TTI - Earnings call transcript Q4 2019 | TETRA Technologies, Inc.

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Operator

Good morning and welcome to TETRA Technologies Fourth Quarter and Full Year 2019 Results Conference Call.

The speakers for today's call are Brady M. Murphy, Chief Executive Officer; 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. this being note Please Instructions] event recorded. is [Operator

turn over to would now Mucha. conference to like ahead. I Mr. the Please go

Jacek Mucha

Brandon. you, Thank

are Today's many based forward-looking subject of certain the be contain company. and statements analysis beyond based conference are are TETRA assumptions of number call may and risks of by or These are on statements certain number deemed a the These and to statements. that be which a made uncertainties, statements on are control to may factors.

are are You results not of future statements. those cautioned materially projected forward-looking differ actual that guarantees that such the in statements performance may from and

In per our the be non-GAAP financial net news information financial to profit accordance coverage margin, the in or may the adjusted other course for for public financial GAAP non-GAAP cash share, we prepared reconciliation ratio tax or measures. adjusted call, of refer debt, adjusted our of context not or within this backlog EBITDA addition, before substitute period. results to to are should morning's liquidity, earnings of flow, the measures. and GAAP the release reconciliations with free adjusted nearest refer Please measures a for to considered in website complete financial These EBITDA,

will to this Brady. over now turn I

Brady M. Murphy

XXXX Thank you, year fourth conference results Jacek. full Good morning, and call. everyone. Welcome Technologies to the quarter TETRA

turn and open and summarize quarter over some operational year we'll in the then Elijio it which for it turn will for I highlights questions. the additional details, for to full up some financial and

challenging services land leveraged are for delivering businesses the TETRA the thanking market, while employees particularly to exposure. heavily a navigating Compressco like in quarter I'd First, by U.S. CSI all start very to energy strong a that and

approach rig a approximately flows. implemented focus on disciplined count In XXXX cash the year-on-year, the of many customers the of XX% a capital decline our spending to and fourth land saw quarter U.S., with

our line of in declined with business by managed revenues near best Mexico, international strong and performance a years driven results XX% These have market EBITDA. exposure our our financial Flowback from record the from in quarterly terms of we portfolio to adjusted QX four in and market. Water our Although, Gulf financial strong activity, over of were industrial the offshore, CSI with Neptune Compressco, adjusted diversity and to chemicals a CS and EBITDA project in

the with strategies integrated our pleased latest or business either leverage were differentiate our Neptune, quarter service delivery CS or especially in vertically of our separation integrated to sand strong I'm automation in and evident water model results. through our case to through strategy technology fourth management and of as solution, our very

results $XX was EBITDA million We EBITDA the highest of million third XX% of XXXX. quarter quarter achieved since the and adjusted revenue. a the higher quarter on third consolidated The in than $XXX adjusted

continue activity fluid XX.X%, EBITDA fluids the adjusted and from from volatility in North project fourth offshore improved a this strong in America completion business. Neptune Completion adjusted the for to Mexico. Completion in and quarter benefited in quarter our Gulf benefit of key the margins was in were markets, EBITDA and The products offset for a segment non-Neptune over helps generate chemicals margins the land fluids of within business third and quarter some row remained XX%. to industrial CS products

for markets These Africa three are offshore projects scheduled major completion We of XXXX. in are and continue good opportunities growth us. with award that international Asia to grow Brazil our the West in for business Pacific,

at plants. long-term to America chemical We're reduce year supply from which the products of we that fluids in raw our in our us is seeing North benefits several completion announced production of last also December costs material agreements, our of helping

XXXX, of we range, CS of pressures the currently that CS qualifying different density into We're testing a for low in fall pipeline customer seeing we reservoir stages reached Neptune with customer Although completions are the in and seven growing number deepwater well various deepwater Neptune customer where of solution. a deepwater -- XX-year markets. CS Neptune best believe the projects is projects in multiple

a will be of the then of we awarded XXXX. degree Hemisphere Gulf confidence have Neptune We that in high in Eastern and work Mexico

timing completions the of However, yet well specific awards wells not and is for determined.

that Our today's is U.S. the of most end market, began market and levered the third environment. into pricing activity. energy in quarter completion Water We've overall business as continued the in completions and into Flowback the reduction sector seen the services well as fourth the difficult heavily onshore the across some likely pressure the quarter, at

EBITDA $X.X EBITDA million, was less adjusted quarter the Adjusted of third revenue. division $XX.X margins for million $X.X were Our of this a on X.X%. from million decline

focus continue efficiencies to projects a using management driving integrated to customers automation our capabilities solution. on operations our and provide We fully water into by with integrated our

During customers in peaked XX XX quarter. we the quarter, and up projects XX at third the projects integrated different from XX with customers,

XX deployed to the Our this we these on projects base of was demonstrate BlueLinx of customer automation as the advantages capability. control

separation We branded we previously of introduction latest a which our SandStorm. announced technology, the sand have

an a operator were we’re quarter. sand and currently have XX%. customer negotiating large same efficiency, which Basin, additional XX% completion North trials, the Since three of with trial to Permian shale service removal awarded in the now greater current with that in achieved of project During deploying compared SandStorm that solution. more America merely the in Upon plays SandStorm award, traditional cyclones we volume around penetrated major the fourth quarter, sand we're the in than a other

type contract our first more also America for Argentina, deployed We test in separator units this of equipment. on Latin

operator through that to longer to XX% technology in year-over-year, drop to invest XXXX the XX% key to market by term be nimbly scaling to and objectives. respond cost this our will We've adjusting While structure outlook also and business we we expected business. non-profitable the challenged achieve launched us automation several right an continue back initiatives this operations size our budgets with expect help to for E&P changing

improved high horsepower benefiting of gas equipment. as well, trend which again means cost centralized listed for The demand to production, performed utilization and liquids business compression a drive drives effective for efficient yet from continued extremely

new customer well activity customers are we to expected key see our our in XXXX, applications to While decrease core continue and expenditures in basins. grow drilling with capital

Our of third sequential of $X.X was million adjusted a $XXX,XXX quarter EBITDA of and improvement of than accomplished million from $XX.X high $XX.X only quarter, the million record second less XXXX. our in

high a increased Utilization Our services XX.X% slightly and of to compression record to due outages. services compression gross quarter, XX.X% last declined from XX%, margin labor weather-related parts our from was fleet of this not row oil The strongest range. second remains XX%-plus in fundamentals compression changed for of the the segment gas one industry. quarter and the overall the and in the business in have

our expect the growth the guidance earnings However, pace a is slower call. we from which gave CSI two years, on yesterday we Compressco reflected of in past

due than expect much of primarily We first the slow of sales fourth activities, XXXX, to decreased to the business a and quarter but year. softer start the for has which aftermarket be quarter equipment XXXX our to compression typically

the customers had as in fourth sequentially line the within million increased from demand our quarter we revenue core its remain strong to our segment In very $XXX million $XXX the particular, aftermarket finish as top-line. improved a businesses Our for Compressions from strong. each product

$XX.X our earnings million. expectations consistent by mentioned Given million, we with were our on ended the call, $X.X of sequentially timing with which last shipments sales quarter new the and higher of equipment

quarter awards $X XXXX leaving fourth for $XX were of December backlog our million, as only sales However, equipment million. at XX, new

quarter to the We’ll of to fourth healthy XXXX. several large unit be continue orders, opportunities, with pipeline until late seen in of second expected sales those a we were receive to awarded large expect out but awards. the see XXXX likely the still that new not have but We half projects pushed

basis active with of X,XXX the X,XXX,XXX. was We and Utilization and the for XXXX. horsepower end added XX.X% total of of as up over September horsepower quarter horsepower December, a from points XX,XXX active end higher this the of equipment ended quarter XX the

in a of believe our fundamentals we very So strong the and strong behind in in businesses. challenging quarter each a we summary, environment had

that continue the a challenge and to the our rise in stay the commitment including course employees will strong to to year-over-year on have performance. highlighted safety to We continue and our strategies improvement we excellence

comments Elijio balance open some the questions. it turn With financial and flow that, for cash over And up it we'll I'll to then, on sheet. to provide

Elijio Serrano

Brady. you, Thank

operations fourth free generated flow the TETRA-only million. cash quarter, $X a continuing of from In

some Our positively January. early free cash receivables, including was CS as payment below quarter key cash full in will flow flow. Neptune from XXXX the large from in expectations our continuing January impact first received operations was This project receipt

the of years Last X the we last quarter cash has the due consumed of timing of a first $XX cash. significant the payments, quarter. use been to million Over year, in first

timing the more better ago, TETRA-only of year, free January. This early than million a in expect than $XX cash be year reflecting we quarter to collections first flow

use meet the timing continuing For XXXX, a of free $XX equipment the behalf to cash purchases of client cash Compressco as January. of below in TETRA a the significantly operations flow key on full million million, TETRA-only And due almost that year funded our collections reminder, of from expectations was $XX slipped key into aforementioned, of demand. CSI to

we XXXX full buy to capital inclusive of TETRA-only, agreed For of CSI were lease year at to Compressco. expenditures $XX $XX million the equipment million,

be almost XXXX, million, For million XX% capital XXXX. we between TETRA-only reduction to $XX from expenditures expect $XX a and

of the $XX on of at end hand June was million debt net $XXX TETRA-only with cash million.

collateral TETRA through maintenance covenant, in Compressco. There cross which not CSI us Our debt market. nor volatility like flexibility debt are again no I’d and include defaults, debt CSI maneuver the Compressco’s to cross that and does between remind significant allows structure distinct also to are any the and TETRA everyone separate. on the

times, been the CSI would net In the times Compressco's X.X December X.X on fourth annualizing EBITDA, Compressco that CSI been X.X well have we’ve communicating. at our quarter was net target ratio our approximately leverage ratio to toward leverage of times. way end adjusted

additional return second obtaining the From discipline the has significantly, CSI reflecting net of not for capital of XXXX, a on given we're growth capital fund quarter capital our leverage at our with times improved requirements of of the debt high policy to XX% investments. and allowing end Compressco's X

through We will as continue we to ratio improve our navigate leverage XXXX.

revenue, Compressco XXXX to businesses expenditures oil million has the experienced guidance. has million key volatility adjusted its million in be effective of EBITDA, to noncash and the is compressors one million adjusted sold. gas for $XXX and been with the business other quarters. U.S. $XXX of least $XXX between Yesterday which estimated EBITDA capital broader be revenue released and recent between financial market, includes morning, The in land metrics XXXX and CSI the which compression cost $XXX

very While XXXX. we we for are business encouraged down, slow some this and it’s been have minimal heading seen into

for CSI taxes, of Compressco and cash expenditures, midpoint expects full adjusted cash cash the and generate flow. interest free Compressco’s expense, $XX for accounting guidance XXXX year to of million At EBITDA maintenance capital approximately CSI

$XX million flow to to customers that our and at million expect we core capital invested remaining We $XX of distributable rates debt. to capital to for on the between with use strong target, find expect reduce growth outstanding cash return XX% use and

When be horsepower $XX.X million. of account, in to the to XXXX midpoint growth CSI when comparing we horsepower in billion capital from XXXX. XXXX $XX.X expenditures to we're the taking into XXXX Compressco from reducing will be guidance for to XX,XXX adding slightly of XX,XXX the amount fleet We’ll reducing under

The XXXX, order. $XX excludes to currently only TETRA. we we million on XXXX very by that capital growth the was XX,XXX added of is million horsepower Out $XX that funded of XX,XXX in expect

back encourage committed of financial news We I our will from and and XX% and are on morning and Compressco’s in details being return metrics. capital only additional the thresholds very release for read all CSI maintain investments our release operational supporting this our and to equipment ordering yesterday customer you commitment. to on the diligent

that, Brady. With it I'll return to

Brady M. Murphy

questions. to up it open We'll Okay.

Operator

Thank you.

session. now Stephen question Instructions] question-and-answer begin from Stifel. [Operator with Our will Gengaro We the comes first

Stephen Gengaro

Maybe just Can around I and be the guess XQ would of takes of at puts sort I at looking all start that -- million? first quarter two the we you versus comment EBITDA as things consensus we in on should with. $XX XQ?

Elijio Serrano

projects mentioned the your build We solid quarter Neptune some QX. Let year that benefit really had don't completion Stephen. that we expect also those that we Brady The project. me But strong fluid year. over offshore data mentioned few give projects. that some extend that total impact fourth a also a carry to up the the ended points out we model, international as for you in you will with picked Brady

business will that reflecting fluid So, sequentially, Neptune. the be expect down

were we aggressive. that down the think not ramp-up be onshore We expecting. slightly what we market bad as as ended had and year the as anticipated, than therefore was ramp The the having better not to is

modestly. flat So, expect those up to the to

-- that sales performance aftermarket large into had steadily on a some big we we're projects occurred fleet QX that equipment more more that then, capital getting in into due will that pricing. very deploying compression repeat. the sector had The also will given continue good And sequential a not the equipment see we the new increase, decline aftermarket QX services. side, equipment to will to sales year. We But, and services to

one that $XX somewhere last quarter think very free The mentioned going I free range. year that positive we of million is I’ll be consumed I pleased first it flow; year the with that are we that same highlight over cash flow. cash was before in the to

that in this of year, given the first slipped better into the receivables expect to week be lot We significantly have a January.

color to that as hope you out try progression businesses. of your bit I little a the lay So, gives of you

Stephen Gengaro

clearly we get the back Neptune XXXX? Are jobs. look can obviously we -- now where CS quarters -- plan have for you when right can And you. there see Thank historically, you Yes. can any

Brady M. Murphy

So, projects. longer for projects. we're in discussions, testing X are and These that mentioned qualification Stephen, we term different

and high that have will to we this definitive specific a for of XXXX. in really confidence wells we the dates time We be degree speak have could some a that point. don't But, at we awarded work

Elijio Serrano

plus even up Stephen is I XX% agreement, very some internationally. That integration ramp Neptune, the EBITDA that hitting been business this holding side, the mention, without market. supply core activity vertical in we've well long-term And or margins fluid will of incredibly up the on solid

Stephen Gengaro

exclude around fair? we and reasonable XX% level you so we exclude So, quarter if it. gauge a that chemicals mentioned that I'll the a Is Neptune number, is European second But ask business. plus

Elijio Serrano

Yes. Stephen. Correct. That's fair,

Operator

Our next with Raymond from James. question Narra comes Praveen

Praveen Narra

of separate guess, the on the the they Are how the mostly then, are us -- that? long-term, on they kind I that mostly I are XXXX pipeline CS are these Can the follow-up or these wanted being to from And should through on also, when think for seven, worked Halliburton XXXX alliance, through out? say talk you Neptune we timeline? projects. and about projects you are

Brady M. Murphy

Yes.

Praveen. Okay,

our the of So, project their of be -- Halliburton activity be have. that contract three they currently, seven, through would through the them would and it integrated has

seven, are that when Halliburton for direct is service other award of The terms the mean testing you CS providers. as directly the the contact It Mexico -- eastern four. it engaged Gulf other four currently, can other operator it think are the to the we we be potential with of of with or through half qualify the of other Neptune ongoing. and on But those Of about comes operators the one wouldn't half in that the hemisphere in doesn't perhaps split.

Praveen Narra

And in that? about think second for mentioned at thinking costs half. Are potential How for Services to and great. I according about softness you down? managing the -- then, half guys first you you Flowback are the when Water Are collecting holding improvement? Okay, you guys guys guys least

Brady M. Murphy

Yes.

We clipping the the third we started along we Obviously, end the beginning business before still were of lot by decline. you started were were at if of of third progression taking well see at fourth activity to quarter. quarter, XXXX, through we a measures quarter. little very of cost So, But, to the able water the out. the our look October we a get the bit through the through cost

October in quarter. but some results, we So November December were fairly did that costs with, have we overall our our encouraged actual impacted

at do difficult a where at to Now, this from expect as today. little predict. But, do to year second XXXX, environment, activity we're levels. But, of activity the we from today's -- into half which QX point half to we second the the we expect seeing least head are improve mainly under is we improve, flattish

Operator

Our with from Riley Pfingst Ryan B. next comes question FBR.

Ryan Pfingst

in on just can margins I expecting up I follow-up it you midyear, and ask you're wanted a by half. Flowback. where to a Just know Water challenge bit? first get little think up to picked back the But maybe a your you

Elijio Serrano

is have It spending that depressed. the challenge is So, Ryan, to this predict customer we remains trying level.

competition crews market. keep You've out to pressure and trying putting their there on active the got

whether we're ourselves offerings. automation our we're competition the to those SandStorm whether and So, our integrated mentioned it's differentiate try the from business ourselves our model, Brady a and bit us try to introducing, that pump initiatives, trying on really differentiate technology or protect it's with of generic several to side, will product

hold year are in high-single-digits in in our X%, margins gains half push to of our to we going EBITDA the the we XX%. mid-teens again. trying traction, the We But I low-double-digits. the of up back year, think technology first X%, half we're with be right, the But the it can think to

Ryan Pfingst

that know SandStorm, to better? it's that will technology base maybe, margins just or similar you've on then, bit the I have border a but new business a business And introduced, little

Brady M. Murphy

Our very particular And our in will of deploy to margins cyclones either technology gain case be We're our technology. margins. where on base those SandStorm our getting that beneficial reasonably more our that should to we or the current pricing business. on we existing our competitors’, replace sand -- share, good to the certainly additive and be as kits more

Operator

follow-up next [Operator Stephen with Our question Instructions] from a Gengaro Stifel. is

Stephen Gengaro

I guess, quick two more ones, gentlemen.

the first, about initiatives savings you The cost talked

they how progressing? are recently,

Elijio Serrano

one. question, cost Repeat the Stephen, the

Stephen Gengaro

I'm sorry. savings The initiatives. cost

million about cost talked million you expecting. that of think to you're savings I $XX $X

Elijio Serrano

Right.

including at of year So, last outlining initiatives, our the end we press a several a Dorado issued of release write-down facility. El

pull aggressively of cost system. very to continued have We out the

pull kind those implementing didn’t initiatives. of Northeast adjusts halfway we level. million referenced suggest corporate more than pressure market. million that focused week-to-week, the $XX that Mid-con to And part those VP, last structural I We’re But, Executive would to of we automatically taking towards the such structural at $X those on field the Brady, cost Then, based as our were out the on our changes. out? the activity and I all we're areas start there, between changes [technical in organization difficulty] year level, that

Stephen Gengaro

And think are structure now then, TETRA’s add, to the to it of there anyway. product shareholder question debt you get that like process just and corporate lot, of comes the just you'd ask Where but and a the the up up about lines organized, to cetera? you the whole and -- lines way I clean on levels, value it this et some do that like and pertains you structure? as know When -- thought I’ll basically stand off the sort product rid

Elijio Serrano

I'll let it. and start color then I'll add off Brady to incremental

evaluate demonstrated take to with I actions this that the value, the and it. shareholder the [ph] the SwiftWater investments entity that point, we to strengthen will better, shy continue our and did create and that all create and with to GRGO consistent did We be those And the that we business. an to simplify opportunity acquisition at our launching margins, [ph] we there's did businesses think, about the generate Board and the off-road we cash not of will predictable segments. business, Flowback need we can get to this whatever more our initiatives. decommissioning take shareholder have we’re structure, willing Water enhance to to testing believe disposal, that an flow free If we value, we

Brady M. Murphy

that have I to don't will do the business segments say, much we that. we're I Yes. like to in. add

compression as completion we with And America either very acquire Board, that technology forward. for long-terms, strategies course, the capabilities business. we Elijio focus of But are still strong to and said, fundamentally on discuss business the on water or standpoint the us new the And appropriate us well technologies right particularly ties as to divest for produced now. what continue business to from the a very look is in in side side. will we North fluid of water we as introduce believe the Our sound is our

Operator

session. our conference turn I'd over to remarks. concludes the for This Murphy like Mr. back any closing question-and-answer to

Brady M. Murphy

Thank you.

quarter couple So, a of fourth to year. I'd like and to messages you leave just reiterate key for with full our

we XX% generating aided products segment. to Gulf our margins the for talked margins expect project fluids Neptune, Neptune above about that we already and quarter, Mexico our of completion strong EBITDA First, that straight segment to third Even EBITDA continue. results, the completion over for that XX% without of produced

to challenging facing and challenging in to see market feel But, see We in our quarter U.S. and investments XXXX. technology leverage business we're pressures differentiate cost of about in continue U.S. this to pricing we our the the resilience. we expect and the structure. a the right as businesses operating Second, committed size do of land year start our long-term decline some land businesses market, but some our lower and good budgets capabilities the fourth

third, And continues industry, laid and out continues achieve the metrics for operational division we've highs to this financial record to the gas key oil compression of strong. financial them. hitting weaknesses Despite business stay and broader and the our

in assuming equipment laid EBITDA some sales slowdown project XXXX, we've still midpoint guidance as of in we increase adjusted out. While are our likely, the our to year-over-year

flow while is on generate were the to timing year. cash expect disappointed XXXX year-end to our somewhat Lastly, negative due in going only to receivables. very cash We full flow and it cash and remain generation generating considerable we flow, the key some focused of into

Thank you our much That will call our participating on today. end call. for very

Operator

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

You may now disconnect.

TETRA (TTI) 27 Feb 202019 Q4 Earnings call transcript