Tetra Technologies Inc (TTI) 2005 Q2 法說會逐字稿

Good morning. My name is Shatina and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Tetra Technologies second quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. [OPERATOR INSTRUCTIONS] I would now like to turn the conference over to Geoff Hertel. Please go ahead, sir.

Thank you and good morning. Welcome to Tetra Technologies second quarter conference call. With us today from Houston is Joe Abell, Tetra's CFO. I'm in a different location today, so forgive us if we both begin to answer questions simultaneously. We each will be making a short presentation, which will then be followed by your questions.

I must first, as I always do, 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 analysis made by us based on a number of factors. These statements are subject to a number of risks and uncertainty, many of which are beyond the control of the Company. You are cautioned that any such statements are not guarantees of future performance and that the actual results may differ materially from those projected in the forward-looking statements.

Now that my legal department is comfortable, I also want to make sure that you are aware that many of the statements today refer to data that we included in today's press release. Therefore, we do not intend to reiterate all of this data unless the responses to your questions require it.

Joe, would you begin the conference call, please.

Yes. Tetra's revenues for the second quarter were $144.4 million, 71.8% above the second quarter of 2004, and up 21.9% over the first quarter performance. This marked the highest quarterly revenues in the Company's history surpassing our successive records set in the previous two quarters, due to strong demand for our products and services and the acquisitions we made in the second half of 2004.

Gross profit was $43.5 million, 129.6% above the prior year's second quarter and 62.9% above our record first quarter gross profit. General and administrative expenses were up 65% year-over-year to $19.6 million as our businesses grew, though as a percentage of revenue, G&A expenses were down from 14.1% to 13.6%. Income before taxes and discontinued operations was a record $23.3 million, up 208% compared to the second quarter of last year, and up 166.7% sequentially.

Net income before discontinued operations for the quarter was a record $15.2 million, or $0.64 per share fully diluted, compared to $5.1 million, or $0.22 per share fully diluted in the same period last year, an increase of 199%. Net income before discontinued operations was up 167% compared to the first quarter of this year.

Looking at performance by division, revenues for the Fluids Division or the quarter were up 87.1%, compared to last year's second quarter. And profit before tax was $12.1 million, up 195% over last year's second quarter, and up 113% sequentially.

Revenues in the Well Abandonment and Decommissioning Division were up 44% year-over-year and profit before tax was $11.9 million, up 108% compared to last year's second quarter, and up 158% sequentially.

Revenues in the Production Enhancement Division were up 113% year-over-year and profit before tax was $7.4 million, an increase of 423%, versus the prior year's quarter, and up 38% versus the first quarter of this year. Each of these divisional revenues, gross profit and profits before tax were records for each of these divisions.

Our debt decreased by $7.0 million over the quarter to $125.2 million. Debt to total capital reduced over the quarter from 35.5% to 33.2%. With that, I'll turn the conference back to Geoff.

Thank you, Joe. I'd imagine that the second quarter earnings were somewhat surprising to at least a few of you. The Street had anticipated a record quarter, but not one that more than doubled the previous record. Frankly, until you could see all the moving parts working together, it was difficult for us internally to fully evaluate the total leverage to the Company. The combination of strengthening markets, the recent acquisitions and the lack of the unique negative factors that had affected us in 2004 allowed a seasonally strong quarter like the second to exceed our earnings estimates.

The question that should be asked is whether there was something terribly unique about Q2. The answer to this question is that other than seasonality, this was business as usual. What then created the dramatic improvement? Well, first, as Joe pointed out, acquisitions. Compressco continues to perform better than our prepurchase estimates. TCE also has performed very well. It has significant seasonality in its business with the second quarter budgeted as its strongest quarter. And it performed to these expected levels.

Another factor in the second quarter results was the improving general market for our products and services. Having markets improving in both the Gulf of Mexico and the North Sea is a significant change versus the last 18 months, which I'm sure all of you can appreciate. Also price increases allowed for gross margin improvement, particularly in fluids and testing. However, it should be pointed out that neither of these businesses are experiencing margins comparable to previous peaks.

Our improving Fluids Division profits are attributable to four main factors. One, better activity, especially in the Gulf of Mexico. Secondly, an increasing market share, as we obtain some additional contracts. Thirdly, our ability to offset higher brominated product costs with higher sales prices. And then the inclusion of our TCE operations.

When looking forward, two things should be recognized. First, a disproportionate amount of TCE's animal profit occur during the second quarter. Also it's probable that gross profit percentage will decline later in the year as the effects of higher brominated costs are offset by even further price increases. Now understand, I'm not suggesting that our per barrel profit is declining. Only that mathematically, if costs and prices go up the same amount, the resulting percentage margin would decline.

Because of our expectations regarding Tetra's improved situation in Fluids, we're raising our 2005 revenue guidance to 225 to 240 million, up from our previous 200 to 210 million range.

In Production Enhancement, we're seeing continuing improvement in both Compressco and testing. Our Compressco results continue to outperform pre-acquisition estimates, as I indicated earlier. The domestic market is far from saturated for this product line, and we continue to expand both our manufacturing and our marketing capabilities. However, we also believe that there is considerable upside to Compressco in International markets, and we would expect to penetrate some new International markets as early as the fourth quarter of this year.

Similarly in testing, both our domestic and International markets are improving. As an indication of this, Tetra has recently expanded its International operations with a new contract in an area that we had heretofore not been in. We see this International presence continuing to grow.

Also we continued to see the Well Abandonment and Decommissioning markets as growth opportunities. After a slowdown in 2004, due primarily to property sales, 2005 could be a record year in Well Abandonment and Decommissioning for Tetra. In our April conference call, we had indicated that we had essentially base loaded this division with enough 2005 work to meet our budget. This obviously assumed that we could perform the work with the anticipated margins.

Today we are announcing that within the last 30 days we have closed transactions or have signed purchase and sales agreements with four companies that brings us potentially an additional $0.25 billion of Well Abandonment and Decommissioning work. A portion of this work could occur in 2005, but most of it will be scheduled for 2006, 2007 and beyond. One of these transactions in the inland waters and the other three are primarily in the federal waters of the Gulf of Mexico.

Three of these transactions involve purchasing properties directly or indirectly through our Maritech subsidiary. Maritech has also, at the same time, been busy this year optimizing the value of its existing properties. During 2005, between 10 and 12 new wells will have been drilled on Maritech properties where Maritech retained a material interest in the property and participated in the drilling as a working interest partner. Many of these new wells should come on to production in the late third quarter and all should be producing by year end.

The combination of production from properties currently being acquired, and the new wells that I just mentioned will more than offset natural declines in our other properties. Initially, this combination of new production should increase current production by about 200%.

Now our earnings guidance this year was tempered by two factors. Whether our Well Abandonment and Decommissioning markets would improve early enough in the year to impact 2005. And whether the markets would allow us to pass through the large cost increases that we were experiencing from our suppliers of brominated products. As we have earlier explained, both of these issues were resolved very favorably. This means that our earnings guidance needs to be revised. We are increasing it to $1.70 to $1.85 per share from the previous $1.30 to $1.60 per share. Where in the new range the earnings will fall will be primarily determined by weather disruptions in the Gulf of Mexico. If we have substantial down time, it will affect almost all of our Well Abandonment and Decommissioning segments and our Domestic Fluids business.

I'd like to make a few more comments about earnings. While the $0.64 per share earnings in the second quarter represents a water shed quarter for us, it does not represent the best earnings we can generate. We have unused capacity in many of our business units and margins have not reached levels attained in previous up cycles. This does not mean that each sequential quarter will exceed the previous quarter. We have a substantial seasonality in a number of our businesses, in particular, as I mentioned earlier, the Well Abandonment and Decommissioning Division experiences its best quarters in the second and third, and TCE's best quarters usually the second. Our worst quarter should have been the first quarter.

I'd like to address one other item in this conference call. That being stock options for Tetra employees. After the last few years, many of our senior management stock options were performance based, essentially that means that half of them vested when the stock went up 50% from grant date, and the other 50% vested when the stock increased 100% in price. The exercise period for these various performance option grants expire three years after vesting. Due to Tetra's stock performance over the last few years, many of these options have vested. And over the next few months, many of these options will begin to expire, if not exercised.

In many cases, employees will have to sell 60% to 70% of the exercised stock just to pay the option cost and the mandatory associated taxes. So please do not interpret any selling as our expectations of Tetra's future results. If you want to know our commitment regarding Tetra, all you need to do is review the proxy and see the shares of stock and options that are exercised by our management. You can subtract out any of the sales that occur to see our continuing commitment to the Company.

I will now open this conference call to any of your questions.

Thank you. [OPERATOR INSTRUCTIONS] Your first question comes from the line of Ray Kramer with First Analysis.

Good morning, guys, and congratulations I think are well-deserved.

Thank you, Ray.

Couple questions. I'll start out with a broader one. You commented that your margins are still well below historical levels and that there's a lot of upside there. Given today's environment and your changing mix of business, are those still pretty realistic margin goals?

The only margins that we would feel real uncomfortable with on a go-forward basis would probably be in the Fluids business. As I pointed out, what's happening here is that part of the Fluids costs are escalating very rapidly, those being for brominated products. And by definition, if we're able to retain profits per barrel that we are currently generating and costs go up and prices go up an exact same amount, that percentage margin goes down.

So, I guess I would answer your question that we still have goals to attain the levels that we've had in previous cycles. However, given the nature of that business, we're going to get very fair margins, but our margin percentages will probably decline just because the revenues are going up so much.

Should we look for those in '06 or '07?

The cycles? The margins?

Your historical margin peaks?

Clearly, they've improved dramatically in the last two quarters. One would hope that we would see those kind of percentages a year out.

Couple more specific by segments. The Well Abandonment side, the 250 million you booked, can you give us a sense in terms of how much that represents as a percentage of your early budget estimates for 2006? Does that basically almost get you to 80, 100% capacity for next year?

I'm going to answer that in the form that you're probably not going to like, because I'm not going to be exactly giving you what you're looking for. Let me answer it in this fashion. First, we don't have a 2006 budget, so I can't do that. But if I took the 2005 budget and looked at our inland waters, our offshore PMA [ph] and our Decommissioning, which constitutes most of this, we would be looking at twice as much business booked as we had budgeted this year. Just in those four deals.

Now, remember, those are not all going to get done in one year or two years. They're going to be spread throughout a number of years. But I guess the best way to answer you would be that in 2006, between contracts that we already have in hand and existing Maritech acquisitions that have work to be done, plus these acquisitions, we are clearly looking at an improved 2006 over 2005. How much, I don't know because we haven't gone through the budgeting.

Okay. And then sort of the biggest play factor in the Well Abandonment this year is going to be the hurricanes. Can you give us a sense of sort of how many storm days would be in the low end versus high end of your guidance range? Or maybe how many days you've booked and how many then are --?

The difficult part of that is you're looking at a fourth quarter that we always book a lot of days in because it's a difficult time to work. Probably more appropriately, the answer should be addressed to how many in the third quarter. Now, the nice part is, we may be able to push part of the third quarter business in the fourth if we have storm days. But if we had another, say, two weeks in the third quarter of downtime, that would probably drive us toward the low end of the range. We could afford to have what we've already have, but we wouldn't want to see a whole lot more.

Finally, on the Fluids, in terms of the top-line growth can you sort of give a split between volume and price there?

They're about equal. Probably two-thirds, one-third would be close. I'm not going to give you an exact number. That being volume priced.

That's helpful. Thanks a lot. And congratulations again.

Thank you.

Your next question comes from the line of Lewis Kreps with Aperion Group.

Well, congratulations, Geoff and Joe. You've even surprised me. Anyway, Compressco, you all were doubling the manufacturing and you were going to combine it with your testing group to sign bigger and contracts with your customers. How is that coming along?

We are about a month and a half away from having the expansion done. It might be two months. However, we have also acquired the use of a facility in close proximity to our existing manufacturing facility in Oklahoma City and are working in there already. So we have already increased our capacity even though our existing expansion, or existing facility expansion has not been finalized. So we have the capability to ramp up to the kind of levels of production that we need currently, but we clearly want to get this new facility done so that as we look toward newer contract, some of which I mentioned may be International, that we have the capability of being able to accommodate those customers.

Geoff, would you care to point International, where you're looking, both in testing and for Compressco, what countries?

And our testing in general we've told you would be Middle Eastern, West Africa and South and Central America. Our testing is -- excuse me, our Compressco is already in Canada. It would seem logical that since we have good operations in South and Central America that we would be starting there first.

Okay. Geoff, you mentioned a buyback program in your press release. Is that what your plans are for your excess cash? Because you all are going to be generating tremendous amounts of cash.

We will continue to acquire our stock as we deem it to be undervalued in the market. However, in acquiring these transactions that we announced today, we are going to add somewhat to our debt, although not a lot, we hope. So I would expect that what we'll be waiting to see is the cash flow being generated out of this production, and how we utilize it will be dependant on what our other opportunities are. In the long run, I'd like to build the Company as opposed to just buy back the stock and the liquidity is important to the market as well. However, if the market's willing to give us the stock, we're willing to buy it. I believe our purchase price in this last quarter was something less than $27 a share.

Okay. Let me just go back to the Well Abandonment and Decommissioning area. You have signed these four contracts. Are there more contracts that you're looking at right now?

We are continuing to evaluate opportunities.

Okay. Thanks a lot, Geoff.

Thank you. Your next question comes from the line of Will Foley with Sidoti & Company.

Good morning, guys. First of all, Well Abandonment and Decommissioning, traditionally the September quarter is the strongest quarter. You've already had a pretty strong June quarter. Is that still a good expectation, assuming no major weather issues and, if so, what's the kind of likely magnitude of the improvement?

Well, first of all, I'm not sure I would agree that the third quarter is necessarily going to be the strongest quarter. Historically, that's happened because we have had to wait to get contracts in hand early in the year, and then begin to work in the mid part of the summer, which has basically meant the third quarter always been the strongest. If we were fully booked, you would anticipate the second quarter being stronger because the third quarter would normally have hurricane days that you'd be down. So, just make sure we have that kind of position correctly.

The third quarter this year is clearly going to be a function of whether we have the ability to work in the Gulf for the remainder -- most of the remainder of the quarter. And right now, your guess is as good as mine.

Okay. Can you give me a sense of within Well Abandonment, what the oil and gas production volume number is now and where you see that going just based on some of the things you reference in terms of bringing wells online, etc?

We don't do that but once a year. However, to get some idea of what we're talking about, I believe we've indicated that this year's production would be somewhat comparable to last year's, without acquisitions. And I believe that number was somewhere near 7 Bcf. So you can divide that out and I think that would probably average about 18 million cubic feet a day equivalent, meaning oil and gas production. And use that as a bogey. I'm not going to give you the exact amount, but you would not be off by much.

You referenced a decline in Fluids margins, can you give any sense of what we're looking at there in terms of how much they're likely to ease?

Well, the only issue there, and again, we probably have to step back, we manufacture part of our brominated products. We buy the remainder. Most of our competition buys everything. The net effect is that as costs are escalating and the brominogopoly has essentially raised prices dramatically for completion fluids, as those prices continue to go up, our costs continue to go up, we have to raise prices to offset that. If they don't raise the costs to us, again, there won't be any change. If they do raise the cost to us, we anticipate being able to raise the prices at least enough to offset that cost increase.

So the answer to your question is, if you could tell me what bromine costs are going to do, then I could tell you what the effect would be. Mathematically, if we raise the price the same as our cost increase, that will reduce that margin as it's a percentage. It won't reduce it on a per barrel basis, though. And that's my problem, I can't give you a good answer because I don't know what they're going to do.

Last question. The 250 million of Well Abandonment business that you've booked, and you may have already addressed this. Can you give me a sense of how that breaks down in terms of just turn key, decommissioning work versus oil and gas production? Or just some breakdown in terms of what that might be?

Well, we've told you that the vast preponderance of this is acquisitions by Maritech. Therefore, that would mean that those are acquired properties that we will 100% control. The remainder of that business would be contracts. So, the vast preponderance of this is properties that are not turn key or day rate, they're owned, and give us the ability to operate them when we choose.

But, Will, that is all P&A and decommissioning work that Geoff was quantifying for you.

Okay. Very good. Thank you.

[OPERATOR INSTRUCTIONS] Your next question comes from Stephen Gengaro from Jefferies & Company.

Hello, gentlemen. I know you probably won't get too specific on this, but could you help us, as we look at the next quarter, can you kind of walk us through the pluses and minuses you see sequentially?

Well, by division, in the Fluids side, you're not going to have as strong a quarter relative to the second quarter in TCE. However, the rest of the business ought to be somewhat comparable with what you saw in the second quarter. In Well Abandonment, if we were able to work the remainder of the year -- excuse me, remainder of the quarter, we should be better than what we were in the second quarter, particularly in the offshore Decommissioning and offshore Well Abandonment areas.

In the Production Enhancement Division, that's a little easier since you're on a leasing basis in Compressco, so that should be somewhat better. And testing ought to be somewhat better with some new contracts. So, if everything worked together, you could conceivably see a quarter that was better than the second quarter. However, with timing of storms and so forth, it could be worse than the second quarter. Obviously, to get to the range we have, and I'm sure you've played with those numbers, you can get to the top end of that range pretty easily if you assume that the third quarter is better than the second. We chose to look at this range, though, on the basis of reality and look at the storms that seem to have been lining up and take some time out of that because of those storms.

Is it -- and I know the fourth quarter is a tough one to pinpoint, but when you -- is it fair to say that your guidance would suggest a flattish third quarter? With the variation in the full-year guidance coming from the fourth quarter?

I don't know what you mean by flattish. The fourth quarter ought to be better than the first, but it ought to be worse than the second and third. And the only reason that the fourth quarter could get anywhere near the third quarter would be that the third quarter had a lot of downtime in our Abandonment business and we were able to push some of that off into the fourth quarter. But historically, you would look at the first quarter as the weakest, then the fourth quarter as the second weakest and then the second and third as the two best.

Okay. Thank you. And then the other question I had is, when you look at your capacity on the Well Abandonment side, can you give us a sense in light of that, and other factors, what the -- how competitive the process has been for these transactions, and what is your -- does your capacity limit you at all in your ability to do more of these projects near term, ie, have you tied up capacity relative to your peers? Have they tied up capacity in the near term? I'm just trying to get a sense for the competitive landscape when you're out there bidding for these projects and when they could start to hit the income statement?

Well, I'll kind of invert the answers. Number one, we have the ability to add offshore Well Abandonment units over say a quarter to four, five months. So you can add that to your capacity, it's a question of crews more than it is the equipment, but you can do that. The real problem in the entire Abandonment and Decommissioning area is having the capacity of the heavy lift. You will note that we have acquired two heavy lift vessels. One last year as one of our three acquisitions. Because we want to keep somewhat balance between the demand that we see and our ability to have equipment and, therefore, lock in those costs.

Over a long period of time, you will see us continue that process of trying to lock up either through contractual means or through purchases, equipment in advance or at least equal to the time period when we get the business in hand. So, recently, we have had three or four new transactions. We're obviously trying to make sure that we can accommodate that. Whether we acquire equipment, whether we lease, how much of it we got covered, I'm not going to discuss, obviously, on an open phone line. That's not something we're going to get into. Historically, look at the evidence of what we've done. We tried to stay in front of it.

Now, I'm not going to address our competitors as to whether they do this or not. I do suggest that people like Superior have announced that they are building one of these pieces of equipment, which would seem to be a direction that would be logical given what I just stated.

Competitively, there's a lot of competition out there. There's a lot of competition for these transactions. However, remember that there's some differentiation between, say, ourselves and a company like CalDive. CalDive has historically gone for properties where there's a very, very large amount of oil and gas properties and a lot less abandonment. We've tended to go to the acquisitions that had a lot of abandonment and decommissioning and not as much in the way of acquisitions of oil and gas properties. So, to an extent, there's a little bit of differentiation. But there's still a lot of competition out there.

That's very helpful. And then the final question is, are you seeing -- this seems to have been just some general industry data points, the North Sea seems to be picking up. Are you seeing that? Are you seeing -- I imagine the acquisition you made last year on the Fluid side is working out pretty well in that market?

I would say, as I think I did earlier, that both the North Sea and the Gulf of Mexico are helping us. Both of those areas were declining two years ago, the North Sea began to flatten out about a year ago and now is up. The Gulf of Mexico began to flatten out about six months ago and is now modestly up year-to-year, although, not much yet. But those are big positives versus declines that we were experiencing from most of last year.

Great. Thank you.

Thank you. Your next question comes from the line of Matt Vatzer with Winfield Capital.

Hi, guys. They asked all my questions, the last one was about how the heavy lift acquisition was working out and you answered that, so, I just want to say nice to see management that executes its strategy. Thanks a lot. Keep up the good work.

Thank you very much.

Thank you. Your next question comes from Thad Vayda with First Albany Capital.

Good morning, gentlemen. A couple of questions. First, you eluded regarding potential going forward to unutilized capacity in many of your businesses and upside to margins. I know there's some relationship here, but could you please rank for me, through your various business units, those that you think represent the greatest potential on each of those metrics or combined over the next six or so months? And then to the extent that there are any constraints on utilizing your capacity, I think you already eluded to one, crews in the Well Abandonment and Decommissions that might compromise that rank.

Well, first of all, I would make the statement that people are our greatest asset. They are also the most difficult things to find. So, that would spread across all of our business lines. Our testing area has capacity, particularly in the offshore area. That would be logical, given that the North Sea and the Gulf of Mexico, Gulf of Mexico in particular, is an area that we are fairly substantial in has not been a growth area versus a lot of other markets, so you would assume that we would have surplus capacity there.

We have, in Compressco, the ability to build ahead of the markets somewhat. However, we're still at a utilization rate there of somewhere in the 88 to 90% level. So, that would indicate that there's a little bit there, but not much. Obviously, in the Well Abandonment business, whether it's onshore or inland water or offshore, given that you have certain times of the year that you'd normally do more of your business, you would have the capability in those businesses to go into other parts of the year, particularly if your customers took some of the risks, meaning that in the offshore area, if the customers were willing to take some of the risks of weather, you'd be more than willing to work in the first and fourth quarters. The reason that you have strong second and third quarters is because that's when you have the best weather, versus the winter type weather that you have in the first and fourth.

So, to some degree, it's not only a question of utilization and capacity, it's a question of whether your customers in a strong market are willing to take some of the risks and you're willing then to share those risks with them and have capability in areas like the Abandonment business. Clearly in our Fluids business, we have had stronger markets in the North Sea and in West Africa and in Venezuela than we have today. We would have a lot of capacity in Fluids in certain International areas in particular. The same could be said in the Gulf of Mexico. You had a much stronger volume metric market in years past than you do today. So there would be a lot of capacity in those areas over time.

Okay. Have you seen any inclination on the part of your customers to take some of that risk?

Yes. I think the way to answer that for the Abandonment side, we announced in the first quarter that one of the reasons it was a little stronger than anticipated was that we were actually doing some heavy lift work in the first quarter of this year, which had not been budgeted, but where our customers were willing to share the risk with us.

Separate question. Regarding production, if you could remind me of what the split was for oil and natural gas and how much you believe that these acquisitions might change that?

Joe, I don't know if you've got that in front of you. I'm going to guess that we're talking about 60/40 gas to oil, but I'm not positive of that. It's something like that. In terms of the production that we will be getting, I think I would suggest to you that if you added all of it together, it's probably going to be in the 50/50 range, something like that.

Geoff, that sounds about right.

Thank you, Joe.

Thank you very much.

Thank you. Your next question comes from Bob Fontana with Morgan Crossroads Fund.

My questions have been answered. Thank you.

[OPERATOR INSTRUCTIONS] Your next question comes from the line of Jim Rollyson with Raymond James.

Good morning, guys. Better late than never. Just as it relates, the commentary you laid out in your press release, your discussion is kind of relating today's businesses back to where they've been in prior cycles and where margins have been in the past and you kind of go through and look at all your businesses, where your capacity lies today. If you get to the point in the next year or two, say, to realize full capacity and margins of where they've been historically, what do you calculate for that potential number being on the bottom line?

I tried to answer that by saying we weren't at or near our peak without being specific. We really haven't taken all of these transactions that we just had and run them through a model, given that two of these are still in the purchase and sales type of an arena. We did talk back, I believe, a year ago, nine months ago, that we thought we had the capacity in this Company to do $2.50 to $3 a share of earnings. Obviously, that has been enhanced. But I'm uncomfortable giving you a number of what that enhancement would be because I just don't have the data put together in a format that gives me something that I'm comfortable publicly stating.

Sure. And I would suspect that as you go forward, one of your growth businesses, aside from Well Abandonment, now you kind of run up against capacity. So I think you were talking before as to whether or not you bring in more capacity or your competitors do. Your one true kind of growth business seems to be Compressco and given the margins inherent in that business, I would guess that even your enhanced number today goes up over time. Is that fair?

That's fair. I think the best way to answer your question there is between Maritech and Compressco, those were the two largest uses of capital so far this year of Tetra.

Very good. On the G&A, you've obviously had to hire a lot of people to keep this machine going. What's -- do you expect that trend to continue as far as people in G&A costs?

There's no question that the cost of people escalates in stronger markets. It happens every time. It's going to happen this time. One of the things, though, that did skew a little bit in the second quarter, as you all know, we are pretty specific with our top management and do not give bonuses if we don't meet the criteria that we lay out in the form of the budget. Last year, we did not pay bonuses to the top management. This year, at the present time, we're not only at our budget, but we're significantly above our budget. And I accrued additional bonus monies in the second quarter. Therefore, you see probably a spike there that will be accommodated maybe with general increases in the third and fourth quarter that might come close to the second quarter. But the second quarter spike was not only additional personnel, but it was additional bonus.

So it shouldn't really go up necessarily over the next couple quarters versus Q2?

I wouldn't think that it would move up in the same proportion that it did first or the second by any stretch, yes.

Excellent. Fantastic quarter.

Thank you.

[OPERATOR INSTRUCTIONS] At this time, there are no further questions.

Very good. Well, I thank you for participating in today's conference call and we hope to see you again in the third quarter. Thanks very much.

Thank you. This now concludes today's Tetra Technologies second quarter earnings conference call. You may now disconnect.