TETRA Technologies, Inc.
Q1 2015 Earnings Call Transcript

Published: 8 May 2015

[Operator:]

Good morning and welcome to the TETRA Technologies’ First Quarter 2015 Results Conference Call. 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 also note this event is being recorded. I would now like to turn the conference over to Stuart Brightman, President and CEO. Please go ahead.

[Stuart Brightman:]

Thank you, Emily, and welcome to the TETRA Technologies’ first quarter 2015 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. In addition, our Chief Operating Officer, Joseph Elkhoury is also joining us on the call. I will provide a brief overview of our first quarter 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 statements that are or may be deemed to be forward-looking statements. These statements are based on certain assumptions and analyses 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 results may differ materially from those projected in the forward-looking statements. In addition, in the course of the call, we may refer to net debt, free cash flow, revenues, gross profit, profit before tax or earnings per share excluding the Maritech segment, coverage ratio or other non-GAAP financial measures. Please refer to this morning’s press release or through 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. Our first quarter 2015 adjusted earnings excluding Maritech and unusual items was a loss of $0.03 per share. Some of the highlights of the quarter include the following

[Elijio Serrano:]

Good morning, everybody. Tetra revenue of $250 million increased 18% over the first quarter of last year reflecting the acquisition of CSI Compressco on August 4, of last year. Sequentially revenue declined 21% from the fourth quarter of which $30 million of this decline was a seasonally drop we traditionally see in our offshore services division. Excluding offshore services revenue declined 13% sequentially, which compares to sequential drop in the US onshore average rig count of 27% from Q4 last year to Q1 of this year. Fluid segment revenue decreased 6% to $99 million from last year and decreased 10% sequentially from the fourth quarter, mainly due to the weaker U.S. onshore water management volumes. Adjusted pretax margins, however, improved to 18% up 70 basis points sequentially and up 260 basis points from a year ago as a result of the higher offshore and chemicals manufacturing volumes. Production testing revenue decreased to $37 million, down 15% from a year ago and down 34% sequentially. Adjusted EBITDA margins for the first quarter were 18%, an improvement compared to the 14.9% in the first quarter of last year, but a decline compared to the 27.4% from a very strong fourth quarter of last year. The $8.8 million sequential decline in adjusted EBITDA versus the $19.5 million sequential decline in revenue represents a 45% decremental margin consistent with our expectations coming into the quarter. We are able to remain slightly positive on an adjusted pretax level. The compression segment revenue decreased $73 million from a year ago reflecting increased $73 million from a year ago reflecting CSI acquisition. Sequentially, revenue decreased 18% on the delay of new unit sales that were pushed into future quarters. Backlog of new unit sales was $115 million compared to $120 million at the end of the forth quarter. Adjusted EBITDA margins were 13.3%, which improved 200 basis points from the fourth quarter of 27.6%. Utilization of our compression fleet was 86.4%, down only 113 basis points from the 87.7% utilization at the end of December 2014. CSI Compressco continues to make good progress with the integration and realization of the targeted cost synergies. Offshore services revenue was down following the seasonal decline we see every First Quarter as difficult weather conditions require us to bring our fleet of assets to the dock. We normally begin mobilizing in late March ors early April to begin the Spring campaign. Given the difficult environment and our customers focus on cash preservation by deferring decommission and activity we have been aggressively reducing cost. While revenue was down $23.5 million compared to a year ago, our adjusted pretax loss was only $700,000 worse than a year ago, Compared to a year ago we have reduced total cost in offshore services from $43 million a year ago to $20 million this quarter. Our very significant 52% reduction in total cost. This demonstrates the magnitude of the actions we are prepared to take in this environment and also demonstrates that our asset light offshore services business model can be adjusted to the market environment. On a GAAP basis, earnings per share were a loss of $0.06. In the quarter we incurred serve is answer and transaction related expenses of 951,000. We also reported a profit at Maritech of $1 million with Noah adjustments to our asset retirement obligations. We only spend $566,000 of cash outlays on Maritech work this quarter and are targeting less than $8 million for the year. We are down to two operated properties that we intend to address next year when the market is better to allow us to conserve cash. In the quarter, we also incurred $2.5 million non-cash tax charge as the valuation allowance to deferred taxes primarily in the United States. We expect our effective tax rate on a normalized basis to be approximately 30%. This tax charge reduced our GAAP earnings by $0.02 per share. We have a US tax loss carry forward generated from mainly from historical Maritech losses as well as tax credits which represent a tax benefit of $85 million which will significantly reduce future US tax liabilities. This $85 million of tax loss carry forwards can offset over $240 million of taxable income in the United States. There for, on a go forward basis as the economics of our industry improve, and the Maritech losses are behind us, the ability for Tetra to generate cash earnings are enhanced as we utilize this tax loss carry forward and tax credit for all our US businesses, including Tetra earnings from the CSI Compressco LP. During the quarter Capital expenditures for Tetra were significantly reduced from the $19 million a year ago and from the $15 million in the fourth quarter to only $9 million in the first quarter. We believe capital expenditures for Tetra will be closer to $30 million this year compared to $65 million last year and compared to $75 million in 2013. We intend to demonstrate that in this difficult environment, we are focused on Generative Free Cash Flow by addressing our cost structure, further diversifying our revenue base, capitalizing on our businesses that are not as dependent on U.S. onshore play drilling and minimizing Maritech cash outlays. Only about a third of our total revenue from all our product lines is directly linked to U.S. onshore sail drilling. For CSI Compressco Capital Expenditures are being targeted to expand our fleet with mid and larger size come pressure being deployed on gathering systems, central delivery systems and large well production requirements with the emphasis on production. Utilizations for this type of units are higher than the overall average of the division. We've mentioned in the past and it's important to repeat this, that only about 15% of CSI Compressco revenues directly dependent on onshore drilling activity. And as a reminder the capital expenditure of CSI Compressco are being wholly funded by CSI's capital structure without any support from Tetra. During the quarter, Tetra received distributions from CSI Compressco of $7.3 million, up 28% from a year ago, which represents a distributions to Tetra for the 42% of the outstanding unit that we own and our 2% general partner interest. As you'll recall when we did the IPO of Compressco in 2011, as general partner we’re only receiving 2% of the distributions for the GP. As the distributions have been gradually increasing, we have surpassed the 15% IDR and late last year, after the Compressco acquisition we reached a 25% IDR. At our current annualized distribution of $0.98 per unit, we are only 17.5% away from reaching the 50% IDR threshold that will significantly accelerate the distributions to Tetra as a GP of CSI Compressco. With respect to the balance sheet we previously mentioned that Tetra and CSI Compressco’s debt are distinct and separate from one another. Tetra improved our leverage ratio to less than 2.9 times debt to EBITDA in the first quarter. This was an improvement from the leverage ratio at the end of 2014, a strong accomplishment in a deteriorating market. The details of Tetra and CSI Compressco’s test structure are included in our press release. Tetra’s liquidity at the end of March was $135 million, with the liquidity being defined as availability in our revolver plus cash on hand. CSI Compressco’s liquidity at the end of March was $217 million. We believe we are in good position to manage through this downturn with adequate liquidity plus Tetra generating free cash flow. As Stuart mentioned we retire the $90 million private notes that matured at the end of April by refinancing $50 million on a two-year term loan at interest rates lower than the retired notes and by absorbing the remaining $40 million into our revolver. On a 12-month basis, this will reduce our interest expense by approximately $2 million We have modeled and have actions to address an environment where the U.S. onshore rig count remains at today’s levels for this year going into next year, where cost levers will continue to be pulled. Tetra excluding CSI Compressco have reduced headcount by 648 staff or 21% from the peak of last year through the end of March. This year alone we have reduced staffing levels by 348 staff or 12.5% at Tetra excluding Compressco. We believe that our business model allows us maneuver operating cost accordingly, reduce capital expenditures, putting us in a unique position to generate attractive free cash flow in a challenging environment, especially when taking into account that distributions we can expect to continue to receive on CSI Compressco. We have invested heavily to build our compression business and our fluids franchise as we believe this too are more resilient to a U.S. downturn. These two divisions represented over 80% of our first quarter revenue. And with that let me turn it back Stu.

[Stuart Brightman:]

Okay, at this stage we’ll open the lines for questions.

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Praveen Narra of Raymond James. Please go ahead.

[Praveen Narra:]

Hi good morning guys

[Stuart Brightman:]

Good morning

[Praveen Narra:]

So on the forward side of the business, obviously the segment held up really well. It's impressive to see a margin increase under this environment but I assume your non-ENPhad industrial side was relatively steady so, I guess, can you give us extra color on the offshore versus onshore portions trended from an activity and pricing standpoint?

[Stuart Brightman:]

Yes, I mean I think. If you look at the first assumption that the industrial held up well iscorrect. And when you lookthe otherareasour offshore continues to be strong as we talked ability February in the call, we have got a nice backlog that we have good visibility on and the projects kind of rolled out on schedule during the quarter which was good. Onshore the water is very, very difficult. We are not exempt from the challenges that everybody has in those markets with that business both from an activity and a pricing point of view. And then the balance of our onshore fluids held up good, I think, that business will certainly be impacted as we go forward, but not to the degree of water. We have areas that have a footprint that allows us to participate steadily going forward and our international fluids markets did well also. So its very similar to what we're seeing in our strong quarters this cycle where the fundamental strength of that business has held up.

[Praveen Narra:]

So I guess we balance that as move through the rest of the year is it possible we keep margins relatively steady at these levels or?

[Stuart Brightman:]

I would think we will continue to see incremental pressure on the water side as we go through the year, again kind of all of this is based on the fact. It's our view we haven't seen the bottom of the market in some of those drilling related shale plays for our businesses, so I think both for our testing domestically and for our water, we're going to continue to have that type of pressure, I think in the Gulf of Mexico it will be in as lumpy as it is, I think we'll have some quarters that better than others but I think in general we're going to have a very good year in that area and the international markets, the North Sea is going to be a little bit more challenging but areas in Brazil and Saudi which are other major plays. I think we will continue to do well on that. Joseph any areas I've left out on that? I think we feel pretty good about that business going forward?

[Joseph Elkhoury:]

Yes, the backlog for the first half and we’re moving into the second half of 2015 and its good we feel very comfortable with our current margins, in fact in some places we might slightly improve some of these margins based on the cost actions we've taken and the customer expansion, we've remain with the [indiscernible] market share points. The point that Stu mentioned around water in the U.S. onshore is that it related to the ENP companies using a lot less reduced water where our Tetra steel is definitely a superior solution to all of our competitors with the double jacketed plateaus unfortunately, with half the activity on U.S. planned onshore, the access to freshwater has become very easy for the customers and in fact some of our customers have decided to vertically integrate and take in house some of these services so that just gives you some color to the water. We believe that we are very close to the bottom, we hope the bottom line would be in Q2. In fact if you look at the number of wells that have been drilled and not completed, that backlog continues to grow and we estimate that there are between 4000 and 5000 wells that are now drilled and not completed, so it's an important point to make because we believe that as soon as the commodity price stabilizes and becomes a little bit more attractive at some of our ENP customers may access to come back to work sooner than the rig counts start coming up.

[Praveen Narra:]

Okay, that's very helpful, so I guess switching over to the cost side of your business, can you give us some color on when you started to realize the impact of cost savings and how that flows into future quarters?

[Stuart Brightman:]

I think we've been realizing it for the better part of two years. We didn't start during this cycle, if you go back to prior calls on some of the businesses, we've had a challenging offshore services market for awhile and we just continue to grind through it and take incremental actions, so again the numbers that Elijio referenced are very impressive and our continuation of what we've been doing. I think on the onshore business we've certainly accelerated the paces activity comes down and again it's not just looking at ratios in different areas beyond that, I think Joseph and his team, structure flatten the organization, done things in a down market that you've got to do by looking at the business differently, so I think you clearly seen certainly the second half of last year in some of the margin enhancements on testing, a lot of that's been driven by cost actions. I think on our ability to kind of even in this low revenue side on offshore services come in at the level we did that was driven by cost. Certainly we’ve gotten nothing from the market that's helped us on offshore services. That's all been self helped in terms of costs driven and you know, in our G&A areas, the entire corporation at the division level and the corporate level continues to take that number down, so I think we would see it but it's very good evidence of it in the first quarter.

[Stuart Brightman:]

I would add probably you've heard us talk in the past last year about this time we were talking about consolidating the quarter-on-quarter function at the Tetra level and consolidating accounting procurement, HR, that started a year ago. And then last year we implemented a system in Oklahoma City for compress work that allowed us to consolidate a lot of their G & A functions back into Houston. So we've been with this process and I think we’re getting the cumulative impact of a lot of those actions and even for our offshore services division, for them to pull $23 million cost out from Q1 a year ago to this year, basically cutting their costs in half, it's something that takes time to get done and we've been working on that all through the year and we're seeing a cumulative impact from all those items.

[Praveen Narra:]

I think that's true, thanks a lot guys. I'll turn it over.

[Operator:]

Our next question is from Kurt Hallead of RBC Capital Markets. Please go head.

[Kurt Hallead:]

Hi, good morning.

[Stuart Brightman:]

Good morning, Kurt.

[Kurt Hallead:]

I just wanted to get a general sense from you guys, we had a number of meetings this week and it seems that there is some growing viewer consensus that the activity levels look like they can bottom out here some time maybe late second quarter or very early third quarter and that the bulk of the pricing pressures will pretty much kind of roll through the P & L in the second quarter. And just want to get your take on that and compare and contrast.

[Stuart Brightman:]

Yeah, I think there’s a little bit more favorable tone as the prices moved up over the last period of time and I think more customers talking about potentially putting rigs back to work and the statistics that Joseph quoted as well, and I do think that there's a tangible optimism. Having said that, we're operating the business under the scenario that we're going to be at these type of levels for an extended period and making sure our balance sheet and our cost structure reflects that, and we'll be opportune it's if things migrate faster than that favorably but we feel a little bit better about the tone but we're being very conservative in the way we are organizing the company and making decisions. Still there, Kurt?

[Kurt Hallead:]

Yes, I’m Sorry about that, follow-up here on the offshore side of the market there seemed to be some commentary during the course of the week at the deepwater Gulf of Mexico is going to actually hang in there pretty well, obviously some challenges on the shallow, it's coming back around to the offshore services market and again can you give us some perspectives on that dynamic because I think most of your offshore services if I'm not mistaking and if I am correct me is more shallow than deep; is that right?

[Stuart Brightman:]

Yeah I mean it's almost all on the shelf and I think if you look at that customer base, there's just not going to be as much spend as we like on abandonment and decommissioning or infrastructure this year. So we've at the end of last year that one of our dive vessel that we had on long-term lease we shed that and we feel when opportunities come up we have very good access to that type of asset. We continue to stream on the organization but I think our assumption is even with some of the assumptions that maybe we see a little bit better onshore activity as we go through the second half of the year. We're assuming offshore services, it's going to be a tough year and other than seasonality in some of those trends in the middle of the year, it's going to be very, very tough and again that's the way we'll organize it. Hopefully, as we see commodity prices improved as we go forward may be that will loosen up a little bit the budget of that abandonment and decommissioning spend by our customers. We see no evidence for that at this stage.

[Kurt Hallead:]

Alright, great. That's it for me, thanks.

[Stuart Brightman:]

Thanks.

[Operator:]

Our next question is from Stephen Gengaro of Sterne, Agee & Leach. Please go head.

[Stephen Gengaro:]

Thank you, good morning, guys.

[Stuart Brightman:]

Good morning, Stephen.

[Stephen Gengaro:]

A couple of things, I guess I'll start on the production testing side, you've done a lot on the cost side you talked about it. And I think Eliji referenced the decremental margins in the quarter. Assuming you get some slippage in revenue in the second quarter just based on what we see in activity. Can that business – can margins remain above break even or is the cost saving that had been in place or I know that pricing pressure is off segment, how should we think about sort of the margin profile in that business over the next quarter or two?

[Stuart Brightman:]

All right. I'll try to answer that question. We have been surgical with some of the cost actions that we have taken with production testing and the offshore services in particular. Having said that what we did in the beginning of the year is define the scenarios for the activity levels we expected through the first half and second half of 2015, both on the domestic and international front. Having said that, we managed to meet in some cases exceed our cost bucket target, which allows us to basically safeguard our profitability. In Q1 we had a few projects slip into Q2. We expect to maintain or exceed some of these margins that you have seen in Q1, in particular with our international business. We also have seen complete deterioration in places like Canada in particular where we think that the recovery would be very tough in the short-term. In Iraq, we had deflation ofproject in Q1, we have won another project in similar size to the project that we saw at the beginning of Q1. We expected that to start in the beginning of March and kickoff for that project was towards the end of March so it will help us in Q2 and continue throughout 2015. So overall, with regards to the activity and the challenges, it's really going to be around Canada. The domestic part of things, it part of things, it's going to continue to be challenging. We believe we have taken the necessary actions to play in this environment. We have succeeded in diversifying our customer base towards some of the customers that are continuing to work through this downturn and we believe that the international market will basically stay strong. With regards to Brazil we have won a few projects as well and we will continue to work the whole year with the equipment we have when it comes to production testing, so we feel confident moving into Q2 and the rest of the year that we will be able to maintain some of these margins that we see in Q1.

[Elijio Serrano:]

You know embedded in that Steve and you know I think the great point to Joseph mentioned is in these areas with these lower activity and more competition, you have to migrate to that customer base as much as you can that a similar price point is going to recognize your superior service and I think the whole organization is very focused on the customer mix in those customers and taking market share with those customers, based on an intelligent economic analysis and I think that's part of why we've been able to do as well as we have on some of these competitive markets that we have.

[Stephen Gengaro:]

Okay, thank you. That’s helpful and good color. When I think about the compression side, you had a little bit of a downward draft in revenue. You talked about some delays in shipments. Is that something we should pick up second half of the year, is that how you're thinking about it based on the shipment delays or do you think that it's sooner than that?

[Elijio Serrano:]

I think we'll see it in the second quarter and beyond, I think for the balance of the year. So I think it’s more of a timing than it is anything broader than that.

[Stephen Gengaro:]

Okay, thanks. And then just one final on you. You mentioned the IDRs, and I think you're fairly close to that thirds with the $0.25, I think you’re at $0.25 or $0.30 away from in that range, right?

[Joseph Elkhoury:]

Annualized right now we're at $1.98 which is above the 25%, $0.25 IDR, to hit the 50% IDR, less $2.33.

[Stephen Gengaro:]

Okay, and then that’s where you see that sort of significant jump in GP cash flow.

[Joseph Elkhoury:]

At that point, any amount paid above 233, 50% comes to Tetra as the general partner.

[Elijio Serrano:]

It’s not, Stephen trust me it's a number that we all recite very frequently.

[Stephen Gengaro:]

Great, thank you.

[Operator:]

Our next question is from Mark Bianchi of Cowen and Company. Please go ahead.

[Mark Bianchi:]

Hi, good morning guys.

[Stuart Brightman:]

Good morning.

[Mark Bianchi:]

Just to follow up on Steven’s questioning on the production testing, may be you could expand a little bit on the competitive environment, how does that look maybe versus the summer of last year and I would suspect that things rationalize a little bit during this downturn and how do you see it positioned when a recovery ultimately unfolds?

[Stuart Brightman:]

Yes, I mean, I’ll give you kind of a high level answer and I will drill into a little bit more detail. My sense is if you compared to the end of last summer when things started to ratcheting down. I mean clearly we’re into significant double-digit pricing declines from where we were there and that hasn’t stopped, it continues. And that’s why it’s really important for us to make certain that. We do in the analysis on every customer I mean not just in terms who is going to be busy, but who is going to allow us to differentiate our capabilities, look at credit, our ability to get paid, all those variables. We’ve clearly seen several smaller companies packed in already. So we’ve seen a little bit of pending. What I characterize it as a major structural change, absolutely not. I think there will be some others, but I think the larger guys will continue to differentiate themselves and we certainly want to be one of those. And hopefully, we’ve seen we’re getting close to the bottom of that over the next month or quarter.

[Mark Bianchi:]

Okay. Do you get the sense that there’s competing bids out there for business that is – is that a loss for some of your competitors right now?

[Stuart Brightman:]

I definitely think there were competing bids out there on an ongoing basis. I think the nature of the process is those RFPs and competitive bids in that is – that’s a constant – that’s just the nature of what’s going on. And again the way – the only way you can participate is to come up with contribution of how you’re going to add value, articulate the value proposition, execute seamlessly and take some market share from people with the customers that you targeted.

[Elijio Serrano:]

Well, allow me to give you just an additional piece of information. Are there competing bids? Absolutely. Once we are trying to drive with our customers and the diversification and the new businesses to make sure that we give and take and play a win-win type of situation as our customers. So whenever we are asked to give price concessions what we’re trying to do is to get volume for their maybe diminished volume, but at least they first call with regards to the business they have to offer. With that, we’ve been asked to give discount levels over the course of the first four months of the year in excess of 15% to 20%, which allows us to maybe in ceases made play the volume card and there’s always inflection points if you are managed to have – get to that inflection point within 30 days of the month. So although your cost structure has diminished at some stage during the month with loading with a continued utilization of your resources and people, you’re be able to make money. And that’s basically some of our business representatives, a little bit of the tactical execution that we put in place. We have continued like I explained in the last call, we have continued to win new business. So this has been something that’s the whole organization that’s focused on whether it’s the production testing, the fuel business, the water, the compression or offshore. What we’re trying to do is make sure that we’re safeguarding profitability but objectively targeting the new business to diversify the customer base where it’s maybe better customers, maybe better value propositions and definitely better utilization of the resource.

[Mark Bianchi:]

Sure. Great, thank you Joseph and Stu. I appreciate it.

[Stuart Brightman:]

You’re welcome.

[Operator:]

Our next question is from Doug Dyer of Heartland Advisors. Please go ahead.

[Doug Dyer:]

Hi, good morning gentlemen. If you could – can you break out the inventory with regard to how much is at Compressco going home and how much is at Tetra and also maybe give a break down as to what is in finished goods and raw materials?

[Stuart Brightman:]

I don’t have that granularity Doug, at a total level. Inventories are right at $200,000 million for TETRA and Compressco. And then for Compressco– well, let me back up. Let me first give you the [indiscernible] of the $200,000. So about $64 million of finished goods, about $3.5 million is raw materials, parts of implies 53, and work-in process is $79. This split between Tetra and Compressco I’ll give those to you in just a second.

[Doug Dyer:]

Okay.

[Elijio Serrano:]

Yes, let me give those two applying I don’t have my Compressco, 10-Q here I don’t have the Tetra 10-Q here with.

[Doug Dyer:]

Okay, that’s fine. And then with regard to your cash flow that will be coming this year, how much of that you think it will be coming from working capital. Do you have a rough idea, how it shapes up between working capital and operating cash flow.

[Stuart Brightman:]

Right. So we said in the past that the expectations for cash to be generated this year from working capital at someone that $10 million range.

[Doug Dyer:]

Okay. All right, thank you very much.

[Joseph Elkhoury:]

And I’ll come back to you on the split between Tetra and Compressco under $200 million of inventory.

[Doug Dyer:]

Okay, all right, thank you.

[Operator:]

Our next question is from Blake Hutchinson of Howard Weil. Please, go ahead.

[Blake Hutchinson:]

Good morning.

[Stuart Brightman:]

Good morning, Blake.

[Blake Hutchinson:]

Yes, actually my first question was going to be kind of follow-up there to Doug’s. Elijio, was there something on the working capital side whether in a inventory build with the large Gulf of Mexico businesses that was a detriment to kind of free cash generation in the first quarter that I'm sorry if you had call that out but a big number that usually wouldn't have shown up in the quarter.

[Elijio Serrano:]

If you look at the press release for very last page schedule G, we show that first our use of cash from operations which is primarily up payment of payable to have accumulated at the end of the year, and that’s will get fleshed out in January, February. So we believe that for additional payout in early Q1 if a one off item that we continue to drop down receivable at the year progressive.

[Blake Hutchinson:]

Right. So if you take that net that number you gave Doug, that would be the we can gross that up for the number do you have a schedule G there.

[Stuart Brightman:]

Correct.

[Blake Hutchinson:]

Okay, great.

[Stuart Brightman:]

It’s primarily payables, correct.

[Blake Hutchinson:]

Great. And then just guys because it such a big swings the model seasonally I guess I hope get some thoughts around offshore services and seeing how big hit it took year and there are some commentary about the fact that in assets typically really the dark in March and April, but I guess some questions whether the works actually out there, would it be out of the range of possibilities to kind of get pre-tax profit back to kind of near break-even level, is that too aggressive assumption.

[Stuart Brightman:]

Let me give you a little color on that. We are major heavy list assets. We expect to continue to work. They are at work now. They went out early in the quarter. And we expect that will continue through the second quarter and beyond. I mentioned on prior comment that we don’t have a third party dive vessel under lease, don’t expect that will happen in the short-term. And effect that will happen in the short-term and I think the guys have done a great job on some of our smaller businesses within the segment downsizing and being at a mode where at a very low level of activity, they can make on the smaller businesses. So I think a lot of its going to be driven by the utilization of the major assets, because the pricing probably won't change. And we’re not going to bring the dive vessel back with out our reasonable backlog. And you take all that together. It’s not unreasonable to expect we might go to little bit of profit in that business during the busy part of the year.

[Blake Hutchinson:]

That’s excellent. That’s exactly I was looking forward. I appreciate it guys, turn it back.

[Stuart Brightman:]

Thanks.

[Elijio Serrano:]

And before we take the next call, Doug, your earlier question about the inventory split, so how did that $200 million, a $123 is at the Compressco level, which is up $10 million from end of the year. And the rest of it is Tetra are about $77 million, which is consistent with where we were at the end of the year.

[Operator:]

Our next question for follow-up from Stephen Gengaro of Sterne Agee. Please, go ahead.

[Stephen Gengaro:]

Thanks. Following up on that prior question and I – you have the movement so obviously put a significant, but also services the – any dive in somewhat the revenue line looks like in a middle part of the year. I mean there has been such fluctuations I'm really having trouble calibrating how that plays out?

[Stuart Brightman:]

I don’t want to get into projecting that level of detailed in this market, but again, as you kind of look at it, the points that I'd give you some direction on as I said the two major barges we think we are going to work through the balance of quarter and beyond the guide vessel that released, we don’t anticipate that’s coming back during this quarter certainly and we will bring an asset in fleets that we can match backlog to contractor of the assets. So we’re certainly slowing to see a significant from the first quarter which is not a big statement, now we would expect it won’t be busy as the top line will to the level that it was last year during the second quarter because you don't have the valid asset. But we have got a slim down the cost structure and I think will do okay during the second quarter.

[Joseph Elkhoury:]

I think just to add to what Stu is mentioning, our main priority is to take out profit in Q2 and Q3. So we are looking at utilization with our diminished cost structure and the whole team is really focused on making sure that we can load the assets in the busier season throughout the year to make sure we got profit. So that’s really a major focus for the team. So we without giving you a top line I think we are all focused on making sure that. We produce profit before tax in the next six months of the offshore service.

[Stephen Gengaro:]

Thank you, and where in the first quarter, the two major heavy lift vessels went to work. Can you give us a sense of how much they worked in the first quarter.

[Joseph Elkhoury:]

They were at the dock, we did not have any work for the heavy lift vessels and they went out in April.

[Stephen Gengaro:]

Okay, all right, that helps, great. Thank you, guys.

[Operator:]

[Operator Instructions] Showing no further question, this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Brightman for any closing remarks.

[Stuart Brightman:]

Yes, thank you very much. It is always we thank you for the participation the questions and we look forward to updating everybody on the second quarter early August. Thanks.

[Operator:]

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.