Good day, and welcome to the TETRA Technologies, Incorporated First Quarter of 2013 Results Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Mr. Stuart Brightman, President and CEO. Mr. Brightman, the floor is yours sir.

Thank you, Mike, and welcome to the TETRA Technologies’ first quarter 2013 earnings conference call. Elijio Serrano, our Chief Financial Officer is also in attendance this morning and will be available to address any of your questions. I'll do a brief presentation and overview and then turn it over to Elijio to provide additional details and commentary on our first quarter results then we will open it up for questions. I must first remind you that this conference call may contain statements that are or maybe deemed to be forward-looking statements. These statements are based on certain assumptions and analysis made by TETRA and are based on a number of factors. These statements subject to a number of risks and uncertainties many of which are beyond the control of the company. You are cautioned that such statements are not guarantees of future performance and that actual results may differ materially from those projected in the forward-looking statements. In addition, in the course of the call, we may refer to net debt, revenues, gross profit, profit before tax or earnings per share excluding the Maritech segment special charges or other non-GAAP financial measures. Please refer to this morning's press release through our public website for reconciliations of non-GAAP financial measures to the nearest GAAP measures. These reconciliations are not a substitute for financial information for period in accordance with GAAP and should be considered within the context of our complete financial results for the period. First quarter 2013 earnings of $0.06 per share excluding Maritech was slightly below the range we noted in our guidance on February 1st. The primary contributor to the shortfall was slower than anticipated first quarter activity onshore U.S. and Canada and a reduction in activity in Mexico as we exited the quarter. All of our other…

Thank you, Stu. Good morning everybody. Total revenue of $209 million increased 15% over a year ago reflecting the growth in Water Handling and Fluids and our 2012 acquisitions. Compared to the fourth quarter, revenue was down 10% due to the traditional seasonal decline in Offshore Services. Excluding Maritech, earnings per share of $0.06 were below our guidance due to the weaker than expected Production Testing activity in the US and Canada. All our other business units performed consistent with or above our expectations with Fluids significantly outperforming expectations. Our shortfall in Production Testing was primarily in the United States and Canada for the issues previously mentioned by Stu. On the Fluids Division revenue of $94 million increased 4% over what was a very strong fourth quarter. Compared to a year ago revenue was up 18.5% all from organic growth. The drivers of our continuing strong performance remain our North America, Water Management and Gulf of Mexico Fluids sales. Operating margins of 18.1% were only slightly below the fourth quarter of last year which you recall included significant one-off international product sales. Compared to a year ago, operating margins improved 360 basis points. Our Fluids Division continues to perform very strong given our vertically integrated fluids business model and recent investments in and high utilization from our water handling assets. We have ordered more deployment units and expect to increase a number of deployment units between now and September. We expect to be on an annualized run rate of a $100 million in revenue from water handling by the fourth quarter of this year, representing approximately 10% of total [10% plus] revenue. Production Testing revenue of $55 million was down 14% from the fourth quarter due to the previously mentioned lower activity levels in the US and Canada. Our customers’…

Thanks Elijio. In summary our first quarter results were slightly below our prior guidance with primary area of shortfall being an onshore North American production testing market. I would highlight despite the challenging North American market in some of our customers capital coming out slower than anticipated we have been able to grow in that market our water management, our onshore fluids as well as our Compressco businesses during the first quarter. We expect this market to improve and as Elijio mentioned we've seen evidence of that the last 60 days, but despite that we've taken very aggressive organizational reductions and other cost reduction measures. In Mexico we are experiencing a short term reduction in activity, but we view this as temporary in nature. In the meantime we've taken aggressive measures to offset that activity decline. We remain confident in our ability to deliver the full year guidance outlined in our February 1 conference call due to continued strength of our fluids business expected improvement in production and testing. The improvement as we go through the year and go in to a strong quarters and offshore services as well as the go-forward impact on the cost actions delineated by Elijio. We clearly recognize that over the past two years, we have made significant investment in production and testing and continue to focus in growing this business and realizing those returns that we expect. With that, I'll turn it back for questions and Elijio now will be happy to take all.

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from Mike Harrison of First Analysis. Please go ahead.

Just looking at the offshore business, as you pointed out, you guys showed a similar pre-tax loss compared to last year despite the fact that you had some $8 million of lower revenues. So clearly we're seeing some benefit there from the lower cost structure. Was the weakness on the revenue side there with a primarily having assets deployed and just kind of having bad luck with the weather, does you have things and more assets and dry dock than usual?

I would say Mike that on the topline for that segment, the major impact was some of the weather we experienced as we went through the quarter. We didn’t have an overly significant dry dock program during the quarter and some of that worked that didn’t get executed in the first quarter moves to the second and forms the basis of that starting backlog. So again even though, we were similar to last year lower revenue, we didn’t work as much as we thought when we started the quarter.

And I guess now that we have got five weeks or so of the second quarter under our belt and getting into the busier season in offshore, can you just give us an update on how things are progressing in that business.

I would say the progress of backlog is going strong for our major assets in the heavy lift and diving. We’ve got very strong backlog through the third quarter. Market competitive nature continues to be challenging, so I think the utilization will be good, the market environment will be challenging, we will continue to look for opportunities to find incremental areas where we can add value and continue to grind away on the cost, which we have demonstrated over the last several quarters that that management group has done a great job of exceeding our internal target and continuing to carry forward with that.

And then switching over to the testing side, can you just remind us how big is the international piece of the business now and what is the growth look like on international is compared to domestic if you could strip out the impact of acquisitions?

So Mike in the first quarter the production testing in the United States represented about 63%, 64% of our total revenue and that includes [ERS] and the Greywolf part in the Balkan. So I would see that excluding the acquisitions for coal production testing was slightly less than half being US legacy production testing already.

I was thinking more in terms of the sort of underlying organic growth rates, if we excluded the acquisitions presumably the US was down and international was up, is that fair?

The U.S. was definitely down and international was also down but by the single digit factor versus domestic being down very more.

I think in the international I will attribute that Mike as you are anticipating your follow up question is little bit related to the Mexico piece that we talked about as we exited the quarter and little bit related to just a timing of some other lumpy your projects out there, I don't see that as a trend, I think Mexico we kind of bracket it as short term and we see that improve as we go through the second half of the year from where we are at the moment and timing of international projects will improve as we go forward based on backlog we have.

And then last couple of questions just on Compressco you talked about some changes in the and sort of how you approach the engine repair side of that business. Can you maybe give us some more details on that and kind of what the returns on that projects looked like?

In the Compressco world the big part of the cost structure is always the field, service and maintenance side of the business, one of the real strengths we have as we get a very large deployed field service organization and we continue to focus on our cost efforts is improving one of the year as the management team is teed up over the last year is looking at an insourcing versus outsourcing engine repair and then moving down the outsourcing pact tied up with a strategic vendor that everybody is very comfortable with and we are transitioning that and as we transition you need to move inventory and get everything level out, so there is a normal startup period associated with that and it what was reference in Elijio’s comments for the first quarter, I think as we go into the second quarter and beyond you start to see that transition period move over to positive for us. And the net result attributable to that we think the long term life cycle of those engines will get extended and available over a long period of time drive down that cost enrollment.

And just looking at the benefit that you guys are seeing from slightly higher natural gas prices, can you give us some I guess order of magnitude of how much of the tail in that spend do you think its run its course already and is it sustainable or do we follow up as we see significantly higher gas production and the price income is up a little bit?

Yeah, I do not think its been a positive, I don't think its been lead driver of the overall performance but we have always talked about several trends in the Compressco business first over the last several years the team has done a great job moving into a liquid and non conventional applications and moving the mix what I represents in excess of 25% of the revenue and that trends continued and see that as an area we build in and we are making additional investment in that area. Internationally particularly Mexico and also other areas of Latin American and eastern hemisphere, we had grown we will continue to invest in that and we will work through the short term issues in Mexico. Again, as I said in my talks, I remind everybody and we've been in Mexico since the mid 90s and have had a long history of success down there. The legacy natural gas business was seen positive; I believe it’s growing slightly, it’s not the major catalyst, but it’s a nice positive trend that we've seen. Sensitivity analysis to that you know I think if natural gas stays in that $4 environment, we will continue to see that business continue to grow that subset of the overall business with Compressco.

Next we have Blake Hutchinson of Howard Weil.

I am seeing some good data so far on both Production Testing and Compressco and taking what you said about kind of sequential progression in Production Testing in the US. The fact that Canada probably works against you in that business and Mexico works against Compressco in the second quarter; would it be right to say that at least for 2Q the topline progression your feeling would be that its about flattish?

I would say that's directionally accurate because of some of those seasonal trends; I think if you look at the individual pieces, I would expect that the seasonality of Canada work against us. I would expect the short term impact in Mexico to be a negative for the second quarter. I would expect the other international activity to pick up as the timing of the projects and we’ve seen as Elijio referenced over the last couple of months the topline pick up in our domestic testing business. You net all that together, it’s probably going to be flattish.

And I guess in terms of timing of both your cost right sizing in the U.S. and in Mexico with Compressco; could the same be said for the profit line or is Canada big enough of a whack that we kind of have to take a step back in PBT before we get better in the second half?

So, in the second quarter, Blake, we’ll be incurring some amount of severance cost. If you exclude that, the benefit of all the actions that we've taken will give us stronger profitability Q2 versus Q1 for Production Testing in U.S. and Canada.

Okay, great. And then just to be perfectly clear on the segment as a final follow-up, the Production Testing business itself separate from Compressco; I hear you that there has also been a little bit of a pull back in activity in that or has that been unaffected and what's the feedback from the customer in Mexico at this point in time with Production Testing?

Yeah, we've seen a similar trend in Mexico for the testing business, and I think as we've referenced over a period of time, you know, within Mexico, even prior to the short-term pull back, majority of our business has migrated to the production enhancement Compressco side there, but during the end of the first quarter, we definitely saw testing come down and I would expect to see the trend similar to where I described and Compressco will pick up as we go in to the second half of the year.

Next we have Stephen Gengaro of Sterne Agee. Please go ahead.

Two questions; one is, when you look at the European business, its impact on the Fluids side in the second quarter; can you remind us the sort of magnitude we should be thinking about?

Yeah, we normally see a huge increase in our European calcium chloride business due to the customer mix and base and typically we would expect to see sequentially at least $10 million to $15 million revenue uplift from the first to second quarter with the associated margin on that. So it's material and as you are bridging the quarters and you look at the moving pieces you should certainly expect to see that benefit in our second quarter results.

Thank you. And then as a follow-up, when you look at your full year, is there anything that we should be really keen on that changes sort of quarterly proportion of earnings in each quarter versus your history; I know Canada is a little bit for with one acquisitions, but anything that sort of significantly changes that?

Yeah, and I would say if you look at prior years versus ’13, you have got the full year impact of having a much larger Canadian business, which we’ve talked about and I think with somewhat unique 2013 as you have got the timing of the anticipated recovery down in Mexico. So again that’s not a normal seasonal business down there, but I think as we outlined, we will see that second half of the year better than the first half in Mexico for the reasons Elijio mentioned.

The next question we have is Joe Gibney from Capital One.

Just a couple of quick ones from me. Just simplistically apologize if this was addressed earlier, but is there any change to your full year guidance of earnings, $0.75 to $0.85 or is that still intact?

That’s still impact. And the reason as I summarized that review it that way is we have seen improvement last couple of months on the top line, on the domestic testing despite the challenging market we are doing very, very on our other onshore U.S. businesses in water management and Compressco and onshore fluids. Overall fluids as a segment continues to be at or above where we had the guidance, we’ve got nice backlog in our Offshore Services business and we expect Mexico to get better in the second half of the year. And then you overlay that with the G&A costs that we have taken. And again as highlighted, Elijio went into a lot of detail and [it won't be share by understands] in addition to the volume related areas in districts and geographies where we’ve had reduced activity. There is a material G&A that came out that is independent of volumes and revenue, that is permanent and we will see that benefit as we go forward.

Okay, understood. And just to clarify with you, on your cost reduction effort, I know beyond offshore you are certainly targeting the entire organizations has been something you’ve talked about and certainly it was teed up in Production Testing at some point. I know you are accelerating these efforts now with North America off to a slower start. Just trying to ascertain timing of this, so your expectation to move forward cost reduction efforts on testing was probably going to happen this year, or it was going to happen in ‘14 and now with the slower start, you are moving this forward sooner or rather than later, joining trying to ascertain your thought process there, what changed so much structurally 4Q to 1Q that exacerbated this effort a little bit?

So, two areas, Joe, the first one is the division team took actions to reduce their local operating cost activity shifted around, so we had a couple of soft areas that they reduced cost in those areas and moved assets around. We expect that that occurs, week to week, month to month, as business fluctuate. The area that we accelerated, the work that we wanted to do was just overall G&A cost within the organizations. When we saw that the Production Testing numbers are going to come in softer, we work with the management team to get more aggressive in terms of moving up the target to address overhead support cost and then begin taking actions much quicker. So while we completed during the last part of the first quarter and into April, it was basically an assessment of all G&A costs whether they be corporate G&A or division G&A and then we started pulling triggers in terms of reducing cost, including a significant layoff that we had last month that cumulative reductions were 67 people incorporated in division G&A cost. So that is something that I think that we were going to be addressing more methodologically over a longer period of time, but we accelerated those actions. The remaining 5.5 that we have to go will be the benefit of changes in the business processes, in the streamlining of some of the actions that we have within the organization.

And just my last question associated with CapEx and potential asset sale. (inaudible) things ramping a lot higher, $100 million run rate year had been kind of 60 million potential expectation if I was wrong. So obviously you’re getting a lot of customer traction, utilization and pricing on this front. How do we think your CapEx now for the year Elijio and then how much of that allocation is to water handling? And then secondary, just curious on the DB-1 barge potential sales, is that still on the docket potentially happening later this year?

Right, for the water handling we have accelerated investment into water handling given the utilization and the returns that we are getting, so we are already spending above what we had budgeted and we are getting above budget returns in financial results on the water handling. We are doing this and up to the point it will be incremental to the amount that we guided. We will take funds from other areas that are underperforming and redirect capital for water handling. And we will continue to invest given the returns that we are seeing even beyond what we are doing to-date. Then with respect to the barge, we have targeted to sale, we still are marketing it, working through a couple of brokers. The offers that we've seen have not been attractive enough for us to pull the trigger on those as we are not in a fire sale mode. We are not in a situation to where we need to sell it because of liquidity purpose. We will cautiously keep working on this one until we get what we believe to be a fair price. In the meantime, it is at the dock incurring virtually no cost to maintain.

(Operator Instructions) The next question we have comes from Martin Malloy of Johnson Rice.

Just on the cost savings, just to be clear were the $11 million or the $5.5 million were they included in the initial 2013 guidance that you gave?

No, they were not in -- Stu mentioned why we feel comfortable with the total year guidance because we are seeing I think three factors in play here. Number one, we believe that Production Testing the slow start that we are seeing to the year, we have to make up that gap. That gap will be made up partially through the recovery of the business in 2Q, 3 and 4 but also there is a very strong performance we're seeing from water handling and also the completion fluid. Then in addition to that, the incremental savings that we're getting of the 11 already done and in place, plus the incremental 5.5 will help us over come what we believe to be the gap from Production Testing off to a slow start.

Okay. And then just a bigger picture, as you look out, say 3 to 5 years, can you talk about how the company might look with respect to the role that Offshore Services would play in the company longer-term? It seems like you are not allocating additional capital, and you are actually selling, at least one, one of your three parties there?

Yeah, I think on Offshore Services, we continue to evolve that business as we went forward. I mean two years ago, we made a major investment, $70 million in the [Hedrin] looking at long-term growth and opportunities and kind of matching that asset capability to where we see that decommissioning market evolving. So we've been successful on that. We've brought that in and had great customer response. Obviously, we're transitioning overall business there as Maritech finishes up the internal work hopefully by the end of the third quarter we're on target to do that. We've been very focused the last year filling that gap of, if you look at the amount of internal work we've done this year, the 30 million round number that we're going to do internally is less than half of where it was a couple of years ago. So the team continues to evolve new customers, new market opportunities. So we're very focused on that. We've been very focused on asset rationalization (inaudible) exiting some non-core businesses, we have great focused on cost reduction as the number, the 17ish number that was referenced by Elijio. All that is focused on a very competitive market optimizing what we have and we will continue to look at what areas we are in that make sense to expand and what areas are we need to continue to refine. So I don't know there is a more fully baked answer to that long term other than I think we are going to have a good year this year better than last year for the reasons we mentioned and just like all of our businesses, the most success the management demonstrates, the more we will continue to look at opportunities to grow us.

Next with Bill Dezellem of Tieton Capital Management.

Relative to the testing business you mentioned that you have the sequential improvement in last two months is that a result of your actions or the last two months improvement is that more a function of the overall market?

I would say it's more the latter, again clearly the top line for that business in the first quarter was less than we modelled and a lot of that had to do, like everybody else read all the material we talked to our customers, we have gone through this from the bottom-up across the organization district by district and it just seem in the first quarter the capital spend programs got rolled out a little lighter than we thought and we had a couple of our major customers that will particularly light on rolling that out. As we have seen the first quarter ended and migrate towards the middle of the second quarter and we have seen some of those customers begin to spend in line with what we expected, so I say overall is more of the overall market that is driven there.

Thank you. And then relative to the water handling business, what was the revenue number for 2012 in that business?

I’ll let Elijio pull that number but clearly we put a lot of investment and I think when we talk last quarter, we describe that business as being about 20% of the overall fluids segment. So the number Elijio referenced are exit rate this year is obviously higher then we start in the beginning the year, so 70 would have been above the number for the full year, we’ll exit higher than that and that is a pretty big increase overall what we had last year.

So if you look at the trend knowing that a lot of a capital has been deployed during 2012 and 2013 as gaining traction by year ago, we are analyzing to about a $40 million annualized run rate versus up taken at by Q4 of this year will be in a $100 annualized run rate, and there has been a gradual step up from that $40 million run rate to the $100 million of equipment that arising?

In the $40 million we did not actually do $40 million of revenues in 2012 but that was the run rate in 2012.

That was our run rate in Q1 of 12 and then this perhaps gradually been stepping up?

Okay, that is helpful, and then as we think about the significant ramp that you have experienced is there something happening in the industry that has changed, that has created this opportunity for you, or has something happened with the competitive landscape that is lead to your success or so anything specific that you can point to that would help us understand, how this opportunity, I guess I will speak for myself, as crept-up on us.

I would say over a period of time, we’ve done a pretty good job introducing some new capabilities that been incremental to our legacy business and the teams have been very focused on finding those opportunities in the market where that value is recognized, so it's be in a very focused effort on bringing new capabilities and matching that to where we can create value into customer, I would say it's a revolution in the market, I would deal it more as it's just been a very good execution by the team.

Next we have Ted Crawford of Roumell Asset Management.

Hey Stuart this is Jim Roumell. Two questions, in terms of your confidence going forward for the rest of the year, how much is tide to and I apologize if this is already covered, I am just recently joined, how much is time to your increasing confidence that work in the gulf is picking up and in particular, Anadarko indicated a giant find a month or two ago and wondering if you can comment on whether the TTI will participate with that? And just secondly any more color on any potential full spin out of Compressco?

Yeah. The first part of your question on how much of the Gulf of Mexico projections influence by comment, I mean I think we continue to believe that business will grow as we continue through the year. You know its run well for the last several quarters. We had pretty good visibility on our customer base activity over the next couple of quarters where we've expanded our manufacturing capacity. We will make our high end products and that's gone on well. So overall that's a good part of it Jim that we think what we've demonstrated last couple of quarters will continue to grow. I'm probably not going to comment on any specific customer projection I will probably stay away from that one and the third part of that question remind me again so I get that one right.

Anymore, any color on your thinking in terms of a future potential spin out of Compressco.

Yeah, I think we continue to as we've always said so we like our ownership position. We've intentionally retained that 83%. We started the business with zero debt. We levered up modestly. We still have ways to go, we are very focused on growing the business and I think as we grow the business and hopefully that necessitates us to put more equity in the business we will make those kind of investment options as we go forward but taking down our position is not an objective of mine. We will let that evolve over a period of time based on the relative economics. That would be much more focused on we have been able to increase distribution, we are growing the business for Compressco domestically and internationally. We got a short term challenge in Mexico which I categorize is temporary and as Elijio said he was down there a few weeks getting details on that and we want to invest in that business and grow it, make it much larger than it's current run rate.

Well, it appears that we have no further questions at this time. We will go ahead and conclude the question-and-answer session. I will now like to turn the conference back over to management for any closing remarks. Gentlemen?

Thank you Mike and I appreciate all of the good questions and Elijio and I will look at updating the group in early August on the second quarter results. Thank you.

We thank you sir for your time. The conference call is now concluded. We thank you all for attending today’s presentation. At this time, you may disconnect your lines. Thank you and take care everyone.