Welcome to the Tetra Technologies Incorporated Fourth Quarter and Full Year 2015 Results Conference Call. [Operator Instructions]. I would now like to turn the conference over to Mr. Stuart Brightman. Mr. Brightman, please go ahead, sir.

Thank you, Allison and welcome to the TETRA Technologies fourth and full year 2015 results conference call. Elijio Serrano our Chief Financial Officer is also in attendance this morning and will be available to address any of your questions, our Chief Operating Officer Joseph Elkhoury is also joining us on the call. I will provide a brief overview of our fourth quarter results and then turn it over to Elijio for some additional details which in turn will be followed by your 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 are subject to a number of risks and uncertainties many of which are beyond the control of the Company. You’re 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, free cash flow, revenues, gross profit, profit before tax, earnings-per-share excluding the Maritech segment or other non-GAAP financial measures. Please refer to this morning's press release or to our public website for reconciliations of non-GAAP financial measures to the nearest GAAP measures. These reconciliations are not a substitute for financial information prepared in accordance with GAAP and should be considered within the context of our completion financial results for the period. In my remarks I would like to cover an overview of the fourth quarter, a brief outlook into the next several quarters in the market assumptions that go with it. Our fourth quarter adjusted earnings excluding Maritech and special items were $0.1 per share. This…

Thank you, Steve. TETRA revenue of $258 million was down 15% from the third quarter following the completion of significant Gulf of Mexico fluid projects and lower compressed equipment sales. During the same time period the U.S. rate count was down 13%. Profit before taxes was a loss of $230 million in the fourth quarter which included several significant noncash charges that I will outline. Given the downturn in the market the outlook for weaker earnings and lower stock prices for both TETRA and CSI Compressco we recorded goodwill and intangible implement apparently charge of $177 million which included $139 million for CSI Compressco and $38 million for Production Testing. The goodwill impairment charging are pending completion of our normal audit review. Additionally we performed a comprehensive review of all of our assets made the decision to write-off and dispose of assets that we believe to be obsolete or excess in this environment. The total of these asset write-offs was $44 million and included $12 million for compressors, $12 million for older Production Testing equipment, and $20 million for older water transfer equipment. The write-off of these assets was done in conjunction with our continued actions to rationalization and focus our efforts on selective markets and customers. We also incurred $9.9 million of additional charges which included $600,000 for severance, $761,000 for bad debt expenses, $1.6 million of expenses to retire a portion of our private notes with the proceeds from the recently completed $125 million refinancing, and also $6.7 million for a cumulative equity compensation charge. Of the noted charges only $600,000 worth of cash charging for severance. Excluding this special charges and also excluding $2.8 million of Maritech losses adjusted net income for the fourth quarter was $950,000 or $0.1 per share and compares to our previously provided…

Thanks, Elijio. Again, in closing I want it talk a little bit about the first quarter guidance we reflected and also a little bit about our overall outlook going forward. As noted in the press release, given the weakness in commodity prices, seasonality of our businesses, we're expecting a first quarter GAAP loss of between $0.21 to $0.29 per share and a first quarter adjusted EPS to be a loss of 15 to 20 per share reflecting the normalized tax rates that we typically carry. Additionally we expect first quarter TETRA only free cash flow of between breakeven and $10 million. Again, the first quarter has historically been TETRA's weakest quarter given the seasonality of our operations. So as we look at this clearly Offshore Services always has the weakest quarter. This year will be no different. The north march activity as we go through the fourth quarter has impacted fluids and testing and as we look out for the balance of the year, we expect the second half to have stronger activity in the projects in the Gulf of Mexico as well as getting the seasonal benefits that we see second quarter in fluids as the year progresses in the second and third quarter and Offshore Services. Most importantly, under any scenario that we look at with the proactive cost reduction actions we have taken we certainly believe we will be free cash flow positive going forward. As Elijio referenced in his comments we de-levered we're under two debt-to-EBITDA and our maturities are only $47 million over the next several years through 2019. As we look broader and as we speak to our investor base, clearly the questions we always get is survivability of small caps I have mentioned we de-levered five quarters in a row, we don't have maturities. We're going to be positive free cash flow virtually nothing drawn on our revolver. We feel extremely good about the strength of our balance sheet. We'll continue to allocate judiciously capital to our higher return businesses, controlled capital in TETRA and CCLP as we noted and in the longer-term basis we fully believe our continued strength on fluids presents opportunities to us and we will reflect that in the margins we see this year. With that I will open it up to questions and be happy to respond.

[Operator Instructions]. And our first question will come from Sean Meakim of JPMorgan. Please go ahead.

I want to starts off talking about fluids and we're seeing a number of rig releases in the Gulf of Mexico as well as some other markets. Just looking to get a sense for what type of visibility you have on-demand and margins and into 2Q and 3Q in 2015 really important quarters for you and just in addition to that any change to the expectations with respect to Neptune potential pilot program opportunity in 2016.

Yes I will let Joseph give you the detail, I think overall we see opportunities in the second half of the year including Neptune, but I will let Joseph give you some more color on that.

So let me start with the Gulf of Mexico. We have benefited in 2015 from the expanded customer base and from the continued success of CS Neptune like we referred to overall. We want to expand beyond the single customer with a niche application. We have spent a considerable time with many customers trying to figure out how to expand beyond that single niche applications and we have lately seen extremely renewed interest in this fluid system and we hope to be able to capitalize in the second half of 2016. Unfortunately, in the first half of 2016 we have experienced a couple of dry holes with two of our top customers. The reason we have moved into thinking that this is a second half impact is because those two wells wherein our backlog moving into 2016 and we have had a great impact on our results we do not control unfortunately these outcomes but this will impact the first half of the year. We still believe we have a very good backlog with their current drilling program and we would see considerable improvements in the second half of 2016 like I said. With regards to chemicals, our main focus has been to replace the visible reduction in oil and gas products by aggressively holding our oil and gas market share and pursuing non-oil and gas alternatives. We have managed to sign few customers outside of oil and gas but again, unfortunately in Q4 moving into Q1 we have also seen a soft winter demand for [indiscernible] sales. With our water division wonder and completion fluids in U.S. land we saw real deterioration in the rate counts. We dropped 140 rigs in Q4 or 17% and in the last eight or nine weeks we dropped another 180 rigs or 25%. So this is really impacting our Q1 and may push into Q2 as well. I hope I answered your question.

Yes. Sure. And so then I guess perhaps one of the more under rated parts of the uplift you got in the fluid margins has been the capital upgrades that you did to your production facilities. So as we're talking about the macro headwinds on the demand side, could you give us some more detail around how those changes you made can impact margins essentially keep margins kind of buffer margins if activity continues to surprise to the downside this year?

Your first part of the question is accurate. We made capital investment and capital improvements in both [indiscernible] as well as Aldo as well as West Memphis over the last few years and we continue to see the productivity and efficiency gains and that's clearly part of what we have seen in the margin performance in 2015. Clearly we expect that to continue and to continue to get better as we continue to roll those out, that will partially offset but again the reality is the biggest part of the fluids is going to be driven by the overall demand and the mix of business. So it will help offset it. It will continue to be a positive, but the items that Joseph highlighted to me are the more material items as we look at the new year.

Our next question will come from Kurt Hallead from RBC. Please go ahead.

So just trying to get a sense from you, are there sense of stabilization whatsoever at this point or change in degradation in business activity that would maybe suggest we're getting close to stabilization?

I think you got to look at each of the segments to answer that question. I think on the fluids we're still seeing the impact of the rig count sequential decline as Joseph mentioned so domestic testing, domestic onshore fluids that includes the water business, the product sales, that's certainly in my mind is still trending down as we go through the back end of the quarter. At some point it's going to stabilize and we will hit bottom but I'm not certain we're there yet. We're planning our business on the assumption that it's going to continue out a bit and then hopefully hit bottom so that North American part even in the last 30, 60 days is significantly worse than we exited the last -- in the year. I think if you look at the offshore markets, as Joseph said, we have got a couple of projects in the backlog that are going to happen. We are quoting other opportunities for Neptune that we think so again I think the market for completions is still going to be solid not at the level number of projects as last year, but I think as we go to the second half of the year we will see pretty strong environment there. Offshore Services I would say if anything the inbound inquiries in the first quarter as we measure them are higher than they were a year ago. The fact that we had seasonally strong fourth quarter. We picked up some in and out business that wasn't in the backlog at the beginning of the quarter. I think that's all positive. I haven't seen a market get better, but our positioning is better, our customer -- our competitor landscape has changed over the last year. So we probably feel neutral to positive to that business relative to last year and then the compression business I thought the team did a great job on the call yesterday, out lining some of the trends on the equipment sales backlog, the cost actions associated with it, the way we're looking at the fleet, cutting back capital. We still think the premise of this business that it's much stickier than your typical service business. I absolutely believe I think if you look at the distribution I think that people shouldn't be confused on the distribution versus how well those results are. We have been very conservative and our team thinks we're going to have another strong year there. So it depends on the market. It's one of the benefits we have is the diversity of our markets, the fact that we have a big midstream presence, an industrial non-energy part of fluids, a Gulf of Mexico deepwater I think certainly has played out well for us in 2015 and we expect that to continue.

Our next question will come from Jason Wangler of Wunderlich. Please go ahead.

You mentioned in the piece and a little bit in your comments about the Production Testing side and that the international market is doing well and obviously we're experiencing the domestic stuff. Is that a situation in which you have or that you would actually move equipment from the domestic market out or is it more just a function of just utilizing what you have in the regions?

I think historically we've been very good about moving assets to where the work is. We have done that in some of the international projects. Some of the projects that we have done internationally that have helped us has been a combination of new capital deployed in conjunction with moving it. One of the things the operating guys have done a really nice job of lessons learned over the years and some of these projects where there's a 12, 24 month duration making certain at the end of the project there's the opportunity to sell that to the customer so we don't have stranded assets. I think we have done that really well over the last year. So there's some areas we have done some projects in the Middle East last year that we think gives us some opportunities in that same region based on the operational success and we will continue to do that and at the same time continue to take the cost actions domestically as we have demonstrated our abilities to do last year.

Okay. And obviously with the first quarter guidance and assuming that we hopefully stabilize looks like cash flow positive certainly is going to be another thing that you guys are able to do well this year. Obviously there's not a lot of bank debt left, just curious where you're thinking about putting that public opinion to work as we go forward with the year?

Yes. I think that's a great question and a great observation as we've de-levered we have gotten down to having virtually nothing on the revolver. So when we generate the cash, we have got several populations options. I think we'll continue to be extremely judicious on how to redeploy capital and I think between the three of us we have set higher hurdle rates and we're very, very detailed in the review and there's areas that Elijio may want to -- I will ask him to comment on from the balance sheet that we can look at as we generate that cash.

I would add, Jason, we mentioned on the call that we're going to make an initiative to invest and extend our ERP system into CSI Compressco. We identify the payback from that investment, it is a very rapid payback of less than two years. So those are the kind of investment decision, that we're looking for that have a material significant impact on operating costs, efficiency and then if we get into position to where the $23 million outstanding on the bank revolver is completely extinguished then we might take a look at some of the existing notes that we have in place an maybe use some of those funds to retire some of those private notes that have a maturity beyond this year.

And one comment I would add to that, Jason, because if falls under the broader commentary of just managing the portfolio looking at alternatives and I think we have done a really good job over the years of looking at the businesses we're in, the capital structure we have and figuring out ways to generate shareholder value beyond just the operational side. So as we look at both companies and we look at where we are, we're very cognizant of where there's opportunities and we will continue to look at the balance sheet and in the structure and not only on conservative basis as we have done but also on a proactive basis to make certain as these opportunities come up and again if your assumption is we're going to be at this commodity price for multiple quarters, clearly we're going to be one of the survivors and there's going to be other opportunities out there that we continually think but how do we fund, how do we go after, what does it look like and that's a big focus of the management team.

Our next question will come from Martin Malloy of Johnson Rice. Please go ahead.

I was wondering maybe if you could update us on the outlook for some of the international markets and maybe give us an update in terms of the percentage of your revenue now that's coming from international for Production Testing and the fluids businesses.

Yes. Again, at a high level -- last year we were close to 50:50 on the testing, I think based on the direction of the market the majority will be outside the U.S. in 2016 and on the fluids we were about 70:30 and that's probably similar going forwards, but to give you a little bit more color on region and what's going on I will let Joseph comment on that.

Alright. So on Production Testing, you know, with this continued domestic activity and pricing pressure and less overall activity, we will continue -- we have not abandon the idea of [indiscernible] neutral, so we continue to manage our costs aggressively and so far we have been able to diversify the customer base to replace some of this activity drop. Internationally we have like still mentioned closed on the early production facility in [indiscernible]. We now have streamlined that organization and we are aggressively hunting for similar attractive opportunities. We've a pipeline that is respectable but we have also the customers reluctant to invest in the short-term. So we're working with them on figuring out what will happen. The demand in Latin America has continued to be soft moving into 2015. Some projects have delayed in Brazil but that has been countered by small improvements in Mexico. In Argentina we have continued to manage the price to make sure that we safeguards the margin. In Saudi, our biggest kind of footprint we have experienced and continue to experience significant pricing pressure from the larger competition. The two larger services companies. We have adjusted our cost base accordingly to reclaim the share and a fair rig assignment schedule. That gives you an idea about how about we foresee the international markets versus the domestic market in Production Testing. On the fluid side in the domestic space we have continued to introduce new technology. Overall in 2015 we are able to expand the regional footprint in U.S. land with water and completion fluids and we have won market share although the pie has shrunk we believe that our position is better than our competition. We are also able to win first call on significant contracts with the automotive [indiscernible] and have continued to get more contributions from some water treatment products that we have introduced. In Q1 we’re currently running six units in the MidCon area with [indiscernible] technology. For completion fluids international, we have seen in Q4 and moving into Q1 a significant weakness in the North Sea. We have had good performance to counter that in Latin America and the Middle East and are looking to replicate some of these successes in the first half of 2016. We continue to benefit from the introduction of additives that add value to our customers. As an example, oil fix [ph] treatment that we introduced to one of our customers in Africa has resulted in $8 million of savings for that one particular customer on that well and eliminated the need to move those fluids back to shore for treatment. We are pleased with several of these momentum new technologies especially with other products such as TETRA Clean after using online and starting to introduce in the international market. So overall with regards to the percentages maybe the revenue will be 70:30, but we expect that the contributions from the margins of these international projects to significantly safe guard us in 2016.

One last question and I'm sorry if I missed this on the Compressco call yesterday. But the equipment sales backlog do you think it's near a trough level down here?

We are seeing an increased amount of bid activity, but practically speaking we're taking a very cautious approach to it and assuming that it's not going to recover to any significant extent this year and that's why we’re right sizing the business. Now, if we close on some of those quotes that are out there we could be surprised but we're not going to count on it.

Our next question will come from Joe Gibney of Capital One. Please go ahead.

Elijio, just a quick question on CapEx. Sorry if missed it. I was just trying to get the TTI only level CapEx. I know you characterized 1Q at $6 million I just didn't know what the forecast was for the full year if you provided that, I got the Compressco split but what's the TTI only level split for 2016?

Joe, we're not going to provide total year guidance but you can assume that Q1 is probably going to be reflective because we're going to try to minimize any capital investments and restrict it only to high return projects, but assume that Q1 might be indicative of what we will be doing for the year.

Okay. And then last one for me just on the fluids mix question at your analyst day you guys give a refreshed percentage look at water management, on-shore oil and gas, non-oil and gas and offshore and oil and gas splits. Do you happen to have those numbers handy for the full year now for '15? I could follow up off line if its easier?

We obviously have them. I don't know that we want to go into that level of detail. I think based on our comments you would assume that the water side trending down based on the activity, the industrial piece is holding up and flat to up. The offshore Gulf of Mexico we think the first half will be modest. Joseph referenced some of the projects in the backlog and other things as we go through the second half of the year and international we talked about some of the strength in those markets. So without going into the sub segment detail it's kind of a flavor of how we see the trends on that.

[Operator Instructions]. Our next question will come from Jim Wicklund of Credit Suisse. Please go ahead.

Maritech, how much more of a financial obligation do you have? How much cash are you going to spend on Maritech and when does it go away completely?

In rounds numbers it's about $50 million and we spent about $10 million last year. I would sense would be a similar magnitude this year and we will continue to spend the work as required from a regulatory point of view, but not accelerate anything that doesn't need to be done

So what you're doing now is your minimum requirement you will keep doing that?

Yes. Absolutely, Jim.

Just knowing that is a huge help and we can quit looking for it if we know it's always a way.

Yes. That's a great idea.

Every time you say excluding Maritech, you know for everybody on this telephone [Technical Difficulty], on compression clearly it's been one of the most resilient businesses [indiscernible] downturn, you’re going to generate $39 million in free cash flow after distribution if I heard you right? And then I know you’re saying you will look at doing different things, are there growth opportunities today in compression? I mean growth capital in most every other business is mute-point because there's no demand. Could you put more compression out? Is there demand?

Let me first clarify the $39 million. What I laid out is what we accomplished in 2015 that we generated a $102 million of cash flow from operating activities of which--

I just assumed it would be somewhat flat so whatever the capital is regardless.

So we are full folding back on growth capital because with the tight pricing environment we're not getting the rates of return that we're targeting so we're going to be very conservative in terms of building new equipment. Now, if opportunities come up that we can buy some of the assets of some of these oil and gas companies or midstream companies and we can get comfortable with a counter-party risk, we can get comfortable with the returns. Clearly that's an avenue that we will pursue. We will look at existing customer base and they're growing demand and we need to ramp-up manufacturing to address those needs with good returns, we'll do that, but right now we're going in very conservative and cautious for this year.

I would add to that, Jim, that I think the short-term we're making all the right tactical decisions on cost and capital deployment. At the end of the day if you look at the results last year, you know, the EBITDA levels, the EBITDA margins, the cash flow from operations kind of the stickiness of that business relative to other businesses out there, still makes us feel real good about our position there and our long-term future. So I think I hope from the call yesterday and some of our commentary today we'll get that message across that still an incredibly strong business and if you look at the degradation from the peak to where we are today and where we expect to be going it's still rather modest.

Okay. And where we are today? What would you guys tell to be the leading-edge return on new compression placement? I mean basically I'm asking what is your hurdle rate when you talk about good returns? You're in a zero interest rate environment almost. What's a good return? What's the leading-edge return in compression today?

I think we would want to see the typical mid-teens type of return and you kind of overlay that with -- in the short-term the cost of equity. You got to look at the balance sheet. We've got a like most MLPs we got a mid fours debt-to-EBITDA, we don't want to push that distribution mitigates that, capital constraint mitigates that but when you look at the short-term cost of raising debt and/or raising equity that long-term return kind of gets put in the back burner for the short term just from a practical point of view. So I think we need to let the market settle down a little bit, do the tactical execution, continue to maintain strong coverage ratios as we indicated and I think we'll be fine in that business.

Jim, just to add one more statement here. You know, this is looking at it from our side from the customer side, you know with gas being at 1.8, 1.9 top two it's economics of where they want to invest may be today not very attractive. So as the commodity price, the gas price starts recovering, I think more demand might just come in just because it becomes more economic for the customers.

Ladies and gentlemen, this will conclude our question and answer session. I would like to turn the conference back over to Mr. Brightman for any closing remarks.

Yes. Thank you and again as always great questions and I will leave with one more time just congratulating the employee base for the outstanding 2015. The support of our workforce in dealing with the tough environment that we're in. You know, we have taken wage cuts all the way from the Board through the executive down to all the workers. We appreciate that support and we think we're going to continue to outperform others in this really tough cycle, generate free cash and be incredibly well-positioned to be a winner when the market does start to improve. So we look forwards to catching up everybody up in May on the first quarter results.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.