Good morning and welcome to the TETRA Technologies Third Quarter 2019 Results Conference Call. The speakers for today's conference call are Brady M. Murphy, Chief Executive Officer; and Elijio Serrano, Chief Financial Officer; and Jacek Mucha, Vice President of Finance and Treasurer. 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 will now turn the conference over to Mr. Mucha. Please go ahead.

Thank you, Drew. 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 the company. You are cautioned that such statements are not guarantees of future performance and that actual results 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, backlog, coverage ratio or other non-GAAP financial measures. Please refer to this morning's news release or go 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. I will now turn this over to Brady.

Thank you, Jacek. Good morning, everyone. And welcome to the TETRA Technologies Third Quarter 2019 Earnings Conference Call. I will summarize some highlights for the quarter then turn it over to Elijio for some additional details which will be followed by your questions. I would like to start again by thanking the TETRA and CSI Compressco employees for delivering another strong quarter and it's a challenging industry environment. For the second consecutive quarter, our EBITDA margins improve sequentially across all three business segments. And our management employees did a good job executing our strategies, while proactively adjusting our cost structure to rapidly changing conditions. Although the revenue for our businesses was flattish sequentially, we perform well relative to many of the macro market indicators, such as the U.S. land rig count, which on average declined sequentially more than 7%. Again, we did a good job across both companies navigating this challenging environment. On a consolidated basis we achieved the $46 million adjusted EBITDA quarter this down 8% from the second quarter, but primarily as a result of the seasonal decline in our northern Europe industrial chemicals business that peaks in the second quarter. This is highlighted by the fact that our adjusted EBITDA was up 11% from third quarter a year ago while average U.S. land rig count was down over 13% year-on-year. Completion fluid continues to benefit from improved activity and key offshore markets, as we've seen an uptick in our demand for products on top of a favorable product mix plus some pricing improvements. Our adjusted EBITDA margins improved sequentially by 130 basis points to 23.7% and are the highest EBITDA margins for this division since the fourth quarter of 2015. When we exclude any benefit of CS Neptune The industrial chemicals business within completion fluids remain strong…

Thank you, Brady. I'll spend a few minutes on free cash flow, capital expenditures, the balance sheep, then CSO Compressco's capital allocation strategy. In the third quarter, TETRA only generated free cash flow from continuing operations of $9.7 million. This compares to $3.1 million generated in the second quarter of 2019 and $35 million consumed in the first quarter of this year. We have historically consumed cash in the first half of the year and generated free cash flow in the second half of the year. So we are trending along those lines. We expect to generate positive free cash flow from continuing operations in 2019 and exceed the $3 million that we generated last year. For TETRA-only, we expect full year capital expenditures to be approximately $25 million to $30 million in addition to $15 million of equipment that we've agreed to buy and lease to CSI Compressco supporting their high return opportunities. TETRA-only capital expenditures in third quarter were $8 million in compared to $20 million in the first half of the year. TETRA-only net debt at the end of June was $192 million with cash on hand of $21 million. Our debt structure does not include any material maintenance covenant, which provides us the flexibility to maneuver volatility in the market. As always, I like to again remind everyone that TETRA CSI Compressco's debts are distinct and separate. There are no cross default, cross collateral, or cross guarantee from the debt between TETRA and CSI Compressco. I will spend a minutes now on CSI Compressco. CSI Compressco, cash flow from operating activities was $27 million, a significant increase from $8.7 million generated in the second quarter of 2019. At the end of September, CSI Compressco’s total gross debt outstanding was $657 billion, of which $350 million of…

Thank you, Elijio. And before we open to questions, I just like to summarize and reiterate a couple of key message to leave with you. Again, overall I'm pleased with our results this quarter as demonstrated by our second consecutive quarter of increased EBITDA margins for each of our three business segments and a 250 basis point improvement in overall TETRA EBIT on margins over Q3 of last year. We're confident we'll be able to complete the Gulf of Mexico well, which is scheduled for our CS Neptune completion fluids in the fourth quarter. While North America land market is experiencing pricing pressures and potential budget exhausted by our customers, we're committed to optimizing our flexible cost structure to adapt any new market conditions. Although North America land businesses we resilient in the third quarter, we don't expect to be immune from the potential budget exhausted in industry macro indicators that point to a weaker fourth quarter for our water and flowback business segment. Our successful strategies to differentiate from our competition is validated by a large TETRA pay contract to work for our latest descending flowback technology, introduction of monovalent CS Neptune and TETRA’s first ever nominations for World Oil awards, Our compression division continues to achieve operational and financial record highs. And we continue to see this business strengthen even amidst sign of weakness throughout the industry. Lastly, we remain very focused on cash flow generation and still expect total year TETRA only free cash flow to exceed $3 million that we generated in 2018. We generated free cash flow in the second and third quarter this year and looking forward to ending on a very strong note. With that, let's open it for some questions.

We will now begin question-and-answer session. [Operator Instructions] The first question comes from Praveen Narra of Raymond James. Please go ahead.

Hey, good morning, guys.

Good morning, Praveen.

I guess, when we think about the CS Neptune well, it sounds like you guys are pretty confident and that getting completed in 4Q, but can we talk about how the 2020 schedule may play out? What -- do you think we could see any of the kind of Halliburton co-works coming through in that timeframe or how should we think about 2020s profile of that?

Yeah, thanks, Praveen. As I mentioned, we've had a lot of really good interest in our monovalent completion fluids. Introduction and we are expecting, you know, some business in the particularly the North Sea for our monovalent CS Neptune's in 2020. It's a little early to predict. You know some of the larger deepwater projects for our generation one Neptune at this point for 2020, but we hope to have a little more clarity as we you know see the budgets for our customers into the new year.

Okay. And then I guess just thinking about the fluids markings ex-CS Neptune without having the project in 3Q were still fairly strong. Can you talk about the ability to hold that if we if we don't see the CS Neptune projects or how do we think about 3Q as a kind of normalized margin?

Yeah, we've communicated before. We think our base completion fluids business was holding up very well. We I think communicated -- we think consistently we can achieve 20% or above EBITDA margins for that base business without CS Neptune and based on what we see right now as we look at the market Q4 and beyond for next year, we believe that's still very much intact.

And Praveen remember that we are vertically integrated in the bromine market that the long-term agreement to get the elemental bromine. That vertical integration contributes to our door steady margins.

Right. Okay. If I could squeeze one more in just think of CapEx for 2020. Obviously, CSI talk about that yesterday, how do you think about TETRA-only CapEx for next year?

I would suggest that we're early in the process right now. We're gathering feedback from our customers in terms of what their plans are for 2020. Once we complete that information, we'll do our internal budgeting process. I would suggest that it's early in the process for us to volunteer any 2020 CapEx.

Okay. Thank you.

The next question comes from John Watson of Simmons Energy. Please go ahead.

Thank you. Good morning.

Good morning.

Brady, on the Neptune side, can you remind me how long it takes to typically complete one of the projects? And has the project you expect to complete in Q4 already begun?

We really don't want to get into any more specific details about our customers' well operations for the completion phase of this well. As you can imagine it's a very major project for our customers and we prefer not to give any more details. On the timing after a well is drilled and the well log data is taken for the pressures, then then we're typically mobilized to the rig site for the completion phase of the project, which can run from a few days to a month.

Okay, thanks for that. Secondly, water and flow back revenues were impressive relative to completions activity in the third quarter. Can you give us some more detail on what you attribute that out-performance to and maybe expectations for it to continue or not continue into 4Q?

Yeah, I think in the third quarter as I said, I think our team has executed very well in our integrated projects that help us, we believe to streamline costs, providing some automation, reducing some labor cost as part of our operations, introducing some new technology, our margins, our pricing on our sand cyclones, the new technology hold up very well. Having said that, and very pleased with what we did in Q3, clearly we see Q4 activity pulling back and more pricing pressure in the fourth quarter. So, we expect that will be weaker for Q4.

Okay, understood. Lastly, Water Treating Specs, have you seen those become less intensive of late and are we coming closer to reaching a consensus water spec among ENP customers and if so, that does that benefit TETRA?

I wouldn't say we've seen a major change with the customers that we are working with, with our water specs for you talking about produced water for reuse and frac operations, John.

That's right. Yes.

Yeah, I wouldn't say with the customers that we are operating with. We have seen any, any real major change. Now, I'll leave it at that.

All right. Thank you, Brady? I'll turn it back.

Thank you.

Brian [23.43] [indiscernible]:

Hey, good morning, guys.

Good morning.

Sticking with water for temporary transfer. How did pricing evolve over the third quarter and what's your outlook for 2020?

So, I think during the first two months of the quarter, pricing held up fairly well. We definitely saw some more pricing pressure along with some of the customer pullback in the last month of the quarter in September, which, in that pullback we also saw from more pricing pressure. I think it's a little early to predict what's going to happen in 2020. as it relates to pricing. Obviously, we'll be paying close attention to our customer’s budgets, as they're announced for 2020 and how we position ourselves. Along those budgets, we do like the customer base that we have. We do like the differentiation that we have with TETRA Steel, with our automation and with our sand flow back. So, we do believe we can achieve premium pricing and what's in the market. But to give an overall, I guess, number at this point, our expectation at this point, I think it's a bit early for 2020 for us.

That's fair. Thank you. And then could you perhaps share rough range of how much the industry's supply of lie flat hose were likely grown in 2019? And maybe could continue to expand here?

I'm not sure I could answer that with a fair degree of accuracy. Elijio any comment on that?

I would suggest that we've been disciplined and we focus on our high end proprietary hose that's double jacketed that -- we believe represents a competitive advantage. However for the traditional single jacket hose, I can comment or we can comment on what the others are doing. We're focused on technologies that represent a differentiator.

Got you. Thank you for that. And then just one more on Water and Flowback, could you share a percentage of revenue that -- or percentage of project that entails BlueLinx so far and maybe a target that you guys have a year from now or so?

So we're targeting as two different assets to that. For all of our jobs we are targeting to have pump automation. 100% is our objective. We're not there yet. But BlueLinx is part of that solution. Anytime we have a piece of automated kit on a particular job, for the fully automated jobs where we have integrated offerings, BlueLinx is a critical part of managing that whole close loop network. And I think we mentioned, we had 20 jobs this quarter. So, between all of our transfer jobs with automation and our integrated projects is where BlueLinx plays a key role for us.

Got you. If I could just sneak one in on compression, I know in the compressor call, you guys said you plan to direct 50% or so future distributable cash flow towards growth capital but could you possibly share, how much horsepower you currently have on order for delivery in 2020?

The amount of horsepower scheduled for delivery equates to in dollar wise less than $3 billion at this point. We're being very selective in terms of what opportunities we respond to and only responding to those that are either with existing, concentrated customers and are generating 20% returns on capital. So at this point, only $3 million of next year's capital that will be funded with cash flow from operations, is committed.

Great. I appreciate the answers. I'll turn it back. Thanks, guys.

Thank you.

The next question comes from Steven Gengaro of Stiefel. Please go ahead.

Thanks. Good morning, gentlemen. I doubt that I touched late, so I apologize if you answered this. Have you seen any -- anymore traction from the Halliburton Alliance and what are you seeing as far as expectations on the CS Neptune side, as you look into 2020?

Yeah. We talked a little bit that earlier. But I'm happy to answer your question. I know the Halliburton traction. We'd be very positive. I think last quarter we announced that we were engaged with six super major operators on some of their key deepwater projects. Three of those six we were brought in by our Halliburton relationship, We introduced our monovalent technology at SP and Europe this quarter. And again, Halliburt has a very strong presence in some of these markets even some integrated drilling type projects. Whether they are lead and they have introduced monovalent technologies into those clients. And we feel very good about that pipeline and business revenue for 2020. So overall, very positive gain traction, some of them longer term than others, but still very positive from our perspective.

Thank you. Give a gas based on what you're seeing the deepwater market, one of the things that I think ultimately will be helpful for the just for the consistency writings, but some other factors and returns et cetera is sort of a more normal pattern of these projects where becomes maybe a little less, episodic and a little more consistent. I mean, some of that's based on just to be for the market in general. But any sense for kind of how that plays out over the next couple of years?

Yeah, I think the deepwater market is still fairly suppressed from obviously the peak days that we saw perhaps in 2013 and 2014 levels. So I think there are still a lot of upside on the deepwater. I think the overall offshore market and again monovalent solution is not specifically tied to deepwater. I would say it's more tied to offshore, North Sea type markets or even Middle East markets. And we're seeing that activity fairly robust not back to peak levels by any means. But certainly better than the troughs that we saw in the last few years.

Okay, thank you.

[Operator Instructions] This concludes our question and answer session. I would like to turn the conference back over to, Mr. Murphy for any closing remarks.

Well, thank you. We appreciate your interest in TETRA Technologies. And thanks for taking the time to the joining us on our call this morning. This concludes our call.

The conference has concluded. You may disconnect your line at this time.