NPK International Inc (NPKI) 2017 Q2 法說會逐字稿

Greetings, and welcome to Newpark Resources second quarter earnings conference call.

(Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Ken Dennard.

Thank you.

You may begin.

Thank you, operator, and good morning, everyone.

We appreciate you joining us for the Newpark Resources conference call and webcast to review second quarter 2017 results.

With me today are Paul Howes, Newpark's President and Chief Executive Officer; and Gregg Piontek, Newpark's Chief Financial Officer.

Following my remarks, Paul will provide a high-level commentary on the second quarter, and Gregg will discuss the financial details and outlook.

Paul will then conclude the discussion before opening the call for Q&A.

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

There will be a replay of today's call.

It'll be available by webcast on our website at newpark.com.

There'll also be a telephonic replay available until August 11th, and instructions on how to access those replay features were included in yesterday's press release.

Please note that the information reported on this call speaks only as of today, July 28, 2017, and therefore, you are advised that time-sensitive information may no longer be accurate to time of any replay or transcript reading.

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

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

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

The listener is encouraged to read the 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.

Also, comments today made by management may include certain non-GAAP financial measures.

Additional details and reconciliation to the most directly comparable GAAP financial measures are included in the quarterly press release, which can be found on the company's website.

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

Thank you, Ken, and good morning to everyone.

Before I comment on the specifics of the quarter, I'd like to take a moment to address the recent leadership changes in our fluids business.

As we announced previously, effective July 1, Phil Vollands has been promoted to President of our Fluids Business succeeding Bruce Smith.

As Bruce transitions into his new role as Chief Technology Officer for Fluids, I would like to personally thank him for his outstanding leadership and significant contribution over the past 19 years.

For the change in the organization, we are also taking this opportunity to modify the structure of our quarterly earnings calls.

Specifically, Gregg Piontek and I will provide the quarterly updates, including progress on our strategy, overview the operating performance, financial results and outlook.

For the Q&A portion of the call, Phil Vollands, President of our Fluids Business; and Matthew Lanigan, President of Mats business, will also join us as we answer your questions.

With that, I'd now like to turn to the second quarter results.

Building upon the positive momentum from the first quarter, I'm pleased to report another period of strong sequential gains, with consolidated revenues increasing 15% to $183 million in the second quarter, generating EBITDA of $17 million and net income of $0.02 per diluted share.

The Mat segment had an exceptionally strong second quarter, posting the highest revenue and operating income level in 2 years, benefiting from our diversification strategy.

The sequential revenue gains are driven by broad-based improvement across targeted market sectors, including the impact of a few large utilities, transmission and distribution projects in the Gulf Coast region.

The quarter further benefited from weather events, where our scale and rapid service response uniquely positioned us to support our customers following a string of storms that impacted areas within Texas and Louisiana.

With a meaningful lift in demand, rental and service, revenues increased to $25 million in the quarter, with 2/3 of that coming from nonexploration markets.

The surge in rental demand also provided a meaningful lift in the segment operating margins, which came in at 35% for the second quarter.

In fluids, revenue gains are once again led by our U.S. operations, where revenues improved by 34% over Q1 and outperformed the sequential increase in rig count for the third consecutive quarter.

Building on our strong market share position, this relative outperformance is largely attributable to improvements in revenue generation per well, reflecting increased drilling complexity.

As operators continue to push the boundaries of unconventional drilling, including increases in total measured depth and longer laterals, it's not uncommon for us to drill 10,000-foot laterals and have done so across most of the major producing basins.

Extended reach drilling increases the need for range of new technologies, including our family of lubricants and wellbore strengthening products.

In addition to our progress in North American lands, we also continued to advance our efforts to penetrate the deepwater Gulf of Mexico.

During the quarter, we delivered fluids to a second IOC from our recently completed Fourchon shore base.

Although the sale was relatively modest in terms of revenue contribution to the quarter, that reflects yet another important milestone in our progress towards customer qualification and the ultimate penetration of this important market.

Outside of North America, customer activities continue to remain fairly stable.

International fluid revenues increased by 8% sequentially, benefiting from a rebound in activity in North Africa and Eastern Europe.

With a stronger revenue contribution from the U.S. and EMEA regions, the fluid segment profitability remained relatively stable, posting a 4% operating margin, despite the expected seasonal decline in Canada.

I'd also like to touch on the recent 2 contract awards in the fluids business.

As we announced in May, we entered into an agreement with BakerHughes to provide drilling fluids and related services as part of their integrated service offering to Woodside Energy in support of the greater infield project, located offshore in Western Australia.

Work under this contract is expected to begin early next year and generate total revenues of approximately $20 million over 2-year period.

We believe that our selection, both by Woodside and BakerHughes, to partner on this integrated contract, reflects Newpark's unique technical capabilities and service quality.

Separately, we also announced the award of a 3-year contract with Cairn Oil & Gas to provide drilling and completion fluids in support of their onshore drilling in India.

The contract also contains an option for the customer to extend the term for 1 additional year.

Work under this contract is currently starting up, and we expect to generate total revenues of approximately $50 million over the initial 3-year period, based on the customer's anticipated drilling program.

This contract award builds upon our relationship established with Cairn prior to the industry downturn and expands our offering to include completion fluids.

With that, let me now turn the call over to Gregg Piontek, who will review the detailed financials for the quarter.

Gregg?

Thanks, Paul, and good morning, everyone.

I'll begin by discussing our fluids and mats segments before finishing our consolidated results.

The fluids systems segment generated total revenues of $151 million, reflecting an 11% improvement from the first quarter and a 57% increase year-over-year.

In the U.S., revenues were $88 million, up 34% sequentially, which significantly outpaced the 21% rig count increase.

Consistent with last quarter, revenues improved sequentially across all U.S. regions.

As Paul mentioned, we continued to see the benefit from the strengthening activity levels, along with an increase in customer well complexity, which result in higher revenue generation per well.

On a year-over-year basis, U.S. revenues have increased 187% from Q2 2016, significantly outpacing the 112% improvement in average rig count over this period.

In Canada, revenues followed the typical seasonal pattern through breakup, declining by $12 million from the prior quarter, in line with the seasonal decline in rig count.

On a year-over-year basis, revenues improved by $5 million, also in line with the rig count and benefiting from our second half 2016 acquisition of Pragmatic, which is expanding our presence in completion and stimulation markets.

Turning to our international regions.

Revenues in the Eastern hemisphere were $46 million in the second quarter, reflecting an 11% improvement from Q1.

The sequential improvement is primarily attributable to the timing of projects in Algeria and Eastern Europe, along with a modest lift from currency rates.

On a year-over-year basis, revenues from the Eastern hemisphere were relatively flat, as an increase in activity in Algeria and Albania was largely offset by declines in Romania, offshore Libya, Egypt and Tunisia.

Latin America posted revenues of $9 million in the second quarter, down modestly from Q1, reflecting lower Petrobras activity in Brazil.

On a year-over-year basis, the Latin America region is down $9 million, reflecting an $11 million decline in Uruguay following the completion of last year's deepwater project, partially offset by higher Petrobras activity levels in Brazil and a modest benefit from currency rates.

Despite the 11% sequential improvement in revenues, the fluid segment operating income declined modestly to $5.9 million, reflecting a 4% operating margin for the second quarter.

As we highlighted in April's call, the first quarter benefited from an unusually strong sales mix in our EMEA region, and with saw the mix return to a more typical level in the second quarter.

In addition, the sequential comparison was unfavorably impacted by elevated inventory transportation costs in the U.S., as we continue our efforts to utilize slow-moving inventories and rightsize our working capital investments.

Also, with the improving market conditions, we lifted the austerity measures we put in place during the first half of 2016, impacting U.S. salaries and 401(k) contributions.

Turning to the Mat business.

As Paul mentioned, we experienced extremely strong rental demand in the second quarter, reflecting improvements across all industry sectors.

The quarter particularly benefited from a few large utility projects as well as weather conditions, which provide a meaningful lift to our rental operations in the Gulf Coast region.

The mat segment reported total second quarter revenues of $32 million, which reflects a 43% sequential improvement and a 69% improvement year-over-year.

Rental and service revenues improved by $6 million sequentially, while mat sales improved by $4 million.

Total rental and service revenues came in at $25 million for the second quarter, reflecting a 31% increase from the first quarter.

As Paul mentioned, nonexploration markets and, most notably, the utilities transmission and distribution sector contributed the vast majority of the revenue increase.

Meanwhile, activity in oil and gas exploration continue to modestly improve, although, the sequential comparison was negatively impacted by a $2 million benefit last quarter related to rental mats destroyed on a well site.

Comparing to the second quarter of last year, segment revenues improved by $13 million, including an $11 million improvement in rental and services revenues and a $2 million increase in mat sales.

With the strong improvement in revenues, the segment operating margin improved to 35% in the second quarter compared to 28% last quarter and 21% in the second quarter of last year.

Now turning to our consolidated results.

Second quarter 2017 revenues were $183 million, representing a 15% sequential improvement and a 59% improvement year-over-year.

SG&A cost were $26.6 million, reflecting a 5% sequential increase and a 24% increase year-over-year.

Total corporate office expenses were $9.3 million in the second quarter compared to $9 million in the first quarter and $7.2 million in the prior year.

The sequential increase for both SG&A and the corporate office primarily reflect higher performance-based incentive compensation, driven by the stronger financial results, along with higher U.S. salaries and 401(k) contributions as we lifted the austerity measures put in place during the first half of 2016.

Comparing to the second quarter of last year, the increase is primarily attributable to higher performance-based incentives along with elevated spending related to a strategic planning efforts and legal matters.

Consolidated operating income was $8 million in the second quarter compared to $3.7 million in the first quarter, and an operating loss of $15.1 million in the second quarter of last year, which included $8.3 million of asset impairments and other charges.

Foreign currency exchange netted to a $500,000 loss in the second quarter compared to a $400,000 loss in the first quarter and a $700,000 gain in the second quarter of last year.

The currency losses in the second quarter were primarily attributable to the impact of the weakening U.S. dollar in the period.

Second quarter interest expense netted to $3.4 million, which compares to $3.2 million in the first quarter and $3 million in the second quarter of last year.

As discussed previously, the year-over-year increase is primarily due to the interest expense associated with the new convertible notes issued in December, which contribute $1 million of noncash expense per quarter, beginning in Q1 of 2017.

The provision for income taxes in the second quarter of 2017 was $2.4 million, reflecting an effective tax rate of 59%.

The elevated tax rate primarily reflects the impact of losses in certain foreign jurisdictions, for which an income tax benefit is not recorded.

Net income for the second quarter was $0.02 per diluted share compared to a net loss of $0.01 per share in the previous quarter and a net loss of $0.17 per share in the second quarter of last year, which included $0.11 per share net impact from the asset impairments and other charges.

Now let me discuss our balance sheet and liquidity.

During the second quarter, we received $37 million associated with our election to carryback our 2016 U.S. operating losses.

With the benefit of the carryback, operating activities generated cash of $34 million in the quarter.

Increases in working capital used $19 million, primarily reflecting the increase in receivables associated with revenue growth.

We used $9 million to fund capital investments in the second quarter, which included $3 million spent on the Gulf of Mexico deepwater project in the Port of Fourchon, along with $3 million of investments in rental mats, timed in part to help address the strong rental demand experienced in the second quarter.

Also, as highlighted in yesterday's press release, our restricted cash balance increased by $30 million during the second quarter, reflecting funds that have been set aside in preparation for the maturity of our convertible bonds in October.

As of the end of June, total debt was $161 million, substantially all of which relates to our outstanding convertible bonds, including the $83 million of bonds that mature in October, resulting in a total debt to capitalization ratio of 23.8%.

As I mentioned a moment ago, $30 million has already been set aside for settlement of the upcoming $83 million maturity, and we currently have no borrowings outstanding under our $90 million ABL credit facility.

Turning to our near-term outlook.

In the fluid business, we expect seasonal recovery in Canada and improvements in U.S. revenues to continue to track with the overall rig count, as North America rig count currently stands more than 10% above the average second quarter levels.

Outside of North America, while we expect activity levels will remain fairly stable in the near term, we are seeing pricing pressure on certain international contracts.

With the anticipated improvement in total segment revenues, we will likely see segment margin also improve modestly from Q2 levels, but likely remain in the mid-single digit range.

In the mats business, while we are encouraged by the progress in penetrating markets outside of the oilfield and diversifying the customer base, we expect revenues will normalize following the exceptionally strong Q2.

Further, as we experienced in the third quarter of last year, the hot summer months in the southern U.S. are susceptible to short-term dips in demand for power line maintenance projects, and utility companies typically suspend activities during periods of peak power demand.

That said, we expect third quarter revenues to return to the mid-20s range while segment margins will likely return to the upper-20s range.

We also expect corporate office expenses will remain relatively flat in the near term.

With regard to CapEx, our full year 2017 expectation has increased to the $20 million to $25 million range, with the increase largely driven by the additional investments in the mats business, including some pre-investment in rental fleet to support new market opportunities.

And with that, I would like to call -- turn the call back over to Paul for his concluding remarks.

Thanks, Gregg.

We are extremely pleased with our second quarter results.

But we can't forget that a fair amount of uncertainty remains, and as such, we need to maintain focus on our prudent management of our cost structure and balance sheet.

But with that said, and even in a flattening rig count environment, we see meaningful growth opportunities for both segments as we continue to enlarge our geographical footprint, enter new markets and expand our product offering.

In fluids, we announced 2 new international contracts in the second quarter, which serve to expand our global drilling fluids market share.

In addition, the Cairn contract also expands our presence in completion fluids serving as yet another step in extending our product line offering while leveraging our global footprint.

As part of our strategy to become the recognized technologically leader in drilling fluids, we're also continuing to make meaningful progress in penetrating the deepwater Gulf of Mexico, which remains an extremely important market.

While activity level in the Gulf continues to be impacted by the low commodity prices, we remain optimistic that we will see meaningful deepwater revenues in the second half of 2017.

Also, we're very pleased that our new deepwater technology, Kronos, has passed all testing criteria for multiple deepwater customers.

In our mats business, the benefit of our diversification strategy continues to play out with 2/3 of our rental revenues coming from nonexploration markets in the most recent quarter.

With our industry-leading products and service quality, R&D capabilities and low-cost manufacturing position, we are well placed to expand our share both in North America and internationally.

Our innovation pipeline continues to grow, as we look to expand and enhance our product offering and complementary services across several industries, which should ultimately provide a larger and more diversified revenue stream.

In closing, I'd like to thank all the Newpark employees for their dedication and hard work along with keeping safety their highest priority.

With that, we'll now take your questions.

Operator?

(Operator Instructions) Our first question comes from Praveen Narra with Raymond James.

I guess, in terms of the growth of acceptance in the P&D market -- in the utility side, can you guys talk about where the growth is coming from?

Is it from a wider base of customers?

Or are we existing customers just adopt it at a larger scale?

I'll take this one.

Praveen, it's Matthew Lanigan.

Look, I think I'll describe it as broad-based.

I think we've done a great job at expanding our sales team and getting our value proposition in front of a lot more customers.

So as a result of that, I think we're seeing a broader acceptance of the product.

Okay.

Perfect.

And then, I guess, as we kind of look forward, especially after this quarter, it looks like you guys have the potential to generate some pretty solid free cash flow.

Capital needs that you mentioned, is still pretty low, in terms of the CapEx going forward too.

Can you talk about the growth opportunities that are out there in terms of allocating that free cash flow, either organically and inorganically?

Yes, this is Gregg.

I'll take that.

As we've talked about in the past, in terms of our maintenance capital needs, they tend to be fairly limited, roughly in that $50 million a year range.

But as we look for the opportunities to grow -- the opportunities in the fluids business, if you would have growth, it would generally be in the form of additional contract wins, where you have to make some investments locally in blending capacity and assets there to support it.

In the mat side of the business, there -- even as we did here in this quarter, we saw the surge in the T&D space, we will continue to build out the mat fleet that as needed to support the various growth opportunities, which may include some level of pre-investment as we're looking to enter markets in order to have the assets in place and readily available.

Our next question comes from Jon Hunter with Cowen & Company.

So first one being, how much of the mats revenue and margin impact were attributable to weather events, and separately, I guess, the transmission utilities work that you did in the quarter?

Yes, I'll take that again.

It's Matthew, again.

Look, roughly in terms of the T&D space, I'd say round about a third -- quarter to a third of that revenue would be weather-related.

And as we said, in terms of the overall growth, while we did see growth across all of the targeted market sectors, the vast majority was -- T&Ds was the largest driver.

Okay, great.

And kind of the second one here.

Thinking about international, you got a nice bump in North Africa and Eastern Europe.

Does that falloff in the third quarter?

Or is that kind of sustainable looking into the second half of this year?

Jon, this is Phil Vollands here.

No.

We believe the international market is proven to be less volatile than the U.S. market.

It's a lot more stable in longer contracts for example.

So we would expect that to sustain itself through Q3.

Yes.

And the only thing that we're seeing in the international market as we look to the second half, as we mentioned in the script, is that we do expect some price compression, some pressure, a little bit on some of our NOC contracts.

Right.

So thinking about the fluids guidance, I guess, for revenue in the third quarter, it sounded like you're going to be kind of up in North America, and then you mentioned that pricing pressure internationally.

So net, is it fair to think about it as kind of flat to up slightly?

So in terms of the revenue line, you go back to the North American piece, is clearly tied to the overall activity levels, is what will drive that, which has been moving in the right direction.

Internationally, we do expect flattish revenues.

And in terms of the overall operating margin, I think you've got it right.

You'll see some lift from the incremental revenues, but then that that's offset a little bit by the pricing pressures, and that's what keeps us kind of in that mid-single digit mark with the overall margin expectation.

The next question comes from Ken Sill with SunTrust Robinson Humphrey.

This is Terry Starling for Ken Sill.

I just -- my question was -- is in regards to the -- your Fourchon shore base and the progress that's going on there.

What exactly are the catalysts to get more throughput and to get contracts to deliver a drilling booth in the Gulf of Mexico?

Is it right now -- you said, you recognized some revenue from that.

I assume that's maybe call-out work, and you're seeing some potential in the second half.

And then you guys have been qualified with the IOCs, which is not an easy process.

So just wondering what are the triggers to see some throughput through that facility?

Okay.

Thanks, Terry, it's Phil here again.

There are several elements to this.

Firstly, the Fourchon shore base is now fully operational with regards to our water-based side for the riserless fluid and the synthetic oil.

The automation is all in place, and the salt handling system, the rapid deployment system is being already thoroughly tested with some work in Q2.

With regards to outlook, the customer conversations are increasingly meaningful and are increasing in frequency.

So I think we've got cause to be optimistic for the future.

Okay.

That was helpful.

And then, I guess, one follow up.

In terms of completions fluids and expanding into that realm.

With the contract in India, which is land-based in it's completions, it's not shale.

But could you -- could that, technology that you're using there, could that be applied to the U.S. shale plays?

Do you have the, I guess, the chemistry to expand that business?

I think, broadly speaking, we're being pulled more and more into adjacent technologies.

For example, we're already providing completion fluids into a number of countries, particularly in the Eastern Hemisphere.

And...

Yes.

The thing -- other thing I would mention in terms of U.S. land shale.

Stimulation chemicals, obviously, is an area that we're very interested in, and as we mentioned in the script read, that with Pragmatic, a company that we acquired last year, that really focuses on that stimulation market.

And initially, we've been focusing on the Canadian market that's housed up in Alberta.

But certainly, we'll look to move that south of the border into the U.S. shale as we start to get our arms more around that business.

Our next question comes from Stephen Gengaro with Loop Capital.

Maybe 2 main questions.

The first has to do with fluids, particularly in the U.S. market.

What do you -- so the growth that you've seen, I think it's been 3 quarters you've outpaced the rig count.

I know you mentioned kind of more complex wells.

Are there -- what's going on there from, both a pricing perspective and then from your perspective, what are you thinking in terms of where your share has got?

I'm assuming it's rising, but I'm just trying to get some more color from you.

Yes.

Firstly, on the pricing side, U.S. land, of course, remains a very competitive environment.

But we have seen some modest improvements in pricing.

With regards to share, we grew share exiting the downturn, I think, primarily for 2 reasons: our regional teams do a fabulous job, and there's very much a strength of focus on drilling fluids; and then secondly, it's the deployment of new technology, which is very much part of our DNA.

So there are -- in addition to evolution that's played very well, the individual components of any system such as lubricants, viscosifiers, et cetera, we continually develop new products for these individual components and they're all playing very well in the U.S.

I think the other point I would make too on the revenue increase is that, due to this well complexity, we're seeing much longer laterals for the customers as they're drilling.

And again, with drilling fluids, it's volumetric.

Longer laterals means larger revenues.

So we're seeing uplift due to well complexity as well.

Okay.

That's helpful color.

And then as I think about the margins in that business going forward, I realize you're not going to -- and you don't provide sort of margin guidance by geography.

But as I think about it in the second quarter, with the Canadian breakup, and then in the third quarter going forward -- and I know you gave us some rough estimates, but are the U.S. incrementals in the quarter -- and then going forward, I assume they continued to be strong, and it's just the international flatness.

And then I'd imagine it get pretty strong incrementals in Canada in the next quarter.

Is that a reasonable way to think about it as I, kind of, think leading into the next several quarters that U.S. incrementals should remain healthy and in international because of some pricing kind of flattish.

Is that reasonable?

Yes.

Stephen, this is Gregg.

In terms of incrementals and as we've stated previously, the incrementals and decrementals in the fluid business, it comes back to that, call it mid-20s as your normalized level, and that's a pretty consistent number across regions.

Now you're absolutely right.

As we progress into Q3, the international, you'd expect to be a weaker contributor because of the pricing headwind that we described.

In terms of the Q2 performance, really, the challenge we have there was, not only did we have the mix of return to be in the more normal levels in the EMEA regions, but we also had the additional cost on the U.S. side, which caused the incrementals in the U.S. to be lower than that typical range.

And we called out the inventory transportation costs, which was ballpark $1 million of cost in the quarter as well as the austerity measures, the -- putting the salary restoration and the benefits restoration back in place.

Our next question comes from Bill Dezellem with Titan Capital.

I had a couple of questions here.

First of all, would you discuss the deepwater, and just the fact that you said, it was going to be more material in the second half or become material in the second half?

I believe that's the first time you've made such a statement.

And then, also in the comments, you made reference to the fact that the current conversations with customers are becoming increasingly more meaningful, more frequent.

I'm hoping you'll add some more color around all those comments, please?

Well, I think, firstly, there are a number of new opportunities starting to be discussed.

And for existing customers that are out there, the level of engagement with regards to Kronos is really deepening in terms of testing and the amount of testing that it's being undergone.

And this -- the fluid system has handled everything that's been thrown at it, quite frankly.

The transition earlier on, we were working with the riserless fluids, which is kind of the salt-based systems that Phil was mentioning.

As you get down done into the deeper well -- part of the well, then you start running our synthetic new product, the Flat Rheology system called Kronos.

And that's really what the expectation is.

We expect Kronos downhole deepwater in the second half.

Great.

And then also, you referenced in the comments that your innovation pipeline -- well, you just made a reference to it.

And I'm hoping again you can add more color, both in terms of the scope of what you're referring to and the timeline of which that may lead to revenues?

Yes.

In the innovation pipeline, obviously, we're trying to drive technology in both of our operating businesses.

In the fluid side, we talked about Kronos, that is our new deepwater Flat Rheology technology.

And so again, we feel very good about that and all the testing that a large IOC has been working with.

We also have an innovation pipeline.

I mean, in our mats business.

We've talked about some of those in the past, the equal potential zone, matting technology for the T&D market.

We continue to understand more about how that market behaves and how that technology can be used.

So we're really pushing on 2 fronts, in both mats and in the fluids business, the new technology.

And would you be willing to take one more question?

Sure.

Acquisitions.

Given that you had -- you did one last year, small, in Canada, and the point that we appear to be in the cycle where things have bottomed.

What's your appetite and your thoughts relative to acquisitions today?

This is Gregg.

I'll take that.

I think it's fair to say our approach has been consistent throughout the cycle in terms of you're always evaluating opportunities there and particularly identifying opportunities to add something that builds out our -- the strategic value and fits in with our 2 segments.

So the -- that appetite is definitely there.

That said, as our history has shown, we're also very choosy.

It's not a matter of just building out the magnitude and the size of it, of the organization, but again, it comes back to that strategic value and to identify opportunities.

Pragmatic's a great example of something where it's added to our chemistry family and built out the overall portfolio of products.

Yes, Bill, the other side too is, we've spent the last 10 years building out our international footprint, and so if we can find some complementary fluid products, we call it concentric rings around Drilling Fluids, that we could acquire, and then, pull that through this global footprint that we've established, obviously, that's -- the incremental cost of doing that is significantly lower than continue to enter new countries with just one product line.

So we'll continue to look for those kind of opportunities as move forward.

Our next question comes from Ken Sill with SunTrust Robinson Humphrey.

It really is Ken's time.

I just have one follow-up question on the deepwater stuff because it's been pretty -- you guys have been gaining share, and I wanted to kind of clarify.

When you're talking to people about these projects, is this people are actually starting up new developments?

Or is this replacing people or basically subbing in for another competitor on rigs for some of your customers?

It's all of the above, frankly.

It's new projects, there are instances of replacing current vendors.

We range from introductory meetings for a technology presentation to new technology qualification to actually programming wells.

I mean, if you look at the deepwater, the current market share is really concentrated by 2 of the large integrated service companies, and when we put Fourchon in place, we really put a facility there, we believe, could help drive operating efficiency for our operator's internal LHCs and other things.

So there's elements of the technology that we think is differentiated against the large integrated service company as well as the efficiency of our facility, we believe is the best in the port currently.

So I guess, if you were to kind of quantify between the 2 points, it's still probably more heavily weighted to you gaining share than the overall market is growing?

Yes, indeed.

The market is still challenged, but it's absolutely the share gain issue.

That concludes our question-and-answer session.

I'd like to turn the floor back over to management for closing comments.

Thanks, everyone, for joining us on our call and for your interest in Newpark, and we look forward to talking to you again after the next quarter.

Thank you.

Ladies and gentlemen, thank you for your participation.

This does conclude today's teleconference.

You may disconnect your lines, and have a wonderful day.