Q1 2020 Earnings Call

Greetings and welcome to the Newpark resources first quarter earnings Conference call.

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

A question answer session will follow the formal presentation.

If anyone should require operator system started conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host tended art Investor Relations for Newpark resources. Thank you Mr. Jin art 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 first quarter 2020 result.

With me today, or Paul how Newparks, President and Chief Executive Officer.

Greg the object Chief Financial Officer.

Matthew Flanagan.

The mats business.

And David Paterson Rosemont fluids business.

Following my remarks manager will provide a high level commentary on the financial details of the first quarter results in near term outlook.

Before opening the call for QNX.

Before I turn the call over to manage what I have the normal housekeeping details to run through.

There will be a replay of todays call it'll be available by webcast on the company's website at Newpark Dot com.

I'll also be a reported replay available until may 20 or 2020.

Information is included in yesterday's release.

Please note that the information reported on this call speaks only as of today base there 2020.

Therefore, you're advised the time sensitive information.

No longer be accurate as of the time of any replay listening or transcript greedy.

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 <unk> current views of Newpark management, however, various risks uncertainties and contingencies could calls newparks actual results performance or achievements to differ materially from those expressed in the statements made by management.

Listeners are encouraged to read the annual report on form 10-K.

Quarterly reports on form 10-Q, and current reports on form 8-K, you.

You understand certain of those risks uncertainties and contingencies, including the potential impact of Cobot night team.

The comments today May also 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 parks website.

Now that behind me I'd like to turn the call <unk> parts, President CEO Mr. Paul else Paul.

Thanks, Ken and good morning, everyone well, our focus remains on the health and safety of our employees their families in the communities where they live in work we continue to manage through the impact of the cobot 19 pandemic. Both here in the U.S. and around the World Thankfully. Your Newpark, we have only a few confirm coded cases among arm.

Please.

The vast majority of our employees around the world have been able to continue to service our customers do the pandemic as both of our businesses have been considered essential services.

On a related no. We're proud to announce that we have recently joined the fight against Cobot 19, leveraging our chemical blending capacity and expertise to help meet the increased need for a variety of disinfectants and cleaning products.

After recently, obtaining the necessary regulatory approvals from the food and drug administration and the environmental Protection agency production on a certain cleaning products is now underway at our conroe chemical blending plant, which I'll cover more detail my closing comments.

Now turning to the market conditions, the unprecedented collapse of the oil and gas industry created by the Corona virus and the resulting imbalance of supply and demand has caused the price of oil declined historic lows.

As a result, we moved quickly to adjust our cost structure, including headcount reductions in furloughs.

Temporary salary reductions the majority of our U.S. employees, including executives and the board of directors and the suspension of company contributions to our U.S. retirement plan.

These are tough decisions, but necessary to downsize our cost base to match the current and anticipated decline in activity.

Fortunately for Newpark, we've been working diligently over the last several years to reduce our dependency on the U.S. shale market executing strategic actions across both segments.

These actions have strengthened our position and diversified our revenue base, but approximately 57% of our first quarter consolidated revenues generated outside of the U.S. land MP market.

Over the last several years, we've highlighted the importance of this strategy in order to achieve the returns desired by our shareholders.

Well the unprecedented decline in U.S. land activity and the uncertainty we are now facing it is more critical than ever that we continued to execute that strategy.

We recognize that the recent collapse in oil prices will likely have long lasting effects in the U.S. land market, requiring Swiss structural changes to further rightsize our fluids business.

As discussed in previous calls we have already undertaken significant actions to reduce our us fluids operational footprint driving towards the more variable cost structure.

But in light of the cobot, 19, pandemic and the resulting longer term supply demand imbalance, we've accelerated an expanded efforts to reduce our cost structure as well as the level of invested capital in the us land business.

Outside of US land, it's important to note that while we expect all markets, we'll see some impact from coal bed and the collapse in oil prices, we anticipate our heavy iOS C and NRC concentration in both international and Gulf of Mexico markets will result in greater revenue stability relative to us land, which is.

Consistent with our experience in 2015 and 2016.

Further with the EMEA region I'd like to highlight that are clean Zorba subsidiary acquired last year was recently awarded a contract extending our supply a patented breaker products in Saudi Arabia for an additional two years.

For the North American volatility are expanding role in the middle East is now more meaningful than ever to our fluids business.

And our mass business, it's important to highlight that we're not facing the same situation as our fluids business.

Apart from the immediate Corona virus headwinds impacting the timing of both product sales and utility projects are medium to longer term outlook remains unchanged.

Through our diversification efforts in recent years, we've shifted our dependency away from the U.S. land DMP markets.

The energy infrastructure and other non DMP markets now generates roughly 60% of our total mass segment revenue while the revenue contributed from oil focused basins has declined to less than 20%.

Accelerating our growth in the utilities and other non MP markets remains a strategic focus as you look beyond the reopening of the us economy.

Well the medium to longer term outlook and competitive landscape in the utilities and non MP markets remaining intact our strategy in the mass segment remains unchanged.

Now turning to the specifics of the quarter.

Our fluid systems performance is relatively inline with expectation posting first quarter 2020 revenues of $133 million relatively flat sequentially.

North American fluid system revenues improved 4 million sequentially as seasonal strength in Canada and continued growth in iOS season, the Gulf of Mexico were largely offset by a 7 million sequential decrease in U.S. land.

For the first quarter U.S. Lan contributed $58 million of revenue in fluid systems outside of North America revenues pulled back by 6 million sequentially to 46 million in first quarter, reflecting a combination of anticipated timing of customer activities as discussed on our fairways call as well as the unanticipated.

Co bed related delays in March.

In the Mats segment rental and service activity remained relatively stable during the quarter asides from a modest cobot related slowdown caused by logistical restrictions in March.

Product sales declined by 23 million sequentially to 4 million in the first quarter. This decline was due to a combination of anticipated pull back on the record Q4 results along with delays and a number sales orders in the us and European markets by customer, citing growing market uncertainty related to the coach.

Shutdown.

And finally I.

I'd like to note that consistent with our plans identified on February call. We began to address our December 2021 convertible note maturity.

Purchasing 15% of our outstanding bonds during the quarter. We ended the first quarter, the net debt of $114 million, including cash balance of $49 million and a total debt balance of $163 million.

Despite the impact of a temporary lag and receivable collections near the end of the quarter and growth in our mass inventory due to order delays, we generated positive free cash flow during the first quarter.

We remain committed to taking the necessary actions to ensure a free cash flow generation through the oil and gas industry downturn.

We have a solid balance sheet with available liquidity under our credit facility and meaningful opportunities to reduce our working capital as we did in 2015, and 16, which positions us well to settle not only our debt maturity, but also fund our ongoing operational needs.

And with that ill hand, the call over to Greg to discuss the detailed financials over the quarter.

Thanks, Paul and good morning, everyone.

I'll begin by covering the specifics of the segments in consolidated operating results for the quarter, followed by an update on or near term outlook.

In the fluid systems segment revenues from US land declined 10% sequentially to $58 million in the first quarter, reflecting a combination of a 4% reduction in us land rig count a modest softening in market share and a decline in the number of wells drilled per rig with the declines being felt across.

Most us land basins.

The softness in US land was partially offset by a stronger contribution from the offshore market as Gulf of Mexico revenues improved to $16 million in the first quarter, reflecting a $3 million sequential increase.

In Canada revenues reflected the typical Q1 seasonal uptick improving to $13 million in the first quarter and $8 million sequential increase.

Outside of North America as we discussed on February is call due to the timing of activities within key contracts, our international revenues pulled back 12% sequentially to $46 million in the first quarter.

With operations in the Middle East and Africa, showing the largest declines.

In addition to the anticipated decline based on project scheduling our EMEA region also experienced unanticipated cobot related disruptions late in the quarter, most notably in Italy.

On a year over year basis, our fluid systems revenues declined 17% compared to Q1 of 2019.

This $28 million decline includes a $39 million reduction in us land revenues.

Offset by $10 million of growth in the Gulf of Mexico, which benefited from our expansion into completion fluids.

While our international revenues have also increased 4% year over year.

As discussed on our February call, we initiated action plans in Q4 to rightsize, our operational footprint and drive to more variable cost structure in the us land market.

With the recent impact of coated in the longer term industry headwinds that we now face we significantly expanded and accelerated these actions.

To date, we have exited four of our U.S facilities and we are evaluating the closure of several additional facilities based on the evolving longer term outlook.

In addition, we are taking actions to reduce our centralized us support infrastructure to adjust to the market slowdown.

Overall, we reduced our us fluids workforce by nearly 30% year to date, while also implementing furloughs and reductions in employee compensation and benefits collectively reducing our annualized personnel expenses by approximately $25 million.

Our.

Many of these actions were taken within the past month.

Our first quarter fluid systems result included $1.2 million of charges related to inventory write downs and employee separation costs.

As highlighted in Yesterdays release, resulting in a 2 million dollar operating loss and EBITDA of $3 million in the first quarter.

Turning to the Mats business total segment revenues declined 42% sequentially to $32 million in the first quarter.

Largely reflecting the anticipated pullback in product sales following the record fourth quarter result.

As Paul touched on in addition to the anticipated pull back in product sales from the strong Q4 demand. Our first quarter was negatively impacted by a number of orders totaling more than $10 million in revenues being delayed by customers, citing cobot 19 uncertainty, resulting in $4 million of product sales in the quarter.

Although our rental projects experienced a modest impact from Kogut as we exited the first quarter total rental and service revenues remained flat sequentially relatively in line with our expectations.

From a mix perspective, roughly 60% of our total segment revenues in the quarter was derived from the energy infrastructure and other non S&P markets.

Of the $13 million of revenues derived from S&P markets more than half of that was generated in the gas focus basins in the northeast.

Comparing to the first quarter of last year, Matt segment revenues declined $19 million, largely reflecting a $14 million rental and service revenue decline in the us land NP market.

Along with a $4 million decline in product sales.

With the $23 million sequential decline in product sales.

The map segment operating income declined to $12 million as compared to the fourth quarter, resulting in first quarter operating income of $3 million, an EBITDA of $8 million.

Total corporate office expenses declined $2.3 million sequentially to $6.7 million in the first quarter as compared to $9 million in the fourth quarter.

The sequential decline was driven in part by lower charges associated with workforce reductions.

As the first quarter includes $200000 and severance charges as compared to $1.1 million in the fourth quarter.

The remaining sequential decline is due to reductions in personnel expense and lower spending related to M&A activity.

On a year over year basis, corporate office expenses declined by $5 million.

Primarily reflecting the impact of a $3.4 million charge in the prior year associated with a retirement policy change.

Along with lower legal and professional spending and personnel costs.

As gionee costs were $25 million in the first quarter compared to $28 million in the fourth quarter and $31 million in the first quarter of last year.

The sequential decrease primarily reflects lower severance charges.

As well as decreases in legal and professional spending and personnel expense.

Year over year decline largely reflects the $4 million charge from retirement policy change in the prior year.

As well as lower personnel expense.

And legal and professional spending.

We purchased $14.5 million par value of our convertible notes for $13.8 million during the first quarter.

However, despite purchasing the notes at a 700000 dollar discount to par the accounting rules required a $1.6 million noncash write off of unamortized debt discount and issuance costs associated with the purchase notes, resulting in a 900000 dollar loss on the extinguishment of debt.

With the benefit of the decline in interest rates and the convertible note repurchases interest expense declined $3.2 million in the first quarter of which roughly half reflects noncash amortization of facility fees and discounts.

As of the ended the first quarter the weighted average cash borrowing rate on our debt facilities was approximately 3.2%.

The first quarter provision for income taxes was $200000. Despite reporting a pre tax loss of $12 million in the period.

This result reflects the impact of the geographic composition of our pretax losses.

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

Our net loss in the first quarter was 14 cents per share.

Which includes charges of two cents per share as highlighted in yesterday's press release.

This compares to a net loss of 19 cents per share in the fourth quarter, which includes charges of 19 cents.

Net income was one cents per diluted share in the first quarter of last year.

Now turning to our near term outlook.

In fluids, we expect to see meaningful revenue headwinds in the second quarter, driven by a sharp decline in us land activity as well as the seasonal decline in Canada.

In April our us land revenues have trended closely with the overall market rig count declined and we expect that to continue in the near term.

In the Gulf of Mexico, We expect our activities will remain significantly more stable than us land subject to any cobot related disruptions, which today have fortunately not had a meaningful impact on our us offshore operations.

Looking outside of North America, Although we also expect our activities will remain more stable than us land our operations have not been immune from the global impact of cobot 19, with restrict the restricted movements of personnel quarantines of staff and logistical limitations, causing activity disruptions and project.

Ways, particularly in the EMEA region.

The middle East remains the most resilient while activities in Europe, and Africa are seeing the impact of coded restrictions and project delays with Italy, showing the most significant impact.

Well the duration in magnitude of the ongoing health and depth pandemic are very difficult to predict we currently estimate our international revenues will decline by at least $10 million sequentially in the second quarter.

In terms of operating margin, while we're continuing to take the aggressive but necessary cost actions in the us and targeted international markets.

We recognize it will take a few quarters for the actions to drive improvement to the bottom line.

Further while we are currently ramping up production of cleaning products. We expect the business line will provide only a modest benefit to Q2.

Consequently, we anticipate the fluid segment loss will increase in the second quarter.

It's important to highlight that the majority of the invested capital in the fluids business consists of inventories and receivables with the segment carrying roughly $250 million of net working capital as of quarter end.

As we right size the business and impacted markets, we expect to drive proportional reductions in networking capital overtime, which provide a tailwind to cash flows.

In the mass segment, although our rental and service activity has remained fairly stable. The visibility is very limited at this point as customer projects remain dependent on a variety of coded related factors, including the issuance of governmental permits as well as a potential supply chain and logistical restrictions.

To the extent that these factors impact our customers, we could expect to see some short term work stoppage or delays in project timing until the economy reopens.

Similarly on the product sales side.

We expect customer orders to remain limited until they gain confidence in a broader economic recovery.

That said customer quoting activity remains robust both for rental projects and product sales.

And with the majority of our business now levered to non in P. end markets. We expect the Matt segment to improve to more typical performance as the economy reopens.

Regarding corporate office spending.

We expect Q2 expenses will remain near the 7 million dollar level.

With respect to taxes, we expect we will continue to see a modest net tax expense.

As the expense associated with profits from international operations will likely outweigh the tax benefit from U.S. losses.

Turning to cash flow first quarter cash provided by operating activities was $4 million substantially all of which is attributable to a net decrease in working capital.

Cash used in investing activities totaled $3 million in the quarter.

Which consistent with the previous quarter demonstrates our ability to adjust course in managing our net capital investments and cash flow.

As Paul mentioned, we are aggressively pulling the levers to maintain continued free cash flow generation.

In light of the changing market conditions, we have eliminated all non critical capital investments, which we expect will reduce our total capital spend for the remainder of 2020 to roughly $10 million.

Further with the anticipated market softness.

We expect strong cash generation from reductions in our roughly $280 million of net working capital, particularly as we right size, our U.S fluids business.

Our leverage remains modest with total debt balance of $163 million and a cash balance of $49 million as of the end of March resulting in a total debt to capital ratio of 24% and a net debt to capital ratio of 18%.

Our primary debt components include the remaining $86 million of convertible notes due December 2021, and $79 million outstanding on our US asset based bank facility, which runs through 2024, we currently have $82 million of availability on this facility.

Although substantially all of our $49 million of cash on hand resides in our international subsidiaries.

We are executing actions intended to reduce this balance in the coming quarters, and we plan to use the repatriated cash to reduce our outstanding debt.

We are continuing to take the actions necessary to prepare for the December 2021 maturity of our convertible notes, which remains more than a year and a half away.

We currently anticipate that are available cash on hand cash generated from operations and availability provided by our existing us asset based loan facility to provide sufficient liquidity to support our ongoing operations and our convertible maturity.

As we've noted in the past it remains our intention to fund the maturity without any need to access public capital markets.

It should also be noted that we have additional sources of liquidity available should the need arise.

We have meaningful use real estate as well as assets within our European operations that can be used to create additional liquidity through secured financing or alternative arrangements.

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

Thanks, Greg as.

As we navigate through these turbulent times in the uncertainty of when the economy will restart went to highlight three themes at the heart of the Newpark value proposition that I believe will drive growth opportunities and continue to set us apart first we will continue to provide outstanding service to our MP and non MP customers.

Around the world, whether we are providing access solutions to utility companies in North America, our drilling support to our oil and gas companies in the desert of Algeria, or an 8000 feet of water in the Gulf of Mexico Outstanding Service quality has always been and we'll continue to be a hallmark of newpark.

Second.

We will continue to focus on growing our mass business in the energy infrastructure market, where utility companies are recognizing our performance advantages, including our positive impact on the environment.

And third.

We will continue to pursue opportunities for growth in our international fluids business predominantly in the EMEA region, where we expect longer term activity to remain more stable than in the us.

Market volatility is not new part, but certainly the demand destruction created by the coded pandemic is unprecedented in our industry's history.

We had newpark intend to face the storm head on and emerge a stronger company.

Not unlike the 2015 2016 cycle. The current crisis provides an opportunity for us to change the way, we do business and reposition ourselves within the marketplace.

When the industry rebounds, which it will we'll be able to capitalize on our competitive advantages to drive consistent free cash flow and returns on invested capital.

So let me provide details on one example of how we are quickly leveraging our capabilities in response to the unprecedented market changes.

Our conroe chemical blending plant was opened in 2016 originally to provide specialty products the us MP market.

Our highly skilled personnel and best in class facility are well equipped to meet the chemical blending and packaging needs for a number of industries and these capabilities are highlighted at video that can be found on our website.

Having received our first custom order, we recently generated our first revenues from cleaning products and we expect additional customer orders to follow.

The speed at which we've been able to adapt this facility in response to the changing market demands is a direct reflection of the ingenuity their people and the flexibility of the conroe blending and packaging facility.

I firmly believe that our world and our way of life will change as a result of the code virus with higher long term demand for disinfectants and cleaning products being one of those lasting changes.

This line of business provides us with yet another avenue of expansion outside of the volatile oil and gas market.

Finally, I'd like to remind you that even the face of these unprecedented times, our balance sheet and liquidity positions remains solid we will continue to take the necessary actions to strengthen our balance sheet harvesting cash from working capital and minimizing capital expenditures as we adjust our footprint in the oil and gas market.

And continue our strategic transition.

We've been through downturns before and we know what levers to pull to rightsize our business. We haven't experienced team that is capable of making the tough calls and moving quickly to adjust to the ever changing landscape.

With that I'd like to close the call as always do by thanking our shareholders were investing in us and thanking our employees for their hard work and dedication in new part as well as their continued focus on safety.

We'll now take your questions.

Operator.

Thank you we will now be conducting a question and answer session.

We'd like to ask your question you May press Star one on your telephone keypad.

A confirmation and total indicate your line is there any question Q.

You May press Star too if you would like to remove your question from the Q.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

Our first question comes from the line of Probuphine Naira with Raymond James. Please proceed with your question.

Hi, good morning, guys.

I wanted to I wanted to start on the cost initiatives and how we should think about how those are being enacted.

And.

And how much more we should expect to see.

When we think about what's taking place today and then what may take place down the road.

Looking at each individual facility and ensuring that Thats facility is cash flow or EBITDA positive and then and then getting there or is it saying, okay. What we expect this market to be the size and therefore, we will cut our scale to that eventual size willing to take on some period of EBITDA or free cash flow negative periods.

Sure. So this is Greg I'll start and then then kind of handed over to David I think.

I think it's important to highlight as we look at the cost initiatives.

It's really targeted on the most impacted markets, which here is the us as we kind of talked about here to the international markets, we expect beyond coded to be much more stable the mats business much more stable. So we're really talking about the us fluids business.

The cost cutting that we have taken to date has.

Really been kind of keeping pace.

With that the activity coming down and that's one of the keys to it is moving very quickly on that.

But we recognize as we go forward here youre going to have markets that have different long term outlooks than prior cycle 2016, and Thats, where we get into what I describe a little bit on the call or on a on the in my earlier comments regarding.

Some structural changes that will need to evaluate okay. This is no longer expected to be a market of this size how do we restructure David you want to add to that yes. Good morning provision.

When I look at the fluids business today, and I look at three geographical pillars, and when I look at these pillars today theres different dynamics in each of them.

US land is dropping and if you look at us land today, it looks very similar to what it looked like in May 2016, no. We expect a further softening in the rig count. So we will be taken further actions and UN slung to structure for that rig count at the end of Q2 in early Q3.

So Mexico loops very resilient.

We have good exposure with the are you will see customers with diversified into the completion fluids space. So we see steady activity with the majors in the Gulf of Mexico. The biggest concern to Rehabs in international markets. The rig the rigs have been impacted internationally have been impacted because of the coal that situation rather than the economic.

Nicole oil price factors.

So we will see probably will have a better visibility in international markets in the in Q2. So the big focus for US is really us land and building a scalable structure that we've talked about on prior calls on that and proving to your point our goal is to address all regions that.

Would be negative EBITDA, our cash and so to rightsize the business and what we're looking at is basically whether it's your firm or other firms rig counts could be as low as to 40 to 50 and all of our financial modeling is around hitting those kind of levels and rightsizing the operations and not bleeding cash.

On us.

And that's really important for us to here, we're very happy to hear you guys were committed to free cash flow positive cycle through downturn.

And so one too was important to us I guess, when we think about.

You guys, obviously variabilizing cost structure significantly.

Can we be sufficiently variables such that in any given quarter can be lumpy, but any over any meaningful period of time. So we should still be EBITDA positive.

Yeah.

I think thats, a tough one to call and because this market is moving so fast and we have not only the rigs dropping off you also have coded disruption et cetera.

You take a step back and you look at the longer term view and as Paul mentioned that focus on making sure that we can maintain cash flow positive, but in the interim periods as you've seen in the past when we're taking costs out the pace at which you can take it out in the lags you can't necessarily say that you can maintain it all the way through but thats, what youre focused on getting too.

Within that gold and there's there's always that lead lag and how fast the rock is dropping right how quickly wing tear out the expenses, but now that we're committed to doing that but it's tough to commit to through the periods right yet.

If I could ask one more just on working capital.

You guys you guys don't seem terribly concerned on the collectability of receivables, but we've seen significant pain, particularly of us.

Are you as customer base on the S&P side.

Can you give us a little bit more color on that and how we should be thinking about that collectability and how thats.

Translates into working capital benefit for 2020 or any way to think teradyne further yet I think theres a couple of things to point out part of it is your customer base and you have to remind yourself that on a on a global level.

We have roughly 40% of our revenues in the fluids business is coming from aisle season at overseas. So that that obviously has a very different.

Picture to it on a on a credit risk perspective us there's no question, it's a challenging environment.

As we do have the ability.

Too.

Secure our receivables through lean et cetera, I think history is the best guide to to see how that plays out we went through a very challenging time in 2016, and when you look back at our debt bad debt experience during that period of time. It was it was not it was really didnt change from.

Our historical experience so theres no significant elevation to the bad debt, yes, just speaking about the quality receivables. During this call we're not bashful about placing lee on the wells and quite honestly.

Most unconventional wells produce and were part of the construction process of those wells. So that's what we view the in prior cycles and we will continue to do in this cycle to ensure that the quality of receivables are well are necessary to generate that free cash flow that we've talked about.

That's very helpful. Thank you very much guys.

Okay.

As a reminder of star ones ask your question.

Our next question comes from the line of George O'leary with Tudor Pickering, Holt and company. Please proceed with your question.

Good morning, guys.

Good morning warning.

Just.

Adding on to pick whatever means questions.

I think about both fluid then Matt from.

Near term versus second half of the year decremental margin standpoint.

Yes.

Sounds like near term Decrementals are probably going to be a little bit harsher than they historically are are they are in a normal environment and then you would expect the margin pressure to kind of abate in the back half of the I Wonder if you could talk about.

One is at the right way to think about it and then to how that differs between the fluids business and and the mats.

Sure.

So yes taken one by one so on the fluid side.

As as we've seen historically, our detrimental margins have been.

Historically, they ran in that 20% to 30% range, both incremental decremental margins.

That is your natural flow through that you would expect to see in the near term ABS and more straw more structural.

Cost reductions and Thats, where as David went into and a little more detail what were what we're looking at doing there. Obviously, we're taking the actions and have taken the actions to date that have really been keeping pace with that but we recognize that to improve on that we have to take some more structural actions and to that point those will take a few quarters here before we.

I would see that work out.

On the Matt side of the business.

There there there's not anything really.

Structurally changing in the business I mean, obviously, there is a high decremental coming coming off because that was the mat sales and that was in a typical range of what we usually see there. It's a question of when the revenue picks up again and that is a co bid question more than anything of when our customers.

Start to get a comfort level with the economic outlook and therefore continue with their projects and their purchases when that happens we would expect that the incremental margins from that revenue would be in the typical ranges that we've seen historically.

Okay. That's very helpful. And then you guys provided some good helpful color around kind of that the balance sheet and the leverage and your ability to deal with that Greg you can just too as you as you generate incremental free cash flow as you progress through 2020 and blow down some of that.

Net.

Working capital and as you kind of re size business.

The first.

Priorities for that cash to continue to whittle away at the debt balance at a discount is there.

Any desire to just kind of.

Hoard cash on balance sheet, how do you think about uses of that free cash flow generation or where your first and second priorities might be.

Yes, I think you obviously, it's a balance right you have to.

You want to continue to build your your liquidity and so as you.

[music].

Do take the working capital down that enhances your liquidity position that's important to be able to continue to fund your operations, but theres. No question. We also have our eye on that December 2021 maturity and we want to make sure that we're in a position to to settle that while also funding the operation. So I mean, all the say it's it.

Let me when we collect cash is going to reduce our bank revolver, and so thats, reducing our overall debt and enhancing our liquidity.

Okay, great and sneak one more in if I could say.

International onshore markets, the offshore color, it, especially with respect to Gulf of Mexico.

Let's move helpful framing that international onshore markets for that fluids business, a little pockets of relative resilience and the areas any geo markets, where you're seeing more pronounced pressure internationally onshore.

Hey, George as David Paterson, the Middle East remains the most resilient right. The challenge we have in the Middle East is the travel restrictions impacting ability to crude change get people to the well sites et cetera, but in work through that very well im very proud of how does it team has handled out.

Been away for extended periods of time from their families.

We really haven't missed a beat that is extremely challenging I expect the middle east to remain strong and remained resilient.

Activity.

Continues fairly steadily.

Around Europe, there's a lot of rigs been shut down because of the cool that situation ability to move people in products on move rigs between countries. So I think there's a lot more uncertainty there.

But.

Once the dust collectors in there on the visibility improves im fairly optimistic of a return to some meaningful activity I.

I think North Africa, probably is where there's a bigger question mark in terms of activity, but again, it's a very it's a very economic picture the picture changes.

Probably twice a day.

I think it'll be probably a month before we have some clarity on the resumption of.

Key activity is not part of the world.

Great. Thank you guys very much for the color.

You bet George.

This concludes our question and answer session I'd like to hand, it back to management for closing remarks.

Thank you once again for joining us on the call and for your interest a new park and we look forward to speaking with you again next quarter. Thank you.

Ladies and gentlemen, this does conclude todays teleconference.

Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.