Q4 2019 Earnings Call

Greetings and welcome to the Newpark Resources' fourth quarter earnings Conference call.

At this time, all participants are in listen only mode.

A brief question answer session will follow the formal presentation.

He wants to require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

Now my pleasure to introduce your host candid art. Thank you Mr. Dennard you may begin.

Thank you operator, and good morning, everyone. We appreciate.

Thank you joining us for the Newpark resources conference call and webcast to review fourth quarter and full year 2019 resolved.

With me today are poll house, Newparks, President and Chief Executive Officer.

Gregg Piontek, Chief Financial Officer, Matthew Lanigan, President the Mats business and David.

Patterson President of the fluids business.

Following my remarks manager will provide a high level commentary on the financial details of the fourth quarter and full year results, a nerve <unk> and near term outlook before opening the call for Q in <unk>.

Before I turn the call over I have the normal housekeeping details to run through there'll be a replay.

Today's call it'll be available by webcast on the company's website Newpark dot com.

We'll also be a reported telephonic replay available until February 21st 2020.

And that information on how to access that is in yesterdays release.

Please note that information reported on this call speaks only.

Only as of today February 720 20.

And therefore, you're advised that time sensitive information.

No longer be accurate isn't it time of any replay listening 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 Securities.

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These forward looking statements reflect the current views of Newparks management, however, various risks uncertainties and contingencies could cause newport's actual results performance or achievements to differ materially from those expressed in the statements made by management.

Listener is encouraged to read the annual report on form.

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.

Our comments today May also include certain non-GAAP financial measures additional details and reconciliation to most directly comparable GAAP financial measures are included in the 40.

Quarterly press release, which can be found on Newparks website.

Now that behind me I'd like to turn the call over to Newparks, President and CEO Mr. Paul House fall.

Thanks, Ken and good morning, everyone before covering the specifics of the fourth quarter financial results I'd like to begin by reflecting on our safety performance for the full year 2000.

Nine team for both Newpark and our customers employee safety is Paramount and our most important core value.

Although we saw a slight increase in our total recordable incident rate, which came in at 0.65 for the year. We believe this result compares favorably within the industries that we operate.

I would like to.

Thank all of our employees for their unwavering commitment to working safely and the pursuit of a zero harm workplace.

Now turning to the fourth quarter operating results.

Hello, This slowdown in the North American land market proved to be even more challenging than we anticipated I'm pleased with the swift actions taken in the fourth quarter.

Order.

And our mats business, we remain focused on accelerating the growth within the energy infrastructure and other non MP markets consistent with our historical experience the fourth quarter benefited from strong seasonal demand for product sales, which led to a 9% sequential increase in segment revenues.

And improvement in operating margins to 27%.

The strength in product sales during the quarter was somewhat offset by weakness is in the U.S.M.P. market, which led to softer rental and service revenues, particularly in gas focus basins in the northeast.

In contrast to the MP market energy in.

Structure rental activities have remained relatively stable contributing to the continued shift in our revenue mix away from the MP market.

For the fourth quarter, 75% of our total segment revenues are derived from non MP markets, including 55% of rental and service and nearly all of our product sales.

In fluids, the volatile MP market in the North American land continues to validate the key components of our long term strategy that was recently approved by our board.

The fourth quarter results reflects a clear distinction between markets with a challenging north American land environment Overshadowing the strong results we.

Internationally and in the deepwater Gulf of Mexico.

Our international revenues improved nicely up 12% sequentially as revenues in the EMEA region benefit from higher activities on IVC contracts, along with elevated downhole fluid losses.

Meanwhile, we also continue to.

Gained traction in the deepwater Gulf of Mexico, where revenues improved 13% sequentially.

This growth reflects a stark contrast, however to the challenges that we and other service companies faced in the North American land market.

Despite the improving the Gulf of Mexico, and our first U.S. stimulation chemical revenues on.

And in the fourth quarter, our overall North American revenues declined 22% sequentially, reflecting the impact of the declining rig count budget exhaustion by several of our customers and extended downtime through the holidays.

As we touched on last quarter's call, we recognize that volatility in the North American.

Mark It is the new normal.

We have taken actions not only to rightsize, our U.S. fluids business, but also to transition to a more variable cost structure with the goal of building a more scalable operating model that reduces the impact of the North American land volatility on an earnings and cash flow.

Careful consideration and in addition to exiting several U.S. facilities. We took further actions in the fourth quarter two reduced our presence in the Brazilian market, which has been a headwind for several quarters.

Brazil was at one time may strategically important market for newpark, allowing us to demonstrate our technical.

Ladies and the deepwater market. Unfortunately, the Brazilian market has declined significantly over the years and based on recent developments, we do not believe the iOS seasonal return in any meaningful way for the foreseeable future.

I'd like to thank the entire Brazilian team for all of the hard work over the years.

And finally I'd like to note that despite the challenging market conditions. The fourth quarter results demonstrates our continued ability to generate consistent free cash flows through all phases of the industry cycle.

Free cash flow for the fourth quarter totaled $17 million, bringing our full year 2019 free cash.

Flow to $41 million and with that I'll hand, the call over to Greg to discuss the detailed financial the quarter.

Greg.

Last fall and good morning, everyone.

I'll begin my covering the specifics of the segment and consolidated operating results for the quarter, followed by an update on our near term outlook.

The fluid systems segment generated total revenues of $135 million for the fourth quarter 2019.

Reflecting a 12% sequential decrease.

On a 24% year over year decrease.

Revenues in the U.S. declined 21% sequentially to $77 million.

Which compares to an 11%.

Reduction in U.S. rig count with the softness felt across most land basins.

In addition to lower market activity in general certain of our customers also lay down rigs at a higher rate than the broader market, which combined with an increasingly competitive pricing environment negatively impacted our market share.

Further for those customers that remained active our fourth quarter results reflected a notable decline in revenue per rig impacted in part by extended downtime through the holidays.

The 22 million dollar decline in U.S. land was slightly offset by a $1 million sequential improvement from deepwater Gulf of Mexico, where revenues.

The $10 million for the fourth quarter.

On a year over year basis us revenues declined 28% from Q4 2018.

Which compares to a 24% reduction in average rig count over the same period.

US land revenues declined $39 million were 37%.

Primarily.

The reflecting the lower rig count in 2019, as well as lower market share.

As Paul touched on although we've seen our first revenues in the us land stimulation chemical market.

This provided only a minor contribution to Q4 results.

Softness in US land was partially offset by our Eric our.

Expanding market share in the deepwater Gulf of Mexico, which provided a $10 million revenue increase year over year.

In Canada, although the market rig count improved modestly on a sequential basis.

Revenues declined 33% to $5 million driven by budget exhaustion with several key customers.

Leading to extended downtime through the holiday season.

On a year over year basis, Canada revenues declined by 65% compared to a 23% reduction in rig count due primarily to pronounced brought budget exhaustion from our active customers.

Outside of North America as Paul touched on we are.

A much more robust market environment.

Despite the completion of the Woodside contract in offshore Australia.

Total international fluids revenues improved to $52 million in the fourth quarter in 12% sequential increase.

Reflecting fairly broad based improvements across several countries in the EMEA region.

With the regional shift in activity levels, it's worth noting that the EMEA region contributed 36% of our fourth quarter fluids revenues.

On a year over year basis revenues from our international regions declined by 7%.

Which includes a $15 million decline associated with contract transitions in Algeria.

Bill and offshore Australia, largely offset by an $11 million increase from other I LC and LC contracts in the EMEA region.

As discussed on our November call with the dramatic slowdown in activity in certain use markets and the expectation of continued volatility.

We've taken actions.

To rightsize, our operational footprint and driving more variable cost structure.

As highlighted in Yesterdays release, these actions along with impairments of goodwill and other charges.

Resulted in $17 million of charges in the fourth quarter.

Adjusting for these charges.

Fluids segment generated a modest loss in the quarter.

Which was impacted in part by a weaker sales mix with in the fourth quarter as well as the natural lag in operating cost reductions as we align our structure to match the softer market conditions.

Turning to the mass business total segment revenues improved to $55 million in the fourth quarter, representing a 9%.

Sequential improvement driven by a $13 million increase in product sales, which came in at a quarterly record of $27 million.

The exceptionally strong activity in product sales was partially offset by an $8 million decline in rental and service revenues, which came in at $27 million for the fourth quarter.

The 23% sequential decline primarily reflects softness in S&P customer activity, while not GNP markets remained relatively stable.

Comparing to our record fourth quarter of 2018 revenues from the mass segment declined 22% with a $19 million decrease in rental and service.

This is partially offset by a $4 million improvement and product sales.

Substantially all of the year over year rental and service decline was attributable to the weakness in S&P market activity, while revenues from non energy markets have remained relatively stable.

As Paul touched on 75% of our total fourth.

Quarter, Matt segment revenues were derived outside of BNP.

For the full year 2019, non S&P end markets accounted for $110 million or 55% of our total Matt segment revenues, including $65 million of rental and service and $45 million from product sales.

Benefiting from the strong product sales activity the mass segment operating margin improved sequentially to 27% for the fourth quarter, which compares to 20% in the third quarter and 30% for the fourth quarter last year.

Total corporate office expenses were $9 million in the fourth quarter compared to $9.7 million in the.

Third quarter and $8.5 million in the fourth quarter of last year.

Fourth quarter, 2019 result includes $1.1 million of severance charges.

Adjusting for this.

The sequential decline is largely driven by lower spending related to legal matters strategic planning and M&A activity, while on a year over year.

The decline in spending is primarily attributable to lower performance based incentives.

Turning to our consolidated results fourth quarter, 2019 revenues were $189 million, representing a 7% decline from the prior quarter and 23% decline year over year.

SDMA costs were 28 million.

In dollar for the fourth quarter compared to $27 million in the third quarter and $30 million in the fourth quarter of last year.

The sequential increase primarily reflects the fourth quarter severance charges, while the year over year decrease primarily reflects lower performance based incentives in 2019.

The fourth quarter provision for income.

As with $2.6 million, despite reporting a pre tax loss $14 million in the period.

This result reflects the impact of the 11.4 million dollar nondeductible goodwill impairment recorded during the fourth quarter, along with the impact of the geographic composition of our pre tax losses.

Where the tax expense on our foreign earnings is higher than the tax benefit benefit received on us losses.

Our net loss for the fourth quarter was 19 cents per share, reflecting the 19 cents per share impact of the impairment and other charges highlighted in yesterday's press release.

This compares to a net loss of.

Two cents in the third quarter and net income of 11 cents per diluted share in the fourth quarter last year.

Turning to cash flow fourth quarter cash provided by operating activities was $19 million, which included $3 million of cash from operations along with in $16 million net decrease in working capital.

Cash used in investing activities totaled $21 million in the quarter substantially all of which reflected the 19 million dollar cleans or acquisition discussed on last quarter's call.

The fourth quarter results demonstrated our ability to adjust course and managing our net capital investments.

For example in response to the softening DNP.

What we're able to increase the sale of maps from our rental fleet, while reducing the pace of capex, resulting in only $2 million of net capital investment in the quarter and free cash flow generation of $17 million.

Financing activities use net cash of $4 million.

Primarily reflecting a net reduction in.

Yes.

Turning to our full year 2019, Cashel operating activities provided $72 million of cash which included a $22 million net reduction in working capital.

Investing activities utilized $50 million, including $31 million net capital investments and.

And 90.

$2 million for the cleans ORV acquisition.

Financing activities utilized $30 million, including $22 million of share repurchases and an $8 million net reduction in debt.

Our leverage remains modest with a total debt balance of $160 million and a cash balance of 49 million.

Dollars as of yearend, resulting in a total debt to capital ratio, 22% and a net debt to capital ratio of 17%.

Our primary debt components include $100 million of convertible notes due December 2021, and $65 million outstanding on our asset based bank facility.

Although we are still nearly two years away from the convertible note maturity, we plan to utilize our free cash flow generation in 2020, primarily to reduce our bank facility balance helping to position us to fund the 2021 maturity without a need to access public capital markets.

Now turning to our near term outlook in fluids.

Although us land market activity has stabilized in recent weeks.

We're also not expecting a significant improvement in near term as capital discipline remains the overarching theme for most of our SMB customers.

Consequently, we are expecting us revenues to remain relatively consistent with fourth quarter levels as an expected improvement in.

Deepwater will likely be offset by the modestly lower us land rig activity.

Also it's worth noting that we have the deepwater projects scheduled in with a second hi, we'll see.

Which we expect to begin in early Q2.

In Canada, we should see the typical seasonal improvement as we are.

Currently tracking to a pace consistent with Q1 of last year.

Internationally, while customer activity is showing a general strengthening based on the timing of activities within our key contracts, including a multi quarter pause in drilling operations with shell in Albania, We anticipate revenues will pull back to a level more in.

In line with the third quarter following the strong fourth quarter results.

In terms of operating margin.

Although our us cost optimization efforts are delivering steady month over month improvements in our cost base. It will take a few quarters to drive meaningful improvement to the bottom line. Consequently, we anticipate the fluids segment will remain.

Near breakeven in the first quarter.

In the mass segment, we expect product sales to pull back from the record levels achieved in Q4, which should be partially offset by a modest improvement in rental and service revenues.

Although the persistently low natural gas prices continue to impact our NP customer.

I'd.

We expect the energy infrastructure market to provide greater stability overtime as we continue to expand our geographic presence.

While it is always a bit challenging to predict both the timing of rental projects start dates which can be impacted by weather conditions as well as the timing of product sales. We currently.

Expects total Q1 revenues to pull back to roughly the $40 million level.

Further although the profitability of our established operations are expected to remain relatively stable.

With the decrease in revenues in our increasing investments in geographic expansion and commercial infrastructure necessary to accelerate our growth in.

In the end markets, we expect our near term margins to see a headwind with Q1 likely pulling back into the mid to high teens.

Regarding corporate office spending we expect Q1 expenses will be in the $7 million to $8 million range.

Regarding cash flow as Paul will cover in more detail, we're carefully balancing the execution.

One of our strategy, while taking appropriate actions to navigate the challenging environment in us land, which requires a bifurcated approach to capital deployment.

In mass, we will continue to adjust our rental fleet size based on our utilization levels and the near term opportunities.

Which will impact both our level of capital investment and the sale of.

Assets from our rental fleet.

In fluids, although we are continuing to fund investments required to support AOCI and I don't see growth investments into the North American land market will remain very limited overall, we expect our capital expenditures will remain below 2019 levels until we see revenue driven.

Second necessitate additional investment.

Further I'd like to highlight that as we've seen historically periods of market softness provide a tailwind to free cash flow generation driven by reductions in working capital.

Regarding taxes with a continued weakness in US operations. We currently expect our tax rate will remain significantly.

Elevated in the near term.

And with that I'll like to turn the call back over to Paul for his concluding remarks.

Thanks, Greg, although the North American land environment remains very challenging it's important to note that we've been through this before and we have demonstrated our ability to pull the necessary levers to adjust course and deliver.

Consistent free cash flow.

And as we completed a long term strategy update in 2019, it's worth noting that mitigating the risk associated with North American market volatility was an integral part of the planning process.

Our strategy, which was approved by our board of directors in November is underpinned.

By several key elements intended to further diversify our product offering customer base and geographic scope.

In mass we remain focused on being an environmentally and socially responsible partner specializing in full service site and access solutions that reduce our customer total operating costs.

Cost and risks.

In our analyst day presentation, a little over a year ago, we laid out the details of our opportunity to expand into this multi billion dollar energy infrastructure market, where today, we still have limited market share.

I'm pleased to report that our extensive strategic review validated both the.

Addressable market size and our competitive advantages the resilience of our mass business has been demonstrated over the past decade generating consistent cash flow and solid returns on invested capital and with the majority of our mass segment revenues now derived outside of upstream MP, we're taking steps to accelerate our.

Growth into this multibillion dollar energy infrastructure market.

To achieve that goal, we're making investments on several fronts.

By expanding our geographical and commercial footprint to align with the key market opportunities.

Investing in new technology, and continuing with a disciplined expansion of our rental fleet.

Based on the near term outlook and opportunity set.

And fluids, although we recognize our business will always be tied to the MP market. They are key actions that can be taken to insulate our business from the market volatility and these actions are embedded in our strategy.

We remain committed to bringing environmentally focused solutions.

Solutions that have the ability to lower our customers total cost of operations and improved well performance.

This has been part of our DNA for over a decade.

We've long been known as the industry leader in providing water based technology to the oil and gas industry, including our evolution family of drilling fluid.

Systems.

And with the SG spotlight currently on our industry. We're confident that we will continue to provide operators of the solutions that aligned with their SG goals.

In addition to our continued commitment to environmentally sensitive innovations our fluids strategy is supportive of several key initiatives.

Which are intended to help insulate us from market volatility.

We plan to further leverage our growing I'll see announcing customer relationships around the world, which have provided greater stability and stronger financial returns through the industry cycles.

We've made meaningful progress on that front with one third of our 2019.

I mean revenues derived from this customer base.

In the Gulf of Mexico, our expansion into completion fluids has been very successful delivering proven performance demonstrated by our technical and logistical capabilities that now positions us for continued growth with this new product line.

Our relationship with.

A shell has expanded over the past year, where the recent war that will both extend and expand our scope of work through 2020, where we are poised to again deliver meaningful year over year growth.

We're also expanding our presence in the eastern hemisphere, winning several long term contracts in 2019.

Those.

A recent successes in the near term market Tailwinds, we expect our iOS season, I don't see business to grow in 2020.

I will see an NFC expansion remains a high priority.

In North America, we're continuing our efforts to build out our total fluids solution portfolio to expand our addressable market.

Opportunity in a low rig count environment.

We have already discussed the notable successes achieved in 2019 with the completion fluids pillar of the strategy, but in parallel approximately one year ago, we formally launched our stimulation chemical offering in the us and organic product line expansion.

Acquired limited capital investment, while leveraging our existing infrastructure capabilities and relationships admitted late 2019 was a challenging time to launch this effort and with the headwind of declining customer spend this translated into prolong product qualification timeline.

Despite not hitting the challenging targets that we set out for this business and its first year I'm pleased with the significant progress made with a number of key customers both in the us and the middle East.

Our momentum is continuing to build in early 2020 with the award of our first chemicals supply contract for a.

RAC fleet with a large us independent.

This contract will provide a platform to showcase our unique technical capabilities improve our superior products and services.

To the wider market.

Although the to total fluid solution initiative will take time to develop we remain highly confident in.

Our ability to capture a meaningful share the roughly $3 billion addressable market.

Overall I am proud of what the Newpark team has accomplished particularly in light of the challenging North American landscape.

I'm also confident we're on the right path and our long term goals remain unchanged to improve our.

Turns on invested capital by leveraging our existing infrastructure and maintaining a capital light model to maintain a strong balance sheet, which allows us to whether the market volatility on us land.

And to provide increased stability in our free cash flow through further growth in more stable markets across both segments.

With that I'd like to close the call, though is due by thanking our shareholders for investing in us and thanking our employees for their hard work and dedication and move our as wells are continued focus on safety.

With that we'll now take your questions.

Operator.

Thank you we will now be conducting a question and.

To answer session.

We would like to ask a question. Please press star one on your telephone keypad.

Information total indicate your line is in the question Q.

Press Star too if you would like to remove your question from the Q for participants using speaker equipment and may be necessary to pick up your handset before pressing the star.

One moment.

Please while we poll for questions.

Our first set of questions come from the line of previous owner of Raymond James. Please proceed with your.

Okay.

Hi, good morning, guys.

Good morning tickets I guess can start on the fluid side, So I guess breakeven for Q1.

We've done some more variabilizing of the cost structure as well as reducing the footprint. So I guess as we think about that.

As we move through the rest of the year.

Have we align the cost structure to today's activity level.

Now for or variable as it.

Enough such that we can get to kind of a mid single digit margin for that business by year end, given the tailwind that we're still seeing and Gulf of Mexico, and and stimulation benefits.

Sure as Greg ill take that.

As we've seen in the past when you do.

You see a meaningful.

Shifting the topline.

It does take a little bit of time, and so we did take a number of actions in Q4 those actions have continued in Q1.

So I think it's going to take a few quarters for that to work its way through in part of what you're doing is.

Well you waiting the region by region activity levels, and trying to evaluate short term weakness versus long term expectations and Thats why the takes a few quarters to work through.

No provide good morning. This is David.

Just to Greg's point I think.

Q4 was a sort of transition.

As us lawn draw we started to see the meaningful growth in the Gulf of Mexico, and while the Super excited about was now I would really given their performance with completion fluids were staying on the rig much longer than anywhere in the Gulf of Mexico.

Recent shale award.

We're going to have foodservice.

On two other three of the shale rigs drilling and completion fluids and we're working towards.

We will set us on three rigs so I think as the year moves forward will reach that critical mass level.

In the Gulf of Mexico, which I think will bolster the overall financial performance of the segment and also looking as.

To sort of late Q2 Q3, we're seeing some of the recent wouldn't started to manifest themselves in eastern hemisphere right. So the deepwater project in Cyprus some of the recent wins in Algeria, and we're seeing some other healthy unseat dynamics in the market in the middle East that I think is going to decision as to reach that.

The financial levels that you indicated by late Q3, Q4, and so just bring it back to your question I mean that kind of points to a Q1 of of like said breakeven then improving from there the jet exact trajectory of that.

As a little bit dependent on how the north American market behaves.

From this point forward as well.

Sure sure, but I guess.

Given the.

The flow through on the piano of the initiatives that are taking place in Q4, it sounds like a little bit more Q1.

North America shows you less of a drag even if activity doesn't improve significantly from here is that fair.

Or or does it can be as much of a drag.

No I think Thats, a fair point, because again back to those cost initiatives we are seeing.

The steady month over month cost improvements as we take these actions. It's just it's a gradual fair.

Okay.

On the Matt size just quickly.

[music].

Obviously, not MP significant portion of your revenue now so I guess I'm curious in terms of the breadth of your non MP, Matt customer base can you talk about how thats increase over the last year or what that's done over the last year.

And kind of where we stand in terms of.

Product awareness and just adoption bye bye bye multiple parties.

Yes previous Matthew ill take that one ill address it into pots. Firstly on the direct sales side I think if you look at at Q4 result, which was which was dominated by CND customers. We had over two dozen.

Customers.

Purchasing mats from us pleasingly, a number of them were repeat customers in the space, which sort of speaks to the values IC in the product on an ongoing basis.

So we're getting more breadth in that space on the rental and service side. We're also seeing similar expansion if you look at our.

It's been really to prove out capability with these end uses and make sure we had the necessary skill sets to service them.

In a credible safe and environmentally sensitive why which we've done largely around our existing a in the infrastructure in MP basins now were to stage, we were going to start to expand that to.

Are these customers want us to be and things are looking good on that front.

Okay. Thank you very much guys.

Thanks.

Our next set of questions come from the line of George O'leary of Tudor Pickering.

Any please proceed with your questions.

Morning, guys.

Morning warning.

[music].

Clearly a lot of work done on on the cost savings front end variabilizing those costs just wondered if you could frame for us the impact from.

Cost perspective to the business kind of quantify that little bit further and then also the.

The impact on maintenance.

Capex.

Going forward if there any notable changes to those two buckets there be super helpful.

Sure.

Greg Hill.

In terms of the fixed cost structure.

It is a bit.

Tough to to frame up because.

As volumes.

Changed dramatically all fixed cost become variable and so what we are going through as we had described is evaluating our footprint first and foremost and so we have a handful of locations that we have either now shutdown or are in the process of shutting down and Thats your step change of.

Taken some some of the costs out of that.

On the capital side of things.

The maintenance capital for this business both.

It's roughly 20 million is our maintenance capex fairly evenly balanced between the two businesses. How you should think about that obviously in.

In times like we are in in North America, we're being extremely prudent on all of our spend so.

That may pull that back a little bit.

Yes, George David Paterson, just to add to what Greg said.

We're actually taking a very deep blue.

Or fixed cost structure, mainly.

On us land with being in multiple basins in multiple locations. So we're doing a lot of were really streamlining about roofline and how that loops to support the business and twentytwenty. So we've taken.

Already some option to get out of some facilities theres more earmarked for Q sort of late one Q.

Two.

I will start to see the benefit of that newly into second half it to anybody.

Okay. That's that's super helpful. And then kind of piling onto on a per diems questions for that.

Outside of the business as you think about non upstream 90 in key opportunities.

Could you just frame that opportunity set down not looking for revenue guidance here just more.

The size of that opportunity set year over year as you guys go out from a sales and marketing perspective, and aware, which which pieces of the pie, whether it's more utility work or midstream worker.

And.

Where are you guys most acutely focused on on marketing and selling those mats in 2020.

Yes, it's Matthew will take that one again look at our focus is clearly on in primarily around the southern market regions in the tea in the space.

Thats, where we have.

And natural footprint to service that in some capabilities and where we see ongoing activity I think I think when we think about it we're not meeting significant ramps up in activity. The activity. There. We've just got to capture the share that weve.

That would be focusing on moving forward.

I mean as you look at your utility in.

Infrastructure within the you asked.

Theres a large concentration in the eastern corridor, there the east coast of the US and obviously, we've had limited presence more so around our NP activities in the northeast, but beyond that our footprint is largely about has been around the oil basins.

Yes that makes perfect sense I I appreciate the color guys I'll turn it back over.

As a reminder, if he would like to ask a question. Please press star one on your telephone keypad.

Our next set of questions come from the line of build zone of tight.

Capital Management. Please proceed with your question.

Okay. Thank you.

Good for questions here first of all relative to the.

You asked land and your efforts to make the cost structure more variable would you talk to how you are on how you were looking to do that.

What you are what you are doing to increase the variability of that.

The cost structure and then secondarily.

Would you also discuss in the Gulf of Mexico.

Your second customer there the number of wells, which you're expecting to be on and revenue levels relative.

To what you're expecting from shell.

During 2000 point.

Hey, Bill David petition and good morning, so intense so building the variable structure in us land, where can it we're not talking on multiple fronts right I think facilities as I've said I think with it.

Proliferation of unconventional business over the years on us lot roofline did expand right. So we're basically pooling dot and really looking at facilities and looking to the mud plants, where they're located to service. The work. So we're trying to move to more of a hub and spoke mode over weaken more efficiently.

We service older rigs that we have and im saying concentrated geographies of activity, but without compromising reset as growth in our deliverability.

Also we continue to develop technologies that I think will drive automation, we probably won't see that benefit and twentytwenty, but there's ongoing.

Yeah for is to look at how we can streamline really the service delivery associated with especially with pad drilling in the U.S. and increase proliferation of pub Julie.

Switching gears to the Gulf of Mexico.

Having locked in shell, both with external extending to scroll through twentytwenty on expanding about.

No to include completion fluids and reservoir drilling fluids is in a huge step forward for as the second you will see customer that Greg talk too on the on the call there was.

Hi.

This is actually a one off grassroots well we had.

We originally had that sort of pigeon.

Hold for starting in late Q1, we will see that no slipped into Q2, they're going to drill an extra well on the 10 company.

With the rate. So that's that's really the dynamics I hope that answers both the scalability.

Really some of the high level dynamics in the Gulf Mr.

Great. Thank you and.

A follow up would you. Please just take a step back and tell us what you're hearing from your customers about.

2020.

Activity plans.

As we go through the year.

From this.

This activity level forward.

Hi, Bill, Yes, certainly what we're hearing from our customers in the MP, it's all around capital discipline free cash flow back to their investors and so we're cautiously optimistic that will start to see a ramp up in activity in the second and third quarter, but again as they look to the fourth quarter and they look at their free cash.

So.

They could manage year end of activity as well so.

Again, I think it's going to be pretty flat.

For the year, but we'll see adding the biggest thing to watch as as we entered into this year. The one theme that we heard fairly consistently was.

The.

Important of maintaining a commodity price that was at least north of 50, and obviously very recently, we've seen that dipped down with some demand concerns. That's the one thing that puts could change the dynamics for customers.

Thank you all.

Thanks Bill.

Your next set of questions come from a line of Georgia Leery of Tudor Pickering, Holt and company. Please proceed with your question.

Hey, guys as just had one follow up question. Thanks, Phil Let me back in on the on the Med side of the business just want to make sure Im thinking about 2020 correctly.

We see us drilling completions.

Spend down year over year call it in that 10% to 15% ballpark.

But there are clearly opportunities on the TNT and non upstream side of the business as you guys framed.

The answer to one of my previous questions.

I realize you're not giving guidance for the full year, but is given those two kind of.

Conflicting revenue trends.

You can that business grow in 2020, and again not looking for for exact guidance here, but can you have year over year gross and from a topline perspective in that in that mats business and what kind of the puts and takes there.

Yeah sure.

I was.

So it is Greg I'll start and then neither Matthew recall and can add on but I mean, I think the important thing to note is that the.

The pullback that we've seen and as we described the 2019 result, a lot of that was it was it was all the headwind of the.

The oilfield activity coming down I guess, the good news.

Is that is is that it's now down to a fairly modest contribution even when you.

Look at.

The the rental and service here in Q4.

It only made up roughly $12 million revenue. So that's a much smaller base. We do continue to be concerned about that piece of it but it's now down to a much smaller piece the majority now being non.

And as as Matthew had described the what we're doing here to expand geographically. That's that's really our plan to now grow the revenues in this business. Maybe you look at the addressable market that we framed up a year ago at our analyst meeting.

We are roughly that team D market, we estimated.

To be about 3 billion and so what we've been doing and Matthews billed business is building out those core competencies and capability and now we need to expand geographically, but our expectation certainly as the business will grow year over year.

Great. Thanks very much.

We have reached the on the question and answer session I would like to turn the floor back over to management for any closing comment.

Alright. Thank you once again for joining the call and for your interest in Newpark and we look forward to talking to you again next quarter.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference.

You may disconnect your lines and have a wonderful day.