NPK International Inc (NPKI) 2014 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to Newpark Resources third-quarter earnings conference call.

(Operator instructions)

This conference is being recorded today, October 31, 2014. I would turn the conference over to Ken Dennard. Please go ahead, sir.

Thanks, Yolanda, and good morning everyone. We appreciate you joining us for Newpark Resources' conference call today to review 2014 third-quarter results. We'd like to welcome our internet participants listening to the call 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 earnings release yesterday afternoon and would like to be added to the distribution list, please call our offices at Dennard Lascar, and that number is 713-529-6600, and provide us your contact information, or you can e-mail me your address.

There will also be a replay of today's call that will be available by webcast at the Company's website, which is www.Newpark.com. There is also a recorded replay available by phone, which will be available until November 14, and all the access information is in yesterday's press release.

Please note that the information reported on this call speaks only as of today, October 31, 2014. And then therefore you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading. 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 in the 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 would 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 third-quarter 2014 conference call. With me today are Bruce Smith, President of our drilling fluids business, and Gregg Piontek, our Chief Financial Officer.

Following my remarks, Bruce will provide an update on our fluids business, and Gregg will discuss the mats business, as well as the consolidated financial results for the third quarter. I will then conclude the discussion of our market outlook before opening the call for Q&A.

Now, turning our attention to the third quarter. We are very pleased to achieve record revenue and operating income for the third quarter. Total consolidated revenues were $297 million in the quarter, with net income of $23.5 million, or $0.25 per diluted share. The $297 million in revenue represents a 9% sequential increase, and an 11% year over year improvement. The $0.25 per share also compares favorable to $0.21 in the second quarter and $0.16 from continuing operations in the third quarter of last year.

The record performance in the quarter was driven by strength in both operating segments. The fluids business set a record $251 million in revenues and sustained margins at 11%, reflecting market share gains and the benefits of our ongoing efforts to improve margins, including the impact of our industry-leading technologies.

Evolution continues to gain traction, achieving worldwide revenues of $68 million, despite the anticipated drop-off that occurred during the third quarter in the EMEA region, which we highlighted on last quarter's call. North American revenues from Evolution increased 20% sequentially, where we are seeing continued market penetration across several regions. With no comparable product in the North American market, we believe the suite of Evolution systems is becoming the industry standard for water-based technology.

In the international fluids market, we are continuing to see benefit from recent contract start ups in the Black Sea, Kuwait and India, which contributed a combined $6 million of revenue to the quarter. As we mentioned last quarter, we are moving forward with two significant capital investments in our fluids segment, aimed at accelerating our growth and supporting our strategy to be the recognized technology leader in fluids.

First, we are investing approximately $30 million in our Fourchon, Louisiana shore base, which services the Gulf of Mexico deepwater market. While we have had a presence in Fourchon for many years, this investment is necessary to meet today's deepwater requirements. As such, we are investing in our infrastructure to both upgrade our capabilities, and significantly expand our capacity.

Also, we are moving forward with a second capital project, investing approximately $20 million to construct a new manufacturing facility and distribution center located in Conroe, Texas. This facility will be used to blend all of our proprietary fluid technologies, including the Evolution family of products. Both of these capital projects are expected to be completed by the end of 2015.

Our mats business also posted a record third quarter with $46 million of revenues in the quarter, up 47% sequentially and 30% year over year. In preparation for our new production capacity, we are focusing our efforts on expanding our market presence beyond the traditional E&P markets.

During the third quarter, we began to see a more meaningful contribution from rentals in the utility and pipeline industries in North America, where our mats are used for temporary roadways for infrastructure improvements and construction. Meanwhile, work continues on the expansion of our production facility, where we remain on track to bring the additional capacity online by the end of the first quarter 2015.

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

Thank you Paul. Good morning everyone. In the third quarter, fluid systems generated total revenues of $251 million, a record for our Company, which was up 4% from the second quarter, and up 8% year over year. The quarter benefited from strong performance from North America, including the seasonal recovery in Canada.

Looking at the quarter by region, revenues from the US were up 8% sequentially to $162 million, which compares favorably to the 3% sequential increase in US rig count and 1% sequential increase in well count. We saw strengthening across nearly all regions of the US, while demand for wholesale barite remains strong in the quarter. On a year-over-year basis, US revenues were up 5%, fully recovering the lost market share from two key customers we discussed in previous quarters.

In Canada, we achieved a record third quarter with revenues of $22 million. Similar to the trend noted last quarter, Canada's revenues are more than double the levels achieved in the prior third quarter, largely attributable to market share gains.

As we anticipated last quarter, after posting record revenues in Q2, our EMEA region declined sequentially to $40 million. Although I'd highlight that this most recent quarter now stands as the second strongest quarter for this region.

As we highlighted previously, the second quarter benefited from elevated product revenues and two Evolution wells which experienced lost circulation. As Paul noted, revenues in the third quarter included a $6 million contribution from the new contracts in the Black Sea, Kuwait and India. On a year-over-year basis, EMEA revenues were up 15%, largely attributable to the new contracts.

In Brazil, revenues were down 26% sequentially and 25% year over year to $20 million. As we highlighted last quarter, Q2 benefited from the completion of the Total deepwater well, along with elevated product sales to Petrobras for drilling in the Amazonia region, which we did not expect to recur in Q3.

In the Asia-Pacific region, revenues were up 24% sequentially to $7 million, which was essentially flat to the prior third quarter. The sequential increase is primarily attributable to our offshore contract with Santos, along with a modest increase in land activities.

We are continued to see good progress, with our family of Evolution systems generating $68 million of revenues in the third quarter. The current period included $63 million in North America, $3 million in the EMEA region, and $2 million in Asia-Pacific. We continue to see market penetration across most regions in North America, as the Evolution system now represents over one-third of the region's revenues.

Following our success with Evolution, Newpark was recently recognized at the Southwest Oil and Gas Awards in Dallas, being presented with the award for excellence in environmental stewardship, confirming that we can achieve superior operational performance, while working in harmony with the environment.

With regard to our near term outlook, October activity from North America is tracking at a similar pace to third-quarter levels. However, I would highlight that we often experience some seasonal slow down late in the fourth quarter, particularly around the holiday season. Also the recent decline in oil prices provides further uncertainty regarding near term expectations in North America.

In the EMEA region, while activity is expected to remain fairly stable in the near term, the recent surge in the US dollar against the currencies of our foreign operations is likely to have a modest negative impact on the fourth quarter revenue.

In Brazil, we are experiencing a continuing deterioration in the business climate, in part driven by the current economic environment, and the low activity levels from IOCs. As we stated previously, we remain committed to taking the actions necessary to reduce the volatility of this business and our exposure to Petrobras.

As a result of Petrobras's continued focus on completion and workover activity as opposed to drilling, we are continuing to experience a decline in product sales which are critical to the profitability of our Brazilian business unit. Based on the anticipated level of activity with Petrobras in the near term, we have executed another round of work force reductions this month to match our fleet's current activity levels. In the Asia-Pacific region, we don't expect any meaningful change in revenues in the near term.

Turning to income, the consolidated fluid segment reported operating income of $27.8 million in the third quarter, reflecting an operating margin of 11%, which was down modestly from the 11.4% in the second quarter, but up significantly from the 7.4% a year ago. We are pleased to post consecutive quarters above the 11% threshold, which has improved our year-to-date margin back to the 10% mark. Our objective is to maintain the double digit margin for the full year 2014, which should be achievable, barring a meaningful slow down in activity in North America, or additional corrective actions we may need to take in Brazil.

And finally, I'm very pleased to highlight two recent fluids contract awards, both within our EMEA region. First, we have been awarded a multi-year contract with Eni for a series of wells offshore Libya. The contract value is estimated at $20 million, and work is expected to begin in the first half of 2015.

Also, we were awarded a two-year contract for a series of land wells in Egypt, with an estimated value of $8 million. Work under this contract is expected to begin early next year.

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 finishing with our consolidated results. The mats business reported record third-quarter revenues of $46 million, up 47% sequentially, and up 30% year over year. Revenue from mat rentals and service were up $14 million sequentially, which included a nearly $10 million contribution from the large site preparation project in the Gulf Coast region.

Mat rental activity also increased in the quarter as we continue to expand our mat rental fleet. As Paul mentioned, most of the growth in rentals this quarter has come from the utility and pipeline industries, as we looked to expand beyond our traditional E&P markets.

As we have noted for the last several quarters, we have been continuing to allocate our mat production to meet the strong rental demand, and as a result, mat sales have remained low. Although our third-quarter mat sales increased sequentially to $5 million. However, even with this sequential increase, third-quarter mat sales remained well below prior year levels.

Due to the continued strength in rental demand and the resulting high levels of utilization being achieved with our rental fleet, the mat segment operating margin remains strong, achieving a record operating income of $20.5 million in the third quarter, up 50% from the second quarter, and 34% year over year. The 44.9% operating margin in the third quarter compares with 43.9% last quarter, and 43.7% a year ago. Looking ahead to the fourth-quarter for mats, we do expect to see revenues pull back somewhat, driven primarily by the significant contribution from the site preparation work in the third quarter.

Also, as we expand our rental activities into new markets, it is important to highlight that some of these markets may have more seasonality than we have experienced historically. We expect the decline in rental and service revenues to be partially offset by an increase in mat sales, which should serve to keep total revenues well above second quarter levels. While we are continuing add costs in advance of the Q1 plant start up, we do expect our operating margins to remain above the 40% mark, assuming the rental demand remains strong.

Now moving on to our consolidated results. For the third quarter of 2014, we reported total revenues of $297 million, up 9% sequentially, and 11% year over year. SG&A costs were $28.8 million, up 3% sequentially, and up 21% year over year. The sequential increase in SG&A is primarily attributable to the increased revenues in both operating segments, along with higher performance-based incentives.

Corporate office expenses are down $500,000 sequentially, due largely to lower spending on strategic planning projects, although the third quarter did include about $500,000 in transitional expenses associated with the relocation of our corporate office.

Consolidated operating income was a record $39.4 million in the third quarter, representing a 24% improvement sequentially, and 54% increase from the third quarter of 2013. Foreign currency exchange was a $1.2 million loss in the third quarter, largely reflecting the impact of the recent strengthening in the US dollar against the functional currencies of our foreign operations. This result reflects a $3 million unfavorable change from the prior quarter, as the second-quarter results included a $1.8 million gain from foreign currency exchange, largely reflecting the impact of the weakening US dollar.

The third-quarter 2014 effective tax rate was 35%, which is in line with our expectations for the full year. The modest increase in tax rate this period is primarily due to the stronger earnings within the US, along with the increased losses in Brazil. Income from continuing operations in the third quarter was $23.5 million or $0.25 per diluted share, compared to $0.21 in the previous quarter and $0.16 in the third quarter of last year.

Now let me discuss our balance sheet and liquidity position. During the third quarter, operating activities provided net cash of $28 million. We used $28 million to fund capital expenditures, with $17 million spent on the mats segment, as we continued construction activities on our manufacturing facility, as well as the expansion of our mat rental fleet. In addition, we repaid $12 million in foreign borrowing, and used $5 million to fund share repurchases under the program completed prior to our July call.

As of the end of the third quarter, borrowings under foreign lines of credit were $9 million, and there were no borrowings outstanding under our US revolving credit facility. We ended the third quarter with cash of $41 million and total debt balance of $181 million, resulting in a total debt to capitalization ratio of 22.9%, and a net debt to capitalization ratio of 18.7%.

For 2014, we now expect our capital expenditures to be in the range of $100 million to $110 million. Capital spending has remained elevated this year as we have made significant investments in organic growth projects, and with the two new projects that Paul mentioned, I would expect to see this trend continue through 2015. Now, I would like to turn the call back over to Paul for his concluding remarks.

Thanks Greg. We are very pleased with the record quarter, as we continue to focus our efforts on the execution of our long-term strategy. In the fluids business, I'm particularly pleased with several recent accomplishments, including the record revenues for this segment, led by strength in the North America and EMEA regions, the continued market penetration of Evolution, achieving another quarterly revenue record and now representing more than 25% of our fluid segment, the continuing strength in operating margins, having now posted back-to-back quarters above 11%, and returning to the double-digit mark year to date. And our continued success in winning new contracts in the international arena.

While we are pleased with the progress of our fluids business on many fronts, we recognize that there is still work to be done. The situation in Brazil is a concern, driven by the challenges of Petrobras and the low level of IOC activity. As Bruce highlighted, we have recently taken additional actions, and we are continuing to monitor the situation.

In our mats business, we are extremely pleased with the continued success, posting a record revenue quarter, despite having only a modest level of mats sales in the period. As we prepare for the new plant capacity to come online in early 2015, our team is making meaningful progress in our efforts to expand into other industries, which provide an opportunity both to accelerate top line growth, and diversify our rental revenue base.

Also, as I highlighted last quarter, we are continuing test our latest refinements to our spill containment system, and will formally launch this technology next month. However, much like the initial rollout of Evolution, commercialization of our spill containment system will be very methodical over the next year, to ensure its success.

And finally, I would like to comment on our lookout, given the recent decline in oil prices. At this point, our customers are still in the process of developing the 2015 capital budgets, and is unclear what effect commodity pricing will have on spending plans and activity levels for next year. If the market changes near-term we will adjust accordingly, but at this time, we are not seeing any impact on current activity levels.

With that, we'll now take your questions. Operator?

(Operator Instructions)

Jim Rollyson with Raymond James.

Paul, on the Fourchon expansion, probably not really surprising that you are going forward with it. But part of the plan, if I recall, was as you get that up and running, you were going to pursue more deepwater work, I think initially with the idea being taking customers that are putting in incremental rigs into the Gulf of Mexico to start with, rather than having to fight for just market share. In light of oil prices coming down, and whatever impact that may be, I'm just curious if that is still the plan, or how you have thought about pursuing that?

Yes, certainly short-term there may be some impact in the deepwater. But again our investment really is for the longer term and so, as you know, it's likely this plant won't come online until the end of 2015. We still expect, as you look into mid-2016 and beyond, that there will still be increased activity so that we'll be able to pick up some of those incremental rigs coming in.

Okay. As a follow-up on the mats side, when you start looking, you have your new facility coming in first quarter next year, you are already, sounds like, starting to work on non-oilfield related opportunities for mats, can you give us a little color on where are you seeing the opportunities, things like the site prep project, are there others of those out there, and maybe what the margin opportunity looks like outside the oilfield business?

Yes, in terms of, as we said, utility and pipeline, so it is the energy space. Where we are seeing activity is kind of the upper Midwest, North American region. And in terms of margin, outlook or pricing, we could see some softness in some of those other markets.

But currently, we are seeing pretty strong margins. But we do expect to see a little seasonality in some of those new segments, specifically that, as you move into the winter time frame, some of that activity starts to slow.

Yes, I think that's important to highlight is when you do have that work while the pricing is favorable when you weigh it over the longer term, you have to build in the seasonality aspects and how that will fluctuate your utilization to some extent.

That is great color. Appreciate that, thanks.

Jonathan Sisto with Credit Suisse.

I wanted to inquire about the efforts that Phil and his team have made on US land. Obviously good, sequential improvement, and US revenue outpacing the rig count. Paul is there any sort of color you could elaborate on there?

I think, I think in all areas in North America, things went very well in the quarter. There were up ticks in almost every area. Evolution was particularly strong across all regions. But really the pleasing one with Evolution I guess would be up in the Marcellus, where we had some initial successes now, and we have a base to build upon there, so that was very positive.

The mix changed likely from Q2 to Q3, so the revenue uptick was there. The incremental margin, it changed slightly, although Evolution was strong. The mix in the other products was slightly reduced from Q2 record levels. But all in all, all areas in North America enjoyed a good uptick in business.

Okay. Just as a follow-up, Paul, the big IOC, you were working for in the Black Sea, were you able to elongate that contract?

There's been no change to the contract terms with our Black Sea customer.

The contract is for a series of wells. But it is subject to their, their drilling plans. So yes, no change to the contract structure.

Thanks, I'll turn it back.

Mike Harrison with First Analysis.

Just was wondering, you mentioned the timeline for the Fourchon facility upgrade. Is there a specking process that goes with that? Or can you kind of be working to bid out work as you're doing construction on that facility?

And then, coincide with once it's ready to get up and running, you are selling stuff? And also, how many wells will you be able to serve, once you have that facility up and running?

Well, we are up and running currently in Fourchon, so we do have a facility that allows us to function now. We are in the process of where we are specking everything out now, and getting ready to construct the new facility, close by the existing facility. In the meantime, of course, while that's being built we are not going to be sitting idle.

We'll be out promoting our coming capabilities, our current capabilities, and our current performance in deepwater, which we do have. And when the new facilities are finally complete, we're not quite sure yet, depends on the types of rigs, the types of wells and the size of the wells. But we should be able to double or triple, very quickly, the amount of rigs that we currently have in deepwater, and then build from there.

All right and I think last quarter you said that barite contributed about $7 million to your year-over-year growth, at pretty nice incremental margin. Was the Q3 performance pretty similar to Q2? And maybe if you could talk about what's driving that, and why is it or is it not sustainable?

Yes. The Q3 performance was a little bit stronger than Q2. Very similar, I would say. And really, I mean, when you look at that, as you know, Mike, we sell barite to third party independent fluids companies, that do not have the capacity for it.

So in this environment, where you see a very robust drilling environment, that's when we see the strong demand for it, and so that's really what's driving it. Obviously as activity changes, you would expect that barite piece to be impacted.

Okay and then Gregg, in terms of the FX gain or loss, any rule of thumb we can use for how that affects the P&L? I guess I'm just trying to understand it. Is there a balance sheet thing such that if the rates stay the same on December 31 as they were on September 30, that FX line is zero?

In real simple terms, that's it. When you look back at the US dollar versus the majority of the currencies over the past few quarters, it's been a bit of a swing back and forth. The latest one being in late September, where we saw a very strong surge.

And that impacts your valuations of a variety of things on your balance sheet. So yes, that's really the key to it. But over the longer term, I think it's important to highlight, when you take a step back, while you see quarter-to-quarter fluctuations, when you look at it over the term of a year, usually it balances out to a pretty small amount.

George O'Leary, Tudor, Pickering, Holt & Co.

Just curious here, are you seeing any impacts around lower oil prices, in discussions with your customers? Or has the tone of those conversations essentially remained unchanged, in the face of lower oil prices?

I'll take that one. In terms of the drilling fluid customer base, currently, we are not seeing any pull back in activity levels at all. Obviously, everyone's discussing the low oil prices and where it might go, but at this point, we are not seeing any pull back.

Great. And then as you look out, nice contract win with Eni, did you look out at deepwater opportunities? Where are the -- geographically, where are the best opportunities as you sit there today? Where are you actively trying to go out and win awards? Is that more in the same regions you have won awards currently, or any new markets you are trying to break into?

Of course you just mentioned the EMEA region, which is significant. But right here on our own doorstep, in the Gulf of Mexico, is a huge market that we are planning to play in. And so, a great deal of focus will be given to them.

All right. Thanks very much for the color.

Thank you.

Neal Dingmann with SunTrust.

Paul, sort of a general question on the Evolution and general fluid growth. Is it fair to say I guess, just based on your comments and look at the, press, the earnings the last few quarters, that Evolution is having better growth internationally or offshore versus the US onshore? Just wondering how you think this compares to your general fluid growth, when you compare the US onshore versus offshore international.

I think certainly in Q2, there was a high level of international Evolution growth. But as was called out in that call and subsequently today, we were drilling in an area of known lost circulation, which added to the revenue base there.

A significant growth has come in North America, and that seems to be continuing. All the shale plays that we play in around our Company are going well, so quarter over quarter, we had a 20% growth in Evolution revenue within the North American market. So very buoyant here.

Got it. Got it. Then just lastly, turning to the mats, it certainly seems to me that -- and Gregg, maybe for Gregg, correct me if I'm wrong, maybe you all were previously a little more cautious about upcoming mats margins and that they've held in maybe a little bit better than you were at one time thinking. I'm wondering if this, in fact, has changed?

And if so, is this really because of what you have done? Certainly a lot of improvements there. The new manufacturing facilities, new customers, a lot of things that you mentioned. So I'm wondering if just your confidence now in margins has gone back up a little bit, and you know, if so, why, really has that changed?

Yes, when you look at our commentary earlier this year and kind of how it's progressed, I mean really what's driving the strength in margins is the demand continues to be very strong, which translates to very high levels of utilization. So when you are running at kind of a max practical utilization, it enables you to continue. And that is where our confidence has come from, in terms of our ability to maintain 40 and above, even as we are adding some costs into the plant.

Obviously, the new markets also that we had mentioned, that also helped things here in the third quarter. But if we see utilization pull back, that's where we'll see that margin impact, whether it be in our traditional E&P markets or these new markets, where as we said, we are expecting these to have a little more seasonality element to them.

That makes sense. Great quarter, thanks.

Tristan Richardson with DA Davidson.

On the Conroe facility, can you talk a little bit about what additional opportunities that gives you? Or further penetration into existing markets, or can you just talk just a little bit about that expansion?

That expansion really is focused on supporting the growth of our various technologies. Evolution in particular, as we've discussed, is growing quite rapidly, and we will be rolling out other new technologies as we go forward, that all need that level of support and that level of quality and commitment. So it is really designed to support our planned technology growth.

Okay, that's helpful. And then in terms of, you've talked a little bit about these two expansions. A lot of those dollars will likely be spent next year. I guess looking ahead at 2015, would you expect that CapEx could be as high as it has been in 2014, or likely expect a slight drop off? Just given maybe some of this investment calms down?

Well a caveat by saying we are currently in our process of doing our planning for next year. So it's not yet real clear, with the two large projects that we just announced, you would expect next year to be in a similar range. I think the real wild card in next year is mat rentals, and the extent that you have growth in mat rentals, that's going to drive additional capital investment requirements.

Got you. Thanks Gregg. Appreciate it.

Joe Gibney with Capital One.

Just a quick question around Brazil. You referenced some further headcount reductions there, constant recalibration to what Petrobras is doing, and their mix of work.

Just two questions. Are you holding above break even from an operating income standpoint when I think about Brazil? Just curious if you have had any progress on pursuing the removal of the zero margin pass through portion of that contract?

I'll take the first part of that, in terms of the margin performance of the business currently. We did operate at a small loss here in the third quarter against the declining revenue.

And the recent round in cuts again was trying to match your cost structure to the revenue levels. And as we had talked about on past calls, the objective here is get this thing here at least to a break even level where it is not causing any problems, and then looking longer term toward when the IOC activities do pick up, and being sure you have that presence there to participate in that.

We are still working with Petrobras on numerous things, one being to try and segregate our third-party salt control subcontract, as a direct contract with Petrobras. That's proceeding. Petrobras moves slowly on these things, but we are actively involved and dealing with that now, and it is moving forward.

I appreciate it. Thanks, that's all I had.

Mark Bianchi with Cowen.

I was hoping to just get into a little bit more on the fluids outlook. If I take what you have offered in terms of the outlook for the regions, assuming a little decline in EMEA, a little bit lower work with Petrobras, it looks like maybe revenues could be down $10 million sequentially in that segment. I guess first question, is that kind of in the ballpark? Or should we be thinking materially higher than that.

Then the second question is, you mentioned you expect to keep double digit margins for the year. Depending on how severe of a decline in revenues that is, I would think that there should be some pretty hefty decrementals with that. Could you talk about how you have confidence that that won't be the case?

All right. Well in terms of the fourth-quarter revenue expectation, I don't think you're, as you have laid it out, I don't think that's way off base. I wouldn't say -- you look at a couple of the key moving pieces here and Brazil, like we had mentioned, we are expecting that to be mentioned that on a decline.

The main uncertainty is the US and North America. We touched on, okay, we started the quarter off at similar levels. But how much of a seasonal slow down do we have around the holiday season, as we typically have seen some drop off. That is the real question there.

And then in terms of maintaining the margin levels, just going back to the commentary from the beginning was we've achieved the 11% plus mark now in the past two quarters. As we look at it through the remainder of the year, our objective is to remain in that double digit range. So I think it is fair to say if top line comes down, there is some fall through effect, but we obviously are focused on maintaining double digit.

Great. Well thanks for that Greg, I'll turn it back.

Bill Dezellem with Tieton Capital Management.

Would you spend a little more time discussing your Conroe plans, and what you are going to be accomplishing there? And then just a pinpoint question. Would you please repeat the size of the Gulf of Mexico site preparation revenue?

Sure. The site preparation project, that was just under $10 million in revenue contribution in the quarter.

Real high level, the new plant in Conroe, as you know, Evolution technology has been growing. We expect that technology to continue to grow in the coming year, so we need to expand our capacity. But at the same time, we also want to enhance and improve the quality of the systems.

Investing in new assets, improving process control is a key element of that, and we also make some of the ingredients of some of the technology that would go into deepwater as well. That also plays into the Gulf of Mexico Fourchon investment longer term as well. So those are the key two objectives.

And what is the, the percentage increase in your capacity that that will represent?

Significant. It's large.

Thank you.

It's large.

Thank you. That will conclude today's question-and-answer session. I will now turn the call back to management for any additional or closing remarks.

We'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 at the conclusion of our fourth quarter. Thank you.

Ladies and gentlemen, this concludes Newpark Resources' third-quarter earnings conference call. If you'd like to listen to a replay of today's conference, please dial 719-457-0820 beginning today, October 31, 2014 at 12:00 PM, and ending November 14, 2014 at 12:00 PM. The conference center would like to thank you for your participation. You may now disconnect.