Good morning and welcome to the TETRA Technologies Fourth Quarter and Full Year 2016 Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Stuart Brightman, TETRA's President and CEO. Mr. Brightman, please go ahead.

Thank you, Steven. And welcome to the TETRA Technologies fourth quarter and full year 2016 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, as well as Joseph Elkhoury, our Chief Operating Officer. I'll provide a brief overview of the fourth quarter and full year results, 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 certain statements that are or may be 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 are cautioned that such statements are not guarantees of future performance and that actual result may differ materially for those projected in the forward-looking statements. In addition, in the course of the call, we may refer to net debt, free cash flow, adjusted EBITDA, adjusted profit before tax or adjusted earnings per share 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 complete financial results for the period. In my remarks, I would like to cover an overview of the fourth quarter and full year, the current market and our thoughts as we look at 2017. In the fourth quarter we saw several favorable trends and those have continued into the first…

Thank you, Stuart. TETRA revenue was $173 million, decreased sequentially by 2%, reflecting the seasonality of our offshore decommissioning business. Revenue for this division was down $17 million and very little work is done between late Q4 and late Q1 reflecting the Gulf of Mexico weather conditions as it impacts diving platform in P&A activity. Revenue increased sequentially for the other three divisions with compression increasing by 17% on higher equipment sales, fluids increasing by 2% led by strong U.S. onshore water management activity and international offshore fluid sales, and production testing increasing 2% led by strong international activity. The 2% sequential improvement in fluid is notable as the fourth quarter do not includes any CS Neptune projects compared to the third quarter when we completed our third CS Neptune project. We have previously communicated in early December that this fourth scheduled project was being pushed from the fourth quarter until the first half of 2017 and despite the lack of CS Neptune revenue, we are able to improve fluids revenue sequentially led by water management, and product sales onshore. The increased [indiscernible] have a meaningful impact on our water management business prompting us to make incremental equipment investments to take advantage of this uptrend which is also being impacted by better pricing. On a consolidated basis, adjusted EBITDA excluding Maritech and unusual charges was $15 million with adjusted EBITDA margins of 8.6%. We have remained adjusted EBITDA positive in every single quarter of this downturn reflecting the strong market positions we have with fluids, our very stable revenue stream from compression services, and our ability to aggressively manage cost and production testing, offshore services and with overhead expense. Even in quarters when offshore services is down seasonally, and we have not completed a major CS Neptune project, our consolidated…

Thank you, Elijio. And with that, let's open the line for questions.

[Operator Instructions] And our first question comes from Blake Hutchinson with Howard Weil. Please go ahead.

Good morning, guys. Just first a point of clarification around the 30 million to 50 million of free cash flow. Elijio, I assume that it includes your upstream payments from CCLP, but does not include the payment received from the El Dorado settlement.

It includes all the distributions we will be receiving from CSI Compressco and also includes the $12.8 million that we received in January. All that is part of our 30 and 50.

Okay, excellent. And then maybe a question just for Joseph. As we look at the production testing business, I think we sat here. As we sat we here at this time last year, you thought it was a possible goal to kind of work towards the [PVP] [ph] breakeven sometime in perhaps '16. And understanding pricing can be a major setback because it just falls right to profitability line. What changed over the year and how can some of these things or well some of the things start to remit itself, can you give us maybe greater visibility towards improvement for that segment?

Thank you, Blake. In 2015, our target was to be PVP neutral. When we moved into 2016 as the rig counts materially decreased in the first quarter, our target became to be EBITDA neutral, and try and make sure that we finish the year generating positive EBITDA which we've achieved for total 2016. The main reasons for that has been the pricing pressure and the material decrease in activity. As we turn from Q2 into Q3, and as we gave increased pricing concessions, we were as busy as we were in the first quarter, but then we were not generating enough revenue dollars to stay afloat, so Q3 and Q2 where kind of EBITDA negative. In Q4, we increased our revenue and those trends have continued into Q1. But due to the pricing concessions we have given with the start of - those results do include a few $100,000 we spent in Q4 to ramp up the equipment and maintain the equipment for contact wins in Q4 and early in Q1. So we spent a few $100,000 after a miserable year to really prep and maintain and certify equipment we're currently putting to activity. So moving into 2017, we are ramping up the activity. We have good positive signals in terms of overall activity, and we - with some handful of anchor customers have been able to move our pricing few percentage points. This is in North America. Internationally, as Stuart mentioned, we are focusing on Canada and we are focusing on Saudi. And the early indications we have in 2017 is already favorable. So we hope to come back and show moving into 2017 that our target should be closer to PVP neutral rather than EBITDA neutral. So the early indications are very favorable. We've put a lot of tactics. We made many changes on the sales organization. We focused on the more active basins like the Permian, the MidCon with the scoop and stack but we’re already seeing indications and good activity and contract wins in Appalachia and in the Rockies. So we hope to continue to demonstrate that the activity is coming in, as well as the margins. As Stuart mentioned as well, we believe that we won't have really good leverage on price until the second half of 2017 because of the supply demand for this particular activity in U.S. land. Remember that there was equipment to really go out and do frac flowbacks on over 2000 rigs and today we're at 700 and 800 rigs. So we have to have that calibrate before we have enough leverage on moving significantly the price for that particular segment.

Great, thanks, Joseph. That's a great rundown. I’ll turn the floor back.

The next question comes from Praveen Narra with Raymond James. Please go ahead.

Hi, good morning guys. So you guys mentioned that the fluid segment was stronger quarter-over-quarter specially normalized for Neptune. Can you think about how that margin improvement was quarter-over-quarter if we normalize from Neptune?

I that what you’re seeing is - we don't split up the sub-elements, but I think the important trend you should think about Praveen are, we’re getting a lot of traction on our water management. As Joseph said on testing, I think the pricing recovery will lag the activity for the reasons Joseph mentioned. I think on the water because of the niche that we have where we play the technology, we have the slope of that improvement both in activity and margins is moving very favorably and we anticipate that continuing. And same thing as you look at the onshore fluids there is a piece of the business we will sell our calcium chloride and calcium bromides into onshore applications and we've kind of accelerated some company owned distribution points in the active areas that we're getting good traction on that. In overall outside the big projects we had some pretty good activity in the fourth quarter both in the Gulf of Mexico and internationally. So we are encouraged by the signs effect the fact that we were able to maintain that lot of big projects shows you the trend is moving positive, we expect that would continue.

Right. And so I guess in terms of the North American pricing leverage that you might see in the fluids side, have we started to see that in that water transfer business, is it something we'd still on the horizon?

I think we started to see it and we expect it to continue to ramp up.

Okay. And then if I could just squeeze one more and in terms of the CS Neptune project timing it sounds like we are building in two for 2017. I guess one is that, what's built into the $30 million to $50 million of free cash flow or two projects built into that. And then kind of how do we get a sense of the firmness of those dates, obviously - what the customer wants to do but how do we think about that first half 2017 date?

I mean I will answer the first part of the question and let Joseph give you a bit more granularity on the opportunity set and I think we do have those two built into that range. I think the timing is we have said is going to be the first half of the year and certainly on one and the second one may first half of the year may go into early of the third quarter but the middle of the year on the second one. But I think more importantly than that is some of the sales pipeline that the guys have been developing. I'll let Joseph talk about that.

Yes in terms of the backlog Praveen for your model, we did mention in the press release that one is partial, it is going back to complete what we - the project we were on in Q3. So it's really not too fully long backlog project at this stage but in terms of opportunity, we have been having more success in confirming through tests to our customers that this is beyond just the niche project or the niche product that they can use. I think with improving market dynamics and with improving commodity prices, some of our customers are showing high confidence that they will like to utilize this environmentally friendly zinc free heavy grind fluid as an alternative because it helps them with the completion efficiency, it does help them with many other aspects of competing that. So we have two opportunities where we have done many tests and we feel that the confidence level is high. On one of the projects this is later in the year completion project because the well was spud the year in the first half of Q3, so we have not put in the backlog because we're not certain that we can execute on the sale before year end. On the second project we basically are going through the logistics, the MSA and the actual feed test or the lab test of the fluid and we completed about 85% of the lab tests and this - if it were to happen and the customer is willing to spend the dollars on with the end of second half of 2017. So we didn't want to be overly optimistic in our guidance but these are two high confidence projects if you will for TETRA CS Neptune.

All right, that's very helpful. Thank you very much guys.

The next question comes from Stephen Gengaro with Loop Capital Markets. Please go ahead.

Thanks, good morning guys. Do you mind as we look at the pretax profit by segment and sort of the margins obviously moving around a lot here over the last couple of quarters. Can you give us a sense for how you see this unfolding over the next several quarters. I mean without getting specific sort of what the drivers are and how we should think about margin progression over the next couple of quarters. It's real hard to - even to these points to some just kind of help us kind of calibrate 2017 as we go forward here.

Yes, so I’ll try and go through that. On the fluids I think one prior questions notice that we’re seeing the margin improvement onshore U.S., we expect that to continue sequentially throughout the year. I think on our normal offshore fluids business we've seen that was flattish, strong flat I think those held up very well during the last couple of years. Neptune obviously little bit lumpier, little bit higher margin as we noted historically I think Joseph laid out that landscape very well. Though we see flattish hopefully some opportunities are Neptune as Joseph mentioned. So I think the big pieces of that - then our industrial piece up a little bit very steady, very comfortable with that. So you look at overall those are all positive trends that we see margin wise on fluid as we look at 2017. Testing I think Joseph answered that. We've seen - in all the North American businesses each service line that's out there moves it different recovery rates both in activity and price. I think we've indicated fluids we're very happy with the rate of that. Testing is going to be little sticker on the pricing second half of the year, so that will come up later on internationally and I think we've highlighted a couple of the areas, there has been some price pressure last year, we think that's going to move in the right direction as we go forward. So I would think margins and profitability on testing trend up. On compression if you go back to the comments we made in the detailed comments the guys made on the CCLP call yesterday, received less price demands that new demands are flattened, utilization went up 1.2%, we expect that's going to continue. We've got very high utilization on our…

Great, that's a great one Stuart. The only follow-up I have is, in compression the revenues sequentially went up pretty nicely I think was about 17% but pretty back I think went from 5.3 to 12.1 both losses and I know you had this 2.5 million-ish charge in there or unusual cost, what else was behind that. I would have expected that to do it other way.

Yes, those were certainly that the inventory write-off that we had as well as the manufacturing cost over and that's over $3 million and then after that those are the main element any other details you guys want to add to…

In 2016 we had to give many pricing concessions and you know since these contracts are month at a time, pricing concession impact has impacted some in Q4 and here in the beginning of 2017 as those concession demands subside will be able to start in edging away price and improving the topline with the same or increasing horsepower utilization.

So with utilization up and then may be a little bit of pricing by the third quarter can that business with be pretax breakeven?

We're really optimistic, we're very optimistic on the second half of the year for compression as we increase fleet utilization and recover some of the pricing lost in 2016.

Great, thank you very much. It's helpful.

[Operator Instructions] And our next question comes from Connor Lynagh with Morgan Stanley. Please go ahead.

Yes, thanks good morning. Just wondering given how open the capital markets seem to be these days do you - have you guys been considering any further moves to either delever CCLP or replace some of your higher cost debt or anything along those lines.

I think as you will have seen the last 12 months was fairly active time period in the capital markets for us. I mean I think, I know the two gentlemen in the room with me would agree with me and I think we did what we needed to do in an efficient manner and just like I think we have been very proactive dealing with whatever challenges there and fixing it and be in a great position to recover. Same thing on an offside we are very plugged into sources of capital, cost of capital across both companies and we are always looking at where the opportunity is to further strengthen what we have, that's an ongoing iterative process and something that, at the market continue to evolve if there is opportunity for us to bolster strengthen we will do that.

Fair enough. You're talking a lot about, about how much the offshore services backlog was up, can you give us a feel for how much we're talking on a year-over-year sense or just what exactly that translates to and as a follow-up does that mean we're moving closer to the potential sale of this business that you guys have been talking about or is that sort of on the back burner for now.

Without getting into the specific umber that's up there, it’s up materially and I would say we have a very large portion of our internal revenue plan in backlog currently. And if you go back to prior years we always kind to say its early in the year now ask that question on the early May when we do the first quarter and if the backlog not clear by then, that's a good alarm but we were very pleased with where we are, the indications we're having and we'll continue to evaluate our portfolio which that's one of them and the guys are very focused in improving the business getting the profitability and quite honestly not focused on other issues other than making money. But we'll always look at the opportunities for the various businesses.

Got it. Thanks a lot.

Next question comes from Jon Hunter with Cowen. Please go ahead.

Hi guys, this is Jon on for Marc. So just a clarification one on the CS Neptune project that was pushed from the fourth quarter the first half. Should we be getting that project fully in the first quarter or is it something that maybe stop the startup, kind of mid-quarter and flows into 2Q.

Yes, I think we've been very clear first half is different than first quarter so again one of the things we try to reinforce our Neptune it's very important, we're spending a lot of time on it but not try to be pinned down to a specific month or quarter and think of it in broader storks we build one full that’s going to happen in the one that partially started last year and equally as importantly as Joseph referenced a growing sales pipeline that we feel good about.

Okay great. Thank you for the clarification. That's it from me.

And this concludes our question-and-answer session for today. I would now like to turn the conference back over to Stuart Brightman for any closing remarks.

Yes. Thank you very much. It was always great questions. I appreciate the interest and the team looks forward to updating everyone early May on the first quarter. So thank you very much.

And this concludes our conference for today. Thank you everyone for attending today's presentation. You may now disconnect and have a wonderful day.