NPK International Inc (NPKI) 2012 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Newpark Resources fourth-quarter earnings conference call.

During today's presentation all participants will be in a listen only mode.

Following the presentation the conference will be open for your questions.

(Operator Instructions)

Today's conference is being recorded, February 15, 2013.

I would now like to turn the conference over to Ken Dennard, of Dennard Lascar Associates.

Please go ahead.

Thank you, Alicia.

Good morning, everyone.

We appreciate you joining us for the Newpark Resources conference call today to review 2012 fourth-quarter and full-year results.

We would also like to welcome our Internet participants listening to the call as it is being simulcast over the Web.

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

For those of you who did not receive an e-mail of the release yesterday and would like to be added to the distribution list, please call the Dennard Lascar offices at 713-529-6600 and provide us your contact information.

Or, you can e-mail me at the contact information from the press release.

There will be a replay of today's call.

It will be available as a webcast for 90 days at www.newpark.com.

There is also a telephonic recorded replay, which will be available through March 1, 2013 and that information for access is in yesterday's release.

Please note that the information reported on this call speaks only as of today, February 15, 2013.

Therefore, you are advised that time sensitive information may no longer be accurate as of the time of any replay listening.

In addition, the comments made by management today of Newpark during this call may contain forward-looking statements within the meaning of the United States federal securities laws.

These forward-looking statements reflect the current views of management of Newpark.

However, various risks, uncertainties and contingencies could cause Newpark's actual results, performance or achievements to differ materially from those expressed in the statements made by management.

The listeners are encouraged to read the Company's annual report on Form 10-K, its quarterly reports on Form 10-Q and current reports on Form 8-K to understand certain of those risks, uncertainties and contingencies.

And now with that said, I'd like to turn the call over to Newpark's President and CEO, Mr. Paul Howes.

Paul?

Thank you, Ken, and good morning to everyone.

We would like to thank you for joining us today for our fourth-quarter 2012 conference call.

With me today are Bruce Smith, President of our Drilling Fluids business; and Gregg Piontek, our Chief Financial Officer.

Following my opening remarks, Bruce will provide an update on our fluids business and Gregg will discuss the mats and environmental services businesses, as well as the consolidated financial results of the quarter.

I will then conclude with a discussion on market outlook before opening the call for Q&A.

Let me begin by stating how pleased I am that Newpark was able to achieve an all-time high in total revenues for the full year of 2012, surpassing the $1 billion mark for the first time in our Company's history.

This important milestone was achieved through contributions from all segments, including record revenue levels from our fluids and mat businesses, along with solid revenue growth from environmental services.

We are very proud to have reached this important milestone.

This achievement is the result of our strategic efforts to expand the Company's presence in domestic and international growth markets, as well as our emphasis on new technology.

Our acquisition of Alliance Drilling Fluids in December represents the most recent example of our expansion strategy.

Alliance immediately increases our presence in the Permian Basin and Eagle Ford Shale.

And their focus on water-based technology makes them a natural fit with our own fluids business.

We are excited to have the Alliance team join the Newpark family.

Internationally, the continued expansion of our global reach has long been a pillar of Newpark's growth strategy, and has served us extremely well over the years.

When I first joined Newpark in 2006, revenues from outside North America were about $62 million, and made up 9% of our total sales.

In 2012, our international revenues reached $251 million, a 300% increase from 2006, representing a 26% compounded annual growth rate.

Our international business units now contribute 24% of our total consolidated revenues.

Our initiatives to grow the business outside of the North American continent has been of tremendous benefit to Newpark, both as a means for us to access growth opportunities and as a way to diversify our revenue stream.

On the technology front, Newpark is known industry wide for its innovation in developing more effective, high-performance drilling fluid solutions.

This innovation is embodied in Evolution, our flagship fluid system that provides performance at equal or exceeds traditional oil based muds, while also delivering the environmental and safety benefits of a water-based system.

Evolution revenues have grown from $27 million in 2010 to $110 million in 2012 as we've continued to roll out the system into new markets.

In the fourth quarter, we've continued to achieve new milestones with this technology, now approaching seven million feet drilled, mostly in unconventional formations.

We also successfully completed our first Evolution well in the EMEA region, and a second well is now underway.

We are also continuing to development new technology for our customers in our mats business.

With the increasing impact of environmental regulations in many US land basins, our composite mat systems have provided our customers with superior performance and environmental protection on the well site.

As I mentioned last quarter, we're currently developing a linerless spill containment system which will provide a seal service on the drill site without the use of a liner.

We completed our first field test of a spill containment mat on a customer site in the fourth quarter, and have since deployed the complete system on a second customer project.

Drilling on this site is ongoing, and we are encouraged by the system's performance.

Customers' interest in the spill containment system remains strong, however, much like our introduction and rollout of the Evolution system, we plan to carefully and methodically roll out the new system to help ensure the success of this new technology.

With that said, let me now give a few highlights of our fourth-quarter performance.

Total revenues for the fourth quarter of 2012 were $270 million, the highest quarterly revenues for Newpark has ever achieved.

Our fluids business was up 8% sequentially, driven by gains in all of our international units.

In the US, revenues were up slightly despite the declining rig count.

Our environmental service revenues were also up 10% sequentially, as activity levels continue to increase in the US Gulf Coast region.

These revenue gains were partially offset by the expected sequential decline in our mats business as a result of the prior quarter mat sales highlighted on last quarter's call.

Operating income totaled $26 million, which was down about 9% from last quarter.

The sequential decline is primarily driven by our shift in revenues as the gains in the fluids and environmental service segments were more than offset by the decline in the higher margin mat business.

Our net income per diluted share for the fourth quarter was $0.12, compared to $0.20 in the third quarter of 2012.

As Gregg will explain in more detail, our fourth quarter included approximately $0.05 of unusual items which brings our adjusted non-GAAP earnings for the fourth quarter to $0.17 per diluted share.

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

Thank you, Paul and good morning everyone.

Just a recap, in the fourth quarter, the fluid systems and engineering segment generated revenues of $229 million, representing an 8% sequential increase and a 4% year-over-year.

As Paul stated, this is a new record quarter for fluids revenues.

North American revenues were up 2% sequentially to $154 million, although the fourth quarter was down 6% on a year-over-year basis.

The sequential increase was driven primarily by a 22% revenue increase from Canada, which out paced the 14% increase in the Canadian rig count.

On a year-over-year basis, the fourth quarter Canadian revenues were lower, as the Canadian rig count was off more than 20% from prior year levels.

Looking ahead, we expect the usual, seasonal ramp up from Canada in the first quarter, although it remains dependent upon the timing of spring break up.

In the US, revenues for the quarter were $141 million, up slightly from both the prior quarter and year-over-year.

Revenues compared favorably to the 5% sequential decline in the US rig count, largely due to $6 million of revenue generated from a deep-water Gulf of Mexico project.

I would note that since this well has now been completed, we expect revenues from the US to be lower in the first quarter, excluding the contribution from our Alliance acquisition.

Our Mid-Continent completion services and equipment rental business continues to face challenges due to the high levels of competition in the region.

During the fourth quarter, we took additional actions to right size the business, which include workforce reductions, the impairment of certain assets, along with the continued reallocation of assets to other regions.

As a result, our fourth quarter includes about $900,000 in charges associated with these actions.

Our international fluids business posted excellent results from all regions as total international revenues for the quarter grew 31% year-over-year, to $76 million, which is a 24% sequential increase.

Revenues from our EMEA region were up 16% from a year ago to $34 million, which represented a 24% sequential improvement.

The sequential increase was driven by exceptionally strong revenues in continental Europe.

As we've touched on, on previous calls, Sonatrach continues to work through the contract renewal process with their service vendors and because of this ongoing issue, revenues from Algeria were down modestly from the third quarter.

We expect to see a gradual ramp up in the near-term and should see the Sonatrach full impact within the next few quarters.

However, this remains subject to the social unrest across North Africa.

In Brazil, we had another record performance with quarterly revenue of $28.6 million, up 31% sequentially and 56% year-over-year.

The revenue gains were partially driven by our deep-water work for an IOC, which has since been completed.

Because of this, we expect our first quarter Brazilian revenue to dip from the record levels we achieved in the fourth quarter, down to more recent historical levels.

As we have emphasized in the past, revenues in this country can vary from quarter to quarter, based on the activity of Petrobras and [our] IOC customers.

In the Asia-Pacific region, revenues were $12.6 million for the fourth quarter, up 11% sequentially and up 33% from a year ago.

This was another record quarter, possibly impacted by the continuation of our offshore work in Australia.

In the first full year following our acquisition of this business unit, our Asia-Pacific region contributed $42 million of revenue in 2012.

The consolidated fluid segment reported operating income of $17.7 million for the fourth quarter, up 20% sequentially, but down 29% year-over-year.

The operating margin for the segment in the fourth quarter was 7.7% which was up from 7% in the third quarter, but down from 11.3% a year ago.

As we've discussed for the past several quarters, margin improvement remains a primary objective for us.

Despite the headwinds of the declining US rig count and the $900,000 charge in the Mid-Continent completion service business, we've continued to make progress back towards the double digit margins.

Going forward, our focus on improving margins will continue in 2013.

Although to some extent, our ability to achieve this will be dependent upon the North American market conditions.

Evolution, our high-performance water-based drilling fluid system, continues to perform well.

Revenue from Evolution was $31 million in the fourth quarter, compared with $29 million in the third quarter, bringing the full-year revenue to approximately $110 million, up from $67 million in 2011.

As Paul noted, we have successfully completed our first international Evolution well with a major IOC, and a second well is now underway with the same customer.

Finally, I'd like to briefly comment on Newpark's recent acquisition of Alliance Drilling Fluids.

This acquisition gives us a much stronger competitive position in two key plays, the Permian basin and the Eagle Ford Shale.

Given Alliance's sizable presence in these important markets, their expertise in water-based technologies and shared commitment to providing best in class drilling fluids and engineering services, they are a natural fit with our fluids business and we're happy to have them on board.

In addition to the fluids business, this acquisition serves as our entry point into the proppant distribution business.

We're very interested in learning more about the proppant business and how this offers us an opportunity to bring additional value to our customer base.

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

Thank you, Bruce and good morning, everyone.

I'll begin by discussing the results of our mats business before moving on to the environmental services business and finishing with our consolidated results.

The mats business reported $27 million in revenues for the fourth quarter, a decline of 24% sequentially and 9% year-over-year.

The mats segment generated operating income of $10.8 million in the fourth quarter, down 32% from the third quarter and 7% year-over-year.

Operating margin in the fourth quarter was 40.8%, this compares to 45.6% margin in the third quarter and a 39.7% margin in the same quarter a year ago.

As you may recall during the third quarter call, we emphasized the return of our mat sales to historical levels after achieving record sales that benefited from a large sale into the utility industry, along with the benefit of increased mat rentals from the Summer Olympics.

During the third quarter, the impact of these items helped offset the downward trend in the US rental market, driven by declining activity and increased competition.

Primarily due to the non-recurring sale in the third quarter, mat sales were down about 35% sequentially to $13.3 million.

Our mat rental revenues were down about 8% sequentially, with increases in the Northeast and Gulf Coast being offset by a decline in the Rockies and the UK.

As Paul mentioned earlier, we're making good progress on our new spill containment system, which we discussed on prior calls.

We continue to develop and refine the system and as customer interest is high, we expect additional spill containment sites to be deployed before the end of the first quarter.

In anticipation of this, we will be allocating more of our near-term Dura-Base mat production to our spill containment fleet, leaving fewer mats available for sale to customers.

As a result, we expect mat sales to be lower in the first quarter than they were in the fourth quarter.

We also expect the segment margin to be below 40% in the near-term.

Now moving on to our environmental services business, revenues in this segment were $14.4 million in the fourth quarter, up 11% year-over-year and up 10% sequentially.

The revenue increase was driven by higher oil field waste revenues which were generated by both offshore and onshore activities in the Gulf region.

Fourth-quarter operating income in our environmental services segment was $3.4 million, compared to $2.4 million in the same quarter a year ago and $3.1 million in the third quarter.

Operating margin for this segment was 24%, compared to 18% a year ago and 24% in the third quarter.

Looking ahead, while deep-water Gulf activity has been increasing, 2013 activity levels remain uncertain.

Now moving on to our consolidated results.

For the fourth quarter of 2012, we reported total revenues of $270 million, a 4% sequential increase and 3% year-over-year increase.

Operating income was $26 million in the fourth quarter, down 9% sequentially and down 23% from the fourth quarter of 2011.

Net income in the fourth quarter was $11.2 million, or $0.12 per diluted share, compared to net income of $18.7 million, or $0.20 per diluted share in the third quarter and $22 million, or $0.22 per diluted share a year ago.

As reflected in the non-GAAP earnings reconciliation contained within our press release, adjusted net income for the fourth quarter was $15.9 million, or $0.17 per diluted share, after adjusting for the following items.

First, following a recently completed statutory tax audit covering several years in a North African subsidiary, we received an income tax assessment which resulted in a $3.9 million charge during the fourth quarter of 2012.

The fourth quarter charge reflected an adjustment to taxes on accumulated earnings covering a seven-year period from 2006 through 2012.

While the impact of this rate differential in any individual year was minimal, the combined impact of the seven-year catch up resulted in a $0.04 impact to the fourth quarter 2012 earnings per share.

Also, as Bruce mentioned earlier, the fourth quarter included $900,000 of restructuring costs in our Mid-Continent completion services and equipment rental business.

And, we also incurred $400,000 of transaction costs related to the Alliance acquisition.

These two items combined for another $0.01 per share in costs recorded in the fourth quarter, bringing our total adjustments to $0.05 per diluted share.

As we highlighted on the last call, our third-quarter EPS benefited by about $0.01 due to a favorable tax adjustment within the US.

In 2013, we expect our effective tax rate to be between 34% and 35%.

Looking at the full year 2012, as Paul discussed, we reported record revenue of $1.038 billion which was up more than 8% from 2011.

Operating income in 2012 was $106 million, which was 20% less than 2011, due mostly to fluids margin compression in 2012.

Net income for 2012 was $60 million, or $0.62 per diluted share, compared to 2011 net income of $80 million, or $0.80 per diluted share.

Now, let me discuss our cash and liquidity position.

We continue to make good progress on our receivable reductions in the US fluids business, following last year's ERP system conversion.

Overall, our US fluids receivables came down by another $22 million in the fourth quarter, bringing our total reduction to $60 million from the peak level in the first quarter of 2012.

This fourth-quarter reduction was partially offset by a revenue driven increase in our international fluids business units, primarily Brazil, along with $23 million increase for receivables acquired in the Alliance acquisition.

Excluding the Alliance receivables acquired, our DSOs remain at 100 days of sales outstanding, and this will continue to be a focus going forward.

Turning to our consolidated fourth-quarter cash flows, operating activities generated cash of almost $30 million.

We used $53 million to fund the Alliance acquisition and another $9 million to fund capital expenditures.

We also spent $15 million to fund share repurchases, which completed our $50 million authorization under which we purchased a total of 7.2 million shares for the year, or 8% of shares outstanding, at an average price of $6.92 per share.

Our revolving credit facility increased by $56 million during the quarter, largely attributable to the Alliance acquisition and share repurchases.

We ended the year with cash of $47 million and a revolving credit facility balance of $84 million.

Our total debt at the end of the fourth quarter was $259 million, with a resulting debt to total capitalization ratio of 33.6%.

Our full-year 2012 capital expenditures totaled $44 million and our depreciation and amortization expense was $33 million.

For fiscal 2013, we expect our capital expenditures to total $50 million to $60 million, which includes approximately $20 million for the completion of the new technology complex, as well as increased investments in rental mats for the spill containment system.

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

Thanks, Gregg.

We're very pleased to finish 2012 with record revenues exceeding $1 billion, a major milestone in our company's history.

When a new management team joined Newpark seven years ago, revenues were approximately $530 million.

In seven years we have increased revenues by over $500 million, representing a 10.1% compound annual growth rate.

Over the same period, net income has increased from $24 million to $60 million, representing a 14.1% compound annual growth rate.

A vast majority of these gains have come from global expansion and market share gains.

I'm very proud of the organization and company we have built but it is just the beginning.

Through continued investment in technology and people, we expect our future to be even brighter.

Our drilling fluids business is increasingly recognized as the technology leader as customers appreciate the benefits of our high-performance water-based Evolution system.

To date, the Evolution system has drilled over 7 million feet in just three years, with most occurring in unconventional formations.

Recently, we were successful in unbundling a bundled service contract held by a competitor with a major natural gas producer in North America.

This is another testament to the success of the Evolution system, and the value E&P operators place on superior water-based systems over traditional oil-based mud.

We know performance matters and Newpark is committed to offering customers differentiated products and services that offer real value.

While our operating margins in the fluids business have improved from the third quarter to 7.7%, we still have work to do to fulfill our goal of achieving double-digit margins, but we are confident we're on the right path.

In our mats business, we're excited about our new spill containment system and the initial customer feedback.

We expect to see our spill containment system gain traction over the course of the year.

But since we are diverting production of new mats to develop this containment system, we expect to see mat sales revenues decline in 2013.

We're very hopeful that by bringing our technology focus to the mats business, that we will open up new growth opportunities for Newpark.

We will keep you updated on this important technology development on future calls.

Our environmental service business continues to its solid performance and we would expect to see this business continue to grow as activity levels pick up offshore.

Before opening the call to Q&A, I would like to provide some insight into the global E&P market.

With respect to the North American market, we anticipate some incremental improvements from current levels, as operators continue to drill in liquid rich and oil laden formations.

It's still not clear where and when we will exit the injection season for natural gas, but it is clear there will be continued downward pressure on dry gas.

Rigs drilling for oil remain the driving force in the US land market, as drilling rigs are 75% weighted towards oil.

And with crude oil prices now at about $98 per barrel, it's fair to say that the economics of oil remain healthy.

On the international front, we expect to see healthy activity levels in all of our markets.

As Bruce mentioned, we remain concerned about the unrest in North Africa.

That aside we expect our foreign revenues to grow in 2013.

In closing, I'd like to once again welcome the team at Alliance Drilling Fluids to our Company and to thank all of the employees at Newpark for their outstanding results over the past year and their continuing efforts in making Newpark the world class organization that it is.

With that, we will now take your questions.

Operator?

Thank you.

(Operator Instructions)

Jim Rollyson, Raymond James.

Good morning, guys.

Paul, I know you're longer-term kind of goal is on the fluids margins, is to trend back towards the low to hopefully eventually mid double-digit range.

But, just kind of shorter term thinking, when we look into the first quarter, it seems like you've got the Gulf of Mexico benefit that you had last quarter, that maybe doesn't repeat, and you mentioned Brazil probably will be a little bit softer quarter-over-quarter.

Canada, probably stable, the US onshore business probably a little bit better, just with budgets renewing and everything.

How do we think about margins in the first quarter just in relation to the fourth quarter?

Do you think all those moving parts get you to stable margins from 4Q?

Or, do you think they come off a little bit before they build back up the rest of the year?

This is Bruce, I'll take that.

What we're seeing so far is stability.

I think we're not seen anything heading or trending downward from the fourth quarter at this point.

Okay.

Very helpful.

Then for a follow-up, Paul, when you guys rolled out Evolution, it was just kind of slow process.

It has built into a really nice business for you.

How do you think about this spill containment system in terms of maybe timing and ability to move the needle on the mats business as a kind of add on to the crazy strong margins you have had consistently for a while now?

Well the needle on the mats business we like, obviously, where it is today.

Again, we're going to roll out the spill containment system similar to what we've done in Evolution.

We're very methodical in how we approach the marketplace, ensure success one site at a time.

So we'll continue to update the market as we make progress over the next several quarters.

Probably not a short-term benefit, it's over time, you think?

I would say it's a longer-term benefit as we, again, the marketplace we've got to gain some acceptance.

Though again, the initial installations we're getting some very positive feedback from customers, but we need more time to really hone in on the value.

And this is Gregg.

The other thing I would add there is we've talked quite a bit over the past several quarters about the margin compression and competitiveness and the spill containment system is another step towards trying to maintain the margins and help prevent that further erosion.

Great.

Good color.

Thanks, guys.

Thanks, Jim.

Neal Dingmann, SunTrust.

Morning, gentlemen, nice quarter.

Paul, for you or Bruce maybe just two quick ones.

First, could you talk a little bit just on Evolution or the water-based business now with Alliance, what you're thinking?

You've seen kind of a nice steady ramp with Evolution, even pre-Alliance in their water business.

What do you foresee maybe, Paul for you or Bruce, just kind of bigger picture, by maybe late this year, what kind of percentage that water-base could be contributing?

This is Bruce, I'll take that.

At the moment, what we're doing with Alliance is we're following a sort of fundamental integration plan right now.

And part of that integration plan, of course, includes looking at the different technologies they have and marrying that with the technologies that we have.

But obviously, as we go forward in the year, we want to begin to certify some of the Alliance engineering folks on our Evolution system.

And until we do that, it's difficult to move forward with Evolution until everybody understands it the same way.

So were in the process of doing that type of integration now and we feel that there will be technologies that Alliance can bring to us and Evolution certainly will bring to them, and we hope to benefit from that later on this year.

That's great.

Just one follow-up, [a little bit] separately.

Just, again for you or Paul, Bruce, just wondering on the Gulf of Mexico obviously was a great contributor (inaudible) on a couple of the segments there.

I was wondering now when you see -- how you see this shape up, it looks like obviously offshore, a lot of big things still expected for the remainder of the year.

Do we -- do you continue to see a greater ramp there than you do onshore and international, or how do you view -- I guess if I look at sort of the three segments, US onshore, Gulf, and international -- if you kind of look at each of those segments how you see kind of growth divided?

Just generally speaking about the Gulf of Mexico, obviously as rigs have come back, permits are increasing, but the number of new wells being drilled are still, I think, below what pre-Macondo levels are.

So we do expect to see increased activity there that will probably have more of a direct benefit on environmental business to begin with.

Longer-term, as you know, our strategy has always been to penetrate the deep-water Gulf of Mexico with drilling fluids.

We have a very successful deep-water business down in Brazil and over the long period we plan to reverse leverage that into the Gulf of Mexico.

US land, again, we see -- we think we will see some modest improvements there in the oil and liquid rich plays.

Certainly, the Alliance acquisition is right in that sweet spot, so we should hope to see some growth there.

Internationally, putting aside any unrest in North Africa, we would expect to see our international revenues grow in drilling fluids.

Thank you.

Michael Harrison, First Analysis.

Hi, good morning.

Maybe Paul or Gregg, can you talk about how much annual cost savings you would expect from the Mid-Continent completion restructuring efforts?

At this point in time, it's pretty early to tell.

We talked about the costs that were incurred in the period that took out a fairly healthy portion of the workforce there.

But overall in the grand scheme of things, it's not a real significant piece to the overall fluids.

Yes.

My take on it, Mike, is that we've taken the actions that were necessary in the fourth quarter and now it's more about focusing on sales, growing the top line.

And, can you maybe talk a little bit about what you're seeing in terms of any raw material pressures?

I know barite has been an issue for the last few quarters.

And, maybe talk a little bit about what you're seeing in terms of fluids pricing overall in the context of raw materials?

Yes, I'll cover the barite question and I'll let Bruce handle drilling fluids in general.

But on the barite side, we've seen it stabilizing market in terms of the cost coming out of China.

So, don't see any real changes or any major fluctuations there.

In regard to pricing pressure within drilling fluids, there's certainly some in the US market, undoubtedly.

But, part of our response to that, of course, is to provide Evolution to the industry which isn't subject to the same pricing pressure.

Jeff Spittel, Global Hunter Securities.

Thanks, good morning.

Maybe if we could start off with the Alliance integration and just getting a sense -- you were kind enough to provide an update on revenues and operating income for the full year in '11 in the press release initially -- can you give us a sense of how that looked in 2012, just so we have a little better sense of how to model it?

This is Gregg, I'll take that.

Obviously, with any business of this nature, your activity levels kind of ebb and flow on a quarter to quarter basis based on the specific customer concentrations you have and their activities, et cetera.

But, ultimately, the business that we acquired in December, the profile is pretty consistent with that revenue level that we had disclosed for the 2011 year.

So, not significantly different.

Okay.

That's great.

And maybe just kind of digging in on their proppant footprint, I'm not particularly familiar what end of the market they traffic in, could you give us a little bit of flavor for exactly where they are and how they approach that market?

As you can imagine, it's a new segment for us, we've only had the business about 45 days.

Basically they are a distribution business of ceramic proppants but beyond that at this point, we're not going to provide any additional color.

We're still trying to understand the business and what kind of value we can bring to our customers.

Stephen Gengaro, Sterne Agee.

Thank you.

Good morning, guys.

Can you give us any more color -- I know you gave some Alliance numbers in the press release for 2011 -- should we assume they sort of did what your fluids business in North America did in '12 to get a run rate into '13?

Or, maybe better because the regions they were in specifically?

Yes.

As I mentioned a minute ago, where that business is running today is not significantly different from that 2011 level.

2012 very close in terms of the 2011 run rate.

Yes.

Okay, great.

And from a margin perspective, are they kind of neutral to your progress towards double digits or helpful?

Overall as we had disclosed in those 2011 numbers, you see the operating income was running a little stronger than what our fluids business had done.

So to that extent, ignoring the fact that you do have some costs as you bring the business together, it would be a natural lift, a modest lift to our margins.

John Ellison, BB&T Capital Markets.

Good morning, guys.

Thanks for taking my questions.

I know that you mentioned that revenues internationally are expected to increase, but due to recent North American drilling market weakness, are you looking towards increasing your operations overseas to realize better volume and margins, especially in emerging markets?

And if so, what are some of the hurdles and some of the threat that you might face in getting exposure there?

Well, certainly one of our strategic initiatives since 2006 was to expand our presence internationally because it gives weighting to sometimes the volatility in the North American market.

So yes, we will continue to push aggressively into the international markets as we see opportunities.

And, in terms of hurdles, it's hard to describe those.

It really is more country by country and depending which continent you are on.

But yes, we would expect to continue to move into new countries, and see revenues grow in 2013.

Okay.

Internationally.

And, one last one, in regards to your future uses of cash, do you expect to continue to use share buybacks as a viable option?

And, how does this compare in your mind to M&A, debt reduction, organic growth, et cetera?

Yes.

The share buybacks are always part of the equation, but when we're looking at our cash flow being generated and our opportunities for investment, we look first towards both organic investment in the Company, as well as M&A type of opportunities.

To the extent that our cash flow affords us the ability, then that's where share buybacks come into play as well.

Trey Cowan, Clarkson Capital Markets.

Good morning, gentlemen.

Looking at the fluids growth quarter-over-quarter, could you talk to the delta?

It sounds like most of that was due to international growth, but could you speak to how much of that was Evolution versus your more conventional fluids?

Evolution was pretty flat quarter-over-quarter.

And the big uptick, most of the uptick was in the international part of the business, as I described earlier.

And, driven really by a very strong continental Europe quarter, was the main difference.

As well as the Brazil work, the IOC project that was mentioned earlier, that was another piece that provided some healthy revenues in the fourth quarter.

Okay.

Great.

And then, getting back to Alliance acquisition, when we look at that, based off the 2011 numbers, it looked like you picked up a pretty good asset at a decent price.

How do you think the purchase price shaped up versus other deals that you've seen out there recently?

We're very pleased with what we're able to accomplish for our shareholders.

The multiple is a really good multiple.

Thank you.

(Operator Instructions)

Bill Dezellem, Tieton Capital Management.

Thank you.

Relative to the spill containment rental revenues, when would you anticipate that they would surpass what is the lost DURA mat sales?

And part of that question is, is that the correct question or is the correct question, when will you be expanding your capacity to allow you to have the capacity to sell DURA mat?

I think the second part of your question is the right one.

Again, if we see the continued success as we roll out the spill containment system, that certainly would open up opportunities to expand our capacity at our plant.

And the timing in which you would anticipate making that decision and how long it would take to implement the decision?

In terms of when those decisions would be made, that's probably premature at this point.

But, any kind of a plant capacity it could take you 12 to 18 months to expand a plant of this size.

Tom Nowak, Advent Capital.

Hi, good morning.

Not to beat a dead horse but just back to the Alliance margins.

When I pro forma you guys, Newpark stand-alone versus combined with Alliance on the numbers you provided, I get a 75 basis point uplift to your fluids margins, but it doesn't seem like that's what you're thinking for 1Q.

So can you help me out there?

Well, like I had mentioned earlier, this first step, the first quarter we have a fair amount of integration effort that's going on and that brings with it some cost in order to bring them in, combine systems, et cetera.

So that's why in the near term, you don't see that full benefit but we would expect that over time, we would start to see the real benefits and synergies associated with it.

Okay.

And then, sorry if I missed this, but magnitude of the decline in mats revenues, are we -- are you thinking double digits here?

Should we be annualizing 4Q revenue numbers to look to '13 or what kind of -- help us out a little bit with the order of magnitude of decline in mats revenues.

Well, going out -- when you go out several quarters it becomes obviously a lot more difficult to estimate.

The backlog on our mats sales tends to be relatively short.

So taking a fourth-quarter revenue -- the fourth quarter level and annnualizing it, that -- it's pretty tough to say.

But, we do expect Q1 to be down from the Q4 levels.

I would say at least $4 million, but that also depends somewhat on the timing of orders, whether things get slotted Q1, Q2, et cetera, that -- it's a bit tough to peg that cut off point.

John Ellison, BB&T Capital Markets.

I wanted to ask another question based on the elevated cost of barite and I wanted to see how effectively you're able to pass these higher costs on to your customers, or is it actually putting some downward pressure on your profitability?

This is Bruce.

It certainly puts, at the moment, some downward pressure on profitability.

And, our ability to pass on to the customers is reasonable.

We've managed to do it, but there's a time lag.

There's always a time lag by the time you approach the customer with the price increase and by the time he ultimately accepts it.

But as I mentioned earlier, too, we've seen barite pricing stabilize.

So, it's not increasing right now.

Got you.

Okay and one last one, recently we've heard from other service companies that drilling efficiency is becoming a larger theme, especially in North America.

And I wanted to know if this drive towards more efficient operations is actually a positive thing for the mats business?

For example, are operators opting to use mats at their drilling sites as opposed to not using a mat in order to increase their efficiency?

Well, let me give you two parts.

First on drilling efficiency, we hope we're a driving force behind that with Evolution because we are driving a significant amount of efficiency on every well with Evolution.

Related to the mats business, certainly we think there's some opportunities there.

I don't know that efficiency has any negative impact, it's more the environmental aspect, the regulations, that continue to grow that product line.

Although to the extent that you can use a system like the spill containment to help offset the amounts of aggregate, et cetera, you are reducing the amount of time it takes them to set up a well.

That's a good point.

Thank you.

I'm showing no further questions in the queue at this time.

I'd like to turn the conference back to management.

Thank you.

We'd like to take 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 our first quarter.

Thank you.

Ladies and gentlemen, this concludes our conference for today.

If you'd like to listen to a replay of today's conference, you may do so by dialing 303-590-3030 and entering the access code of 4587015 followed by the pound sign.

Thank you for your participation, you may now disconnect.