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TETRA Technologies Inc. (NYSE:TTI) Q2 2019 Earnings Conference Call August 8, 2019 10:30 AM ET
TETRA Technologies Inc.（纽约证券交易所代码：[TTI]）2019年第二季度收益电话会议2019年8月8日美国东部时间上午10:30
Brady Murphy - Chief Executive Officer
Elijio Serrano - Chief Financial Officer
- Brady Murphy - 首席执行官
- Elijio Serrano - 首席财务官
Praveen Nara - Raymond James Ltd.
Thomas Curran - Riley FBR
Stephen Gengaro - Stifel Inc.
John Watson - Simmons International
Coleman Sullivan - Wells Fargo Securities
- 奈文Praveen - 雷蒙德詹姆斯有限公司
- Thomas Curran - Riley FBR
- Stephen Gengaro - Stifel Inc.
- 约翰沃森 - 西蒙斯国际
- Coleman Sullivan - 富国银行证券
Good morning and welcome to the TETRA Technologies Second Quarter 2019 Results Conference Call. The speakers for today's conference call are Brady Murphy, Chief Executive Officer; and Elijio Serrano, Chief Financial Officer for TETRA Technologies Incorporated. Our participants will be in listen-only mode. [Operator Instructions].
I will now turn the conference over to Mr. Murphy. Please go ahead.
早上好，欢迎参加TETRA Technologies 2019年第二季度业绩电话会议。 今天电话会议的发言人是首席执行官Brady Murphy; 以及TETRA Technologies Incorporated的首席财务官Elijio Serrano。 我们的参与者将处于只听模式。 [操作员说明]。
Thank you, Robert. Good morning and welcome to the TETRA Technology Second Quarter 2019 Earnings Conference Call. Elijio Serrano, our Chief Financial Officer is also in attendance this morning and will be available to address any of your questions. I will highlight a few items and then turn it over to Elijio for some additional details which in turn will be followed by your questions.
I'm going to 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 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.
Well first, I'd like to start by thanking the close to 2,000 TETRA and CSI Compressco employees for delivering a strong quarter in a challenging environment and in my first quarter as CEO of TETRA. In a quarter where the U.S. land rig count dropped over 10% from the recent peak at the end of last year and the Q2 U.S. land rig count dropped 5% from the average rig count in Q1, we were able to grow revenues 18% sequentially, and 11% year-on-year while improving margins in each of our segments.
On a consolidated basis, we achieved the $50 million adjusted EBITDA quarter, up 38% from the first quarter and up 8% from the second quarter a year ago. While North America rig activity was down in the second quarter, our Completions Fluids business benefited from improved activity and key offshore markets as demonstrated by delivering 22.4% adjusted EBITDA margins, an increase of 560 basis points from first quarter and 450 basis points from the second quarter of last year.
Our compression business set company records for compression services margins at 52.7% and utilization of 89.1% and continues to benefit from a long-term growth cycle for increased gas production and the use of compression for centralized gas lift in key shale oil basins.
Our Water and Flowback revenues declined slightly quarter-on-quarter, but our adjusted EBITDA margins improved sequentially by 210 basis points on cost initiatives and continued customer adoption of our integrated operations and automation. On a segment basis Completion Fluids revenue increased sequentially by $18.2 million, $79.8 million in the second quarter, and from $61.6 million in the first quarter.
首先，我首先要感谢接近2000名TETRA和CSI Compressco员工，以便在充满挑战的环境中以及在我担任TETRA首席执行官的第一季度提供强劲的季度。在美国土地钻井数量从去年年底的峰值下降超过10％并且第二季度美国陆地钻井数量比第一季度的平均钻井数量下降了5％的季度中，我们的收入增长了18％。 ，同比增长11％，同时提高每个细分市场的利润率。
In the second quarter, we have benefited from strong offshore fluid sales in the Gulf of Mexico and eastern hemisphere. In addition to the seasonally strong North European industrial chemicals business, excluding the small benefit from TETRA CS Neptune revenue and profit, the adjusted EBITDA margins in this segment were approximately 20% which is our target for our base completion fluids business without the benefit of CS Neptune.
Our differentiation through vertical integration and our long term contractual supply agreement for bromine has served us well during this extended downturn and has us well-positioned for improved activity going forward.
Regarding CS Neptune on the last earnings call, we reported that we have reached agreement on the technical and commercial terms for a project and we're in the process of finalizing the contract details. That contract has been finalized and drilling is ongoing. We realized a small amount of revenue and profit contribution from that contract in the second quarter in preparation for the completion phase expected in the third quarter.
This was the Gulf of Mexico lower tertiary development project in a field with existing production and where other wells in this field have pressures that require a fluid density in the CS Neptune generation one range. I must remind you, however, that as with all these types of complex deep water wells, the exact timing on completions is challenging to accurately predict. We expect this project to be a similar size as our previous Gulf of Mexicore CS Neptune wells. As we've done previously and to protect the confidential nature of this important project for our customers, we will not disclose the specific customer revenue or profitability of these projects.
We continue to do advanced discussions for additional CS Neptune projects across the globe. Some of those discussions are directly with operators and some are through our relationship with Halliburton. Through our Halliburton relationship and with some of our own customer relationships, we have now been able to technically qualify or are in the process to technically qualify TETRA CS Neptune Completion Fluids with six major operators as they plan their future projects.
We are also evolving our TETRA CS Neptune Completion Fluids technologies to address higher pressure opportunities, as we are announcing our new Neptune monovalent solution. Excluding very expensive cesium solutions, this new product increases the density range of current monovalent bromine solutions by nearly 2x and we are very excited with the new market this solution will open up for Neptune fluids. We are already in the testing and qualification phase for a major operator in this innovative product breakthrough.
For our Water and Flowback division, in the second quarter of the segment recorded a sequential EBITDA improvement of $821,000 or 8%, $0.5 million of less revenue. As we discussed last quarter, our Water and Flowback Services segment went through a pretty significant shift in customer mix from the fourth quarter of 2018 to the first quarter of 2019 as the smaller independence reduced activity while the major stayed relatively consistent with their drilling and completion plans. We see that trend continuing along with more competitive pricing for the base water and flowback services.
对于我们的Water and Flowback部门，该部门第二季度的EBITDA连续增长821,000美元或8％，收入减少50万美元。正如我们上个季度所讨论的那样，我们的水务和回流服务部门经历了从2018年第四季度到2019年第一季度的客户组合发生了相当大的转变，因为较小的独立性减少了活动，而主要部门与钻井和完工相比保持相对一致计划。我们看到这种趋势仍在继续，基础水和回流服务的价格也更具竞争力。
In this current environment, we are seeing customers seeking lower cost solutions, which fits very well with our strategy to be the lowest cost per barrel water solutions provider. A key part of that strategy is our integrated project offering, which increased to 25 projects during the second quarter, up from the communicated 19 in the first quarter. Those integrated projects allow us to stay on jobs for extended periods of time, showcase our differentiated technology, more effectively utilize our equipment and personnel and improve margins. Those projects are now a meaningful part of our business and we believe a real competitive advantage.
One of those integrated projects is our first premium basin automated produced water recycling project, which has been ongoing since the summer of last year. At the customers' request, we're in the process of expanding the capability for that operation to treat and recycle up to 100,000 barrels of produced water per day, up from the current capacity of 60,000 barrels.
Our automated treatment and recycle solution is a relatively low capital investment that could be mobilized and demobilized in a few months and could be mobilized and moved with these to other future locations. We believe that produced water solutions will continue to be a fastest growing segment of a $25-billion industry water segment and we are well-positioned to capitalize on that growth.
The compression segment continues to perform well and continues to be one of the strongest segments across the oil and gas industry. Compression saw a strong sequential increase in revenue adjusted EBITDA, compression services, gross margins and fleet utilization. Revenue increased sequentially 31% to $135.9 million and was 36% above the second quarter of last year. The main drivers for the sequential revenue increase were near record highs equipment sales, a nice rebound and aftermarket sales and a steady top line growth of the compression services business.
Compression adjusted EBITDA was up $6.8 million sequentially to $32.8 million, and was also up $10.3 million from this time last year. The compression services business delivered the eighth consecutive quarter of improved revenues, and delivered record highs and fleet utilization and compression growth service margin since the acquisition of Compressor Systems Inc. in 2014.
We continue to evolve and shift across all segments to work for operators with the strongest balance sheet -- a shift that will be beneficial in the long run. We do not build new compression equipment on speculative basis as all the new equipment we put into services is attached to customer contracts. We are building to meet specific client demands and working with our key clients and key basins to satisfy their needs while also leveraging our infrastructure.
In the first quarter and for the first time in CSI history, active operating horsepower surpassed the 1 million mark and we added about 11,500 more to that this quarter. Utilization for the 1,000 and higher horsepower equipment focused on the gathering systems and centralized gas lift was 97.1% as of June 30, up 150 basis points from March 31, 2019. Overall utilization for the entire fleet is at 89.1%, up 190 basis points sequentially and a record high since the acquisition of Compressor Systems Inc.
压缩调整后的EBITDA比上一季度增加680万美元，达到3280万美元，比去年同期增加了1030万美元。自2014年收购Compressor Systems Inc.以来，压缩服务业务连续第八个季度实现收入增长，并创下历史新高，车队利用率和压缩增长服务利润率。
我们将继续发展并跨越所有细分市场，为拥有最强资产负债表的运营商工作 - 从长远来看，这将是有益的。我们不会在投机的基础上建造新的压缩设备，因为我们投入服务的所有新设备都附在客户合同上。我们正在建设以满足特定客户的需求，并与我们的主要客户和关键盆地合作以满足他们的需求，同时还利用我们的基础设施。
在第一季度和CSI历史上第一次，主动运行功率超过100万大关，我们在本季度增加了大约11,500多个。截至6月30日，集中系统和集中式气举的1000马力和更高马力设备的利用率为97.1％，比2019年3月31日增加150个基点。整个船队的总体利用率为89.1％，上升190个基点自收购Compressor Systems Inc.以来，已连续创下历史新高
CSI Compressco ended the quarter with a backlog of 60 million after 18 million of orders and 52.7 million of new unit sales. Orders in the first half of the year were slower than anticipated, but we expect customer orders to pick up significantly in the second half of the year. Our equipment sales pipeline remains strong.
Overall, it was an excellent quarter across all three segments in an evolving and challenging market driven by E&P operators' capital spending discipline and competitive pricing. In addition to inorganic opportunities, we continue to evaluate some, but we are highly focused on cash returns and managing our debt levels as we pursue any future acquisitions. We will only complete those projects to provide the best value to our shareholders at the right price.
With that I'll turn it over to a Elijio provide some financial comments on cash flow and the balance sheet, and then we'll open it up for questions.
CSI Compressco在本季度结束后，在订单1800万和新单位销售5270万之后积压了6000万。 今年上半年的订单速度低于预期，但我们预计下半年客户订单将大幅增加。 我们的设备销售渠道依然强劲。
总体而言，在由E＆P运营商的资本支出纪律和有竞争力的价格推动的不断变化和充满挑战的市场中，这是所有三个细分市场中的一个优秀季度。 除了无机机会，我们继续评估一些，但我们高度关注现金回报和管理我们的债务水平，因为我们追求任何未来的收购。 我们只会完成这些项目，以合理的价格为股东提供最大的价值。
Thank you, Brady. I'll spend a few minutes on TETRA CSI Compressco free cash flow, capital expenditures and balance sheet, then on CSO Compressco's capital allocation strategy before providing some commentary on our third quarter views.
In the second quarter, TETRA only generated free cash flow from continuing operations of $3.1 million. This compares to $34.9 million consumption of cash in the first quarter. We have historically consumed cash in the first half of the year and generally that free cash flow in the second half of the year. We are following this historical trend. This is driven primarily from changes in working capital and large payments that typically fall in the first quarter.
We expect several factors to contribute towards a generation of free cash flow in the second half of the year. This includes first, the monetization of the receivalables from the northern Europe industrial chemicals second quarter peak. Revenue historically increases in northern Europe between $10 million and $15 million from the first to the second quarter and gets monetized in the third quarter.
Second, Brady mentioned that we have signed an agreement with a major operator for our CS Neptune project that we expect to be completed in the second half of the year. It is our assumption that this project will be completed and monetized before the end of the year.
Third, capital expenditures are expected to be approximately 50% lower in the second half of the year compared the first half of the year. And finally, we have several internal initiatives to improve working capital that are gaining traction that will also benefit the second half of the year. As a result of those actions and taking into account a potential slow down at the year-end for the US onshore business, we expect TETRA-only free cash flow to exceed the $3 million of cash flow that we generated in 2018.
If the timing of the CS Neptune project changes, we would expect that it would impact our total year 2019 free cash flow expectations. For tech only, we expect all your capital expenditures to be approximately between $25 million in addition to $15 million of equipment that we've agreed to buy and lease to CSI Compressco supporting their high return opportunities.
To the first half of the year, we spend $11 million of the committed $15 million to support CSI Compressco. As a reminder, most of the profit from this arrangement with CSI Compressco will come to TETRA when the equipment's on lease to CSI Compressco.
TETRA-only capital expenditures in the second quarter were $10.9 million after being $8.9 million in the first quarter. Most of our 2019 capital expenditures are front-end loaded in the first half of the year to accelerate growth and address our customer needs. Our $3 million of TETRA-only free cash flow is after TETRA completes for CSI Compressco to $15 million of capital previously mentioned.
TETRA's balance sheet remains strong. TETRA net debt at the end of June was $200 million was essentially that amount being the amount of the name on a term loan. This term loan matures in six years in August of 2025. The term loan be agreement provides us with delay draw auction that can be finance tuck-in acquisition.
谢谢你，布拉迪。我将花费几分钟时间在TETRA CSI Compressco的自由现金流，资本支出和资产负债表上，然后在CSO Compressco的资本分配策略上，然后对我们的第三季度观点进行一些评论。
如果CS Neptune项目的时间发生变化，我们预计这将影响我们2019年的自由现金流预期。仅限技术人员，除了我们已同意购买和租赁给CSI Compressco支持其高回报机会的1500万美元设备外，我们预计您的所有资本支出约为2500万美元。
到今年上半年，我们花费了1,100万美元承诺的1500万美元来支持CSI Compressco。作为提醒，当CSI设备租赁给CSI Compressco时，与CSI Compressco的这种安排的大部分利润将来到TETRA。
We have in place an asset base credit facility which we'll use primarily for working capital needs given the seasonality of our cash flow. At the end of March, we had $18.5 million outstanding on the ABL. At the end of June we also have $22 million of cash on hand. We have a debt structure with no significant maintenance covenants and no current maturities which allows us flexibility to maneuver through any volatility in the market.
I also 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 now spend a couple of minutes on CSI Compressco.
For CSI Compressco, cash flow from operating activities in the second quarter was $8.7 million. Distributable cash flow of $15.7 million improved 150% from the first quarter of this year and 200% from the second quarter of last year. Their coverage ratio was 33x compared to 13x in the first quarter.
The final cash redemption of the Series A preferred units is today, August 8. After which all Series A preferred units will be fully-redeemed. At the end of June, CSI Compressco's total gross debt outstanding was $646 million. Hopefully $350 million are the secured note that mature in the year 2025 and $296 million is for the unsecured note that mature in August of the year 2022.
No amounts were gone under ABL revolver. CSI Compressco does not have any maintenance covenants to comply with. CSI Compressco's gross leverage at the end of June was 5.55x. In annualizing their second quarter adjusted EBITDA, their gross leverage ratio would be 4.98x times, lower away towards a 4.5x [indiscernible] at our investor conference in May of last year in New York City. And also when we announced the reduction on our distribution in December of last year.
CSI Compressco's 2019 adjusted EBITDA guidance is between $125 million and $130 million. This compares to $99 million of adjusted EBITDA in 2018 and represents a year-over-year growth of between 26% and 31%. 2019 revenues expected to be between $475 million and $480 million. This is an increase of between $35 million to $50 million from 2018. We are very encouraged with the price increases we continue to see as our fleet contracts rollover. New equipment is going out at record-high prices and the continued improvement in compression services gross margins. In the second quarter the improvement in compression services gross profit was greater than the potential revenue increase given fall through gross margins of 248%.
At the midpoint of CSI Compressco's full year adjusted EBITDA guidance of a $127.5 million and after accounting for cash interest expense, maintenance capital expenditures and cash taxes. CSI Compressco expects to generate approximately $60 million of free cash flow. This year, $30 million of that was directed toward cash redeeming the Series A preferred units which are now done and directed toward growth capital with a small amount toward distribution.
我还想再次提醒大家，TETRA CSI Compressco的债务是截然不同的。 TETRA与CSI Compressco之间的债务没有交叉违约，交叉抵押或交叉担保。我现在将花几分钟时间在CSI Compressco上。
对于CSI Compressco，第二季度经营活动产生的现金流为870万美元。 1570万美元的可分配现金流量比今年第一季度增加了150％，比去年第二季度增加了200％。他们的覆盖率为33倍，而第一季度为13倍。
ABL左轮手枪没有任何金额消失。 CSI Compressco没有任何维护契约可以遵守。截至6月底，CSI Compressco的总杠杆率为5.55倍。在年度调整后的第二季度调整后的EBITDA中，他们的总杠杆率将是4.98倍，在去年5月在纽约市举行的投资者会议上，低于4.5倍[音频不清晰]。而且当我们在去年12月宣布削减我们的分销时。
CSI Compressco 2019年调整后的EBITDA指引在1.25亿美元至1.3亿美元之间。相比之下，2018年的调整后EBITDA为9900万美元，同比增长率为26％至31％。 2019年的收入预计在4.75亿美元至4.8亿美元之间。这比2018年增加了3500万美元到5000万美元。我们对我们继续看到的价格上涨感到非常鼓舞。新设备价格创历史新高，压缩服务毛利率持续提升。在第二季度，压缩服务毛利润的改善大于潜在的收入增长，因为毛利率下降了248％。
在CSI Compressco全年调整后的EBITDA指引中间，为1.275亿美元，并计入现金利息费用，维护资本支出和现金税。 CSI Compressco预计将产生约6,000万美元的自由现金流。今年，其中3000万美元用于兑现A系列优先单位的现金，这些单位现在已经完成并且针对增长资本，并且少量用于分配。
CSI Compressco previously communicated plans to direct 50% of future cash flows towards growth capital on the assumption that the market supports the higher margins we are achieving and generating 20% returns on capital. The other 50% will be targeted towards returning cash to stakeholders being [ph] neither [/ph] debt holders or equity holders. CSI Compressco are committed to improving their leverage ratio to 4.5x or better. As a reminder TETRA is a general partner of CSI Compressco, owns the IDRS and approximately 34% of the outstanding common units.
Returning to comments on TETRA consolidated, we expect third quarter profitability to be up sequentially for Water and Flowback testing services and/or Completion Fluid and products and platform compression. We expect EBITDA margin improvement across all three segments driven by more stable integrated projects, cost-cutting measures that we're implementing the anticipated CS Neptune project and higher contribution as the percent of CSI Compressco from the aftermarket services.
We expect modest revenue increases in Water and Flowback services and Completion Fluids and products and a slight decline in compression driven primarily by the timing of new equipment sales. I encourage you to read our news release from this morning and CSI Compressco's news release from yesterday for all the supporting details.
With that, I'll turn it back to Brady.
CSI Compressco此前曾表示计划将50％的未来现金流量用于增长资本，前提是市场支持我们实现的较高利润并产生20％的资本回报。另外50％的目标是将现金返还给利益相关者，而不是[/]债权人或股东。 CSI Compressco致力于将杠杆率提高至4.5倍或更高。提醒一下，TETRA是CSI Compressco的普通合伙人，拥有IDRS和约34％的优秀普通单位。
回到对TETRA合并的评论，我们预计第三季度的盈利能力将依次提升，包括Water and Flowback测试服务和/或Completion Fluid以及产品和平台压缩。我们预计所有三个细分市场的EBITDA利润率将由更稳定的综合项目，我们正在实施预期的CS Neptune项目的成本削减措施以及来自售后服务的CSI Compressco的百分比贡献。
Thank you, Elijio. Before we open the call to questions, I just like to reiterate four key messages to leave with you. First the Gulf of Mexico well which we believe will require our CS Neptune completion fluids is nearing completion and we're optimistic we will be able to monetize it on the second half of this year. Second, we're successfully -- navigating through an uncertain North America land market and posted sequential increase in EBITDA and EBITDA margins in our Water and Flowback services business. Third, our traditional offshore completion fluids businesses improved significantly, both in the Gulf of Mexico and internationally and is generating our targeted EBITDA margins of near 20%. And lastly, we remain very focused on cash flow generation and still expect total year TETRA only free cash flow to exceed the $3 million that we generated in 2018.
With that, we'll open the call for questions.
谢谢你，Elijio。 在我们打开问题的电话之前，我只想重申四条关键信息留给你。 首先，我们认为需要我们的CS Neptune完井液的墨西哥湾油井已接近完工，我们乐观地认为我们将在今年下半年将其货币化。 其次，我们成功 - 在不确定的北美土地市场中航行，并在我们的水务和流量服务业务中实现了EBITDA和EBITDA利润的连续增长。 第三，我们传统的海上完井液业务在墨西哥湾和国际上均有显着改善，并且我们的目标EBITDA利润率接近20％。 最后，我们仍然非常关注现金流量的产生，并且仍然预计TETRA总年度的自由现金流量将超过我们在2018年产生的300万美元。
We will now begin the question and answer session. [Operator Instructions]. The first question comes from Praveen Nara of Raymond James. Please go ahead.
我们现在开始问答环节。 [操作员说明]。 第一个问题来自Raymond James的Praveen Nara。 请继续。
Hey, good morning, guys. I guess we can start on the growth projects. We've talked about CS Neptune, it was nice to hear about the six operators that you're either qualified or in the qualification process with. I guess, given where you are, can you talk about, especially with regards when Halliburton is involved, how long the qualification process takes? And then given what you guys know about where you are, when do you expect to see that ramp up in CS Neptune project or revenues? Do you expect that in 2020, 2021? How do you think about that?
嘿，早上好，伙计们。 我想我们可以从增长项目开始。 我们已经谈到了CS Neptune，很高兴听到六位运营商要么合格，要么在资格认证过程中。 我想，考虑到你在哪里，你能谈谈，特别是关于哈里伯顿参与的时候，资格认证过程需要多长时间？ 然后根据你们所知道的你们所处的位置，你们何时会看到CS Neptune项目或收入的增长？ 您是否期望在2020年，2021年？ 你觉得怎么样？
Yes. I'll take that one. The qualification time can be fairly lengthy because as you know these are mostly deep water projects. It involves the completion designs from the customer; what types of tubular metallurgies they're going to use; if facilities can get involved, if it requires [ph] link [/ph] flowback. So as you can imagine, we are involved in qualifying for these projects for pretty far in advance of actual seeing, the 'bit turn to the right', so to speak. Having said that, we've already qualified with several customers and we have some visibility of their projects in addition to the one Gulf of Mexico project we've talked about in Q3, there's one international project that we are in discussions, commercial discussions with a customer, that if we finalize those discussions, that's an ongoing drilling campaign depending on whether they hit the pressures that required Neptune would determine whether we get another job this year or potentially next year.
So that's an example of one type of project that we would expect to see some benefit from next year. There are some other projects that are further out there. We could see additional project sanctioned and drilling next year. But it's a little too early to tell at this point until we get into the budget. The budget season is probably near the end of the year.
Okay, that's helpful. And then I guess it's on the fluid side in terms of the integrated project count increased to 25 from 19. Can you talk about where that growth is coming from? Is it more customers using the integrated service? Or is it the same customers increasing the number of projects they're doing?
好的，这很有帮助。 然后我猜它在流动方面的整合项目数从19增加到25。你能谈谈增长的来源吗？ 是否有更多客户使用综合服务？ 或者是同一客户增加他们正在做的项目数量？
Yes, it's a little bit of both for us in Q2. We continue to build some momentum with the major operators. They seem to be adopting it right now faster, just primarily because of their sustained activity levels compared to some of the smaller guys. But we do have integrated projects now in all of our basis. So we're proud of that. But yes, we're really pleased with the momentum for being where we're getting with those projects.
是的，这对我们来说在第二季度都是一点点。 我们继续与主要运营商建立一些动力。 他们似乎现在更快地采用它，主要是因为与一些较小的家伙相比，他们的持续活动水平。 但我们现在确实在我们所有的基础上都有综合项目。 所以我们为此感到自豪。 但是，是的，我们真的很高兴能够在这些项目中获得成功。
Could you give us an idea, tell us how many customers are using the integrated service?
I don't have that in front of me, Praveen. I'd have to go back and get that number for you. I know it's approaching the double digits, but I don't know exactly right now.
Praveen，我没有在我面前。 我必须回去为你拿到这个号码。 我知道它接近两位数，但我现在还不知道。
Okay, that's helpful. Thank you very much, guys.
Yes, thank you.
The next question comes from Coleman Sullivan with Wells Fargo, please go ahead.
Hi, good morning.
Thanks. You guys mentioned the some pricing pressure, I guess, in the water flowback. Can you walk through the areas where you're seeing the majority of that in that segment?
谢谢。 我们在水回流中提到了一些定价压力。 你可以走过那个你看到那个细分市场中大部分区域的区域吗？
Sure. It's a little bit different for each of our product lines. For our production testing flowback, it's actually pretty flat and I think primarily, that's because we're bringing some new technologies into the market with some very good acceptance and the customers are benefiting from the efficiencies and some of the automation that we're bringing on that side of it. So we've held pricing pretty firm on the PT side of business. We did see a little bit for the first quarter some pricing pressure on our TETRA Steel, I'd say mid single digits, types of pricing discounts in this quarter. Probably the areas under the most pressure is your single jacket, lie flat hose. And I would say we're probably mid-teens down from the peak of where we were at the peak of the cycle.
当然。 每个产品系列都有一点不同。 对于我们的生产测试回溯，它实际上非常平坦，我认为主要是因为我们将一些新技术带入市场并获得了一些非常好的认可，客户正从我们带来的效率和一些自动化中受益 在那一边。 因此，我们在PT业务方面的定价相当坚定。 我们确实看到第一季度我们的TETRA钢铁有一些价格压力，我会说这个季度中等个位数的价格折扣类型。 可能压力最大的区域是你的单夹套，扁平软管。 而且我会说我们可能已经从我们处于周期高峰期的高峰时期开始了十几岁。
Okay, and is there any way that you guys can help us at least think about the level of contribution from these integrated projects over the rest of the year and kind of support to any seasonality that you guys see or the seasonality that's kind of expected in the fourth quarter? Just help us think about like the support from I guess, the revenue and margin level from these integrated projects?
好的，有没有什么方法你们可以帮助我们至少考虑这些综合项目在今年余下时间的贡献水平，以及对你们看到的任何季节性或者预期的季节性的支持。 第四季度？ 只是帮助我们思考一下这些综合项目的收入和保证金水平？
Oh, cool. I'll take that one. Brady mentioned that we're progressing one of our water recycling projects moving from 60,000 barrels to 100,000 barrels, and that we've been on that project since last year. The benefit that we have is that we're not mobilizing and demobilizing for projects continuously. Once we get on some of these integrated projects, we bring out a significant amount of people and resources, and we're there for extended periods of time. So the benefit that we get is that we get better utilization of people and equipment, and then we get more predictability to be able to schedule those projects. That is the enhanced margin that it brings. Clearly, when we drop headcount because of automation, customers are asking that we share some of that benefit and we do them but we try to improve the margin on it. Always suggests that the overall profitability of our integrated projects are better than our single delivery services that we do because of those factors.
哦，很酷。 我会拿那个。 布雷迪提到我们正在推进我们的一个水回收项目，从6万桶增加到10万桶，自去年以来我们一直在进行该项目。 我们的好处是我们不会不断地为项目动员和复员。 一旦我们开展了一些这些综合项目，我们就会带来大量的人力和资源，而且我们会在那里工作很长一段时间。 因此，我们获得的好处是我们可以更好地利用人员和设备，然后我们可以更加可预测地安排这些项目。 这是它带来的增强利润。 很明显，当我们因为自动化而减少员工人数时，客户要求我们分享一些好处，我们会这样做，但我们会努力提高它的利润率。 总是表明我们的综合项目的整体盈利能力优于我们因为这些因素而提供的单一交付服务。
All right. That's all I have. I'll turn it back.
行。 这就是我的全部。 我会把它还给我。
The next question comes from John Watson, with Simmons energy. Please go ahead.
接下来的问题来自John Watson，Simmons的能量。 请继续。
Thank you. Good morning.
Good morning, John.
In response to Cole's question, you didn't mention recycling [indiscernible]. Is that a business where you're seeing resilient pricing and margin? And can you speak to the opportunities [indiscernible] to continue to grow that business as more and more operators look at recycling?
针对科尔的问题，你没有提到回收[音频不清晰]。 这是一个你看到弹性定价和保证金的业务吗？ 随着越来越多的运营商关注回收利用，你能不能继续发展这项业务的机会[听不清]？
Yeah, so we haven't seen, John, any pricing pressure on our recycling projects yet. And we directed -- we talked about our frontend capital load of this this year. A good portion of that has gone to the recycling opportunities that we have. It is clearly our fastest growing segment in the water and flowback. We won't discuss how many jobs we're on a percent of the revenue. I will just say it is our fastest growing and we believe those margins are very sustainable.
是的，所以我们还没有看到约翰对我们回收项目的任何价格压力。 我们指示 - 我们谈到了今年我们的前端资本负担。 其中很大一部分已经用于我们拥有的回收机会。 这显然是我们在水和回流方面增长最快的部分。 我们不会讨论我们占收入的百分比。 我只想说这是我们增长最快的，我们相信这些利润是非常可持续的。
Okay, great. Thank you for that. Secondly, within that segment, are you expecting any facility sales in the second half of the year?
好，太棒了。 谢谢你。 其次，在该细分市场中，您是否预计下半年将有任何设施销售？
Not at this time, John.
Okay. And then lastly, can you speak to the effect of increased automation within water and flowback? And how that might be able to offset some of the pricing pressure and margin pressure that you all mentioned earlier?
好的。 最后，您能否谈谈水和回流中自动化程度的提高？ 那怎么可能抵消你们之前提到的一些定价压力和利润压力？
Sure, yes. The 25 projects that we mentioned involve our automation capability. So as you as you look at the growth of those integrated projects, that gives you a bit of a cadence of the growth in our closed loop automation systems. Just one example where automation was able to help us gain with a new client in the Rockies using our TETRA Steel and automation, we were able to deliver 180 barrels per minute frac job. And as you probably know, fracs typically average 100 to 220 maximum barrels permitted types of frac and through our automation and TETRA Steel, we were able to achieve 180. So those were examples of how automation is helping us to gain some market share and reduce people which ultimately improves the margins for us.
当然可以。 我们提到的25个项目涉及我们的自动化能力。 因此，当您看到这些集成项目的增长时，这会让您对闭环自动化系统的增长有所了解。 只有一个例子，自动化能够帮助我们使用我们的TETRA钢铁和自动化在落基山脉的新客户获得，我们能够提供每分钟180桶的压裂作业。 正如您可能知道的那样，压裂通常平均容纳100到220个最大桶允许压裂类型，通过我们的自动化和TETRA Steel，我们能够达到180.所以这些都是自动化如何帮助我们获得一些市场份额并减少 最终提高了我们利润的人。
Okay, got it. Thanks, Brady. Good quarter. I'll turn it back.
好，知道了。 谢谢，布拉迪。 好季度。 我会把它还给我。
The next question comes from Stephen Gengaro of Stifel. Please go ahead.
接下来的问题来自Stifel的Stephen Gengaro。 请继续。
Thanks. Good morning, gentlemen.
A couple things for me. The first, when we think about the completion fluids business, I believe you said at your prepared comments a modest revenue increase in the third quarter. Can you talk about the puts and takes there? Because the European business, I think is real strong in the second quarter. So it's a pretty big headwind to overcome, but you still seem to be getting towards modest revenue improvement. How should we think about that?
对我来说有几件事。 首先，当我们考虑完井液业务时，我相信你在准备好的评论中说第三季度的收入增长不大。 你能谈谈看跌期权吗？ 因为欧洲的业务，我认为在第二季度真的很强劲。 所以这是一个相当大的逆风，但你仍然似乎正在接受适度的收入改善。 我们该怎么想呢？
So very good observation, Stephen, we do drop $10 million to $15 million of our revenue from Q2 to Q3 due to the lack of the European season peak stopping in the second quarter. Then we're picking up the Neptune project that we think is going to impact the third quarter. But we're also believing that the traditional roaming activity will continue to improve. So the combination of means continuing to improve on the competition fluids offshore plus the Neptune project impact in third quarter will allow us to be up modestly Q3 over Q2 on a revenue cycle.
因此非常好的观察，斯蒂芬，由于缺乏第二季度欧洲赛季的高峰，我们确实从第二季度到第三季度的收入下降了1000万美元至1500万美元。 然后我们开始接受我们认为会影响第三季度的海王星项目。 但我们也相信传统的漫游活动会继续改善。 因此，继续改善海上竞争流体的手段加上第三季度海王星项目影响的组合将使我们在收益周期中比第二季度温和上升第三季度。
Okay, that's, that's helpful detail. Thank you, Elijio. And as I think about the overall entity and if you think about compression seems to be doing well. It seems like your outlook continue to be pretty strong. How do you think about just sort of the structure of the the entire TETRA entity going forward and how that impacts sort of your longer term return on capital expectations?
好的，那是有用的细节。 谢谢你，Elijio。 当我考虑整体实体时，如果你考虑压缩似乎做得很好。 看起来你的前景仍然非常强劲。 您如何看待整个TETRA实体未来的结构以及这对您的长期资本预期收益的影响？
I'll start and then I'll let Brady add comments to it. You've seen that we have been very active in trying to align the portfolio towards those segments that are predictable and get good returns for us. We disposed and divested our offshore decommissioning and [indiscernible] business early last year. That's been in swift water last year and then late last year, we also did a small tuck in acquisition from all of these. We believe that directing our resources towards a high recurrence, water treatment, water transfer, where we got technology differentiators that separate us from the competition will give us 20% EBITDA tight margins. And we're working back toward those numbers on the water and the flowback testing site.
Then on the completion fluids side, Brady mentioned some of the newer technologies that were involved in CS Neptune. If deep water activity keeps ramping up, we're seeing the benefit of that as completion based fluids are starting to ramp up. And you know that we've got our chemical facilities in our distribution network fully built out. We do not have to add CapEx and drive more volume through those facilities. We think that we're going to get high fall-throughs from that part of it.
And then on the compression side, you've seen that all the growth CapEx that we've directed has been strictly on the high end, big gathering units in the centralized gas lift. And we've mentioned very high fall-through margins. You see that we're achieving a record-high gross margins on those. You're also seeing that the aftermarket services and equipment sales that required capital also growing nicely. So we'll try to align all our investments towards those three areas, pinpoint technology to differentiate us, and then take advantage of a built-out structure.
Okay, that's good detail. And just one final one, when we think about Q3 in aggregate, are we going to be profitable at the bottom line?
If you follow the commentary that I made, that we expect improvements in EBITDA margins and we expect Neptune to come across, we're very positive of where our third quarter numbers are looking for.
Okay, thank you.
The next question comes from Thomas Curran with B. Riley FBR. Please go ahead.
接下来的问题来自Thomas Curran和B. Riley FBR。 请继续。
Good morning, Thomas.
Brady, for Neptune turning internationally, which country currently looks the most promising for Neptune's commercial debut outside of the U.S.?
Certainly the north sea would probably rise to the top in terms of the near term opportunities.
And is the major that you've technically qualified with and are in advanced commercial discussions for a project that, if I understood correctly sounded as if it could materialize as early as Q4. Is that a different customer than the one you've been working within the Gulf of Mexico?
Yes, it is a different customer. And again, it's possible for Q4 -- we still have to finalize commercial negotiations and obviously it has to be drilling in the right part of the field that's going to require Neptune pressures.
是的，它是一个不同的客户。 再次，第四季度可能 - 我们仍然必须完成商业谈判，显然它必须在该领域的正确部分进行钻探，这将需要海王星的压力。
Okay. Does it sound as if, though, that that project, if it if it ends up having the right pressures would likely lead to a revenue generating event before you might advance whatever is the most promising of the next opportunities in the Gulf? In other words, beyond this project that you'll be executing in late Q3, does it currently look as if the next revenue event is most likely to be international before you would then get the next job in the Gulf of Mexico?
好的。 然而，听起来这个项目，如果它最终会产生正确的压力，可能会导致产生收入的事件，然后才能推进海湾地区最有希望的下一个机会吗？ 换句话说，除了你将在第三季度晚些时候执行的这个项目之外，它目前看起来好像下一个收入事件最有可能是国际性的，然后才能获得墨西哥湾的下一份工作吗？
That progression makes sense, yes, what's your laying out. Correct.
Great. And then turning to water and flowback. The Sand Cyclone equipment fleet, could you share with us, help us size that somehow? What is it as a percentage of a flowback or of the entire water and flowback division? And then what do you estimate is your market rank and share for the Sand Cyclone equipment service?
非常好。 然后转向水和回流。 Sand Cyclone设备车队，您可以与我们分享，帮助我们以某种方式确定尺寸吗？ 什么是回流或整个水和回流部门的百分比？ 那么您估计您的Sand Cyclone设备服务的市场排名和份额是多少？
I don't have the sheer numbers, probably in front of me now. We would estimate across North America, we would think we're in a strong second position on that. But I'd have to double-check the numbers on that. We were still in the early days of rolling out. There's two different technologies on the sand piece. One of them is automated sand flushing, which again, reducing people, saving efficiencies for our clients that we are rolling out. And the other one is just a new cyclone technology. That's probably more advanced stages than the automated sand flushing system that we have in terms of the number of units we are deploying. But fortunately for us, we've come up with a modification that we can modify our entire cyclone fleet or most of our cyclone fleet to achieve the second generation capabilities and efficiencies that we're seeing up to 95%. So we're very optimistic about the market penetration. We will see with that going forward.
我没有这些数字，现在可能就在我面前。 我们估计整个北美地区，我们认为我们在这方面处于强势第二的位置。 但是我必须仔细检查那个数字。 我们还处于推出的早期阶段。 沙子上有两种不同的技术。 其中之一是自动冲沙，这再次减少了人员，为我们正在推出的客户节省了效率。 而另一个只是一种新的旋风技术。 这可能是我们在部署的单位数量方面比自动沙子冲洗系统更先进的阶段。 但幸运的是，我们已经提出了一项修改，我们可以修改整个旋风机队或大部分旋风机队，以实现我们看到高达95％的第二代能力和效率。 所以我们对市场渗透非常乐观。 我们将会看到这一点。
And Thomas, I would suggest that it's not that technology in isolation that's the benefit to us. It's that that allows us to differentiate from our competitors and brings more of the flowback testing opportunities in our favor.
I see. Thank you for taking my questions and providing the detailed answers.
I guess this concludes our Q&A session. We appreciate your interest in TETRA technologies and thank you for taking the time to join us this morning. That concludes our call.
我想这就是我们的问答环节。 感谢您对TETRA技术的关注，感谢您今天上午抽出时间加入我们。 这就结束了我们的呼吁。
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