prove to be a bit challenging, but as we had mentioned, we've put corrective actions in place and are now billing well in excess of revenue levels.

Great.

Thank you.

And then secondarily, I believe in your opening comments you made reference to the fact that you do expect Mat pricing pressure from competitors.

Would you please provide some more perspective around that?

Sure.

I'd be happy to do that.

Obviously our margin is still around that 40% range.

Those are very attractive margins, as you know, in this industry.

And so we continue to see, it's nothing changed in terms of new players entering the market, but they're just continuing to work hard to try to take some of the accounts.

We hold on to the majority of those because we have a superior product.

It's differentiated and adds unique value when it comes to protecting the environment.

Thank you.

The next question is from the line of Cory Armand with Rice Voelker.

Please go ahead.

You had already talked about Canada.

But I was just wondering if you could discuss the increase in the Canadian Fluids revenue, what trajectory you might expect in 2012?

In other words, was there a project or program related to that increase or is the Q4 level something we could expect to continue in 2012?

We would expect it to continue in 2012 as we look at new areas in Canada to get into that we currently aren't in, so we expect we will continue to move upwards in Canada.

One of the -- about, I don't know, about 18 months ago, 2 years ago, we put a new leadership team in place in Canada, and we're really starting to see the benefits of that.

We've got a great team up there, and they're doing a wonderful job in selling all of the technology, including Evolution.

Okay.

Great.

And on the Mat side, I know you've gotten a lot of questions about this, but can you discuss the margin profile between selling Mats versus renting them and how that mix might change?

Well, in terms of the Mat Sales and the incremental impact of your sales activity, usually that provides an incremental margin in the 30s range.

Now, the Rental side, obviously your fixed cost is much greater, so it's all about the overall utilization and the pricing on the rental.

So, as the rental activity increases and decreases with a large portion of your cost fixed, that will tend to provide a much higher incremental margin to the business.

So as activities shift between the Sales and Rental, you'll see some overall impact on the operating margin of the segment.

Okay.

And so there will be a mix shift towards rental, is that what you're saying?

On a go-forward basis, we're not saying that right now, no.

Okay.

Okay.

We don't foresee any significant changes at this point.

Okay.

All right.

Thank you.

Thank you.

The next question is from the line of Mike Harrison with First Analysis.

Please go ahead.

I was just hoping to follow up a little bit on the barite costs.

Have we started to see higher pricing roll through as of yet to cover those higher costs?

Did we see any of that in the fourth quarter?

And can you maybe talk about what actions you have in place, and maybe what kind of pricing contribution we would expect to see just to cover the raws as we get into the first quarter?

We did gain a little in the fourth quarter on the passing on costs to our customers, but we still have some work to do.

There's a definite lag time involved.

And the barite pricing continues to increase due to shortages, so the increases are coming through reasonably fast.

So, we're in this process now just passing on to our customers, as quickly as we get them, these price increases.

And we're doing reasonably well with it so far, and we expect we will continue to do reasonably well getting it passed on to our customers in as timely a manner as we can.

Mike, let me give you a little more color on it, too.

It's certainly price or the costs are important to be able to get that through, but the other key attribute of barite, from our perspective, it's strategically critical to have it to be able to grow share in Drilling Fluids.

And we've got very secure sources in China, India and other parts of the world.

And that's something we have worked very hard on literally over the last four years.

So, it has a real strategic importance in terms of availability that we think we're uniquely positioned in.

Have you been successful in finding some alternative suppliers or additional suppliers since the most recent run-up in tightness in barite supply?

We continue to find alternative sources in China, as well as in other countries, as well.

But the majority of the ore still comes out of China today.

All right.

Thank you.

Thank you.

There are no further questions at this time.

I will turn it back over to Management for any closing remarks.

I'd like to thank you once again for joining us on this call and for your interest in Newpark Resources.

We look forward to talking to you again after the conclusion of the first quarter.

Thank you so much.

Ladies and gentlemen, this does conclude the conference call.

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