NPK International Inc (NPKI) 2015 Q3 法說會逐字稿

Greetings, and welcome to the Newpark Resources third-quarter earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Brian Feldott, Director of Investor Relations. Please go ahead, sir.

Thank you operator, and good morning, everyone. We appreciate you joining us for the Newpark Resources conference call and webcast to review our third-quarter 2015 results. With me today are Paul Howes, our President and Chief Executive Officer; Bruce Smith, President of our Fluids Systems business; and Gregg Piontek, our Chief Financial Officer. Following my remarks Paul will provide a high-level commentary on the quarter. 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. Paul will then conclude with a discussion of our outlook before opening the call for Q&A.

However, before I turn over the call, I have a few housekeeping items to cover. There will be a replay of today's call and it will be available by webcast on our website at www.newpark.com. There will also be a recorded replay available by phone, which will be available until November 13, 2015. And that information is included in yesterday's release. Please note that the information reported on this call speaks only as of today, October 30, 2015, and, therefore, you are advised that time-sensitive information may no longer be accurate as of the time of the replay.

In addition, the comments made by Management 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 Newpark's Management. However, various risks, uncertainties, and contingencies could cause our actual results, performance, or achievements to differ materially from those expressed in the statements made by Management. The listener is encouraged to read our Annual Report on Form 10-K, 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 would like to turn the call over to our President and CEO, Mr. Paul Howes.

Thank you, Brian, and good morning to everyone. While we had another strong quarter in terms of cash flow, the challenging market environment again provided a strong headwind to third-quarter operating results. Fortunately, while the market conditions are proving to be more challenging than most expected from this cycle, our balance sheet remains strong, which allows us to continue the execution of our long-term strategy.

During the third quarter, we generated $25 million of operating cash flow and entered the period with $114 million of cash on hand. And while we expect working capital reductions to continue to provide positive cash flow in the near term, we've also taken additional steps to further modify our cost structure going forward. To that point, we initiated additional workforce reductions late in the quarter, including an early retirement program within certain business units.

Turning to the divisional performance, the Fluids segment was relatively in line with market activity in the third quarter, with Canada and the EMEA regions being the bright spots, and the US market being the most challenged. Adjusting for charges associated with workforce reductions and inter-Company debt restructuring, we were pleased that the segments remained above breakeven. And while the North American market continues to be challenging, we're making meaningful progress in our efforts to expand our Fluids business outside of North America.

Last quarter, we announced a multi-year contract with ENI in the Republic of Congo, and I'm pleased to report that the project is progressing ahead of schedule. Also, as announced last month, we were awarded the ultra-deepwater contract for Total in Uruguay, which expands our relationship with this valued customer and provides an expansion of our Latin American footprint. But more importantly, this award underscores our increasing credibility in the global deepwater market.

Turning to the Mats business, consistent with our previous announcement, we saw considerable softening in North America rental and service activity driven by the weak commodity prices. With the expectation of continued weakness in North American drilling activity, we are increasing our efforts to penetrate new markets, most notably the utility and pipeline segments. While we have yet to see meaningful revenue contribution from these new markets, we're continuing to gain insight into the mechanics of the tendering process, and remain confident in the differentiated value that our DURA-BASE matting solution provides. That said, it is important to highlight that these markets operate much differently than the oil field. Tender processes for these large-scale projects have much longer lead times in the oil field, so it will take time to see a meaningful ramp-up in activity.

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

Thanks, Paul. Good morning, everyone. In the third quarter, the Fluids Systems segment generated total revenues of $139 million, reflecting a slight decrease from the second quarter and a 45% decrease year over year. In the US, revenues were again impacted by the further decline in rig count. US revenues were $65 million, down 13% sequentially, reflecting a modestly sharper drop than the 5% rig-count decline over this period. The sequential decline was largely concentrated in two regions -- West Texas and the Northeast -- where key customers in both regions laid down rigs during the quarter and returned excess product. Third quarter revenues were also impacted somewhat by operator's efforts to minimize expenditures through reduced well complexity and drilling downs. On a year-over-year basis, US revenues were down 59%, compared to the 54% reduction in rig count.

In Canada, despite the tepid seasonal recovery in activity, the revenues rebounded nicely from spring breakup, more than doubling to $16 million in the third quarter, outpacing the Canadian rig-count improvement. On a year-over-year basis, revenues were down 30%, faring significantly better than the 51% rig-count decline, attributable to our continued gains in market share.

Our EMEA region posted revenues of $41 million, flat sequentially, as the market-share gain in Kuwait was largely offset by a slowdown on the deepwater Black Sea project, driven by the timing of customer drilling. Activity in Algeria also increased modestly in the third quarter, as we continue to transition to the new contract. On a year-over-year basis, revenues from the EMEA region were up modestly, despite a $9 million headwind from currency translation driven by the surging US dollar. Adjusting for currency, the region's revenues increased 27% over last year's third quarter, largely driven by revenue gains from new contracts.

Our Latin America region posted revenues of $12 million in the third quarter, relatively flat sequentially and down 39% year over year, driven primarily the strengthening US dollar against the Brazilian real. Currency translation contributed a $2 million revenue decline sequentially, and a $7 million decline over the third quarter of last year. Although activity levels in Brazil remain soft, our Brazilian business unit was above breakeven for both the third quarter and year-to-date 2015.

In the Asia-Pacific region, third-quarter revenues were $4 million, with a modest decline driven primarily by the strengthening US dollar as customer activity levels have remained relatively flat. On a year-over-year basis, the Asia-Pacific region declined 42%, which includes a combination of customer activity declines driven by the weak commodity prices, along with the headwind of a stronger US dollar. The lower revenue levels have resulted in a small operating loss in this region for both the third-quarter and year-to-date periods.

On the technology front, while operators are continuing to favor low-cost product offerings rather than value-added technology, we are seeing modest improvement in the North American market. Revenues from our family of Evolution systems were $25 million in the third quarter, including $24 million in North America. In addition, and in response to our customers' need to drive efficiency, we recently introduced Fusion, a new low-solids brine-based system, into the Canadian marketplace. Early results are showing significant improvements in the rate of penetration, as compared to more conventional fluids, and we are encouraged and optimistic about the potential for this new water-based technology. As discussed previously, we expect the market for value-added technology to remain soft until we see some improvement in commodity prices.

As highlighted in yesterday's press release, the third quarter included $2 million of employee separation costs as we continue to right-size our North American workforce. In addition, we incurred a $400,000 charge associated with our Brazil inter-Company debt restructuring. Adjusting for these charges, segment operating income was $1.2 million for the quarter, just short of a 1% operating margin.

Turning to our near-term outlook, we don't see any meaningful changes in current activity levels over the next quarter. In the North American market, while October revenues are running modestly ahead of Q3 levels, we expect the continuing rig-count declines, as well as the typical seasonal slowdown in November and December, to ultimately bring revenues to Q3 levels or below.

Outside of North America, we also expect activities to remain fairly stable. In our EMEA region, we expect activity to continue ramping up in Algeria, and we expect to see the first revenue contribution from completion product sales in the Republic of Congo. These anticipated top-line gains, however, should be largely offset by a continued slowdown in Petrobras activity in Brazil, as well as softness in the Asia-Pacific markets.

In terms of operating income, we expect Fluids to remain near the break-even mark for the fourth quarter. Depending upon the severity of the year-end slowdown in North America, it could come in at a small loss.

And, finally, I would like to take a moment to comment on our progress in expanding our Fluids business into new markets. Although the strengthening US dollar has served to reduce our international revenue by approximately $50 million through the first nine months of 2015, it is important to highlight the underlying growth in several international markets which are key to diversifying and stabilizing our revenue stream. Despite the weakness in commodity prices globally, we've generated nice year-over-year growth in several key markets, including Kuwait, the deepwater Black Sea, and Algeria.

In addition, over the past quarter, we've announced two awards which will drive further growth going forward. As I touched on a moment ago, the multi-year contract in the Republic of Congo is progressing ahead of schedule, with our first product sales into this market expected during the fourth quarter.

Meanwhile the exploratory well with Total in Uruguay provides a unique opportunity to showcase our capabilities on a well that will set a world record for ultra-deepwater projects, drilling in a water depth of over 11,000 feet.

As another step in our long-term strategy, I would like to highlight a key addition to our team. As noted in yesterday's press release, we are pleased to announce that Tim Armand recently joined us as Vice President of US Offshore Operations. Mr. Armand joins Newpark with nearly 30 years of experience. We see Tim's expertise, particularly in deepwater, as a valuable asset as we look to continue our expansion into the deepwater Gulf of Mexico.

With that, I will now the call over to our CFO, Gregg Piontek.

Thank you, Bruce, and good morning, everyone. I will begin by discussing our Mats business before finishing with our consolidated results. The Mats business reported third-quarter revenues of $15 million, down 34% from the second quarter and 66% year over year, with substantially all the sequential and year-over-year declines driven by lower rental and service revenues.

Sequentially, the $8 million decline is largely attributable to lower rental fleet utilization, driven by the further softening in the E&P markets in the weak commodity-price environment. Our largest rental market in the Northeast region was negatively impacted by several factors, including a 16% decline in rig count, a sharp slowdown in completions activity, as well as some weather-related headwinds as the Northeast experienced dry weather in the quarter, further reducing the demand for mats. And while the Northeast region was the largest contributor to the sequential decline, our Gulf Coast E&P activities also experienced a meaningful decline in the third quarter.

The revenue contribution from non-exploration markets also declined, to $5 million. The third-quarter decline was primarily driven by the completion of a few large-scale projects in the North American market which benefited the previous quarter. As we noted previously, and as Paul touched on, we are still very early in our commercial entry into the non-exploration markets, resulting in an increased level of quarter-to-quarter revenue variability, impacted by the timing of customer projects.

Meanwhile, mat sales activity improved slightly on a sequential basis, coming in at $3 million for the third quarter, as international sales activity also remained soft in the current weak commodity price environment. With the weakness in rental utilization and international mat sale activity, we have reduced the production rate at our manufacturing facility, which has further reduced our operating profits. As a result, the Mats segment came in slightly below breakeven for the third quarter, down from the 28% operating margin last quarter and the 45% operating margin a year ago. Adjusting for the $200,000 in severance charges, the segment remained slightly above breakeven for the third quarter.

Looking ahead to the fourth quarter, we expect the softness in rental activity in mat sales with E&P customers to continue until we see some improvement in commodity prices and customer spending. Meanwhile, with the continuing weakness in exploration activity, we have increased efforts to accelerate expansion into other markets, both domestically and internationally. And while we're seeing an increase in tendering activity, most of these tenders are for 2016 projects. As a result, we expect fourth-quarter revenues to remain in the mid-teens. Further, with the increase in unabsorbed cost associated with our lower production levels, margins are likely to be below breakeven. That said, however, visibility this business remains very limited. And, as we've seen in the past few quarters, the environment can change quickly.

Now, moving on to our consolidated results. For the third quarter of 2015, we reported total revenues of $154 million, down 6% sequentially and 48% year over year. SG&A costs were $26 million, up 8% sequentially but down 10% year over year. The sequential increase in SG&A is primarily attributable to third-quarter charges associated with North American workforce reductions and the forgiveness of inter-Company balances due from our Brazilian subsidiary.

Corporate office expenses were $8 million in the third quarter, down slightly from the prior quarter, as reduced spending on strategic planning efforts was largely offset by higher expenditures related to ongoing litigation, including the wage and hour litigation matters disclosed in our most recent Form 10-Q.

Consolidated operating loss was $9.3 million in the third quarter, compared to an operating loss of $1.7 million in the second quarter and operating income of $39.4 million in the third quarter of last year.

Foreign currency exchange netted to a $3.2 million loss in the third quarter, compared to a $400,000 gain in the second quarter and a $1.2 million loss in the third quarter of last year. The third-quarter loss largely reflects the revaluation of the US dollar-denominated balances due from our Brazilian subsidiary, as the Brazilian real devalued by more than 20% during the quarter.

As highlighted in yesterday's press release, during September, a portion of our inter-Company balance due from Brazil was forgiven, which will serve to reduce our P&L volatility from Brazil currency exposure by roughly 70% going forward.

The third-quarter tax provision reflected a benefit of $10 million. As we highlighted in yesterday's press release, the third-quarter provision includes a $3.3 million benefit from the Brazilian inter-Company debt forgiveness, along with a $2.2 million benefit from the release of US tax reserves following the third-quarter expiration of statutes of limitation. Adjusting for these two items, the tax provision was a $4.7 million benefit in the third quarter, reflecting a tax rate of 33%.

Net loss for the third quarter was $4.5 million, or $0.05 per share, compared to a loss of $0.05 in the previous quarter and net income of $0.25 per diluted share in the third quarter of last year. As a noted in yesterday's press release, the unfavorable EPS impact of the employee separation costs and currency exchange losses were largely offset by the tax benefits from the forgiveness of inter-Company balances and the release of US tax reserves.

Now let me discuss our balance sheet and liquidity position. During the third quarter, operating activities provided net cash of $25 million, including $23 million from reductions in working capital. We used $17 million to fund capital expenditures, including $13 million spent on facility and expansion projects that we've outlined previously, while maintenance capital requirements have been minimal.

Also I would like to highlight that, during the third quarter, we set $16 million of cash aside to serve as collateral on outstanding letters of credit in the US, leaving us with no current obligations outstanding against our US revolving credit facility. Previously, outstanding letters of credit were collateralized by our US revolving credit facility, which had then incurred higher interest charges. As of the end of the third quarter, borrowings under our four lines of credit were $6 million, in addition to our $172 million of convertible bonds that mature in Q4 of 2017.

We ended the third quarter with cash of $114 million and a total debt balance of $178 million, resulting in a total debt-to-capitalization ratio of 22.8% and a net debt-to-capitalization ratio of 9.7%. For the full-year 2015, our capital expenditure expectation is now in the range of $65 million to $75 million, with the majority of the spending focused on the completion of our fluids blending facility and our Fourchon deepwater shore base, as well as expenditures associated with our recent international contract awards.

As we discussed on last quarter's call, while we have seen the majority of our anticipated receivables reductions work through our cash flows, we do expect to see modest reductions in inventories to continue through the next several quarters. During the third quarter, we began to see the benefit from inventory reductions, which contributed $8 million of operating cash flow. Looking forward, we expect US inventory reductions will be the primary driver of further working capital improvements over the next several quarters, which should help us remain free cash flow positive through the cycle.

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

Thank you, Gregg. In summary, not unlike the broader E&P service sector, the North American market environment proved to be challenging yet again in the third quarter for Newpark. However, there were several positive items in the quarter, including our continued strong cash flow and the award of the ultra-deepwater offshore contract in Uruguay. I am also pleased with the steps we have taken to improve our cost position for the current North American market reality. Similar to the views of the other service companies, we expect this current cycle to be lower for longer, with the fourth quarter having a higher level of uncertainty related to E&P activity levels.

Longer term, we remain well positioned to weather the storm and emerge a stronger Company. To do so, we must continue to execute on our long-term strategy, completing key investments and adding to our organizational capabilities. Several capital projects outlined at the beginning of the year are nearing completion, including the Mats Technology Center, our fluids blending facility, and our purchase of silence-control equipment for the Sonatrach contract in Algeria.

Looking ahead, our highest priority for our Fluids business remains the diversification beyond US land, which includes continued international expansion and a meaningful penetration to the deepwater Gulf of Mexico. And while the deepwater Gulf is proving that it is not isolated from the impacts of the current cycle, it remains a very attractive market. And it is our belief that we will be successful in gaining share in this market. To that end, we are committed to making the capital and organizational investments through the current cycle to achieve our long-term objectives.

In our Mats business, while the rate of decline in the Northeast E&P market has clearly provided its challenges, we're taking this time to accelerate our efforts to diversify into markets that are less dependent on drilling activity. We remain very confident in our ability to penetrate these markets longer term, which will ultimately lead to greater diversification in the revenue stream and improve stability of earnings during through the commodity cycles.

As I stated in our last quarter call, the change in the global competitive landscape continues to provide additional opportunities, particularly in the international drilling fluids market, as IOCs seek out Newpark to participate in their projects. So, although we are preparing for a continued bumpy ride over the next few quarters, we remain confident that we will emerge from the current cycle a significantly stronger Company.

I would also like to take a moment and thank the entire Newpark team of employees. Down cycles are often more demanding on the employees, and I would like to commend each and every member of the Newpark team for their outstanding performance and commitment during this difficult period.

With that, we will now take your questions. Operator?

(Operator Instructions)

Marshall Adkins, Raymond James.

Good morning, guys. Let's spend a minute on the Mat side. In the release, you mentioned an $8 million sequential decline in Mat revenue. It sounded like that was -- or the way I read it was, it was all non-E&P rental. Could you just clarify that? And then probably more importantly, what is the outlook for that non-E&P rental stuff for next year?

Sure. This is Gregg. I will take that.

To clarify, no, the majority of the decline -- the $8 million decline -- was in the E&P side actually. The non-E&P came in at $5 million, so that was down kind of modestly from last quarter. So the majority of it was in the E&P space, and it's really utilization-driven. We noted that the Northeast market was the most significant contributor to that decline. But the other regions, Gulf Coast, where we have long had a presence, has also impacted during the period.

And longer term, Marshall -- this is Paul -- in the utility sector, some of those tenders are much longer term, six months, nine months. So we would expect more the second half of 2016 before we would see any meaningful revenue growth in the utility or non-E&P markets.

Right. And it sounds like, to get margins back heading in the right direction, it's really more utilization-driven for next year. And first, clarify that, and secondly, has pricing stabilized in that arena? It's really just more throughput from here on?

I think that's a good way of putting it. Absolutely it's really a utilization issue at this point. Pricing pressure continues, but not to the extent that we saw early in the year. That one's a pretty modest contributor at this point.

Okay. This last quick one on the Mats: The older facility, last quarter I believe you had talked about shutting that down. I assume that has been shut down and we're all on the new facility now? Just help update us on that.

That is correct, Marshall. The older facility has been shut down, and the new facility is operational.

Great. Thank you, all.

Thank you, sir.

James Wicklund, Credit Suisse.

Good morning, guys. Can you talk to me about what your debt covenants are? I know that when you went through the cash and how you can probably stay cash-flow-positive through the cycle, and I wish you the best on that, but just for curiosity's sake, what are your biggest, most onerous, most worrisome -- however, you want to put it, I don't care -- covenants in your debt?

I think as a starting point, it's important to highlight that we currently don't have anything outstanding on our US revolving credit facility. But that said, the most challenging covenant, if you will, is the total leverage ratio of 4 times, which obviously your converts come into that. So to that point, obviously we are currently very much in a cash-preservation mode -- $114 million of cash on hand. As we noted, we cash collateralized our outstanding letters of credit, so that we have no obligations. And obviously we will be continuing to monitor that closely, and working with the banks.

Okay. That is helpful. And international -- are you starting to catch the attention? I would have to think, six projects internationally, that is an obvious market-share gain. How, if you keep this up, do you manage to stay independent?

(Laughter) Excellent question. Maybe -- you know --

Seriously though, because are you guys going to continue to gain market share like this? I mean, I know you didn't have any wins this quarter, but you have gone from zero to six in a short period of time, [like you said with your] Uruguay project (multiple speakers). [You proved ultra-deep].

James, we have been working for a long time at cutting our teeth in deepwater; that's why we went to Brazil initially. And Bruce and his entire team have done an amazing job. So, we continue to get more attention. The opportunities are out there.

The way we look at it is really the strength of focus. We are focused on drilling fluids. We're focused on bringing differentiated technology that is meaningful to our customers, and Bruce and his team have done an amazing job.

Bruce, any comments you would like to add to that?

Just a couple. I think, in the international marketplace, we are getting people who are interested in us that perhaps five years ago didn't even know who we were. So we have made some significant strides in terms of getting our name out there. And people understand the value that we bring through the focus we have.

Well, I congratulate you. I still think that's an interesting part of the story. Thanks guys, I appreciate it.

Thank you, sir.

Stephen Gengaro, Sterne Agee.

Thanks, good morning, guys. To follow up on Jim's questions, as we think about the international businesses going forward -- I guess a two-part question. One is, the contracts that you have in place, when do they hit, and when do we start seeing the full revenue impact of them as we move through 2016?

We're picking it piece by piece I guess. On the Congo, we expect the first revenue to come in the fourth quarter on the Congo contract. But in terms of ramping up on a consistent basis, that will begin first quarter of 2016 and will ramp up through the year. In terms of the deepwater Uruguay contract, because of the lengthy planning cycles associated with deepwater, it is very difficult to hone in on a date, but currently we're expecting that to begin somewhere in the second quarter of 2016.

Great. Thank you. And then, as I think about the US side of the Fluids business, where do you stand from a pricing perspective currently? Are we still seeing a downdraft? Have we flattened, and has there been -- how much of a decline really has there been as we think about margins going forward?

We have managed recently to hold margins quite steady. And part of that, I think, is the customer base looking again at ways to drive operational efficiency. So, Evolution is playing again, or beginning to play again, and that helps obviously stabilize margins against any pricing pressure. But we have been fairly consistent now with the margins over the past two quarters.

Even at the worst part of this cycle, Q1 is when we saw the most significant impact. And even in that period, we were only talking a mid-single-digit sort of pricing erosion during that period, and it has kind of flattened out since.

Very good. Thank you.

George O'Leary, Tudor Pickering Holt.

Good morning, guys. We've heard from a couple of folks out there, both on the E&P and the large cap services side, that activity could bleed down fairly harshly, maybe more than is seasonably normal in the last five, six weeks of the year; something akin to what happened in 2012. If that happens, is there a risk that margins take a leg down just as volumes go down and fixed cost absorption issues arise? Or can you hold the line even if you get a 15% to 20% decline in activity?

And we are expecting that same thing, that late in the holiday season, end of December, things are going to come down pretty hard. We certainly are going to take a margin hit. We wouldn't be able to maintain the current margins, if the industries are going to tilt down 15% to 20%.

With that level of uncertainty, again, going back to our comments a few moments ago, our expectations are to be below the break-even point in both of the businesses, because you really can't do anything to your cost structure on that short term of a basis.

Okay. That's very helpful color. Maybe second question -- if you think historically about the Business coming out of a down cycle, what typically gets pricing to improve, and what signals are out there that we should be looking for, for pricing improvement? Is it simply oil prices rising? Is it coincident with activity increasing? Is there some sort of a lag? Once activity increases, it takes a while for activity to get back to a level where there's pricing power? What historically have you seen, and maybe what could be different this go-around?

Certainly from our perspective, and what we're looking at, would be product mix, right, in terms of our differentiated technology, which has significantly higher margins. That's what we would expect to see. Hopefully the cycle starts to turn back up, and certainly you get kind of a sea-change lift with volume as well, in terms of our overhead cost. So it would be mostly on the mix side.

And again, I would say that we're in somewhat of a unique position today in this cycle for our Company, that our international business continues to grow. And part of that is the consolidation that is occurring in that large, integrated service space. So we're getting more opportunities in this cycle than we've seen in prior cycles.

Great. That was helpful color. Thanks, guys.

Bill Dezellem, Tieton Capital.

Thank you -- a couple of questions. First of all, you had referenced a new system that you launched in Canada, and I even missed the name. I'm hoping that you can provide us some more detail around that, and the long-term significance you see of that system. And then secondarily, I would like you to discuss in more detail also the addition of Tim relative to the offshore Gulf of Mexico.

Let's take the Canadian new brand first; it's called Fusion. And it's a system that's been specifically designed for the Canadian market, because the Canadian market has a sort of different regulatory environment than we do down here. So this one is designed specifically for the Canadian market, but it functions along the same premise as Evolution in terms of speeding up the rates of penetration, thereby reducing overall days on well, reducing well counts, well cost. It is similar to that.

In regard to Tim, currently Tim's focus is on settling into Newpark, getting to know his team, and getting up to speed with all sorts of things, and getting up to speed with new technologies and different things like that. So Tim is very much at the stage of just getting to know everyone, and we're happy to have him.

And just to add on to that a little bit, Tim really is the beginning of the formation of a larger deepwater team that we are going to be bringing into the Company over the next foreseeable future. So as we continue to build on our credibility in deepwater, and hopefully leverage those relationships with those large IOCs around the world.

If I may follow up relative to Fusion, how large ultimately do you see that potentially being? Does it move beyond Canada, or is it really going to be Canadian-specific, given the special regulatory requirements that they have?

It certainly plays well in Canada. Like anything new, as we discovered with Evolution, you find other areas where things play as you develop these products and these systems. We expect it to play well in Canada, but it's at the very early stages of its development. And I'm sure we'll find other areas around the world where this technology will also play.

Thank you both.

Thank you.

Thank you. This concludes today's teleconference. I would like to turn the call back over to management for closing comments.

We would like to thank you once again for joining us on the call and for your interest in Newpark Resources. We look forward to talking to you again next quarter. Goodbye.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and have a great day.