Newpark Resources, Inc. (NR)

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Newpark Resources, Inc. (NR)

Q2 2008 Earnings Call Transcript

August 1, 2008 10:00 am ET

Executives

Ken Dennard – IR, DRG&E

Paul Howes – President & CEO

Bruce Smith – VP

Jim Braun – VP and CFO

Analysts

John Fitzgerald – Raymond James

Terese Fabian – Sidoti and Company

Karen David-Green – Oppenheimer

John Flanagin – First Analysis Securities

Vijay Singh – Janco Partners

Joe Marver [ph] – Loomis, Sayles

Presentation

Operator

Good morning, ladies and gentlemen, thank you for standing by. Welcome to Newpark Resources second quarter earnings conference call. During today's presentation all parties will be in a listen-only mode. Following the presentation the conference will be opened for questions. (Operator instructions) This conference is being recorded today, Friday, August 1, 2008. I would now like to turn the conference over to Ken Dennard of DRG&E. Please go ahead, sir.

Ken Dennard

Thank you, Mary, and good morning everyone. We appreciate you joining us for Newpark Resources conference call today to review 2008 second quarter results. We'd also like to welcome our Internet participants as the call is being simulcast live over the Web. Before I turn the call over to management I have a few housekeeping details to run through. For those of you who didn't receive an e-mail of the release yesterday afternoon and would like to be added to the distribution list, please call DRG&E on our office number 713-529-6600 and just request to be added to the distribution list. Also you could e-mail me; many of you have my e-mails on most of the press releases. There will be a replay of today's call and it will be available on the webcast on the company's web site, www.newpark.com, and there's also a telephonic replay that'll be available for seven days ending next Friday, August 8 and the dial-in information is in the press release.

Please note that information reported on this call speaks only as of today, August 1, 2008, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening. In addition, the comments made today by the management 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 achievement to differ materially from those expressed in the statements made by management. The listener is encouraged to read the company's 2007 Annual Report on Form 10-K, subsequently filed quarterly reports on Form 10-Q, and current reports on Form 8-K to understand certain of those risks, uncertainties, and contingencies.

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

Paul Howes

Thank you, Ken, and good morning to everyone. We'd like to take this opportunity to thank all of you for joining us today for our second quarter conference call. With me today are Jim Braun, our Chief Financial Officer, and Bruce Smith, President of our Drilling Fluids business. Before we go to the details of our second quarter, I would like to highlight the quarter’s results and give a quick update on the sale of our Environmental Service business. Following my remarks, Bruce will provide an update on the Fluids business and Jim will then cover the Mats and Integrated Services business as well as the balance sheet. I will then conclude with a discussion of our market outlook before opening the call to Q&A.

Now, turning our attention to the quarter. We continue to make strong progress in growing the company in both new and existing markets. Revenues for the quarter were $194 million, up 9% sequentially and 29% over last year. Our income from continuing operations rose 41% year-over-year to $8.7 million or $0.10 a share. We saw an improvement this quarter in the US drilling environment, as the upward trend we saw in the first quarter appears to be gaining momentum. The US rate count rose 6% year-over-year in the second quarter of 2008, and during the same timeframe, our US Fluids revenues were up 22%. This revenue increase reflects continued market share gains in the US as the number of rigs we serviced increased by about 18%. The acceptance of our products and our services continues to grow as we gain new customers and additional work with our existing customer base. We believe that our investment in personnel, equipment and products will fuel continued future growth within our target markets.

Turning to the international market, our Fluids business continued to show strong gains, benefitting from a robust and developing business in North Africa, Eastern Europe, and most recently, Brazil. Revenues from our Mediterranean operations were $31 million in the quarter, a 53% increase from the same period last year, a 9% sequential gain. We continue to invest in new and emerging markets such as Eastern Europe, Brazil, and the Hanceville shale as well as the existing markets like the Rockies and East Texas. While such investments create downward pressure in operating margins in the short term, we expect that these actions will pay dividends in the future.

Turning to our Mats and Integrated Services business, we saw double-digit revenue gains, both sequentially and year-over-year for the second quarter. The gains were due to an increase in composite mat sales, which more than offset the decline in mat rental and related services. Operating margins for Mats has rebounded to 9.7% for this quarter, in line with our expectations.

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