UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
[X]☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31,SEPTEMBER 30, 2019
or
[ ]☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to.
Commission File Number 1-13455
TETRA Technologies, Inc.
(Exact name of registrant as specified in its charter)
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Delaware | 74-2148293 |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
| |
24955 Interstate 45 North | |
The Woodlands, | |
Texas | 77380 |
(Address of Principal Executive Offices) | (Zip Code) |
(281) (281) 367-1983
(Registrant’s Telephone Number, Including Area Code)
(_______________________________________________________________________
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)Report
Securities registered pursuant to Section 12(b) of the Act: |
| | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | TTI | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ]☒ No [ ]☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [ X ]☒ No [ ]☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. |
| | | |
Large accelerated filer [ ] | ☐ | Accelerated filer [ X ] | ☒ |
Non-accelerated filer [ ] | ☐ | Smaller reporting company [ ] | ☐ |
| | Emerging growth company [ ] | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ]☐ No [ X ]☒
Securities registered pursuant to Section 12(b) of the Act:
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| | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | TTI | New York Stock Exchange |
As ofMay 8,November 6, 2019, there were125,609,276125,540,626 shares outstanding of the Company’s Common Stock, $0.01 par value per share.
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TETRA Technologies, Inc. and Subsidiaries |
Table of Contents |
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PART I—FINANCIAL INFORMATION | |
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PART II—OTHER INFORMATION | |
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
| | | Three Months Ended March 31, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | 2019 | | 2018 | | 2019 | | 2018 |
Revenues: | | | | |
| | |
| | | | |
Product sales | $ | 91,781 |
| | $ | 75,953 |
| $ | 93,377 |
| | $ | 102,070 |
| | $ | 320,508 |
| | $ | 285,136 |
|
Services | 151,947 |
| | 123,428 |
| 152,570 |
| | 154,781 |
| | 457,963 |
| | 431,168 |
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Total revenues | 243,728 |
| | 199,381 |
| 245,947 |
| | 256,851 |
| | 778,471 |
| | 716,304 |
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Cost of revenues: | | | | |
| | |
| | | | |
Cost of product sales | 74,588 |
| | 60,214 |
| 71,957 |
| | 81,817 |
| | 254,798 |
| | 228,146 |
|
Cost of services | 102,156 |
| | 84,743 |
| 98,356 |
| | 101,304 |
| | 298,911 |
| | 283,224 |
|
Depreciation, amortization, and accretion | 30,628 |
| | 26,441 |
| 30,867 |
| | 29,460 |
| | 93,312 |
| | 84,880 |
|
Impairments and other charges | 146 |
| | — |
| 849 |
| | 2,940 |
| | 3,306 |
| | 2,940 |
|
Insurance recoveries | | (1,042 | ) | | — |
| | (1,392 | ) | | — |
|
Total cost of revenues | 207,518 |
| | 171,398 |
| 200,987 |
| | 215,521 |
| | 648,935 |
| | 599,190 |
|
Gross profit | 36,210 |
| | 27,983 |
| 44,960 |
| | 41,330 |
| | 129,536 |
| | 117,114 |
|
General and administrative expense | 34,277 |
| | 30,803 |
| 34,926 |
| | 34,446 |
| | 105,498 |
| | 98,866 |
|
Interest expense, net | 18,379 |
| | 14,973 |
| 18,146 |
| | 18,894 |
| | 55,054 |
| | 52,246 |
|
Warrants fair value adjustment (income) expense | 407 |
| | (1,994 | ) | 78 |
| | (179 | ) | | (1,035 | ) | | 22 |
|
CCLP Series A Preferred Units fair value adjustment (income) expense | 1,163 |
| | 1,358 |
| — |
| | 498 |
| | 1,309 |
| | 1,344 |
|
Other (income) expense, net | (951 | ) | | 2,776 |
| (690 | ) | | 619 |
| | (1,014 | ) | | 7,203 |
|
Loss before taxes and discontinued operations | (17,065 | ) | | (19,933 | ) | (7,500 | ) | | (12,948 | ) | | (30,276 | ) | | (42,567 | ) |
Provision for income taxes | 1,609 |
| | 1,124 |
| |
Provision (benefit) for income taxes | | 1,579 |
| | (96 | ) | | 5,678 |
| | 3,474 |
|
Loss before discontinued operations | (18,674 | ) | | (21,057 | ) | (9,079 | ) | | (12,852 | ) | | (35,954 | ) | | (46,041 | ) |
Discontinued operations: | | | | | | | | | | |
Loss from discontinued operations (including 2018 loss on disposal of $31.5 million), net of taxes | (426 | ) | | (41,706 | ) | |
Income (loss) from discontinued operations (including 2018 loss on disposal of $33.8 million), net of taxes | | (9,130 | ) | | 796 |
| | (9,901 | ) | | (40,931 | ) |
Net loss | (19,100 | ) | | (62,763 | ) | (18,209 | ) | | (12,056 | ) | | (45,855 | ) | | (86,972 | ) |
Less: loss attributable to noncontrolling interest | 8,262 |
| | 9,115 |
| 2,378 |
| | 5,120 |
| | 12,273 |
| | 20,423 |
|
Net loss attributable to TETRA stockholders | $ | (10,838 | ) | | $ | (53,648 | ) | $ | (15,831 | ) | | $ | (6,936 | ) | | $ | (33,582 | ) | | $ | (66,549 | ) |
Basic net loss per common share: | | | | |
| | | | | | |
Loss before discontinued operations attributable to TETRA stockholders | $ | (0.09 | ) | | $ | (0.10 | ) | $ | (0.06 | ) | | $ | (0.06 | ) | | $ | (0.19 | ) | | $ | (0.21 | ) |
Loss from discontinued operations attributable to TETRA stockholders | $ | 0.00 |
| | $ | (0.36 | ) | $ | (0.07 | ) | | $ | 0.00 |
| | $ | (0.08 | ) | | $ | (0.33 | ) |
Net loss attributable to TETRA stockholders | $ | (0.09 | ) | | $ | (0.46 | ) | $ | (0.13 | ) | | $ | (0.06 | ) | | $ | (0.27 | ) | | $ | (0.54 | ) |
Average shares outstanding | 125,681 |
| | 117,598 |
| 125,568 |
| | 125,689 |
| | 125,620 |
| | 123,557 |
|
Diluted net loss per common share: | | | | |
| | |
| | | | |
Loss before discontinued operations attributable to TETRA stockholders | $ | (0.09 | ) | | $ | (0.10 | ) | $ | (0.06 | ) | | $ | (0.06 | ) | | $ | (0.19 | ) | | $ | (0.21 | ) |
Loss from discontinued operations attributable to TETRA stockholders | $ | 0.00 |
| | $ | (0.36 | ) | $ | (0.07 | ) | | $ | 0.00 |
| | $ | (0.08 | ) | | $ | (0.33 | ) |
Net loss attributable to TETRA stockholders | $ | (0.09 | ) | | $ | (0.46 | ) | $ | (0.13 | ) | | $ | (0.06 | ) | | $ | (0.27 | ) | | $ | (0.54 | ) |
Average diluted shares outstanding | 125,681 |
| | 117,598 |
| 125,568 |
| | 125,689 |
| | 125,620 |
| | 123,557 |
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See Notes to Consolidated Financial Statements
TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(In Thousands)
(Unaudited)
| | | Three Months Ended March 31, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | 2019 | | 2018 | | 2019 | | 2018 |
Net loss | $ | (19,100 | ) | | $ | (62,763 | ) | $ | (18,209 | ) | | $ | (12,056 | ) | | $ | (45,855 | ) | | $ | (86,972 | ) |
Foreign currency translation adjustment, net of taxes of $0 in 2019 and 2018 | (406 | ) | | 1,283 |
| (3,742 | ) | | (581 | ) | | (3,300 | ) | | (8,547 | ) |
Comprehensive loss | (19,506 | ) | | (61,480 | ) | (21,951 | ) | | (12,637 | ) | | (49,155 | ) | | (95,519 | ) |
Less: Comprehensive loss attributable to noncontrolling interest | 8,086 |
| | 9,500 |
| 2,358 |
| | 5,025 |
| | 11,994 |
| | 22,467 |
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Comprehensive loss attributable to TETRA stockholders | $ | (11,420 | ) | | $ | (51,980 | ) | $ | (19,593 | ) | | $ | (7,612 | ) | | $ | (37,161 | ) | | $ | (73,052 | ) |
See Notes to Consolidated Financial Statements
TETRA Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands)
| | | March 31, 2019 | | December 31, 2018 | September 30, 2019 | | December 31, 2018 |
| (Unaudited) | | |
| (Unaudited) | | |
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ASSETS | |
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Current assets: | |
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Cash and cash equivalents | $ | 36,868 |
| | $ | 40,038 |
| $ | 35,918 |
| | $ | 40,038 |
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Restricted cash | 65 |
| | 64 |
| 61 |
| | 64 |
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Trade accounts receivable, net of allowances of $1,651 in 2019 and $2,583 in 2018 | 183,646 |
| | 187,592 |
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Trade accounts receivable, net of allowances of $4,466 in 2019 and $2,583 in 2018 | | 170,168 |
| | 187,592 |
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Inventories | 156,628 |
| | 143,571 |
| 142,406 |
| | 143,571 |
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Assets of discontinued operations | 1,422 |
| | 1,354 |
| 16 |
| | 1,354 |
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Notes receivable | 7,586 |
| | 7,544 |
| — |
| | 7,544 |
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Prepaid expenses and other current assets | 24,078 |
| | 20,528 |
| 22,563 |
| | 20,528 |
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Total current assets | 410,293 |
| | 400,691 |
| 371,132 |
| | 400,691 |
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Property, plant, and equipment: | |
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Land and building | 78,183 |
| | 78,746 |
| 75,206 |
| | 78,746 |
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Machinery and equipment | 1,286,832 |
| | 1,265,732 |
| 1,316,661 |
| | 1,265,732 |
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Automobiles and trucks | 35,519 |
| | 35,568 |
| 33,163 |
| | 35,568 |
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Chemical plants | 189,522 |
| | 188,641 |
| 189,416 |
| | 188,641 |
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Construction in progress | 49,540 |
| | 44,419 |
| 50,055 |
| | 44,419 |
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Total property, plant, and equipment | 1,639,596 |
| | 1,613,106 |
| 1,664,501 |
| | 1,613,106 |
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Less accumulated depreciation | (778,647 | ) | | (759,175 | ) | (803,109 | ) | | (759,175 | ) |
Net property, plant, and equipment | 860,949 |
| | 853,931 |
| 861,392 |
| | 853,931 |
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Other assets: | |
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Goodwill | 25,859 |
| | 25,859 |
| 25,784 |
| | 25,859 |
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Patents, trademarks and other intangible assets, net of accumulated amortization of $82,634 in 2019 and $80,401 in 2018 | 80,293 |
| | 82,184 |
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Patents, trademarks and other intangible assets, net of accumulated amortization of $85,911 in 2019 and $80,401 in 2018 | | 76,225 |
| | 82,184 |
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Deferred tax assets, net | 13 |
| | 13 |
| 19 |
| | 13 |
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Operating lease right-of-use assets | 60,149 |
| | — |
| 57,848 |
| | — |
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Other assets | 21,969 |
| | 22,849 |
| 23,300 |
| | 22,849 |
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Total other assets | 188,283 |
| | 130,905 |
| 183,176 |
| | 130,905 |
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Total assets | $ | 1,459,525 |
| | $ | 1,385,527 |
| $ | 1,415,700 |
| | $ | 1,385,527 |
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See Notes to Consolidated Financial Statements
TETRA Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Share Amounts)
| | | March 31, 2019 | | December 31, 2018 | September 30, 2019 | | December 31, 2018 |
| (Unaudited) | | |
| (Unaudited) | | |
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LIABILITIES AND EQUITY | |
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Current liabilities: | |
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Trade accounts payable | $ | 88,223 |
| | $ | 80,279 |
| $ | 97,142 |
| | $ | 80,279 |
|
Unearned income | 50,379 |
| | 26,695 |
| 26,896 |
| | 26,695 |
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Accrued liabilities and other | 77,107 |
| | 89,232 |
| 87,127 |
| | 89,232 |
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Liabilities of discontinued operations | 3,529 |
| | 4,145 |
| 1,907 |
| | 4,145 |
|
Total current liabilities | 219,238 |
| | 200,351 |
| 213,072 |
| | 200,351 |
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Long-term debt, net | 845,843 |
| | 815,560 |
| 858,272 |
| | 815,560 |
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Deferred income taxes | 3,456 |
| | 3,242 |
| 3,729 |
| | 3,242 |
|
Asset retirement obligations | 12,331 |
| | 12,202 |
| 12,603 |
| | 12,202 |
|
CCLP Series A Preferred Units | 18,278 |
| | 27,019 |
| — |
| | 27,019 |
|
Warrants liability | 2,480 |
| | 2,073 |
| 1,038 |
| | 2,073 |
|
Operating lease liabilities | 49,632 |
| | — |
| 45,993 |
| | — |
|
Other liabilities | 8,157 |
| | 12,331 |
| 7,465 |
| | 12,331 |
|
Total long-term liabilities | 940,177 |
| | 872,427 |
| 929,100 |
| | 872,427 |
|
Commitments and contingencies | |
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Equity: | |
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TETRA stockholders' equity: | |
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Common stock, par value $0.01 per share; 250,000,000 shares authorized at March 31, 2019 and December 31, 2018; 128,412,688 shares issued at March 31, 2019 and 128,455,134 shares issued at December 31, 2018 | 1,284 |
| | 1,285 |
| |
Common stock, par value $0.01 per share; 250,000,000 shares authorized at September 30, 2019 and December 31, 2018; 128,363,817 shares issued at September 30, 2019 and 128,455,134 shares issued at December 31, 2018 | | 1,284 |
| | 1,285 |
|
Additional paid-in capital | 462,241 |
| | 460,680 |
| 465,615 |
| | 460,680 |
|
Treasury stock, at cost; 2,785,981 shares held at March 31, 2019, and 2,717,569 shares held at December 31, 2018 | (19,105 | ) | | (18,950 | ) | |
Treasury stock, at cost; 2,823,191 shares held at September 30, 2019, and 2,717,569 shares held at December 31, 2018 | | (19,164 | ) | | (18,950 | ) |
Accumulated other comprehensive income (loss) | (52,245 | ) | | (51,663 | ) | (55,242 | ) | | (51,663 | ) |
Retained deficit | (225,947 | ) | | (217,952 | ) | (248,691 | ) | | (217,952 | ) |
Total TETRA stockholders' equity | 166,228 |
| | 173,400 |
| 143,802 |
| | 173,400 |
|
Noncontrolling interests | 133,882 |
| | 139,349 |
| 129,726 |
| | 139,349 |
|
Total equity | 300,110 |
| | 312,749 |
| 273,528 |
| | 312,749 |
|
Total liabilities and equity | $ | 1,459,525 |
| | $ | 1,385,527 |
| $ | 1,415,700 |
| | $ | 1,385,527 |
|
See Notes to Consolidated Financial Statements
TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Equity
(In Thousands)
| | | Common Stock Par Value | | Additional Paid-In Capital | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Noncontrolling Interest | | Total Equity | Common Stock Par Value | | Additional Paid-In Capital | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Noncontrolling Interest | | Total Equity |
| | Currency Translation | | | Currency Translation | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2018 | $ | 1,285 |
| | $ | 460,680 |
| | $ | (18,950 | ) | | $ | (51,663 | ) | | $ | (217,952 | ) | | $ | 139,349 |
| | $ | 312,749 |
| $ | 1,285 |
| | $ | 460,680 |
| | $ | (18,950 | ) | | $ | (51,663 | ) | | $ | (217,952 | ) | | $ | 139,349 |
| | $ | 312,749 |
|
Net loss for first quarter 2019 | — |
| | — |
| | — |
| | — |
| | (10,838 | ) | | (8,262 | ) | | (19,100 | ) | — |
| | — |
| | — |
| | — |
| | (10,838 | ) | | (8,262 | ) | | (19,100 | ) |
Translation adjustment, net of taxes of $0 | — |
| | — |
| | — |
| | (582 | ) | | — |
| | 176 |
| | (406 | ) | — |
| | — |
| | — |
| | (582 | ) | | — |
| | 176 |
| | (406 | ) |
Comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (19,506 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (19,506 | ) |
Distributions to public unitholders | — |
| | — |
| | — |
| | — |
| | — |
| | (307 | ) | | (307 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | (307 | ) | | (307 | ) |
Equity award activity | (1 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) | (1 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) |
Treasury stock activity, net | — |
| | — |
| | (155 | ) | | — |
| | — |
| | — |
| | (155 | ) | — |
| | — |
| | (155 | ) | | — |
| | — |
| | — |
| | (155 | ) |
Equity compensation expense | — |
| | 1,628 |
| | — |
| | — |
| | — |
| | 311 |
| | 1,939 |
| — |
| | 1,628 |
| | — |
| | — |
| | — |
| | 311 |
| | 1,939 |
|
Conversions of CCLP Series A Preferred | — |
| | — |
| | — |
| | — |
| | — |
| | 2,539 |
| | 2,539 |
| — |
| | — |
| | — |
| | — |
| | — |
| | 2,539 |
| | 2,539 |
|
Cumulative effect adjustment | — |
| | — |
| | — |
| | — |
| | 2,843 |
| | — |
| | 2,843 |
| — |
| | — |
| | — |
| | — |
| | 2,843 |
| | — |
| | 2,843 |
|
Other | — |
| | (67 | ) | | — |
| | — |
| | — |
| | 76 |
| | 9 |
| — |
| | (67 | ) | | — |
| | — |
| | — |
| | 76 |
| | 9 |
|
Balance at March 31, 2019 | $ | 1,284 |
| | $ | 462,241 |
| | $ | (19,105 | ) | | $ | (52,245 | ) | | $ | (225,947 | ) | | $ | 133,882 |
| | $ | 300,110 |
| $ | 1,284 |
| | $ | 462,241 |
| | $ | (19,105 | ) | | $ | (52,245 | ) | | $ | (225,947 | ) | | $ | 133,882 |
| | $ | 300,110 |
|
Net loss for second quarter 2019 | | — |
| | — |
| | — |
| | — |
| | (6,913 | ) | | (1,633 | ) | | (8,546 | ) |
Translation adjustment, net of taxes of $0 | | — |
| | — |
| | — |
| | 765 |
| | — |
| | 83 |
| | 848 |
|
Comprehensive loss | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (7,698 | ) |
Distributions to public unitholders | | — |
| | — |
| | — |
| | — |
| | — |
| | (308 | ) | | (308 | ) |
Treasury stock activity, net | | — |
| | — |
| | (11 | ) | | — |
| | — |
| | — |
| | (11 | ) |
Equity compensation expense | | — |
| | 2,100 |
| | — |
| | — |
| | — |
| | 567 |
| | 2,667 |
|
Other | | — |
| | (36 | ) | | — |
| | — |
| | — |
| | (33 | ) | | (69 | ) |
Balance at June 30, 2019 | | $ | 1,284 |
| | $ | 464,305 |
| | $ | (19,116 | ) | | $ | (51,480 | ) | | $ | (232,860 | ) | | $ | 132,558 |
| | $ | 294,691 |
|
Net loss for third quarter 2019 | | — |
| | — |
| | — |
| | — |
| | (15,831 | ) | | (2,378 | ) | | (18,209 | ) |
Translation adjustment, net of taxes of $0 | | — |
| | — |
| | — |
| | (3,762 | ) | | — |
| | 20 |
| | (3,742 | ) |
Comprehensive loss | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (21,951 | ) |
Distributions to public unitholders | | — |
| | — |
| | — |
| | — |
| | — |
| | (309 | ) | | (309 | ) |
Treasury stock activity, net | | — |
| | — |
| | (48 | ) | | — |
| | — |
| | — |
| | (48 | ) |
Equity compensation expense | | — |
| | 1,316 |
| | — |
| | — |
| | — |
| | (211 | ) | | 1,105 |
|
Other | | — |
| | (6 | ) | | — |
| | — |
| | — |
| | 46 |
| | 40 |
|
Balance at September 30, 2019 | | $ | 1,284 |
| | $ | 465,615 |
| | $ | (19,164 | ) | | $ | (55,242 | ) | | $ | (248,691 | ) | | $ | 129,726 |
| | $ | 273,528 |
|
See Notes to Consolidated Financial Statements
| | | Common Stock Par Value | | Additional Paid-In Capital | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Noncontrolling Interest | | Total Equity | Common Stock Par Value | | Additional Paid-In Capital | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Noncontrolling Interest | | Total Equity |
| | Currency Translation | | | Currency Translation | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2017 | $ | 1,185 |
| | $ | 425,648 |
| | $ | (18,651 | ) | | $ | (43,767 | ) | | $ | (156,335 | ) | | $ | 144,481 |
| | $ | 352,561 |
| $ | 1,185 |
| | $ | 425,648 |
| | $ | (18,651 | ) | | $ | (43,767 | ) | | $ | (156,335 | ) | | $ | 144,481 |
| | $ | 352,561 |
|
Net loss for first quarter 2018 | — |
| | — |
| | — |
| | — |
| | (53,648 | ) | | (9,115 | ) | | (62,763 | ) | — |
| | — |
| | — |
| | — |
| | (53,648 | ) | | (9,115 | ) | | (62,763 | ) |
Translation adjustment, net of taxes of $0 | — |
| | — |
| | — |
| | 1,668 |
| | — |
| | (385 | ) | | 1,283 |
| — |
| | — |
| | — |
| | 1,668 |
| | — |
| | (385 | ) | | 1,283 |
|
Comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (61,480 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (61,480 | ) |
Distributions to public unitholders | — |
| | — |
| | — |
| | — |
| | — |
| | (4,358 | ) | | (4,358 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | (4,358 | ) | | (4,358 | ) |
Equity award activity | 20 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 20 |
| 20 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 20 |
|
Treasury stock activity, net | — |
| | — |
| | (170 | ) | | — |
| | — |
| | — |
| | (170 | ) | — |
| | — |
| | (170 | ) | | — |
| | — |
| | — |
| | (170 | ) |
Issuance of common stock for business combination | 77 |
| | 28,135 |
| | — |
| | — |
| | — |
| | — |
| | 28,212 |
| 77 |
| | 28,135 |
| | — |
| | — |
| | — |
| | — |
| | 28,212 |
|
Equity compensation expense | — |
| | 1,434 |
| | — |
| | — |
| | — |
| | (655 | ) | | 779 |
| — |
| | 1,434 |
| | — |
| | — |
| | — |
| | (655 | ) | | 779 |
|
Conversions of CCLP Series A Preferred | — |
| | — |
| | — |
| | — |
| | — |
| | 10,103 |
| | 10,103 |
| — |
| | — |
| | — |
| | — |
| | — |
| | 10,103 |
| | 10,103 |
|
Other | — |
| | (171 | ) | | — |
| | — |
| | — |
| | (35 | ) | | (206 | ) | — |
| | (171 | ) | | — |
| | — |
| | — |
| | (35 | ) | | (206 | ) |
Balance at March 31, 2018 | $ | 1,282 |
| | $ | 455,046 |
| | $ | (18,821 | ) | | $ | (42,099 | ) | | $ | (209,983 | ) | | $ | 140,036 |
| | $ | 325,461 |
| $ | 1,282 |
| | $ | 455,046 |
| | $ | (18,821 | ) | | $ | (42,099 | ) | | $ | (209,983 | ) | | $ | 140,036 |
| | $ | 325,461 |
|
Net loss for second quarter 2018 | | — |
| | — |
| | — |
| | — |
| | (5,965 | ) | | (6,188 | ) | | (12,153 | ) |
Translation adjustment, net of taxes of $0 | | — |
| | — |
| | — |
| | (7,495 | ) | | — |
| | (1,754 | ) | | (9,249 | ) |
Comprehensive loss | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (21,402 | ) |
Distributions to public unitholders | | — |
| | — |
| | — |
| | — |
| | — |
| | (4,624 | ) | | (4,624 | ) |
Equity award activity | | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
|
Treasury stock activity, net | | — |
| | — |
| | (44 | ) | | — |
| | — |
| | — |
| | (44 | ) |
Equity compensation expense | | — |
| | 1,905 |
| | — |
| | — |
| | — |
| | 358 |
| | 2,263 |
|
Conversions of CCLP Series A Preferred | | — |
| | — |
| | — |
| | — |
| | — |
| | 9,272 |
| | 9,272 |
|
Other | | — |
| | 131 |
| | — |
| | — |
| | — |
| | 4 |
| | 135 |
|
Balance at June 30, 2018 | | $ | 1,283 |
| | $ | 457,082 |
| | $ | (18,865 | ) | | $ | (49,594 | ) | | $ | (215,948 | ) | | $ | 137,104 |
| | $ | 311,062 |
|
Net loss for third quarter 2018 | | — |
| | — |
| | — |
| | — |
| | (6,936 | ) | | (5,120 | ) | | (12,056 | ) |
Translation adjustment, net of taxes of $0 | | — |
| | — |
| | — |
| | (676 | ) | | — |
| | 95 |
| | (581 | ) |
Comprehensive loss | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (12,637 | ) |
Distributions to public unitholders | | — |
| | — |
| | — |
| | — |
| | — |
| | (4,946 | ) | | (4,946 | ) |
Equity award activity | | 1 |
| | 251 |
| |
|
| | — |
| | — |
| | — |
| | 252 |
|
Treasury stock activity, net | | — |
| | — |
| | (71 | ) | | — |
| | — |
| | — |
| | (71 | ) |
Equity compensation expense | | — |
| | 1,798 |
| | — |
| | — |
| | — |
| | 367 |
| | 2,165 |
|
Conversions of CCLP Series A Preferred | | — |
| | — |
| | — |
| | — |
| | — |
| | 10,294 |
| | 10,294 |
|
Other | | — |
| | (8 | ) | | — |
| | — |
| | — |
| | 78 |
| | 70 |
|
Balance at September 30, 2018 | | $ | 1,284 |
| | $ | 459,123 |
| | $ | (18,936 | ) | | $ | (50,270 | ) | | $ | (222,884 | ) | | $ | 137,872 |
| | $ | 306,189 |
|
See Notes to Consolidated Financial Statements
TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
| | | Three Months Ended March 31, | Nine Months Ended September 30, |
| 2019 | | 2018 | 2019 | | 2018 |
Operating activities: | |
| | |
| |
| | |
|
Net loss | $ | (19,100 | ) | | $ | (62,763 | ) | $ | (45,855 | ) | | $ | (86,972 | ) |
Reconciliation of net loss to cash provided by (used in) operating activities: | | | | |
Reconciliation of net loss to cash provided by operating activities: | | | | |
Depreciation, amortization, and accretion | 30,627 |
| | 28,509 |
| 93,364 |
| | 86,965 |
|
Impairment and other charges | 146 |
| | — |
| 3,306 |
| | 2,940 |
|
Benefit for deferred income taxes | 229 |
| | (61 | ) | 545 |
| | (837 | ) |
Equity-based compensation expense | 2,165 |
| | 876 |
| 6,260 |
| | 5,692 |
|
Provision for doubtful accounts | 627 |
| | 453 |
| 3,351 |
| | 1,566 |
|
Non-cash loss on disposition of business | — |
| | 32,369 |
| 7,500 |
| | 32,369 |
|
Amortization of deferred financing costs | 953 |
| | 1,224 |
| 2,890 |
| | 3,188 |
|
Debt financing cost expense | | — |
| | 398 |
|
CCLP Series A Preferred redemption premium | 397 |
| | — |
| 1,283 |
| | — |
|
CCLP Series A Preferred accrued paid in kind distributions | 599 |
| | 1,523 |
| 982 |
| | 3,933 |
|
CCLP Series A Preferred fair value adjustment | 1,163 |
| | 1,358 |
| 1,309 |
| | 1,344 |
|
Warrants fair value adjustment | 407 |
| | (1,994 | ) | (1,035 | ) | | 22 |
|
Contingent consideration liability fair value adjustment | (400 | ) | | — |
| (800 | ) | | 3,700 |
|
Expense for unamortized finance costs and other non-cash charges and credits | 339 |
| | 3,668 |
| 1,649 |
| | 3,919 |
|
Acquisition and transaction financing fees | | 75 |
| | — |
|
Gain on sale of assets | (201 | ) | | 90 |
| (1,583 | ) | | (454 | ) |
Changes in operating assets and liabilities: | |
| | |
| |
| | |
|
Accounts receivable | 2,353 |
| | 6,584 |
| 13,309 |
| | (7,708 | ) |
Inventories | (15,809 | ) | | (13,467 | ) | (6,847 | ) | | (35,920 | ) |
Prepaid expenses and other current assets | (3,222 | ) | | (4,311 | ) | (1,831 | ) | | (2,995 | ) |
Trade accounts payable and accrued expenses | 6,638 |
| | (24,586 | ) | 10,344 |
| | (6,776 | ) |
Other | (499 | ) | | (733 | ) | (3,234 | ) | | (2,741 | ) |
Net cash provided by (used in) operating activities | 7,412 |
| | (31,261 | ) | |
Net cash provided by operating activities | | 84,982 |
| | 1,633 |
|
Investing activities: | |
| | |
| |
| | |
|
Purchases of property, plant, and equipment, net | (32,409 | ) | | (28,892 | ) | (89,192 | ) | | (107,080 | ) |
Acquisition of businesses, net of cash acquired | — |
| | (42,002 | ) | (12,024 | ) | | (42,002 | ) |
Proceeds from disposal of business | — |
| | 3,121 |
| — |
| | 3,121 |
|
Proceeds on sale of property, plant, and equipment | 364 |
| | 76 |
| 2,152 |
| | 774 |
|
Other investing activities | 319 |
| | 146 |
| (890 | ) | | (293 | ) |
Net cash used in investing activities | (31,726 | ) | | (67,551 | ) | (99,954 | ) | | (145,480 | ) |
Financing activities: | |
| | |
| |
| | |
|
Proceeds from long-term debt | 66,000 |
| | 474,550 |
| 246,090 |
| | 747,887 |
|
Principal payments on long-term debt | (35,451 | ) | | (278,150 | ) | (204,718 | ) | | (544,962 | ) |
CCLP distributions | (307 | ) | | (4,358 | ) | (924 | ) | | (13,928 | ) |
Proceeds from exercise of stock options | | — |
| | 251 |
|
Redemptions of CCLP Series A Preferred | (8,346 | ) | | — |
| (28,049 | ) | | — |
|
Tax remittances on equity based compensation | (429 | ) | | (293 | ) | (571 | ) | | (708 | ) |
Debt issuance costs | (155 | ) | | (6,139 | ) | |
Debt issuance costs and other financing activities | | (373 | ) | | (17,932 | ) |
Net cash provided by financing activities | 21,312 |
| | 185,610 |
| 11,455 |
| | 170,608 |
|
Effect of exchange rate changes on cash | (167 | ) | | (96 | ) | (606 | ) | | 818 |
|
Increase (decrease) in cash and cash equivalents | (3,169 | ) | | 86,702 |
| (4,123 | ) | | 27,579 |
|
Cash and cash equivalents and restricted cash at beginning of period | 40,102 |
| | 26,389 |
| 40,102 |
| | 26,389 |
|
Cash and cash equivalents and restricted cash at end of period | $ | 36,933 |
| | $ | 113,091 |
| $ | 35,979 |
| | $ | 53,968 |
|
| | | | | | |
| | | | | | |
Supplemental cash flow information: | |
| | | |
| | |
Interest paid | $ | 15,544 |
| | $ | 17,710 |
| $ | 49,073 |
| | $ | 24,651 |
|
Income taxes paid | 1,644 |
| | 1,331 |
| 6,226 |
| | 3,954 |
|
See Notes to Consolidated Financial Statements
TETRA Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
NOTE A – ORGANIZATION, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES
Organization
We are a geographically diversified oil and gas services company, focused on completion fluids and associated products and services, water management, frac flowback, production well testing and offshore rig cooling services, and compression services and equipment. We were incorporated in Delaware in 1981. We are composed of three3 divisions – Completion Fluids & Products, Water & Flowback Services, and Compression. Unless the context requires otherwise, when we refer to “we,” “us,” and “our,” we are describing TETRA Technologies, Inc. and its consolidated subsidiaries on a consolidated basis.
Presentation
Our unaudited consolidated financial statements include the accounts of our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The information furnished reflects all normal recurring adjustments, which are, in the opinion of management, necessary to provide a fair statement of the results for the interim periods. Operating results for the period ended March 31,September 30, 2019 are not necessarily indicative of results that may be expected for the twelve months ended December 31, 2019.
We consolidate the financial statements of CSI Compressco LP and its subsidiaries ("CCLP") as part of our Compression Division, as we determined that CCLP is a variable interest entity and we are the primary beneficiary. We control the financial interests of CCLP and have the ability to direct the activities of CCLP that most significantly impact its economic performance through our ownership of its general partner. The share of CCLP net assets and earnings that is not owned by us is presented as noncontrolling interest in our consolidated financial statements. Our cash flows from our investment in CCLP are limited to the quarterly distributions we receive on our CCLP common units and general partner interest (including incentive distribution rights) and the amounts collected for services we perform on behalf of CCLP, as TETRA's capital structure and CCLP's capital structure are separate, and do not include cross default provisions, cross collateralization provisions, or cross guarantees.
The accompanying unaudited consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the U.S. Securities and Exchange Commission ("SEC") and do not include all information and footnotes required by U.S. generally accepted accounting principles ("U.S. GAAP") for complete financial statements. These financial statements should be read in conjunction with the financial statements for the year ended December 31, 2018 and notes thereto included in our Annual Report on Form 10-K, which we filed with the SEC on March 4, 2019.
Significant Accounting Policies
We have added policies for the recording of leases in conjunction with the adoption of the new lease standard discussed in our "Leases" and "New Accounting Pronouncements" sections below. Other than the additional lease policies described herein, there have been no significant changes in our accounting policies or the application of these policies.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclose contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses, and impairments during the reporting period. Actual results could differ from those estimates, and such differences could bematerial.
Impairments and Other Charges
During the second quarter of 2019, our Compression Division recorded impairments of $2.3 million on certain units of its low-horsepower compression fleet, reflecting the decision to dispose of these units upon management's determination that refurbishing this equipment was not economic given limited current and forecasted demand for such equipment. A recoverability analysis was performed on the remaining low-horsepower fleet and it was concluded that the remaining fleet was recoverable from estimated future cash flows. During the third quarter of 2019, we recorded a charge of $0.8 million for the carrying value of a compressor unit that was written off due to being destroyed by fire.
Goodwill
Our Water & Flowback Services Division consists of 2 reporting units, Production Testing and Water Management. During the third quarter of 2019, as part of our internal long-term outlook for each of these reporting units, we updated our assessment of the Water Management reporting unit and determined that the current decreased energy industry outlook was an indicator requiring further analysis for impairment of goodwill. As part of the first step of goodwill impairment testing for our Water Management reporting unit, the only reporting unit with goodwill as of September 30, 2019, we updated our assessment of the future cash flows, applying expected long-term growth rates, discount rates, and terminal values that we consider reasonable for the reporting unit. We calculated a present value of the cash flows for the Water Management reporting unit to arrive at an estimate of fair value using a combination of the income approach and the market approach. Based on these assumptions, we determined that the fair value of the Water Management reporting unit exceeded its carrying value, which includes approximately $25.8 million of goodwill, by approximately 17%. Specific uncertainties affecting the estimated fair value of our Water Management reporting unit includes the impact of competition, prices of oil and natural gas, and future overall activity levels in the regions in which it operates, the activity levels of our significant customers, and other factors affecting the rate of future growth of this reporting unit. These factors will continue to be reviewed and assessed going forward. Negative developments with regard to these factors could have a further negative effect on the fair value of the Water Management reporting unit.
Leases
As a lessee, unless the lease meets the criteria of short-term and is excluded per our policy election described below, we initially recognize a lease liability and related right-of-use asset on the commencement date.
The right-of-use asset represents our right to use an underlying asset and the lease liability represents our obligation to make lease payments to the lessor over the lease term.
Long-term operating leases are included in operating lease right-of-use assets, accrued liabilities and other, and operating lease liabilities in our consolidated balance sheet as of March 31,September 30, 2019. Long-term finance leases are included in property, plant and equipment, accrued liabilities and other, and other liabilities in our consolidated balance sheet as of March 31, 2019.not material. We determine whether a contract is or contains a lease at inception of the contract. Where we are a lessee in a contract that includes an option to extend or terminate the lease, we include the extension period or exclude the period covered by the termination option in our lease term, if it is reasonably certain that we would exercise the option.
As an accounting policy election, we do not include short-term leases on our balance sheet. Short-term leases include leases with a term of 12 months or less, inclusive of renewal options we are reasonably certain to exercise. The lease payments for short-term leases are included as operating lease costs on a straight-line basis over the lease term in cost of revenues or general and administrative expense based on the use of the underlying asset. We recognize lease costs for variable lease payments not included in the determination of a lease liability in the period in which an obligation is incurred.
As allowed by U.S. GAAP, we do not separate nonlease components from the associated lease component for our compression services contracts and instead account for those components as a single component based on the accounting treatment of the predominant component. In our evaluation of whether Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 842 "Leases" or ASC 606 "Revenue from Contracts with Customers" is applicable to the combined component based on the predominant component, we determined the services nonlease component is predominant, resulting in the ongoing recognition of our compression services contracts following ASC 606.
Our operating and finance leases are recognized at the present value of lease payments over the lease term. When the implicit discount rate is not readily determinable, we use our incremental borrowing rate to calculate the discount rate used to determine the present value of lease payments. Consistent with other long-lived assets or asset groups that are held and used, we test for impairment of our right-of-use assets when impairment indicators are present.
Foreign Currency Translation
The cumulative translation effects of translating the applicable accounts from the functional currencies into the U.S. dollar at current exchange rates are included as a separate component ofequity. Foreign currency exchange (gains) and losses are included in other (income) expense, net and totaled $1.2$(1.7) millionand $(2.2) millionduring the three and nine months ended March 31,September 30, 2019, respectively, and $0.9$(0.1) million and $(0.4) million during the three and nine months ended March 31,September 30, 2018, respectively.
New Accounting Pronouncements
Standards adopted in 2019
In February 2016, the FASB issued Accounting Standards Update ("ASU") 2016-02, "Leases (Topic 842)" to increase comparability and transparency among different organizations. Organizations are required to recognize right-of-use lease assets and lease liabilities in the balance sheet related to the right to use the underlying asset for the lease term. In addition, through improved disclosure requirements, ASC 842 will enable users of financial statements to further understand the amount, timing, and uncertainty of cash flows arising from leases. We adopted the standard effective January 1, 2019. The standard had a material impact on our consolidated balance sheet, specifically, the reporting of our operating leases. The impact in the reporting of our finance leases was insignificant.
We chose to transition using a modified retrospective approach which allows for the recognition of a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption rather than the earliest period presented. Comparative information is reported under the accounting standards that were in effect for those periods. In addition, upon transition, we elected the package of practical expedients, which allows us to continue to apply historical lease classifications to existing contracts. Upon adoption, we recognized $60.6 million in operating right-of-use assets, $12.0 million in accrued liabilities and other, and $50.7 million in operating lease liabilities in our consolidated balance sheet. In addition, we also recognized a $2.8 million cumulative effect adjustment to increase retained earnings, primarily as a result of a deferred gain from a previous sale and
leaseback transaction on our corporate headquarters facility that was accounted for as an operating lease. Refer to Note K - “Leases” for further information on our leases.
In February 2018, the FASB issued ASU 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220)" that gives entities the option to reclassify the income tax effects of the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. This iswas effective for us on January 1, 2019, however, as we do not have associated tax effects in accumulated other comprehensive income, there was no impact.
In June 2018, the FASB issued ASU 2018-07, “Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” to align the measurement and classification guidance for share-based payments to nonemployees with the guidance currently applied to employees, with certain exceptions. We adopted this ASU during the three months ended March 31, 2019, with no material impact to our consolidated financial statements.
Standards not yet adopted
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses.losses on financial instruments not accounted for at fair value through net income. The provisions require credit impairments to be measured over the contractual life of an asset and developed with consideration for past events, current conditions, and forecasts of future economic information. Credit impairment will be accounted for as an allowance for credit losses deducted from the amortized cost basis at each reporting date. We are continuing to work through our implementation plan which includes evaluating the impact on our
allowance for doubtful accounts methodology, identifying new reporting requirements, and implementing changes to business processes, systems, and controls to support adoption of the standard. Upon adoption, the allowance for doubtful accounts is expected to increase with an offsetting adjustment to retained earnings. Updates at each reporting date after initial adoption will be recorded through selling, general, and administrative expense. ASU 2016-13 has an effective date of the first quarter of fiscal 2020. We are currently assessingcontinue to assess the potential effects of these changes to our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. The ASU is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods, with early adoption permitted, under a prospective adoption. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, "Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." ASU 2018-15 clarifies the accounting for implementation costs in cloud computing arrangements. ASU 2018-15 is effective for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted. We are currently assessing the potential effects of these changes to our consolidated financial statements.
NOTE B – INVENTORIES
Components of inventories as of March 31,September 30, 2019 and December 31, 2018 are as follows:
|
| | | | | | | |
| September 30, 2019 | | December 31, 2018 |
| (In Thousands) |
Finished goods | $ | 69,326 |
| | $ | 69,762 |
|
Raw materials | 3,043 |
| | 3,503 |
|
Parts and supplies | 46,815 |
| | 47,386 |
|
Work in progress | 23,222 |
| | 22,920 |
|
Total inventories | $ | 142,406 |
| | $ | 143,571 |
|
|
| | | | | | | |
| March 31, 2019 | | December 31, 2018 |
| (In Thousands) |
Finished goods | $ | 72,831 |
| | $ | 69,762 |
|
Raw materials | 3,279 |
| | 3,503 |
|
Parts and supplies | 44,915 |
| | 47,386 |
|
Work in progress | 35,603 |
| | 22,920 |
|
Total inventories | $ | 156,628 |
| | $ | 143,571 |
|
Finished goods inventories include newly manufactured clear brine fluids as well as used brines that are repurchased from certain customers for recycling. Work in progress inventory consists primarily of new compressor packages located in the CCLP fabrication facility in Midland, Texas.
NOTE C – NET INCOME (LOSS) PER SHARE
The following is a reconciliation of the weighted average number of common shares outstanding with the number of shares used in the computations of net income (loss) per common and common equivalent share:
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| (In Thousands) |
Number of weighted average common shares outstanding | 125,568 |
| | 125,689 |
| | 125,620 |
| | 123,557 |
|
Assumed exercise of equity awards and warrants | — |
| | — |
| | — |
| | — |
|
Average diluted shares outstanding | 125,568 |
| | 125,689 |
| | 125,620 |
| | 123,557 |
|
|
| | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
| (In Thousands) |
Number of weighted average common shares outstanding | 125,681 |
| | 117,598 |
|
Assumed exercise of equity awards and warrants | — |
| | — |
|
Average diluted shares outstanding | 125,681 |
| | 117,598 |
|
For thethree and nine month periods ended March 31,September 30, 2019 and March 31,September 30, 2018, the average diluted shares outstanding excludes the impact of all outstanding equity awards and warrants, as the inclusion of these shares would have been anti-dilutive due to the net losses recorded during the periods. In addition, for the three and nine month periods ended March 31,September 30, 2019 and March 31,September 30, 2018, the calculation of diluted earnings per common share excludes the impact of the CCLPCSI Compressco LP Series A Convertible Preferred Units (as defined in Note F)(the "CCLP Preferred Units"), as the inclusion of the impact from conversion of the CCLP Preferred Units into CCLP common units would have been anti-dilutive.
NOTE D – DISCONTINUED OPERATIONS
On March 1, 2018, we closed a series of related transactions that resulted in the disposition of our Offshore Division. As a result, we have accounted for our Offshore Division, consisting of our Offshore Services and Maritech segments, as discontinued operations and have revised prior period financial statements to exclude these businesses from continuing operations. During the three months ended September 30, 2019, as a result of the bankruptcy filing of Epic Companies, LLC, we recorded a reserve for the full amount of certain other receivables of discontinued operations in the amount of $1.5 million and for the full amount of a $7.5 million promissory note, including accrued interest, that we received as part of the consideration for the sale. See Note H - "Commitments and Contingencies" for further discussion. A summary of financial information related to our discontinued operations is as follows:
Reconciliation of the Line Items Constituting Pretax Loss from Discontinued Operations to the After-Tax Loss from Discontinued Operations
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2019 | | Three Months Ended September 30, 2018 |
| Offshore Services | | Maritech | | Total | | Offshore Services | | Maritech | | Total |
Major classes of line items constituting pretax loss from discontinued operations | | | | | | | | | | | |
Revenue | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Cost of revenues | (273 | ) | | — |
| | (273 | ) | | 125 |
| | — |
| | 125 |
|
Depreciation, amortization, and accretion | 52 |
| | — |
| | 52 |
| | — |
| | — |
| | — |
|
General and administrative expense | 1,734 |
| | — |
| | 1,734 |
| | 192 |
| | — |
| | 192 |
|
Other (income) expense, net | 117 |
| | — |
| | 117 |
| | (1,113 | ) | | — |
| | (1,113 | ) |
Pretax income (loss) from discontinued operations | (1,630 | ) | | — |
| | (1,630 | ) | | 796 |
| | — |
| | 796 |
|
Pretax loss on disposal of discontinued operations | | | | | (7,500 | ) | | | | | | — |
|
Total pretax income (loss) from discontinued operations | | | | | (9,130 | ) | | | | | | 796 |
|
Income tax expense | | | | | — |
| | | | | | — |
|
Total income (loss) from discontinued operations | | | | | $ | (9,130 | ) | | | | | | $ | 796 |
|
| | | Three Months Ended March 31, 2019 | | Three Months Ended March 31, 2018 | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| Offshore Services | | Maritech | | Total | | Offshore Services | | Maritech | | Total | Offshore Services | | Maritech | | Total | | Offshore Services | | Maritech | | Total |
Major classes of line items constituting pretax loss from discontinued operations | | | | | | | | | | | | | | | | | | | | | | |
Revenue | $ | — |
| | $ | — |
| | $ | — |
| | $ | 4,477 |
| | $ | 186 |
| | $ | 4,663 |
| $ | — |
| | $ | — |
| | $ | — |
| | $ | 4,487 |
| | $ | 187 |
| | $ | 4,674 |
|
Cost of revenues | 22 |
| | — |
| | 22 |
| | 11,123 |
| | 238 |
| | 11,361 |
| (251 | ) | | — |
| | (251 | ) | | 11,013 |
| | 139 |
| | 11,152 |
|
Depreciation, amortization, and accretion | — |
| | — |
| | — |
| | 1,856 |
| | 213 |
| | 2,069 |
| 52 |
| | — |
| | 52 |
| | 1,873 |
| | 212 |
| | 2,085 |
|
General and administrative expense | 404 |
| | — |
| | 404 |
| | 1,253 |
| | 186 |
| | 1,439 |
| 2,483 |
| | — |
| | 2,483 |
| | 1,729 |
| | 187 |
| | 1,916 |
|
Other (income) expense, net | — |
| | — |
| | — |
| | 39 |
| | — |
| | 39 |
| 117 |
| | — |
| | 117 |
| | (1,035 | ) | | — |
| | (1,035 | ) |
Pretax loss from discontinued operations | (426 | ) | | — |
| | (426 | ) | | (9,794 | ) | | (451 | ) | | (10,245 | ) | (2,401 | ) | | — |
| | (2,401 | ) | | (9,093 | ) | | (351 | ) | | (9,444 | ) |
Pretax loss on disposal of discontinued operations | | | | | — |
| |
| |
| | (33,788 | ) | | | | | (7,500 | ) | | | | | | (33,813 | ) |
Total pretax loss from discontinued operations | | | | | (426 | ) | | | | | | (44,033 | ) | | | | | (9,901 | ) | | | | | | (43,257 | ) |
Income tax benefit | | | | | — |
| | | | | | (2,327 | ) | | | | | — |
| | | | | | (2,326 | ) |
Total loss from discontinued operations | | | | | $ | (426 | ) | | | | | | $ | (41,706 | ) | | | | | $ | (9,901 | ) | | | | | | $ | (40,931 | ) |
Reconciliation of Major Classes of Assets and Liabilities of the Discontinued Operations to Amounts Presented Separately in the Statement of Financial Position
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2019 | | December 31, 2018 |
| Offshore Services | | Maritech | | Total | | Offshore Services | | Maritech | | Total |
Carrying amounts of major classes of assets included as part of discontinued operations | | | | | | | | | | | |
Trade receivables | $ | 16 |
| | $ | — |
| | $ | 16 |
| | $ | — |
| | $ | 1,340 |
| | $ | 1,340 |
|
Other current assets | — |
| | — |
| | — |
| | 14 |
| | — |
| | 14 |
|
Assets of discontinued operations | $ | 16 |
| | $ | — |
| | $ | 16 |
| | $ | 14 |
| | $ | 1,340 |
| | $ | 1,354 |
|
| | | | | | | | | | | |
Carrying amounts of major classes of liabilities included as part of discontinued operations | | | | | | | | | | | |
Trade payables | $ | 901 |
| | $ | — |
| | $ | 901 |
| | $ | 740 |
| | $ | — |
| | $ | 740 |
|
Accrued liabilities | 885 |
| | 121 |
| | 1,006 |
| | 1,330 |
| | 2,075 |
| | 3,405 |
|
Liabilities of discontinued operations | $ | 1,786 |
| | $ | 121 |
| | $ | 1,907 |
| | $ | 2,070 |
| | $ | 2,075 |
| | $ | 4,145 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2019 | | December 31, 2018 |
| Offshore Services | | Maritech | | Total | | Offshore Services | | Maritech | | Total |
Carrying amounts of major classes of assets included as part of discontinued operations | | | | | | | | | | | |
Trade receivables | $ | 81 |
| | $ | 1,340 |
| | $ | 1,421 |
| | $ | — |
| | $ | 1,340 |
| | $ | 1,340 |
|
Other current assets | 1 |
| | — |
| | 1 |
| | 14 |
| | — |
| | 14 |
|
Assets of discontinued operations | $ | 82 |
| | $ | 1,340 |
| | $ | 1,422 |
| | $ | 14 |
| | $ | 1,340 |
| | $ | 1,354 |
|
| | | | | | | | | | | |
Carrying amounts of major classes of liabilities included as part of discontinued operations | | | | | | | | | | | |
Trade payables | $ | 616 |
| | $ | — |
| | $ | 616 |
| | $ | 740 |
| | $ | — |
| | $ | 740 |
|
Accrued liabilities | 838 |
| | 2,075 |
| | 2,913 |
| | 1,330 |
| | 2,075 |
| | 3,405 |
|
Liabilities of discontinued operations | $ | 1,454 |
| | $ | 2,075 |
| | $ | 3,529 |
| | $ | 2,070 |
| | $ | 2,075 |
| | $ | 4,145 |
|
NOTE E – LONG-TERM DEBT AND OTHER BORROWINGS
We believe our capital structure, excluding CCLP, ("TETRA") and CCLP's capital structure should be considered separately, as there are no cross default provisions, cross collateralization provisions, or cross guarantees between CCLP's debt and TETRA's debt.
Consolidated long-term debt as of March 31,September 30, 2019 and December 31, 2018, consists of the following:
|
| | | | | | | | | |
| | | September 30, 2019 | | December 31, 2018 |
| | | (In Thousands) |
TETRA | | Scheduled Maturity | | | |
Asset-based credit agreement (presented net of unamortized deferred financing costs of $1.4 million as of September 30, 2019) | | September 2023 | $ | 8,585 |
| | $ | — |
|
Term credit agreement (presented net of the unamortized discount of $6.6 million as of September 30, 2019 and $7.2 million as of December 31, 2018 and net of unamortized deferred financing costs of $9.8 million as of September 30, 2019 and $10.2 million as of December 31, 2018) | | September 2025 | 204,112 |
| | 182,547 |
|
TETRA total debt | | | 212,697 |
| | 182,547 |
|
Less current portion | | | — |
| | — |
|
TETRA total long-term debt | | | $ | 212,697 |
| | $ | 182,547 |
|
| | | | | |
CCLP | | | | | |
CCLP asset-based credit agreement (presented net of unamortized deferred financing costs of $0.9 million as of September 30, 2019) | | June 2023 | 10,559 |
| | — |
|
CCLP 7.25% Senior Notes (presented net of the unamortized discount of $1.8 million as of September 30, 2019 and $2.2 million as of December 31, 2018 and net of unamortized deferred financing costs of $3.1 million as of September 30, 2019 and $3.9 million as of December 31, 2018) | | August 2022 | 291,028 |
| | 289,797 |
|
CCLP 7.50% Senior Secured Notes (presented net of unamortized deferred financing costs of $6 million as of September 30, 2019 and $6.8 million as of December 31, 2018) | | April 2025 | 343,988 |
| | 343,216 |
|
CCLP total debt | | | 645,575 |
| | 633,013 |
|
Less current portion | | | — |
| | — |
|
CCLP total long-term debt | | | $ | 645,575 |
| | $ | 633,013 |
|
Consolidated total long-term debt | | | $ | 858,272 |
| | $ | 815,560 |
|
|
| | | | | | | | | |
| | | March 31, 2019 | | December 31, 2018 |
| | | (In Thousands) |
TETRA | | Scheduled Maturity | | | |
Asset-based credit agreement (presented net of unamortized deferred financing costs of $1.6 million as of March 31, 2019) | | September 10, 2023 | $ | 29,131 |
| | $ | — |
|
Term credit agreement (presented net of the unamortized discount of $7 million as of March 31, 2019 and $7.2 million as of December 31, 2018 and net of unamortized deferred financing costs of $10 million as of March 31, 2019 and $10.2 million as of December 31, 2018) | | September 10, 2025 | 183,020 |
| | 182,547 |
|
TETRA total debt | | | 212,151 |
| | 182,547 |
|
Less current portion | | | — |
| | — |
|
TETRA total long-term debt | | | $ | 212,151 |
| | $ | 182,547 |
|
| | | | | |
CCLP | | | | | |
CCLP asset-based credit agreement | | June 29, 2023 | — |
| | — |
|
CCLP 7.25% Senior Notes (presented net of the unamortized discount of $2.1 million as of March 31, 2019 and $2.2 million as of December 31, 2018 and net of unamortized deferred financing costs of $3.6 million as of March 31, 2019 and $3.9 million as of December 31, 2018) | | August 15, 2022 | 290,204 |
| | 289,797 |
|
CCLP 7.50% Senior Secured Notes (presented net of unamortized deferred financing costs of $6.5 million as of March 31, 2019 and $6.8 million as of December 31, 2018) | | April 1, 2025 | 343,488 |
| | 343,216 |
|
CCLP total debt | | | 633,692 |
| | 633,013 |
|
Less current portion | | | — |
| | — |
|
Consolidated total long-term debt | | | $ | 845,843 |
| | $ | 815,560 |
|
As of March 31,September 30, 2019, TETRA had a $30.7$10.0 million outstanding balance and$9.06.9 million in letters of creditagainst its asset-based credit agreement ("ABL Credit Agreement"). As of March 31,September 30, 2019, subject to compliance
with the covenants, borrowing base, and other provisions of the agreement that may limit borrowings, TETRA had an availability of $27.3$41.6 million under this agreement. There was noan $11.5 million balance outstanding underand$3.0 million in letters of creditagainst the CCLP asset-based credit agreement ("CCLP Credit Agreement") as of March 31,September 30, 2019. On June 26, 2019, CCLP entered into an amendment of the CCLP Credit Agreement that, among other things, revised and increased the borrowing base, including adding the value of certain CCLP inventory in the determination of the borrowing base. As of March 31,September 30, 2019, and subject to compliance with the covenants, borrowing base, and other provisions of the agreements that may limit borrowings under the CCLP Credit Agreement, CCLP had availability of $18.4$7.8 million.
TETRA and CCLP credit and senior note agreements contain certain affirmative and negative covenants, including covenants that restrict the ability to pay dividends or other restricted payments. TETRA and CCLP are both in compliance with all covenants of their respective credit and senior note agreements as of March 31,September 30, 2019.
NOTE F – CCLP SERIES A CONVERTIBLE PREFERRED UNITS
During 2016, CCLP issued an aggregate of 6,999,126 of CSI Compressco LP Series A Convertible Preferred Units representing limited partner interests in CCLP (the “CCLP Preferred Units”) for a cash purchase price of $11.43 per CCLP Preferred Unit (the “Issue Price”). We purchased 874,891 of the CCLP Preferred Units at the aggregate Issue Price of $10.0 million.
Unless otherwise redeemed for cash, a ratable portion of the CCLP Preferred Units has been, and will continue to be, converted into CCLP common units on the eighth day of each month over a period of thirty months that began in March 2017 and will end in August 2019 (each, a “Conversion Date”). Based on the number of CCLP Preferred Units outstanding as of March 31, 2019, the maximum aggregate number of CCLP common units that could be required to be issued pursuant to the conversion provisions of the CCLP Preferred Units is approximately 10.2 million CCLP common units; however, CCLP may, at its option, pay cash, or a combination of cash and common units, to the holders of the CCLP Preferred Units instead of issuing common units on any Conversion Date, subject to certain restrictions as described in the Second Amended and Restated CCLP Partnership Agreement and the CCLP Credit Agreement. Beginning with theIn January 2019, Conversion Date, CCLP has elected to redeem the remainingbegan redeeming CCLP Preferred Units for cash, resulting in 783,0462,660,569 CCLP Preferred Units being redeemed during the threenine months ended March 31,September 30, 2019 for $8.3an aggregate of$28.0 million, which includes approximately $0.4$1.3 million of redemption premium that was paid and charged to other (income) expense, net in the accompanying consolidated statements of operations. The total number of CCLP Preferred Units outstanding as of March 31, 2019 was 1,779,417, of which we held 223,474.
Based on the conversion provisionslast redemption of the CCLP Preferred Units, calculated as of March 31, 2019, using the trading prices of the common units over the prior month, along with other factors, and as otherwise impacted by the existence of certain conditions related to the CCLP common units (the "Conversion Price"), the theoretical number of CCLP common units that would be issued if all of theremaining outstanding CCLP Preferred Units, were convertedalong with a final cash payment made in lieu of paid-in-kind units, occurred on March 31,August 8, 2019, on the same basis as the monthly conversions would be approximately 7.4 million CCLP common units, withfor an aggregate market valuecash payment of $21.0 million. If converted$5.0 million, of which $0.6 million was paid to CCLP common units, a $1 decrease in the Conversion Price would result in the issuance of 2.8 million additional CCLP common units pursuant to these conversion provisions.us.
NOTE G – FAIR VALUE MEASUREMENTS
Financial Instruments
CCLP Preferred Units
The CCLP Preferred Units are valued using a lattice modeling technique that, among a number of lattice structures, includes significant unobservable items (a Level 3 fair value measurement). These unobservable items include (i) the volatility of the trading price of CCLP's common units compared to a volatility analysis of equity prices of CCLP's comparable peer companies, (ii) a yield analysis that utilizes market information related to the debt yields of comparable peer companies, and (iii) a future conversion price analysis. During the three month periods ended March 31, 2019 and March 31, 2018, the changes in the fair value of the CCLP Preferred Units resulted in $1.2 million and $1.4 million being charged to earnings, respectively, in the consolidated statements of operations.
Warrants
The Warrants are valued using a Black Scholes option valuation model that includes implied volatility of the trading price (a Level 3 fair value measurement). During the three month periods ended March 31, 2019 and March 31, 2018, the changes in the fair value of the Warrants liability resulted in $0.4 million being charged to earnings and $2.0 million being credited to earnings, respectively, in the consolidated statement of operations.
Contingent Consideration
The fair value of the remaining contingent consideration associated with the February 2018 acquisition of SwiftWater Energy Services, LLC ("SwiftWater") is based on a probability simulation utilizing forecasted revenues and EBITDA of the water management business of SwiftWater and all of our pre-existing operations in the Permian Basin (a Level 3 fair value measurement). At March 31,September 30, 2019, based on a forecast of SwiftWater 2019 revenues and EBITDA, the estimated fair value for the liability associated with the remaining contingent purchase price consideration was $10.6$0.2 million, resulting in $0.4$0.8 million being credited to other (income) expense, net, during the threenine months ended March 31,September 30, 2019. During the nine months ended September 30, 2019, the sellers received a payment of $10.0 million based on SwiftWater's performance during 2018. In addition, as part of the purchase of JRGO Energy Services LLC ("JRGO") during December 2018, the sellers have the right to receivewere paid contingent consideration of up to $1.5$1.4 million to be paid during the nine month period ended September 30, 2019, based on JRGO's performance during the fourth quarter of 2018. Approximately $11.5 million of the $12.1 million combined contingent consideration liability is based on actual 2018 performance and was paid in April 2019, with the remaining being a fair value measurement based on a forecast of SwiftWater 2019 revenues and EBITDA.
Derivative Contracts
We and CCLP each enter into short term foreign currency forward derivative contracts with third parties as part of a program designed to mitigate the currency exchange rate risk exposure on selected transactions of certain foreign subsidiaries. As of March 31,September 30, 2019, we and CCLP had the following foreign currency derivative contracts outstanding relating to portions of our foreign operations:
|
| | | | | | | | |
Derivative Contracts | | US Dollar Notional Amount | | Traded Exchange Rate | | Settlement Date |
| | (In Thousands) | |
| |
|
Forward purchase Euro | | $ | 9,472 |
| | 1.12 | | 12/19/2019 |
Forward purchase Euro | | 8,687 |
| | 1.11 | | 10/18/2019 |
Forward sale pounds sterling | | 1,867 |
| | 1.24 | | 10/18/2019 |
Forward purchase Mexican peso | | 774 |
| | 19.38 | | 10/18/2019 |
Forward purchase Norwegian krone | | 5,063 |
| | 8.89 | | 10/18/2019 |
Forward sale Mexican peso | | 8,844 |
| | 19.56 | | 10/18/2019 |
|
| | | | | | | | |
Derivative Contracts | | US Dollar Notional Amount | | Traded Exchange Rate | | Settlement Date |
| | (In Thousands) | |
| |
|
Forward purchase Euro | | $ | 7,245 |
| | 1.14 | | 6/19/2019 |
Forward sale Euro | | 1,139 |
| | 1.14 | | 4/17/2019 |
Forward sale pounds sterling | | 1,329 |
| | 1.33 | | 4/17/2019 |
Forward purchase Mexican peso | | 820 |
| | 19.52 | | 4/17/2019 |
Forward sale Norwegian krone | | 527 |
| | 8.53 | | 4/17/2019 |
Forward sale Mexican peso | | 6,301 |
| | 19.52 | | 4/17/2019 |
|
| | | | | | | |
Derivative Contracts | | British Pound Notional Amount | | Traded Exchange Rate | | Settlement Date |
| | (In Thousands) | | | | |
Forward purchase Euro | | 2,316 |
| | 0.89 | | 10/18/2019 |
|
| | | | | | | |
Derivative Contracts | | Swedish Krona Notional Amount | | Traded Exchange Rate | | Settlement Date |
| | (In Thousands) | | | | |
Forward purchase Euro | | 15,980 |
| | 10.65 | | 10/18/2019 |
|
| | | | | | | |
Derivative Contracts | | British Pound Notional Amount | | Traded Exchange Rate | | Settlement Date |
| | (In Thousands) | | | | |
Forward purchase Euro | | 1,535 |
| | 0.85 | | 4/17/2019 |
|
| | | | | | | |
Derivative Contracts | | Swedish Krona Notional Amount | | Traded Exchange Rate | | Settlement Date |
| | (In Thousands) | | | | |
Forward sale Euro | | 14,041 |
| | 10.40 | | 4/17/2019 |
Under this program, we and CCLP may enter into similar derivative contracts from time to time. Although contracts pursuant to this program will serve as an economic hedge of the cash flow of our currency exchange risk exposure, they are not formally designated as hedge contracts or qualify for hedge accounting treatment. Accordingly, any change in the fair value of these derivative instrumentscontracts during a period will be included in the determination of earnings for that period.
The fair values of foreign currency derivative instrumentscontracts are based on quoted market values (a Level 2 fair value measurement). The fair values of our and CCLP's foreign currency derivative instrumentscontracts as of March 31,September 30, 2019 and December 31, 2018, are as follows: |
| | | | | | | | | | |
Foreign currency derivative contracts | Balance Sheet Location | | Fair Value at September 30, 2019 | | Fair Value at December 31, 2018 |
| |
| | (In Thousands) |
Forward purchase contracts | | Current assets | | $ | 12 |
| | $ | 41 |
|
Forward sale contracts | | Current assets | | 122 |
| | 76 |
|
Forward sale contracts | | Current liabilities | | — |
| | (126 | ) |
Forward purchase contracts | | Current liabilities | | (504 | ) | | (168 | ) |
Net asset (liability) | | | | $ | (370 | ) | | $ | (177 | ) |
|
| | | | | | | | | | |
Foreign currency derivative instruments | Balance Sheet Location | | Fair Value at March 31, 2019 | | Fair Value at December 31, 2018 |
| |
| | (In Thousands) |
Forward purchase contracts | | Current assets | | $ | 27 |
| | $ | 41 |
|
Forward sale contracts | | Current assets | | 49 |
| | 76 |
|
Forward sale contracts | | Current liabilities | | (22 | ) | | (126 | ) |
Forward purchase contracts | | Current liabilities | | (100 | ) | | (168 | ) |
Net asset (liability) | | | | $ | (46 | ) | | $ | (177 | ) |
None of theour foreign currency derivative contracts contain credit risk related contingent features that would require us to post assets or collateral for contracts that are classified as liabilities. During the three monthsand nine month periods ended March 31,September 30, 2019, and March 31, 2018, we recognized $0.6$1.0 millionand $28,000 $1.8 millionof net gains (losses)(gains) losses, respectively, reflected in other (income) expense, net, associated with our foreign currency derivative program. During the three and nine months ended September 30, 2018, we recognized$0.6 million and $(0.1) million of net (gains) losses, respectively, reflected in other (income) expense, net, associated with our foreign currency derivative program.
A summary of these recurringRecurring fair value measurements by valuation hierarchy as of March 31,September 30, 2019 and December 31, 2018, isare as follows:
| | | | | Fair Value Measurements Using | | | Fair Value Measurements Using |
| Total as of | | Quoted Prices in Active Markets for Identical Assets or Liabilities | | Significant Other Observable Inputs | | Significant Unobservable Inputs | Total as of | | Quoted Prices in Active Markets for Identical Assets or Liabilities | | Significant Other Observable Inputs | | Significant Unobservable Inputs |
Description | March 31, 2019 | | (Level 1) | | (Level 2) | | (Level 3) | September 30, 2019 | | (Level 1) | | (Level 2) | | (Level 3) |
| (In Thousands) | (In Thousands) |
CCLP Series A Preferred Units | $ | (18,278 | ) | | $ | — |
| | $ | — |
| | $ | (18,278 | ) | |
Warrants liability | (2,480 | ) | | — |
| | — |
| | (2,480 | ) | $ | (1,038 | ) | | $ | — |
| | $ | — |
| | $ | (1,038 | ) |
Asset for foreign currency derivative contracts | 75 |
| | — |
| | 75 |
| | — |
| 134 |
| | — |
| | 134 |
| | — |
|
Liability for foreign currency derivative contracts | (121 | ) | | — |
| | (121 | ) | | — |
| (504 | ) | | — |
| | (504 | ) | | — |
|
Acquisition contingent consideration liability | (12,052 | ) | | — |
| | — |
| | (12,052 | ) | (200 | ) | | — |
| | — |
| | (200 | ) |
Net liability | $ | (32,856 | ) | | | | | | | $ | (1,608 | ) | | | | | | |
|
| | | | | | | | | | | | | | | |
| | | Fair Value Measurements Using |
| Total as of | | Quoted Prices in Active Markets for Identical Assets or Liabilities | | Significant Other Observable Inputs | | Significant Unobservable Inputs |
Description | December 31, 2018 | | (Level 1) | | (Level 2) | | (Level 3) |
| (In Thousands) |
CCLP Series A Preferred Units | $ | (27,019 | ) | | $ | — |
| | $ | — |
| | $ | (27,019 | ) |
Warrants liability | (2,073 | ) | | — |
| | — |
| | (2,073 | ) |
Asset for foreign currency derivative contracts | 117 |
| | — |
| | 117 |
| | — |
|
Liability for foreign currency derivative contracts | (294 | ) | | — |
| | (294 | ) | | — |
|
Acquisition contingent consideration liability | (12,452 | ) | | — |
| | — |
| | (12,452 | ) |
Net liability | $ | (41,721 | ) | | | | | | |
The fair values of cash, restricted cash, accounts receivable, accounts payable, accrued liabilities, short-term borrowings and long-term debt pursuant to TETRA's ABL Credit Agreement and Term Credit Agreement, and the CCLP Credit Agreement approximate their carrying amounts. The fair values of the publicly traded CCLP 7.25% Senior Notes at March 31,September 30, 2019 and December 31, 2018, were approximately $264.9$269.2 million and $266.3 million, respectively. Those fair values compare to the face amount of $295.9 million both at March 31,September 30, 2019 and
December 31, 2018. The fair valuevalues of the publicly traded CCLP 7.50% Senior Secured Notes at March 31,September 30, 2019 and December 31, 2018 were approximately $336.0$344.8 million and $332.5 million, respectively. ThisThese fair value comparesvalues compare to aggregate principal amount of such notes at both March 31,September 30, 2019 and December 31, 2018, of $350.0 million. We based the fair values of the CCLP 7.25% Senior Notes and the CCLP 7.50% Senior Secured Notes as of March 31,September 30, 2019 on recent trades for these notes.
NOTE H – COMMITMENTS AND CONTINGENCIES
Litigation
We are named defendants in several lawsuits and respondents in certain governmental proceedings arising in the ordinary course of business. While the outcome of lawsuits or other proceedings against us cannot be predicted with certainty, management does not consider it reasonably possible that a loss resulting from such lawsuits or other proceedings in excess of any amounts accrued has been incurred that is expected to have a material adverse impact on our financial condition, results of operations, or liquidity.
Contingencies of Discontinued Operations
During 2011, in connection with the sale of a significant majority of Maritech's oil and gas producing properties, the buyers of the properties assumed the associated decommissioning liabilities pursuant to the purchase and sale agreements. To the extent that a buyer of these properties fails to perform the abandonment and decommissioning work required, a previous owner, including Maritech, may be required to perform the abandonment and decommissioning obligation. As the former parent company of Maritech, we also may be responsible for performing these abandonment and decommissioning obligations. In Marchearly 2018, we closed the Maritech Asset Purchase Agreement with Orinoco Natural Resources, LLC ("Orinoco") that provided for the purchase by Orinoco of Maritech's remaining oil and gas properties and related assets. Also in early 2018, we closed the Maritech Properties. Also in March 2018, we finalized the Maritech EquityMembership Interest Purchase Agreement with Orinoco that provided for the purchase by Orinoco of all of the outstanding membership interests in Maritech. As a result of these transactions, we have effectively exited the business of our Maritech segment.
Under the Maritech Equity Interests. Asset Purchase Agreement, Orinoco assumed all of Maritech’s decommissioning liabilities related to the leases sold to Orinoco (the “Orinoco Lease Liabilities”) and, under the Maritech Membership Interest Purchase Agreement, Orinoco assumed all other liabilities of Maritech, including the decommissioning liabilities associated with the oil and gas properties previously sold by Maritech (the “Legacy Liabilities”), subject to certain limited exceptions unrelated to the decommissioning liabilities. To the extent that Maritech or Orinoco fails to satisfy decommissioning liabilities associated with any of the Orinoco Lease Liabilities or the Legacy Liabilities, we may be required to satisfy such liabilities under third party indemnity agreements and corporate guarantees that we previously provided to the US Department of the Interior and other parties, respectively.
Pursuant to a bonding agreementBonding Agreement entered into as part of these transactions (the "Bonding Agreement"), Orinoco is requiredprovided non-revocable performance bonds in an aggregate amount of $46.8 million to cover the performance by Orinoco and Maritech of the asset retirement obligations of Maritech (the “Initial Bonds”) and agreed to replace, within 90 days following the closing, the initial bonds delivered at closingInitial Bonds with other non-revocable performance bonds, meeting certain requirements, in the aggregate sum of $47.0 million.$47.0 million (collectively, the “Interim Replacement Bonds”). Orinoco further agreed to replace, within 180 days following the closing, the Interim Replacement Bonds with a maximum of three non-revocable performance bonds in the aggregate sum of $47.0 million, meeting certain requirements (the “Final Bonds”). Among the other requirements of the Final Bonds was that they must provide coverage for all of the asset retirement obligations of Maritech instead of only relating to specific properties. In the event Orinoco does not provide the Interim Replacement Bonds or the Final Bonds, Orinoco is required to make certain cash escrow payments to us.
The payment obligations of Orinoco under the Bonding Agreement were guaranteed by Thomas M. Clarke and Ana M. Clarke pursuant to a separate guaranty agreement (the “Clarke Bonding Guaranty Agreement”). Orinoco has not delivered such replacement bonds and it has not made any of the agreed upon cash escrow payments and we are seekingfiled a lawsuit against Orinoco and the Clarkes to enforce the terms of the Bonding Agreement and the Clarke Bonding Guaranty Agreement. A summary judgment was granted in favor of Orinoco and the Clarkes which dismissed our present claims against Orinoco under the Bonding Agreement and against the Clarkes under the Clarke Bonding Guaranty Agreement. We believe this judgment should not have been granted and have begun the process of appealing it. The Initial Bonds, which are non-revocable, performance bonds delivered at the closing remain in effect. As
If we become liable in the future for any decommissioning liability associated with any property covered by either an Initial Bond or an Interim Replacement Bond while such bonds are outstanding and the payment made to us under such bond is not sufficient to satisfy such liability, the Bonding Agreement provides that Orinoco will pay us an amount equal to such deficiency and if Orinoco fails to pay any such amount, such amount must be paid by the Clarkes under the Clarke Bonding Guaranty Agreement. However, if the Final Bonds or the full amount of the escrowed cash have been provided, neither Orinoco nor the Clarkes would be liable to pay us for any such deficiency. Our financial condition and results of operations may be negatively affected if Orinoco is unable to cover any such deficiency or if we become liable for a resultsignificant portion of these transactions,the decommissioning liabilities.
In early 2018, we have effectively exitedalso closed the businessessale of our Offshore Division to Epic Companies, LLC (“Epic Companies,” formerly known as Epic Offshore Specialty, LLC). Part of the consideration we received was a promissory note of Epic Companies in the original principal amount of $7.5 million (the “Epic Promissory Note”) payable to us in full, together with interest at a rate of 1.52% per annum, on December 31, 2019, along with a personal guaranty agreement from Thomas M. Clarke and Ana M. Clarke guaranteeing the payment obligations of Epic Companies pursuant to the Epic Promissory Note (the “Clarke Promissory Note Guaranty Agreement”). Additionally, pursuant to the Equity Interest Purchase Agreement (the “Offshore Services Purchase Agreement”) and Maritech segmentsother agreements with Epic Companies, certain other amounts relating to the Offshore Division totaling approximately $1.5 million were payable to us. At the end of August 2019, Epic Companies filed for bankruptcy. Although the Epic Promissory Note is not currently due and Orinoco assumedis guaranteed by the Clarke Promissory Note Guaranty Agreement, we recorded a reserve of $7.5 million for the full amount of the promissory note including accrued interest, and certain other receivables in the amount of $1.5 million at September 30, 2019. We continue to monitor this matter and seek to vigorously pursue our rights to collect all of Maritech's remaining abandonment and decommissioning obligations.amounts payable to us, including the amounts owed under the Epic Promissory Note when due, including by enforcing our rights under the Clarke Promissory Note Guaranty Agreement.
NOTE I – INDUSTRY SEGMENTS
We manage our operations through three3 Divisions: Completion Fluids & Products, Water & Flowback Services, and Compression.
Summarized financial information concerning the business segments is as follows:
| | | Three Months Ended March 31, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | 2019 | | 2018 | | 2019 | | 2018 |
| (In Thousands) | (In Thousands) |
Revenues from external customers | |
| | |
| |
| | |
| | |
| | |
|
Product sales | | | | |
| | |
| | | | |
Completion Fluids & Products Division | $ | 57,328 |
| | $ | 51,057 |
| $ | 55,444 |
| | $ | 58,050 |
| | $ | 185,578 |
| | $ | 181,394 |
|
Water & Flowback Services Division | 364 |
| | 1,250 |
| 100 |
| | 941 |
| | 831 |
| | 1,617 |
|
Compression Division | 34,089 |
| | 23,646 |
| 37,833 |
| | 43,079 |
| | 134,099 |
| | 102,125 |
|
Consolidated | $ | 91,781 |
| | $ | 75,953 |
| $ | 93,377 |
| | $ | 102,070 |
| | $ | 320,508 |
| | $ | 285,136 |
|
| | | | | | | | | | |
Services | | | | |
| | |
| | | | |
Completion Fluids & Products Division | $ | 4,253 |
| | $ | 2,049 |
| $ | 3,896 |
| | $ | 5,027 |
| | $ | 15,110 |
| | $ | 11,344 |
|
Water & Flowback Services Division | 78,314 |
| | 59,603 |
| 72,741 |
| | 77,572 |
| | 223,812 |
| | 221,342 |
|
Compression Division | 69,380 |
| | 61,776 |
| 75,933 |
| | 72,182 |
| | 219,041 |
| | 198,482 |
|
Consolidated | $ | 151,947 |
| | $ | 123,428 |
| $ | 152,570 |
| | $ | 154,781 |
| | $ | 457,963 |
| | $ | 431,168 |
|
| | | | | | | | | | |
Interdivision revenues | | | | |
| | |
| | | | |
Completion Fluids & Products Division | $ | — |
| | $ | (2 | ) | $ | — |
| | $ | (4 | ) | | $ | — |
| | $ | (5 | ) |
Water & Flowback Services Division | — |
| | 222 |
| — |
| | 55 |
| | — |
| | 330 |
|
Compression Division | — |
| | — |
| — |
| | — |
| | — |
| | — |
|
Interdivision eliminations | — |
| | (220 | ) | — |
| | (51 | ) | | — |
| | (325 | ) |
Consolidated | $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | |
Total revenues | | | | |
| | |
| | | | |
Completion Fluids & Products Division | $ | 61,581 |
| | $ | 53,104 |
| $ | 59,340 |
| | $ | 63,073 |
| | $ | 200,688 |
| | $ | 192,733 |
|
Water & Flowback Services Division | 78,678 |
| | 61,075 |
| 72,841 |
| | 78,568 |
| | 224,643 |
| | 223,289 |
|
Compression Division | 103,469 |
| | 85,422 |
| 113,766 |
| | 115,261 |
| | 353,140 |
| | 300,607 |
|
Interdivision eliminations | — |
| | (220 | ) | — |
| | (51 | ) | | — |
| | (325 | ) |
Consolidated | $ | 243,728 |
| | $ | 199,381 |
| $ | 245,947 |
| | $ | 256,851 |
| | $ | 778,471 |
| | $ | 716,304 |
|
| | | | | | | | | | |
Income (loss) before taxes | | | | |
| | |
| | | | |
Completion Fluids & Products Division | $ | 6,186 |
| | $ | 2,449 |
| $ | 11,318 |
| | $ | 8,713 |
| | $ | 32,118 |
| | $ | 21,143 |
|
Water & Flowback Services Division | 2,231 |
| | 6,548 |
| 2,578 |
| | 5,809 |
| | 7,269 |
| | 20,668 |
|
Compression Division | (7,801 | ) | | (14,018 | ) | (3,464 | ) | | (7,844 | ) | | (14,748 | ) | | (30,517 | ) |
Interdivision eliminations | 6 |
| | — |
| (1 | ) | | 5 |
| | 6 |
| | 9 |
|
Corporate Overhead(1) | (17,687 | ) | | (14,912 | ) | (17,931 | ) | | (19,631 | ) | | (54,921 | ) | | (53,870 | ) |
Consolidated | $ | (17,065 | ) | | $ | (19,933 | ) | $ | (7,500 | ) | | $ | (12,948 | ) | | $ | (30,276 | ) | | $ | (42,567 | ) |
| |
(1) | Amounts reflected include the following general corporate expenses: |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| (In Thousands) |
General and administrative expense | $ | 12,573 |
| | $ | 13,037 |
| | $ | 39,012 |
| | $ | 37,506 |
|
Depreciation and amortization | 167 |
| | 172 |
| | 507 |
| | 487 |
|
Interest expense | 5,495 |
| | 5,268 |
| | 16,533 |
| | 14,152 |
|
Warrants fair value adjustment (income) expense | 78 |
| | (179 | ) | | (1,035 | ) | | 22 |
|
Other general corporate (income) expense, net | (382 | ) | | 1,333 |
| | (96 | ) | | 1,703 |
|
Total | $ | 17,931 |
| | $ | 19,631 |
| | $ | 54,921 |
| | $ | 53,870 |
|
|
| | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
| (In Thousands) |
General and administrative expense | $ | 12,089 |
| | $ | 12,598 |
|
Depreciation and amortization | 168 |
| | 151 |
|
Interest expense | 5,342 |
| | 4,007 |
|
Warrants fair value adjustment (income) expense | 407 |
| | (1,994 | ) |
Other general corporate (income) expense, net | (319 | ) | | 150 |
|
Total | $ | 17,687 |
| | $ | 14,912 |
|
NOTE J – REVENUE FROM CONTRACTS WITH CUSTOMERS
Performance Obligations.Revenue is generally recognized when we transfer control of our products or services to our customers. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or providing services to our customers. We receive cash equal to the invoice price for most sales of product and services and payment terms typically range from 30 to 60 days from the date we invoice our customer. Since the period between when we deliver products or services and when the customer pays for such products or services is not expected to exceed one year, we have elected not to calculate or disclose a financing component for our customer contracts.
Depending on the terms of the arrangement, we may also defer the recognition of revenue for a portion of the consideration received because we have to satisfy a future performance obligation. For example, consideration received from customers during the fabrication of new compressor packages is typically deferred until control of the compressor package is transferred to our customer.
For any arrangements with multiple performance obligations, we use management's estimated selling price to determine the stand-alone selling price for separate performance obligations. For revenue associated with mobilization of service equipment as part of a service contract arrangement, such revenue, if significant, is deferred and amortized over the estimated service period.
Product Sales. Product sales revenues are generally recognized when we ship products from our facility to our customer. The product sales for our Completion Fluid & Products Division consist primarily of clear brine fluids ("CBFs"), additives, and associated manufactured products. Product sales for our Water & Flowback Services Division are typically attributed to specific performance obligations within certain production testing service arrangements. Parts and equipment sales comprise the product sales for the Compression Division.
Services. Service revenues represent revenue recognized over time, as our customer arrangements typically provide agreed upon day-rates (monthly service rates for compression services) and we recognize service revenue based upon the number of days services have been performed. Service revenue recognized over time is associated with a majority of our Water & Flowback Services Division arrangements, compression service and aftermarket service contracts within our Compression Division, and a small portion of Completion Fluids & Products Division revenue that is associated with completion fluid service arrangements. With the exception of the initial terms of the compression services contracts for medium- and high-horsepower compressor packages of our Compression Division, our customer contracts are generally for terms of one year or less. The majority of the service arrangements in the Water & Flowback Services Division are for a period of 90 days or less. Within our Compression Division service revenue, most aftermarket service revenues are recognized at a point in time when we transfer control of our products and complete the delivery of services to our customers.
We receive cash equal to the invoice price for most product sales and services and payment terms typically range from 30 to 60 days from the date we invoice our customer. Since the period between when we deliver products or services and when the customer pays for products or services are not expected to exceed one year, we have elected not to calculate or disclose a financing component for our customer contracts.
Depending on the terms of the arrangement, we may also defer the recognition of revenue for a portion of the consideration received because we have to satisfy a future performance obligation. For example, consideration received from customers during the fabrication of new compressor packages is typically deferred until control of the compressor package is transferred to our customer. For any arrangements with multiple performance obligations, we use management's estimated selling price to determine the stand-alone selling price for separate performance obligations. For revenue associated with mobilization of service equipment as part of a service contract arrangement, such revenue, if significant, is deferred and amortized over the estimated service period. As of March 31,September 30, 2019, we had $24.6$69.9 million of remaining contractual performance obligations related to ourfor compression service contracts. services. As a practical expedient, this amount does not reflect revenue for compression service contracts whose original expected duration is less than 12twelve months and does not consider the effects of the time value of money. The remaining performance obligations are expectedExpected revenue to be recognized through 2022 in the future for completion of performance obligations of compression service contracts are as follows (in thousands):follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Total |
| (In Thousands) |
Compression service contracts remaining performance obligations | $ | 18,830 |
| | $ | 37,710 |
| | $ | 11,834 |
| | $ | 1,551 |
| | $ | — |
| | $ | 69,925 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Total |
| (In Thousands) |
Compression service contracts remaining performance obligations | $ | 10,444 |
| | $ | 9,851 |
| | $ | 4,240 |
| | $ | 32 |
| | $ | — |
| | $ | 24,567 |
|
Sales taxes, value added taxes, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. We have elected to recognize the cost for freight and shipping costs as part of cost of product sales when control over our products (i.e. delivery) has transferred to the customer.
Use of Estimates. In recognizing revenue for variable consideration arrangements, the amount of variable consideration recognized is limited so that it is probable that significant amounts of revenues will not be reversed in future periods when the uncertainty is resolved. For products returned by the customer, we estimate the expected returns based on an analysis of historical experience. For volume discounts earned by the customer, we estimate the discount (if any) based on our estimate of the total expected volume of products sold or services to be provided to the customer during the discount period. In certain contracts for the sale of CBF, we may agree to issue credits for the repurchase of reclaimable used fluids from certain customers at an agreed price that is based on the condition of the fluids. For sales of CBF, we adjust the revenue recognized in the period of shipment by the
estimated amount of the credit expected to be issued to the customer, and this estimate is based on historical
experience. As of March 31,September 30, 2019, the amount of remaining credits expected to be issued for the repurchase of reclaimable used fluids was $1.1$2.1 million that were recorded in inventory (right of return asset) and accounts payable. There were no material differences between amounts recognized during the three and nine month periodperiods ended March 31,September 30, 2019, compared to estimates made in a prior period from these variable consideration arrangements.
Contract Assets and Liabilities. Any We consider contract assets to be trade accounts receivable when we have an unconditional right to consideration and only the passage of time is required before payment is due. In certain instances, particularly those requiring customer specific documentation prior to invoicing, our invoicing of the customer is delayed until certain documentation requirements are met. In those cases, we recognize a contract asset rather than a billed trade accounts receivable until we are able to invoice the customer. Our contract asset balances, primarily associated with these documentation requirements, were $33.0 million and $44.2 million as of September 30, 2019 and December 31, 2018, respectively. Contract assets, along with billed and unbilledtrade accounts receivable, are included in trade accounts receivable in our consolidated balance sheets.
We classify contract liabilities as Unearned Incomeunearned income in our consolidated balance sheets. Such deferred revenue typically results from advance payments received on orders for new compressor equipment prior to the time such equipment is completed and transferred to the customer in accordance with the customer contract.New equipment sales orders generally take less than twelve months to build and deliver.
As of March 31, 2019 and December 31, 2018, contract assets were immaterial. The following table reflects the changes in our contract liabilities duringfor the threeperiods indicated:
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2019 | | 2018 |
| (In Thousands) |
Unearned Income, beginning of period | $ | 25,333 |
| | $ | 17,050 |
|
Additional unearned income | 106,744 |
| | 101,887 |
|
Revenue recognized | (105,486 | ) | | (82,050 | ) |
Unearned income, end of period | $ | 26,591 |
| | $ | 36,887 |
|
During the nine month period ended March 31, 2019:
|
| | | |
| March 31, 2019 |
| (In Thousands) |
Unearned Income, beginning of period | $ | 25,333 |
|
Additional unearned income | 49,363 |
|
Revenue recognized | (24,858 | ) |
Unearned income, end of period | $ | 49,838 |
|
During the three month period ended March 31,September 30, 2019, contract liabilities increased due to unearned income for consideration received on new compressor equipment being fabricated. During the three month period ended March 31, 2019, $24.9 million of unearned income waswe recognized asin product sales revenue primarily associated with deliveries of new compression equipment.$24.6 million from unearned income that was deferred as of December 31, 2018. During the nine months ended September 30, 2018, we recognized in product sales revenue of $16.2 million from unearned income that was deferred as of our adoption of ASC 606 on January 1, 2018.
Contract Costs. As of March 31,September 30, 2019, and March 31, 2018, contract costs were immaterial.
Disaggregation of Revenue. We disaggregate revenue from contracts with customers into Product Sales and Services within each segment, as noted in our three reportable segments in Note I. In addition, we disaggregate revenue from contracts with customers by geography based on the following table below.
|
| | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| (In Thousands) |
Completion Fluids & Products | | | | | | | |
U.S. | 31,480 |
| | 35,426 |
| | $ | 100,622 |
| | $ | 97,446 |
|
International | 27,860 |
| | 27,647 |
| | 100,066 |
| | 95,287 |
|
| 59,340 |
| | 63,073 |
| | 200,688 |
| | 192,733 |
|
Water & Flowback Services | | | | | | | |
U.S. | 68,052 |
| | 71,579 |
| | 209,663 |
| | 189,457 |
|
International | 4,789 |
| | 6,989 |
| | 14,980 |
| | 33,832 |
|
| 72,841 |
| | 78,568 |
| | 224,643 |
| | 223,289 |
|
Compression | | | | | | | |
U.S. | 105,153 |
| | 105,655 |
| | 324,792 |
| | 273,563 |
|
International | 8,613 |
| | 9,606 |
| | 28,348 |
| | 27,044 |
|
| 113,766 |
| | 115,261 |
| | 353,140 |
| | 300,607 |
|
Interdivision eliminations | | | | | | | |
U.S. | — |
| | 4 |
| | — |
| | 4 |
|
International | — |
| | (55 | ) | | — |
| | (329 | ) |
| — |
| | (51 | ) | | — |
| | (325 | ) |
Total Revenue | | | | | | | |
U.S. | 204,685 |
| | 212,664 |
| | 635,077 |
| | 560,470 |
|
International | 41,262 |
| | 44,187 |
| | 143,394 |
| | 155,834 |
|
| 245,947 |
| | 256,851 |
| | $ | 778,471 |
| | $ | 716,304 |
|
|
| | | | | | | |
| Three months ended March 31, |
| 2019 | | 2018 |
| (In Thousands) |
Completion Fluids & Products | | | |
U.S. | $ | 31,606 |
| | $ | 27,909 |
|
International | 29,975 |
| | 25,195 |
|
| 61,581 |
| | 53,104 |
|
Water & Flowback Services | | | |
U.S. | 73,199 |
| | 47,038 |
|
International | 5,479 |
| | 14,037 |
|
| 78,678 |
| | 61,075 |
|
Compression | | | |
U.S. | 93,517 |
| | 76,980 |
|
International | 9,952 |
| | 8,442 |
|
| 103,469 |
| | 85,422 |
|
Interdivision eliminations | | | |
U.S. | — |
| | 2 |
|
International | — |
| | (222 | ) |
| — |
| | (220 | ) |
Total Revenue | | | |
U.S. | 198,322 |
| | 151,929 |
|
International | 45,406 |
| | 47,452 |
|
| $ | 243,728 |
| | $ | 199,381 |
|
NOTE K – LEASES
We have operating leases for some of our transportation equipment, office space, warehouse space, operating locations, and machinery and equipment. We have finance leases for certain storage tanks and equipment rentals. These finance leases are not material to our financial statements. Our leases have remaining lease terms ranging from 1 to 16 years. Some of our leases have options to extend for various periods, while some have termination options with prior notice of generally 30 days or six months. The office space, warehouse space, operating location leases, and machinery and equipment leases generally require us to pay all maintenance and insurance costs. We do not have leases that have not yet commenced that create significant rights and obligations. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Variable rent expense was not material.
Our corporate headquarters facility located in The Woodlands, Texas, was sold on December 31, 2012, pursuant to a sale and leaseback transaction. As a condition to the consummation of the purchase and sale of the facility, the parties entered into a lease agreement for the facility having an initial lease term of 15 years, which is classified as an operating lease. Under the terms of the lease agreement, we have the ability to extend the lease for five successive five yearfive-year periods at base rental rates to be determined at the time of each extension.
Components of lease expense, included in either cost of revenues or general and administrative expense based on the use of the underlying asset, are as follows (inclusive of lease expense for leases not included on our consolidated balance sheet based on our accounting policy election to exclude leases with a term of 12 months or less):
| | | Three Months Ended March 31, 2019 | Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 |
| (In Thousands) | (In Thousands) |
Operating lease expense | $ | 5,044 |
| $ | 5,075 |
| | $ | 15,106 |
|
Short-term lease expense | 11,161 |
| 9,556 |
| | 30,269 |
|
Finance lease cost: | | |
Accumulated depreciation | 31 |
| |
Interest on lease liabilities | 3 |
| |
Total lease expense | $ | 16,239 |
| $ | 14,631 |
| | $ | 45,375 |
|
Supplemental cash flow information:
|
| | | | |
| | Nine Months Ended September 30, 2019 |
| | (In Thousands) |
Cash paid for amounts included in the measurement of lease liabilities: | | |
Operating cash flows - operating leases | | $ | 14,868 |
|
| | |
Right-of-use assets obtained in exchange for lease obligations: | | |
Operating leases | | $ | 7,631 |
|
|
| | | |
| Three Months Ended March 31, 2019 |
| (In Thousands) |
Cash paid for amounts included in the measurement of lease liabilities: | |
Operating cash flows - operating leases | $ | 4,657 |
|
Financing cash flows - finance leases | $ | 43 |
|
Operating cash flows - finance leases | $ | 3 |
|
| |
Right-of-use assets obtained in exchange for lease obligations: | |
Operating leases | $ | 3,257 |
|
Finance leases | $ | — |
|
Supplemental balance sheet information:
| | | March 31, 2019 | September 30, 2019 |
| (In Thousands) | (In Thousands) |
Operating leases: | | |
Operating lease right-of-use assets | $ | 60,149 |
| $ | 57,848 |
|
| | |
Accrued liabilities and other | $ | 12,659 |
| $ | 14,071 |
|
Operating lease liabilities | 49,632 |
| 45,993 |
|
Total operating lease liabilities | $ | 62,291 |
| $ | 60,064 |
|
| | |
Finance leases: | | |
Property, plant and equipment | $ | 875 |
| |
Accumulated depreciation | (664 | ) | |
Net property, plant and equipment | $ | 211 |
| |
| | |
Accrued liabilities and other | $ | 147 |
| |
Other liabilities | 48 |
| |
Total finance lease liabilities | $ | 195 |
| |
Additional operating and finance lease information:
|
| | |
| March 31,September 30, 2019 |
Weighted average remaining lease term: | |
Operating leases | 7 years6.60 Years |
|
Finance leases | 1 year |
|
| |
Weighted average discount rate: | |
Operating leases | 9.37 | % |
Finance leases | 5.809.39 | % |
Future minimum lease payments by year and in the aggregate, under non-cancelable finance and operating leases with terms in excess of one year consist of the following at March 31,September 30, 2019:
|
| | | | |
| | Operating Leases |
| (In Thousands) |
| | |
Remainder of 2019 | | $ | 4,870 |
|
2020 | | 17,721 |
|
2021 | | 12,798 |
|
2022 | | 9,591 |
|
2023 | | 7,871 |
|
Thereafter | | 29,440 |
|
Total lease payments | | 82,291 |
|
Less imputed interest | | (22,227 | ) |
Total lease liabilities | | $ | 60,064 |
|
|
| | | | | | | |
| Finance Leases | | Operating Leases |
| (In Thousands) |
| | | |
2019 | $ | 148 |
| | $ | 13,350 |
|
2020 | 33 |
| | 15,536 |
|
2021 | 17 |
| | 11,488 |
|
2022 | — |
| | 9,009 |
|
2023 | — |
| | 7,770 |
|
Thereafter | — |
| | 29,351 |
|
Total lease payments | 198 |
| | 86,504 |
|
Less imputed interest | (3 | ) | | (24,213 | ) |
Total lease liabilities | $ | 195 |
| | $ | 62,291 |
|
At March 31,September 30, 2019, future minimum rental receipts under a non-cancelable sublease for office space in one of our locations totaled $6.1$5.7 million. For the three and nine months ended March 31,September 30, 2019, we recognized sublease income of $0.2 million.millionand$0.7 million, respectively.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and accompanying notes included in this Quarterly Report.In addition, the following discussion and analysis also should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 4, 2019 ("2018 Annual Report"). This discussion includes forward-looking statements that involve certain risks and uncertainties. Business Overview
The growth in revenues for each of our divisions during theWe are a geographically diversified oil and gas services company, focused on completion fluids and associated products and services, water management, frac flowback, production well testing, and compression services and equipment. We operate through three months ended March 31, 2019, resulted in consolidated revenues increasing 22.2% compared to the corresponding prior year quarter. Ourreporting segments organized into three Divisions - Completion Fluids & Products, Water & Flowback Services, Division reported a 28.8% growth in revenues, primarily due to the impact of 2018 acquisition activity, including the impact from the February 2018 acquisition of SwiftWater Energy Services, LLC ("SwiftWater"), along with growth in our existing operations. Our Compression Division also reported strong growth, as continued high demandand Compression.
Demand for compression equipmentproducts and services reflected by a strong new equipment sales backlog and increased compression fleet utilization, resulted in a 21.1% increase in Compression Division revenues compared to the prior year quarter. Ourof our Completion Fluids & Products Division also reported increased revenues, a 16.0% increase compared to the prior year quarter, primarily due to increased international CBF product sales. Demand for many of our products and services remains stronghas remained fairly consistent despite continued volatility in pricing for oil and uncertainty in many of the markets where we operate, which affects the plans of many of our oil and gas operations customers. Consolidated gross profit increased, primarily due to improved Compression Division profitability, and despite continuing pricing and operating cost challenges in certain marketsRecent oil price volatility has particularly affected domestic onshore demand for our Water & Flowback Services Division services, resulting in increased customer contract pricing pressure. The construction of infrastructure to alleviate current takeaway capacity constraints that are limiting production and Completion Fluids & Productsnew drilling in the Permian Basin has continued to contribute to increased demand for compressor equipment and services through our Compression Division. ConsolidatedThis growth in demand continues to drive increases in interest expense and general and administrative costs, attributed to the overall growth in operations, partially offset the improved profitability during the three months ended March 31, 2019 compared to the prior year quarter.
Funding for the expected continuing growth in our operations remains a key focus. Consolidated capital expenditures and consolidated cash provided by operating activities during the three months ended March 31, 2019 both increased compared to the prior year quarter. Following the financing restructuring transactions completed during 2018, we have capacity under our term credit agreement (the “Term Credit Agreement”) and our asset-based lending credit agreement (the “ABL Credit Agreement”) to fund our growth capital expenditure plans, as well as potential acquisition transactions. These growth plans, particularly of our Water & Flowback Services Division, are designed to enable us to capitalize on the current demand for domestic onshore services that support hydraulic fracturing in unconventional oil and gas reservoirs. In addition, our Compression Division, through the separate capital structure of our CSI Compressco LP ("CCLP") subsidiary, expects to fund additional 2019 growth capital expenditures for new compression services equipmentrevenues, through $16.9 million of currently available cash as of March 31, 2019, expected operating cash flows,increased activity and through up to $15.0 million of new compression services equipment to be purchased by us, and leased to CCLP. These sources are expected to enable CCLP to meet its growth capital expenditure requirements without having to access available borrowings under its credit agreement (the "CCLP Credit Agreement") and without having to access the current debt and equity markets. customer contract pricing.
We and CCLP are aggressively managing our working capital and capital expenditure needs in order to maximize our liquidity in the current environment. The earliest maturity dateIn addition, we continue to review our expectations of the demand for the products and services we provide in each of the markets where we operate. We intend to manage our long-term debt is September 2023flexible cost structure to proactively respond to changing market conditions and the earliest maturity date of CCLP's long-term debt is August 2022.
Approximately $633.7 million of our consolidated debt balance carrying value is owed by CCLP, serviced by CCLP's existing cash balances and cash provided by CCLP's operations (less its capital expenditures), and $343.5 millionexecute on actions necessary to manage through these conditions, some of which is secured by certain assets of CCLP. The following table provides condensed consolidating balance sheet information reflecting TETRA's net assets and CCLP's net assets that service and secure TETRA's and CCLP's respective capital structures.
|
| | | | | | | | | | | | | | | |
| March 31, 2019 |
Condensed Consolidating Balance Sheet | TETRA | | CCLP | | Eliminations | | Consolidated |
| (In Thousands) |
Cash, excluding restricted cash | $ | 19,998 |
| | $ | 16,870 |
| | $ | — |
| | $ | 36,868 |
|
Affiliate receivables | 9,856 |
| | — |
| | (9,856 | ) | | — |
|
Other current assets | 233,774 |
| | 139,651 |
| | — |
| | 373,425 |
|
Property, plant and equipment, net | 210,898 |
| | 650,051 |
| | — |
| | 860,949 |
|
Long-term affiliate receivables | 2,402 |
| | — |
| | (2,402 | ) | | — |
|
Other assets, including investment in CCLP | 71,750 |
| | 43,297 |
| | 73,236 |
| | 188,283 |
|
Total assets | $ | 548,678 |
| | $ | 849,869 |
| | $ | 60,978 |
| | $ | 1,459,525 |
|
| | | | | | | |
Affiliate payables | $ | — |
| | $ | 9,856 |
| | $ | (9,856 | ) | | $ | — |
|
Other current liabilities | 102,643 |
| | 116,595 |
| | — |
| | 219,238 |
|
Long-term debt, net | 212,151 |
| | 633,692 |
| | — |
| | 845,843 |
|
CCLP Series A Preferred Units | — |
| | 20,890 |
| | (2,612 | ) | | 18,278 |
|
Warrants liability | 2,480 |
| | — |
| | — |
| | 2,480 |
|
Long-term affiliate payable | — |
| | 2,402 |
| | (2,402 | ) | | — |
|
Other non-current liabilities | 65,176 |
| | 8,400 |
| | — |
| | 73,576 |
|
Total equity | 166,228 |
| | 58,034 |
| | 75,848 |
| | 300,110 |
|
Total liabilities and equity | $ | 548,678 |
| | $ | 849,869 |
| | $ | 60,978 |
| | $ | 1,459,525 |
|
could result in impairments or restructuring charges in future periods.Critical Accounting Policies and Estimates
There have been no material changes or developments in the evaluation of the accounting estimates and
the underlying assumptions or methodologies pertaining to our Critical Accounting Policies and Estimates disclosed
in our 2018 Annual Report. In preparing our consolidated financial statements, we make assumptions, estimates, and judgments that affect the amounts reported. These judgments and estimates may change as new events occur,
as new information is acquired, and as changes in our operating environments are encountered. Actual results are likely to differ from our current estimates, and those differences may be material.
Results of Operations
Three months ended March 31,September 30, 2019 compared with three months ended March 31, 2018.September 30, 2018.
Consolidated Comparisons
| | | Three Months Ended March 31, | | Period to Period Change | Three Months Ended September 30, | | Period to Period Change |
| 2019 | | 2018 | | 2019 vs 2018 | | % Change | 2019 | | 2018 | | 2019 vs 2018 | | % Change |
| (In Thousands, Except Percentages) | (In Thousands, Except Percentages) |
Revenues | $ | 243,728 |
| | $ | 199,381 |
| | $ | 44,347 |
| | 22.2 | % | $ | 245,947 |
| | $ | 256,851 |
| | $ | (10,904 | ) | | (4.2 | )% |
Gross profit | 36,210 |
| | 27,983 |
| | 8,227 |
| | 29.4 | % | 44,960 |
| | 41,330 |
| | 3,630 |
| | 8.8 | % |
Gross profit as a percentage of revenue | 14.9 | % | | 14.0 | % | | |
| | |
| 18.3 | % | | 16.1 | % | | |
| | |
|
General and administrative expense | 34,277 |
| | 30,803 |
| | 3,474 |
| | 11.3 | % | 34,926 |
| | 34,446 |
| | 480 |
| | 1.4 | % |
General and administrative expense as a percentage of revenue | 14.1 | % | | 15.4 | % | | |
| | |
| 14.2 | % | | 13.4 | % | | |
| | |
|
Interest expense, net | 18,379 |
| | 14,973 |
| | 3,406 |
| | 22.7 | % | 18,146 |
| | 18,894 |
| | (748 | ) | | (4.0 | )% |
Warrants fair value adjustment (income) expense | 407 |
| | (1,994 | ) | | 2,401 |
| | | 78 |
| | (179 | ) | | 257 |
| | |
CCLP Series A Preferred Units fair value adjustment (income) expense | 1,163 |
| | 1,358 |
| | (195 | ) | | | — |
| | 498 |
| | (498 | ) | | |
Other (income) expense, net | (951 | ) | | 2,776 |
| | (3,727 | ) | | | (690 | ) | | 619 |
| | (1,309 | ) | | |
Loss before taxes and discontinued operations | (17,065 | ) | | (19,933 | ) | | 2,868 |
| | 14.4 | % | (7,500 | ) | | (12,948 | ) | | 5,448 |
| | 42.1 | % |
Loss before taxes and discontinued operations as a percentage of revenue | (7.0 | )% | | (10.0 | )% | | |
| | |
| (3.0 | )% | | (5.0 | )% | | |
| | |
|
Provision for income taxes | 1,609 |
| | 1,124 |
| | 485 |
| | | |
Provision (benefit) for income taxes | | 1,579 |
| | (96 | ) | | 1,675 |
| | |
Loss before discontinued operations | (18,674 | ) | | (21,057 | ) | | 2,383 |
| | | (9,079 | ) | | (12,852 | ) | | 3,773 |
| | |
Discontinued operations: | | | | | | | | | | | | | | |
Loss from discontinued operations (including 2018 loss on disposal of $31.5 million), net of taxes | (426 | ) | | (41,706 | ) | | 41,280 |
| | | |
Income (loss) from discontinued operations, net of taxes | | (9,130 | ) | | 796 |
| | (9,926 | ) | | |
Net loss | (19,100 | ) | | (62,763 | ) | | 43,663 |
| | | (18,209 | ) | | (12,056 | ) | | (6,153 | ) | | |
Loss attributable to noncontrolling interest | 8,262 |
| | 9,115 |
| | (853 | ) | | |
| 2,378 |
| | 5,120 |
| | (2,742 | ) | | |
|
Net loss attributable to TETRA stockholders | $ | (10,838 | ) | | $ | (53,648 | ) | | $ | 42,810 |
| | | |
Net income (loss) attributable to TETRA stockholders | | $ | (15,831 | ) | | $ | (6,936 | ) | | $ | (8,895 | ) | | |
Consolidated revenues during the current year quarter decreased compared to the prior year quarter due to decreases in product sales and activity. See Divisional Comparisons section below for additional discussion.
Consolidated gross profit during the firstcurrent year quarter of 2019 increased compared to the prior year quarter primarily due to increased gross profit from our Completion Fluids & Products and Compression Division andDivisions. This increase was partially offset, however, by the lower gross profit of our Water & Flowback Services Division revenues, which increased by $18.0 millionand $17.6 million, respectively. Our Compression Division reported increased revenues of $18.0 million, primarily dueDivision. Despite efforts to increased new compressor equipment sales activity. The increase in Water & Flowback Services Division revenues was primarily driven by increased activity in certain domestic and international markets andreduce operating costs whenever possible, the impact of a full quarter of SwiftWater, which was acquired on February 28, 2018. Our Completion Fluids & Products Division also reported increased revenues, primarily due to increased international product sales. See Divisional Comparisons section below for additional discussion.pricing pressures hampered profitability in certain markets.
Consolidated gross profitgeneral and administrative expenses increased during the current year quarter compared to the prior year quarter primarily due to the increased revenuesprovision for bad debt of our Compression Division$1.3 million, offset by decreased salary and our Completion Fluids & Products Division. The increased gross profit from these divisions more than offset the lower gross profitemployee expenses of our Water & Flowback Services Division, which experienced increased costs$0.6 million, decreased professional services fees of $0.1 million, and challenging customer pricing in competitive markets compared to the prior year quarter. Despite the improvement in activity levelsdecreased insurance and other general expenses of certain of our businesses, offshore U.S. Gulf of Mexico activity levels remain flat and the impact of pricing pressures continues to challenge profitability in certain onshore markets. Operating expenses reflect the increase in consolidated revenues, although we remain aggressive in managing operating costs and minimizing increased headcount, despite the increased operations.$0.2 million.
Consolidated general and administrative expenses increasedinterest expense, net, decreased during the current year quartercompared to the prior year quarter primarily due to $3.9 million of increased salary related expenses and $0.3 million of increased insurance and other general expenses,decreased Compression Division interest expense partially offset by $0.6 million of decreased professional services fees, and $0.2 million of decreased consulting and other expenses. Increased general and administrative expenses were driven primarily by our Compression and Water & Flowback Services Divisions. Due to the increased consolidated revenues discussed above, general and administrative expense as a percentage of revenues decreased compared to the prior year period.
Consolidated interest expense, net, increased in the current year quarter primarily due to Compression DivisionCorporate interest expense. Compression Division interest expense decreased due to the completion of the redemption of CCLP Preferred Units outstanding on August 8, 2019. Corporate interest expense increased due to higher CCLP outstanding debt balances and a higher interest rate on the CCLP Senior Secured Notes, a portion of the proceeds of which were used to repay the balance outstanding under the previous CCLP bank credit facility. Corporate interest expense also increased due to higher outstanding debt balancesadditional borrowings under the TETRA Term Credit Agreement and ABL Credit Agreement.Agreement during the current year period. Interest expense during 2019the current and 2018prior year quarters includes $1.0 million and $1.2$1.1 million, respectively, of finance cost amortization.
Consolidated other (income) expense, net, was $1.0$0.7 million of other income during the current year quarter compared to $2.8$0.6 million of other expense during the prior year quarter primarily due to $3.5$0.9 million of increased expense related to the unamortized deferred financing costs charged to earnings duringdecreased loan fees associated with new TETRA credit agreements in the prior year quarter as a resultand $1.3 million of the terminationdecreased foreign currency losses, offset by increased expense of the CCLP Bank Credit Facility. In addition, other income during the current year period includes $0.4 million associated with a redemption premium incurred in connection with the remeasurementredemption of CCLP Preferred Units for cash in the contingent purchase price consideration for the SwiftWater acquisition.current year quarter.
Our consolidated provision for income taxes during the first three months ofmonth period ended September 30, 2019 is primarily attributable to taxes in certain foreign jurisdictions and Texas gross margin taxes. Our consolidated effective tax rate for the three month period ended March 31,September 30, 2019 and March 31, 2018 of negative 9.4% and negative 5.6%, respectively,21.1% was primarily the result of losses generated in entities for which no related tax benefit has been recorded. The losses generated by these entities do not result in tax benefits due to offsetting valuation allowances being recorded against the related net deferred tax assets. We establish a valuation allowance to reduce the deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Included in our deferred tax assets are net operating loss carryforwards and tax credits that are available to offset future income tax liabilities in the U.S. as well as in certain foreign jurisdictions.
Divisional Comparisons
Completion Fluids & Products Division
| | | Three Months Ended March 31, | | Period to Period Change | Three Months Ended September 30, | | Period to Period Change |
| 2019 | | 2018 | | 2019 vs 2018 | | % Change | 2019 | | 2018 | | 2019 vs 2018 | | % Change |
| (In Thousands, Except Percentages) | (In Thousands, Except Percentages) |
Revenues | $ | 61,581 |
| | $ | 53,104 |
| | $ | 8,477 |
| | 16.0 | % | $ | 59,340 |
| | $ | 63,073 |
| | $ | (3,733 | ) | | (5.9 | )% |
Gross profit | 10,664 |
| | 6,686 |
| | 3,978 |
| | 59.5 | % | 16,181 |
| | 13,129 |
| | 3,052 |
| | 23.2 | % |
Gross profit as a percentage of revenue | 17.3 | % | | 12.6 | % | | |
| |
|
| 27.3 | % | | 20.8 | % | | |
| | |
|
General and administrative expense | 4,728 |
| | 4,640 |
| | 88 |
| | 1.9 | % | 4,865 |
| | 4,909 |
| | (44 | ) | | (0.9 | )% |
General and administrative expense as a percentage of revenue | 7.7 | % | | 8.7 | % | | |
| | |
| 8.2 | % | | 7.8 | % | | |
| | |
|
Interest (income) expense, net | (179 | ) | | (233 | ) | | 54 |
| | |
| (216 | ) | | (70 | ) | | (146 | ) | | |
|
Other (income) expense, net | (71 | ) | | (170 | ) | | 99 |
| | |
| 214 |
| | (423 | ) | | 637 |
| | |
|
Income before taxes | $ | 6,186 |
| | $ | 2,449 |
| | $ | 3,737 |
| | 152.6 | % | $ | 11,318 |
| | $ | 8,713 |
| | $ | 2,605 |
| | 29.9 | % |
Income before taxes as a percentage of revenue | 10.0 | % | | 4.6 | % | | |
| | |
| 19.1 | % | | 13.8 | % | | |
| | |
|
The increasedecrease in Completion Fluids & Products Division revenues during the current year quarter compared to the prior year quarter was primarily due to $6.3$2.6 million of decreased product sales revenue due to decreased CBF product and manufactured product sales. Additionally, service revenues decreased $1.1 milliondue to reduced activity in engineering and filtration services compared to the prior year quarter.
Completion Fluids & Products Division gross profit during the current year quarter increased compared to the prior year quarter despite decreased revenues primarily due to higher margins on sales of manufactured products as well as increased profitability associated with higher margin CBF products during the current year quarter when compared to the prior year quarter. Completion Fluids & Products Division profitability in future periods will continue to be affected by the mix of its products and services, including the timing of TETRA CS Neptune(R) completion fluid projects.
The Completion Fluids & Products Division reported an increase in pretax earnings during the current year quarter compared to the prior year quarter primarily due to increased gross profit discussed above. Completion Fluids & Products Division general and administrative expense levels remained flat compared to prior year quarter. Other expense increased primarily due to increased foreign currency losses.
Water & Flowback Services Division
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Period to Period Change |
| 2019 | | 2018 | | 2019 vs 2018 | | % Change |
| (In Thousands, Except Percentages) |
Revenues | $ | 72,841 |
| | $ | 78,568 |
| | $ | (5,727 | ) | | (7.3 | )% |
Gross profit | 8,236 |
| | 11,522 |
| | (3,286 | ) | | (28.5 | )% |
Gross profit as a percentage of revenue | 11.3 | % | | 14.7 | % | | |
| | |
|
General and administrative expense | 5,957 |
| | 5,919 |
| | 38 |
| | 0.6 | % |
General and administrative expense as a percentage of revenue | 8.2 | % | | 7.5 | % | | |
| | |
|
Interest (income) expense, net | (2 | ) | | 5 |
| | (7 | ) | | (140.0 | )% |
Other (income) expense, net | (297 | ) | | (211 | ) | | (86 | ) | | 40.8 | % |
Income before taxes | $ | 2,578 |
| | $ | 5,809 |
| | $ | (3,231 | ) | | (55.6 | )% |
Income before taxes as a percentage of revenue | 3.5 | % | | 7.4 | % | | |
| | |
|
Water & Flowback Services Division revenues decreased during the current year quarter primarily due to a reduction in commodity prices driving our customers' capital spending decisions and resulting in decreased activity and pricing levels when compared to prior year quarter.
The Water & Flowback Services Division reflected decreased gross profit during the current year quarter compared to the prior year quarter primarily due to the decreased revenues resulting from the decreased activity and pricing levels described above. In addition, our cost structure, specifically labor expense, does not always decrease proportionately with revenues due to a tight labor market for the services we provide.
The Water & Flowback Services Division reported decreased pretax income during the current year quarter compared to the prior year quarter primarily due to the reduction in gross profit described above. General and administrative expense levels remained flat compared to the prior year quarter. Other income increased as compared to prior year quarter due to increased foreign currency gains of $0.5 million and increased gains on the disposal of assets of $0.2 million, offset by decreased income of $0.6 million associated with the remeasurement of the contingent purchase price consideration for SwiftWater in the prior year.
Compression Division
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Period to Period Change |
| 2019 | | 2018 | | 2019 vs 2018 | | % Change |
| (In Thousands, Except Percentages) |
Revenues | $ | 113,766 |
| | $ | 115,261 |
| | $ | (1,495 | ) | | (1.3 | )% |
Gross profit | 20,710 |
| | 16,847 |
| | 3,863 |
| | 22.9 | % |
Gross profit as a percentage of revenue | 18.2 | % | | 14.6 | % | | |
| | |
|
General and administrative expense | 11,530 |
| | 10,580 |
| | 950 |
| | 9.0 | % |
General and administrative expense as a percentage of revenue | 10.1 | % | | 9.2 | % | | |
| | |
|
Interest expense, net | 12,869 |
| | 13,690 |
| | (821 | ) | | (6.0 | )% |
CCLP Series A Preferred fair value adjustment (income) expense | — |
| | 498 |
| | (498 | ) | | (100.0 | )% |
Other (income) expense, net | (225 | ) | | (77 | ) | | (148 | ) | | 192.2 | % |
Loss before taxes | $ | (3,464 | ) | | $ | (7,844 | ) | | $ | 4,380 |
| | 55.8 | % |
Loss before taxes as a percentage of revenue | (3.0 | )% | | (6.8 | )% | | |
| | |
|
Compression Division revenues decreased during the current year quarter compared to the prior year quarter primarily due to a $5.2 million decrease in product sales revenues, due to the timing of when customer projects were completed, partially offset with a $3.8 million increase in service revenues. This increase in service revenues was primarily due to increasing demand for compression services, which is also reflected by increased compression fleet utilization rates.
Compression Division gross profit increased during the current year quarter compared to the prior year quarter due to improved customer contract pricing, labor efficiencies, reduced maintenance costs, and improved inventory management.
The Compression Division recorded a decreased pretax loss during the current year quarter compared to the prior year quarter due to increased gross profit discussed above. Interest expense decreased compared to the prior year quarter, primarily due to the conversion and redemption of CCLP Preferred Units outstanding. General and administrative expense levels increased compared to the prior year quarter, primarily due to increased bad debt expense of $1.5 million mainly associated with the bankruptcy of a single customer, partially offset by decreased employee expenses of $0.9 million. The CCLP Preferred Units fair value adjustment resulted in a $0.5 million charge to earnings in the prior year period with no corresponding impact in the current year quarter, as the last remaining outstanding Preferred Units were redeemed for cash on August 8, 2019. Other (income) expense, net, reflected increased income primarily due to increased foreign currency gains of $0.5 million offset by $0.4 million of redemption premium incurred in connection with the redemption of the CCLP Preferred Units for cash.
Corporate Overhead
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Period to Period Change |
| 2019 | | 2018 | | 2019 vs 2018 | | % Change |
| (In Thousands, Except Percentages) |
Depreciation and amortization | $ | 167 |
| | $ | 172 |
| | $ | (5 | ) | | 2.9 | % |
General and administrative expense | 12,573 |
| | 13,037 |
| | (464 | ) | | (3.6 | )% |
Interest (income) expense, net | 5,495 |
| | 5,268 |
| | 227 |
| | |
|
Warrants fair value adjustment (income) expense | 78 |
| | (179 | ) | | 257 |
| | |
Other (income) expense, net | (382 | ) | | 1,333 |
| | (1,715 | ) | | (128.7 | )% |
Loss before taxes | $ | (17,931 | ) | | $ | (19,631 | ) | | $ | 1,700 |
| | 8.7 | % |
Corporate Overhead pretax loss decreased during the current year quarter compared to the prior year quarter, primarily due to decreased other expense and decreased general and administrative expense. Other expense, net, decreased primarily due to a $0.9 million decrease of debt issuance fees related to the ABL Credit Agreement and the new Term Credit Agreement that were entered into during the prior year quarter and decreased foreign currency losses of $0.7 million in the current year quarter compared to the prior year quarter. Corporate general and administrative expense decreased primarily due to decreased professional service fees of $0.6 million in the current year quarter compared to the prior year quarter. The fair value of the outstanding Warrants liability resulted in a $0.1 million charge to earnings during the current year quarter compared to a $0.2 million credit to earnings in the prior year quarter. Interest expense increased resulting from increased borrowings.
Results of Operations
Nine months ended September 30, 2019 compared with nine months ended September 30, 2018.
Consolidated Comparisons
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Period to Period Change |
| 2019 | | 2018 | | 2019 vs 2018 | | % Change |
| (In Thousands, Except Percentages) |
Revenues | $ | 778,471 |
| | $ | 716,304 |
| | $ | 62,167 |
| | 8.7 | % |
Gross profit | 129,536 |
| | 117,114 |
| | 12,422 |
| | 10.6 | % |
Gross profit as a percentage of revenue | 16.6 | % | | 16.3 | % | | |
| | |
|
General and administrative expense | 105,498 |
| | 98,866 |
| | 6,632 |
| | 6.7 | % |
General and administrative expense as a percentage of revenue | 13.6 | % | | 13.8 | % | | |
| | |
|
Interest expense, net | 55,054 |
| | 52,246 |
| | 2,808 |
| | 5.4 | % |
Warrants fair value adjustment (income) expense | (1,035 | ) | | 22 |
| | (1,057 | ) | | |
CCLP Series A Preferred Units fair value adjustment (income) expense | 1,309 |
| | 1,344 |
| | (35 | ) | | |
Other (income) expense, net | (1,014 | ) | | 7,203 |
| | (8,217 | ) | | |
Loss before taxes and discontinued operations | (30,276 | ) | | (42,567 | ) | | 12,291 |
| | 28.9 | % |
Loss before taxes and discontinued operations as a percentage of revenue | (3.9 | )% | | (5.9 | )% | | |
| | |
|
Provision (benefit) for income taxes | 5,678 |
| | 3,474 |
| | 2,204 |
| | |
Loss before discontinued operations | (35,954 | ) | | (46,041 | ) | | 10,087 |
| | |
Discontinued operations: | | | | | | | |
Income (loss) from discontinued operations (including 2018 loss on disposal of $33.8 million), net of taxes | (9,901 | ) | | (40,931 | ) | | 31,030 |
| | |
Net loss | (45,855 | ) | | (86,972 | ) | | 41,117 |
| | |
Loss attributable to noncontrolling interest | 12,273 |
| | 20,423 |
| | (8,150 | ) | | |
|
Net loss attributable to TETRA stockholders | $ | (33,582 | ) | | $ | (66,549 | ) | | $ | 32,967 |
| | |
Consolidated revenuesfor the current year period increased compared to the prior year period primarily due to increased Compression Division and Completion Fluids & Products Division revenues, which increased by $52.5 millionand $8.0 million, respectively. The increased revenues of the Compression Division were primarily due to increased new compressor equipment sales activity. The increase in revenues for the Completion Fluids & Products Division was primarily due to increased international product sales. See Divisional Comparisons section below for additional discussion.
Consolidated gross profit increased during the current year period compared to the prior year period primarily due to the increased profitability of our Compression Division and our Completion Fluids & Products Division. The increased gross profit from these divisions more than offset the lower gross profit of our Water & Flowback Services Division, which experienced increased costs and challenging customer pricing in competitive markets compared to the prior year period. Despite the improvement in activity levels of certain of our businesses, onshore and offshore U.S. Gulf of Mexico activity levels remain flat and the impact of pricing pressures continues to challenge profitability in certain markets. Operating expenses reflect the increase in consolidated revenues, although we remain aggressive in managing operating costs and minimizing increased headcount, despite the increased operations.
Consolidated general and administrative expenses increased during the current year periodcompared to the prior year period primarily due to increased salary related expenses of $6.0 million, inclusive of executive transition costs of $1.8 million, and increased bad debt expense of $1.9 million, offset by decreased consulting and other expenses of $0.8 million and decreased professional services fees of $0.4 million. Increased general and administrative expenses were driven primarily by our Compression and Corporate Divisions. Due to the increased consolidated revenues discussed above, general and administrative expense as a percentage of revenues decreased compared to the prior year period.
Consolidated interest expense, net, increased in the current year period primarily due to Corporate and Compression Division interest expense. Corporate interest expense increased due to additional borrowings under the TETRA Term Credit Agreement and ABL Credit Agreement in the current period. Compression Division interest expense increased due to higher CCLP outstanding debt balances and higher interest rates compared to the prior year period. Interest expense during the current year period and the prior year period includes $2.9 million and $3.2 million, respectively, of finance cost amortization.
Consolidated other (income) expense, net, was $1.0 million of income during the current year period compared to $7.2 million of expense during the prior year period. The decrease in expense is primarily due to $4.5 million of decreased expense associated with the remeasurement of the contingent purchase price consideration for the SwiftWater acquisition, $3.5 million decreased expense related to the unamortized deferred financing costs charged to earnings during the prior year period as a result of the termination of the CCLP Bank Credit Facility, and $1.0 million of decreased loan fees associated with new TETRA credit agreements that were issued in the prior year. These decreases were offset by increased expense of $1.5 million associated with a redemption premium incurred in connection with the redemption of CCLP Preferred Units for cash and increased foreign currency losses.
Our consolidated provision for income taxes for the current year period is primarily attributable to taxes in certain foreign jurisdictions and Texas gross margin taxes. Our consolidated effective tax rate for the nine month period ended September 30, 2019 of negative 18.8% was primarily the result of losses generated in entities for which no related tax benefit has been recorded. The losses generated by these entities do not result in tax benefits due to offsetting valuation allowances being recorded against the related net deferred tax assets. We establish a valuation allowance to reduce the deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Included in our deferred tax assets are net operating loss carryforwards and tax credits that are available to offset future income tax liabilities in the U.S. as well as in certain foreign jurisdictions.
Divisional Comparisons
Completion Fluids & Products Division
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Period to Period Change |
| 2019 | | 2018 | | 2019 vs 2018 | | % Change |
| (In Thousands, Except Percentages) |
Revenues | $ | 200,688 |
| | $ | 192,733 |
| | $ | 7,955 |
| | 4.1 | % |
Gross profit | 46,653 |
| | 34,211 |
| | 12,442 |
| | 36.4 | % |
Gross profit as a percentage of revenue | 23.2 | % | | 17.8 | % | | |
| |
|
|
General and administrative expense | 14,792 |
| | 14,011 |
| | 781 |
| | 5.6 | % |
General and administrative expense as a percentage of revenue | 7.4 | % | | 7.3 | % | | |
| | |
|
Interest (income) expense, net | (553 | ) | | (434 | ) | | (119 | ) | | |
|
Other (income) expense, net | 296 |
| | (509 | ) | | 805 |
| | |
|
Income before taxes | $ | 32,118 |
| | $ | 21,143 |
| | $ | 10,975 |
| | 51.9 | % |
Income before taxes as a percentage of revenue | 16.0 | % | | 11.0 | % | | |
| | |
|
The increase in Completion Fluids & Products Division revenues during the current year period compared to the prior year period was primarily due to $4.2 million of increased product sales revenue primarily due to increased international CBF product sales and domestic manufactured products sales, partially offset by reduced CBF product sales revenues in the U.S. Gulf of Mexico. Additionally, service revenues increased$2.23.8 million, primarily due to increased international completion services activity. Offshore U.S. Gulf of Mexico activity levels remain challenged, and the impact of pricing pressures continues to hamper profitability.
Completion Fluids & Products Division gross profit during the current year quarterperiod increased significantly compared to the prior year quarterperiod primarily due to the profitability associated with the increased manufactured products and international CBF sales revenues. Gross profit was negatively affected by approximately $0.7 million of costs associated with a damaged manufactured products facility, a portion of which is expected to be reimbursed from insurance proceeds in future periods. Completion Fluids & Products Division profitability in future periods will be affected by the mix of its products and services, including the timing of TETRA CS Neptune completion fluid projects.
The Completion Fluids & Products Division reported a significant increase in pretax earnings during the current year quarterperiod compared to the prior year quarterperiod due to the increase in gross profit discussed above .above. Completion Fluids & Products Division administrative cost levels remained levelincreased compared to the prior year period, as $0.4 million of increased legal and professional fees and $0.2of $0.7 million ofand increased general expenses of $0.5 million were partially offset by $0.5 million of decreased salary and employee related expenses and $0.1 million of decreased bad debt expense.and other sales and marketing expenses of $0.4 million.
Water & Flowback Services Division
| | | Three Months Ended March 31, | | Period to Period Change | Nine Months Ended September 30, | | Period to Period Change |
| 2019 | | 2018 | | 2019 vs 2018 | | % Change | 2019 | | 2018 | | 2019 vs 2018 | | % Change |
| (In Thousands, Except Percentages) | (In Thousands, Except Percentages) |
Revenues | $ | 78,678 |
| | $ | 61,075 |
| | $ | 17,603 |
| | 28.8 | % | $ | 224,643 |
| | $ | 223,289 |
| | $ | 1,354 |
| | 0.6 | % |
Gross profit | 8,851 |
| | 11,404 |
| | (2,553 | ) | | (22.4 | )% | 24,577 |
| | 41,556 |
| | (16,979 | ) | | (40.9 | )% |
Gross profit as a percentage of revenue | 11.2 | % | | 18.7 | % | | |
| | |
| 10.9 | % | | 18.6 | % | | |
| | |
|
General and administrative expense | 6,796 |
| | 5,278 |
| | 1,518 |
| | 28.8 | % | 18,528 |
| | 17,641 |
| | 887 |
| | 5.0 | % |
General and administrative expense as a percentage of revenue | 8.6 | % | | 8.6 | % | | |
| | |
| 8.2 | % | | 7.9 | % | | |
| | |
|
Interest (income) expense, net | 4 |
| | (15 | ) | | 19 |
| | |
| (6 | ) | | (10 | ) | | 4 |
| | (40.0 | )% |
Other (income) expense, net | (180 | ) | | (407 | ) | | 227 |
| | |
| (1,214 | ) | | 3,257 |
| | (4,471 | ) | | (137.3 | )% |
Income before taxes | $ | 2,231 |
| | $ | 6,548 |
| | $ | (4,317 | ) | | 65.9 | % | $ | 7,269 |
| | $ | 20,668 |
| | $ | (13,399 | ) | | 64.8 | % |
Income before taxes as a percentage of revenue | 2.8 | % | | 10.7 | % | | |
| | |
| 3.2 | % | | 9.3 | % | | |
| | |
|
Water & Flowback Services Division revenues increased slightly during the current year quarterperiod compared to the prior year quarterperiod due to increased water management services activity. Water management and flowback services revenues increased $18.5$2.1 million during the current year quarterperiod compared to the prior year quarterperiod primarily resulting from the impact of a full quarternine months of revenues from SwiftWater, which was acquired on February 28, 2018, and the impact of the December 2018 acquisition of JRGO, and increased demand in completion activity.JRGO. Product sales revenue decreased by $0.9$0.8 million, due to andecreased international equipment sale in the prior period.sales activity.
The Water & Flowback Services Division reflected decreased gross profit during the current year quarterperiod compared to the prior year quarter,period, despite increased revenues, due to a shift in revenue mix away from smaller, capital constrained customers towards larger operators with stronger balance sheets. The costs to demobilize from one customer to mobilize for another within the same quarterly period had a meaningful impact on profitability. In addition, we reflected decreased revenues and profit from certain high-margin projects performed during the prior year period. We also experienced high maintenance costs on our flowback service equipment following the significant activity experienced in the fourth quarter of 2018, which was our highest flowback service revenue quarter in over three years.
The Water & Flowback Services Division reported decreased pretax income compared to the prior year quarter,period, primarily due to the decrease in gross profit described above. General and administrative expenses increased primarily due to the $1.1increased bad debt expense of $0.5 million, impact from additional administrative expenses from the operations added as a result of the 2018 acquisitions. Total general and administrative increases included increased wage and benefit related expenses of $1.1 million, increased sales and marketing expenses of $0.4 million, and increased general expenses of $0.1$0.2 million, offset by decreased professional fees of $0.1$0.3 million. OtherThe Water & Flowback Services Division reported other income, net, decreased during the current year period despite $0.4compared to other expense during the prior year period primarily due to $0.8 million of current year period income associated with the remeasurement of the contingent purchase price consideration for SwiftWater primarily duecompared to increased foreign currency losses.a corresponding $3.7 million expense during the prior year period.
Compression Division
| | | Three Months Ended March 31, | | Period to Period Change | Nine Months Ended September 30, | | Period to Period Change |
| 2019 | | 2018 | | 2019 vs 2018 | | % Change | 2019 | | 2018 | | 2019 vs 2018 | | % Change |
| (In Thousands, Except Percentages) | (In Thousands, Except Percentages) |
Revenues | $ | 103,469 |
| | $ | 85,422 |
| | $ | 18,047 |
| | 21.1 | % | $ | 353,140 |
| | $ | 300,607 |
| | $ | 52,533 |
| | 17.5 | % |
Gross profit | 16,859 |
| | 10,040 |
| | 6,819 |
| | 67.9 | % | 58,804 |
| | 41,820 |
| | 16,984 |
| | 40.6 | % |
Gross profit as a percentage of revenue | 16.3 | % | | 11.8 | % | | |
| | |
| 16.7 | % | | 13.9 | % | | |
| | |
|
General and administrative expense | 10,664 |
| | 8,286 |
| | 2,378 |
| | 28.7 | % | 33,166 |
| | 29,708 |
| | 3,458 |
| | 11.6 | % |
General and administrative expense as a percentage of revenue | 10.3 | % | | 9.7 | % | | |
| | |
| 9.4 | % | | 9.9 | % | | |
| | |
|
Interest expense, net | 13,213 |
| | 11,214 |
| | 1,999 |
| | |
| 39,079 |
| | 38,538 |
| | 541 |
| | 1.4 | % |
CCLP Series A Preferred fair value adjustment | 1,163 |
| | 1,358 |
| | (195 | ) | | | |
CCLP Series A Preferred fair value adjustment (income) expense | | 1,309 |
| | 1,344 |
| | (35 | ) | | (2.6 | )% |
Other (income) expense, net | (380 | ) | | 3,200 |
| | (3,580 | ) | | |
| (2 | ) | | 2,747 |
| | (2,749 | ) | | (100.1 | )% |
Loss before taxes | $ | (7,801 | ) | | $ | (14,018 | ) | | $ | 6,217 |
| | 44.4 | % | $ | (14,748 | ) | | $ | (30,517 | ) | | $ | 15,769 |
| | 51.7 | % |
Loss before taxes as a percentage of revenue | (7.5 | )% | | (16.4 | )% | | |
| | |
| (4.2 | )% | | (10.2 | )% | | |
| | |
|
Compression Division revenues increased during the current year quarterperiod compared to the prior year quarter, primarilyperiod due to a $10.4$32.0 million increase in product sales revenues due to improving demand.and a $20.6 million increase in service revenues from compression and aftermarket services operations. Demand for new compressor equipment remains strong, andalthough the current equipment sales backlog has decreased only slightly compared to the prior year quarter, despiteperiod, due to significant sales recorded.orders recorded in the prior year period. Changes in our new equipment sales backlog are a function of additional customer orders less completed orders that result in equipment sales revenues. In addition, current year revenues reflect a $7.6 million increase in service revenues from compression and aftermarket services operations. ThisThe increase in service revenues was primarily due to increasing demand for compression services, as reflected by increased compressorcompression fleet utilization rates. Overall utilization of the Compression Division's compressorcompression fleet has improved sequentially for the past two year period, led by increased utilization of the high- and medium-horsepower fleet.
Compression Division gross profit increased during the current year period compared to the prior year due to increased revenues discussed above. This increase was despite a $3.3 million charge for the impairment and other charges on certain low-horsepower compressor equipment and associated inventory and damage caused by fire to a certain compressor package during the current year period. The increased compressorcompression fleet utilization rates have led to increases in customer contract pricing.
The Compression Division recorded a decreasedless pretax loss in the current year period compared to the prior year period primarily due to the increased gross profit discussed above. Interest expense increased compared to the prior year period due to higher CCLP outstanding CCLP debt balances and a higher interest rate fromon the CCLP Senior Secured Notes, issued in March 2018, when compareda portion of the proceeds of which were used to repay the balance outstanding under the previous CCLP bank credit facility. General and administrative expense levels increased compared to the prior year period, due to increased bad debt expense of $1.5 million andincreased salary and employee-related expenses, including the impact of increased headcount, incentives and equity compensation of $2.1$1.3 million, and increased otherprofessional services of $0.9 million. These increases were offset by decreased general expenses of $0.3$0.2 million. In addition, other expense decreased $2.7 million offset by $0.1 million of decreased sales and marketing expenses. Largely offsetting the increase in general and administrative and interest expense,compared to prior year otherperiod. This decrease in expense net, reflectedis primarily due to $3.5 million of unamortized deferred financing costs charged to earningsother expense as a result of the termination of the previous CCLP bank credit facility. In addition, the Series A Preferred fair value adjustment resulted in a $1.2 million charge to earnings during the current year period compared to a $1.4 million charge to earningsagreement in the prior year period.period and decreased foreign currency losses of $0.6 million. These decreases in expense were offset by increased expense of $1.5 million of redemption premium incurred in connection with the redemption of CCLP Preferred Units for cash. The last remaining outstanding CCLP Preferred Units were redeemed for cash on August 8, 2019.
Corporate Overhead
| | | Three Months Ended March 31, | | Period to Period Change | Nine Months Ended September 30, | | Period to Period Change |
| 2019 | | 2018 | | 2019 vs 2018 | | % Change | 2019 | | 2018 | | 2019 vs 2018 | | % Change |
| (In Thousands, Except Percentages) | (In Thousands, Except Percentages) |
Gross profit (loss) (depreciation expense) | $ | (168 | ) | | $ | (151 | ) | | $ | (17 | ) | | (11.3 | )% | |
Depreciation and amortization | | $ | 507 |
| | $ | 487 |
| | $ | 20 |
| | (4.1 | )% |
General and administrative expense | 12,089 |
| | 12,598 |
| | (509 | ) | | (4.0 | )% | 39,012 |
| | 37,506 |
| | 1,506 |
| | 4.0 | % |
Interest expense, net | 5,342 |
| | 4,007 |
| | 1,335 |
| | |
| 16,533 |
| | 14,152 |
| | 2,381 |
| | 17.7 | % |
Warrants fair value adjustment (income)/expense | 407 |
| | (1,994 | ) | | 2,401 |
| | | |
Warrants fair value adjustment (income) expense | | (1,035 | ) | | 22 |
| | (1,057 | ) | | |
Other (income) expense, net | (319 | ) | | 150 |
| | (469 | ) | | |
| (96 | ) | | 1,703 |
| | (1,799 | ) | | |
|
Loss before taxes | $ | (17,687 | ) | | $ | (14,912 | ) | | $ | (2,775 | ) | | (18.6 | )% | $ | (54,921 | ) | | $ | (53,870 | ) | | $ | (1,051 | ) | | (2.0 | )% |
Corporate Overhead pretax loss increased during the current year period compared to the prior year quarter,period primarily due to the adjustmentincreased interest expense resulting from increased borrowings. Corporate general and administrative expense increased primarily due to increased salary related expense of the$4.4 million, which included $1.8 million of executive transition costs. This increase was offset by $1.7 million of decreased professional fees, $0.5 million of decreased general expenses, and $0.6 million of decreased consulting fees. The fair value of the outstanding Warrants liability that resulted in a $0.4$1.0 million chargecredit to earnings compared to an $2.0 million credit$22,000 charge to earnings during the prior year quarter. Corporate general and administrative expense decreased primarily due to $0.9 million of decreased professional fees, $0.4 million of decreased general expenses, and $0.5 million of decreased consulting fees. These decreases were offset by increased salary related expense of $1.1 million.period. In addition, other income of $0.3$0.1 million was recorded during the current year quarter,period, compared to $0.2$1.7 million of expense during the prior year quarter,period primarily dueassociated with debt issuance fees related to increasedthe new ABL Credit Agreement and the new Term Credit Agreement entered into in the prior year period and foreign currency gains.losses.
Liquidity and Capital Resources
We believe that the capital structure steps we have taken during the past three years continue to support our ability to meet our financial obligations and fund future growth as needed, despite current uncertain operating conditions and financial markets. As of March 31,September 30, 2019, we and CCLP are in compliance with all covenants of our respective debt agreements. Information about the terms and covenants of debt agreements can be found in our 2018 Annual Report.
Because of the level of consolidated debt, we believe it is important to consider our capital structure and CCLP's capital structure separately, as there are no cross default provisions, cross collateralization provisions, or cross guarantees between CCLP's debt and TETRA's debt. Our consolidated debt outstanding has a carrying value of approximately $845.8$858.3 million as of March 31,September 30, 2019. However, approximately $633.7$645.6 million of this consolidated debt balance is owed by CCLP and is serviced from the existing cash balances and cash flows of CCLP, and $354.5 million of which is secured by certain of CCLP's assets. Through our common unit ownership interest in CCLP, which was approximately 34% as of March 31,September 30, 2019, and ownership of an approximately 1%approximate 1.4% general partner interest, we receive our share of the distributable cash flows of CCLP through its quarterly cash distributions. Approximately $16.9$15.3 million of the $36.9$35.9 million of the cash balance reflected on our consolidated balance sheet is owned by CCLP and is not accessible by us. The following table provides condensed consolidating balance sheet information reflecting TETRA's net assets and CCLP's net assets that service and secure TETRA's and CCLP's respective capital structures.
|
| | | | | | | | | | | | | | | |
| September 30, 2019 |
Condensed Consolidating Balance Sheet | TETRA | | CCLP | | Eliminations | | Consolidated |
| (In Thousands) |
Cash, excluding restricted cash | $ | 20,642 |
| | $ | 15,276 |
| | $ | — |
| | $ | 35,918 |
|
Affiliate receivables | 11,659 |
| | — |
| | (11,659 | ) | | — |
|
Other current assets | 197,790 |
| | 137,424 |
| | — |
| | 335,214 |
|
Property, plant and equipment, net | 206,600 |
| | 654,792 |
| | — |
| | 861,392 |
|
Long-term affiliate receivables | 13,270 |
| | — |
| | (13,270 | ) | | — |
|
Other assets, including investment in CCLP | 62,037 |
| | 42,437 |
| | 78,702 |
| | 183,176 |
|
Total assets | $ | 511,998 |
| | $ | 849,929 |
| | $ | 53,773 |
| | $ | 1,415,700 |
|
| | | | | | | |
Affiliate payables | $ | — |
| | $ | 11,659 |
| | $ | (11,659 | ) | | $ | — |
|
Other current liabilities | 91,720 |
| | 121,352 |
| | — |
| | 213,072 |
|
Long-term debt, net | 212,697 |
| | 645,575 |
| | — |
| | 858,272 |
|
CCLP Series A Preferred Units | — |
| | — |
| | — |
| | — |
|
Warrants liability | 1,038 |
| | — |
| | — |
| | 1,038 |
|
Long-term affiliate payable | — |
| | 13,270 |
| | (13,270 | ) | | — |
|
Other non-current liabilities | 62,741 |
| | 7,049 |
| | — |
| | 69,790 |
|
Total equity | 143,802 |
| | 51,024 |
| | 78,702 |
| | 273,528 |
|
Total liabilities and equity | $ | 511,998 |
| | $ | 849,929 |
| | $ | 53,773 |
| | $ | 1,415,700 |
|
As of March 31,September 30, 2019, subject to compliance with the covenants, borrowing base, and other provisions of the agreement that may limit borrowings, we had $27.3$41.6 million of availability under the ABL Credit Agreement. As of March 31,September 30, 2019, and subject to compliance with the covenants, borrowing base, and other provisions of the agreement that may limit borrowings under the CCLP Credit Agreement, CCLP had availability of $18.4$7.8 million.
Our consolidated sources and uses(uses) of cash during the threenine months ended March 31,September 30, 2019 and 2018 are as follows:
| | | Three months ended March 31, | Nine months ended September 30, |
| 2019 | | 2018 | 2019 | | 2018 |
| (In Thousands) | (In Thousands) |
Operating activities | $ | 7,412 |
| | $ | (31,261 | ) | $ | 84,982 |
| | $ | 1,633 |
|
Investing activities | (31,726 | ) | | (67,551 | ) | (99,954 | ) | | (145,480 | ) |
Financing activities | 21,312 |
| | 185,610 |
| 11,455 |
| | 170,608 |
|
Operating Activities
Consolidated cash flowsincreased provided by $38.7operating activitiesincreasedby $83.3 million. CCLP generated $31.6$67.8 million of our consolidated cash flows provided by operating activities during the threenine months ended March 31,September 30, 2019 compared to $0.4$6.5 million during the prior year period. Operating cash flows increased due to improved operating profitability and due to minimizing the use of cash for working capital changes,management, particularly related to the management of inventory levels, collections of accounts receivable, and the timing of payments of accounts payable. We have taken steps to aggressively manage working capital, including increased collection efforts. We continue to monitor customer credit risk in the current environment and have historically focusedfocus on serving larger capitalized oil and gas operators and national oil companies.
Investing Activities
Total cashcapital expenditures during the first threenine months of 2019 were $32.4$89.2 million. Our Completion Fluids & Products Division spent $1.5$5.2 million on capital expenditures, during the first three months of 2019, the majority of which related to plant and facility additions. Our Water & Flowback Services Division spent $7.6$22.4 million
on capital expenditures, primarily to add to its water management equipment fleet. Our Compression Division spent $23.3$61.3 million, primarily for growth capital expenditure projects to increase its compression fleet.
Generally, a majority of our planned capital expenditures has been related to identified opportunities to grow and expand certain of our existing businesses. However, certain of these planned expenditures have been,
and may continue to be, postponed or canceled as we are reviewing all capital expenditure plans carefully in an effort to conserve cash. We currently have no long-term capital expenditure commitments. The deferral of capital projects could affect our ability to expand our operations in the future. Excluding our Compression Division, we expect to spend approximately $25.0 million to $35.0$30.0 million during 2019 on capital expenditures, primarily to expand our Water & Flowback Services Division equipment fleet.
Our Compression Division expects to spend approximately $75.0$80.0 million to $80.0$85.0 million on capital expenditures during 2019 primarily to expand its compressorcompression fleet in response to increased demand for compression services. Our Compression Division, through the separate capital structure of CCLP, expects to fund 2019 growth capital expenditures for new compression services equipment through CCLP available cash, operating cash flows, and up to $15.0 million of new compression services equipment that is being purchased by us, and leased to CCLP. Approximately $14.6 million of the $15.0 million has been funded as of September 30, 2019.
If the forecasted demand for our products and services during 2019 increases or decreases, the amount of planned expenditures on growth and expansion may be adjusted.
Financing Activities
During the first threenine months of 2019, the total amount of consolidated cash provided by financing activities was $21.3$11.5 million, consisting primarily of the use of available funds providedborrowings under our ABL Credit Agreement and our Term Credit Agreement. We and CCLP may supplement our existing cash balances and cash flow from operating activities with short-term borrowings, long-term borrowings, leases, issuances of equity and debt securities, and other sources of capital. CCLP expects to meet its growth capital expenditure requirements during the remainder of 2019 without having to access additional available borrowings under its credit agreement (the "CCLP Credit Agreement") and without having to access the current debt and equity markets. CCLP may also seek to expand its compression fleet through finance or operating leases with third parties. We and CCLP are aggressively managing our working capital and capital expenditure needs in order to maximize our liquidity in the current environment.
TETRA Long-Term Debt
Asset-Based Credit Agreement. The ABL Credit Agreement provides for a senior secured revolving credit facility of up to $100 million, subject to a borrowing base to be determined by reference to the value of TETRA’s and any other borrowers’ inventory and accounts receivable, and contains within the facility a letter of credit sublimit of $20.0 million and a swingline loan sublimit of $10.0 million. The ABL Credit Agreement is scheduled to mature on September 10, 2023. As of May 9,November 6, 2019, we have $26.9$27.0 million outstanding under our ABL Credit Agreement and $8.9$6.8 million letters of credit.credit, resulting in $30.0 million of availability.
Term Credit Agreement. The Term Credit Agreement provides for an initial loan in the amount of $200 million and the availability of additional loans, subject to the terms of the Term Credit Agreement, up to an aggregate amount of $75 million. The Term Credit Agreement is scheduled to mature on September 10, 2025. As of May 9,November 6, 2019, $220.5 million in aggregate principal amount of our Term Credit Agreement is outstanding.
CCLP Financing Activities
CCLP Preferred Units. The CCLP Preferred Units rank senior to all classes or series of equity securities of CCLP with respect to distribution rights and rights upon liquidation. We and the other holders of CCLP Preferred Units receive quarterly distributions, which are paid in kind in additional CCLP Preferred Units, equal to an annual rate of 11.00% of the Issue Price ($1.2573 per unit annualized) of the outstanding CCLP Preferred Units, subject to certain adjustments.
Unless otherwise redeemed for cash, a ratable portion of the CCLP Preferred Units has been, and will be, converted into CCLP common units on the eighth day of each month over a period of thirty months that began in March 2017 and will end in August 2019 (each, a “Conversion Date”). Beginning with theIn January 2019, Conversion Date, CCLP elected to redeembegan redeeming the remaining CCLP Preferred Units for cash, resulting in 783,0462,660,569 Preferred Units being redeemed during the threenine months ended March 31,September 30, 2019 for $9.4$31.9 million, which includes approximately $0.4$1.5 million of redemption premium that was paid. IncludingThe last redemption of the impact of paid in kind distributions ofremaining outstanding CCLP Preferred Units, and conversionsalong with a final cash payment made in lieu of CCLPpaid-in-kind Preferred Units into CCLP common units, and the redemption of CCLP Preferred Units for cash, the total number of CCLP Preferred Units outstanding as of March 31, 2019 was 1,779,417, of which we held 223,474.occurred on August 8, 2019.
CCLP Bank Credit Facilities. The CCLP Credit Agreement, as amended, includes a maximum credit commitment of $50.0 million available for loans, letters of credit (with a sublimit of $25.0 million) and swingline loans (with a sublimit of $5.0 million), subject to a borrowing base to be determined by reference to the value of CCLP’s and any other borrowers’ accounts receivable.receivable and the value of certain CCLP inventory. Such maximum credit commitment may be increased by $25.0 million in accordance with the terms and conditions of the CCLP Credit Agreement. As of March 31,September 30, 2019, CCLP had no
$11.5 million outstanding balance and had $3.5$3.0 million in letters of credit against the CCLP Credit Agreement. The CCLP Credit Agreement is scheduled to mature on June 29, 2023. As of May 8,November 5, 2019, CCLP has no$5.5 million balance outstanding under the CCLP Credit Agreement and $5.3
$3.1 million in letters of credit.credit, resulting in $14.4 million of availability, reflecting recent increases to the borrowing base.
CCLP Senior Secured Notes. As of May 8,November 5, 2019, $350.0 million in aggregate principal was outstanding. The CCLP Senior Secured Notes accrue interest at a rate of 7.50% per annum and are scheduled to mature on April 1, 2025.
CCLP Senior Notes. As of May 8,November 5, 2019, $295.9 million in aggregate principal amount was outstanding. The CCLP Senior Notes accrue interest at a rate of 7.25% per annum and are scheduled to mature on August 15, 2022.
Other Sources and Uses
In addition to the various aforementioned credit facilities and senior notes, we and CCLP fund our respective short-term liquidity requirements primarily from cash generated by our respective operations leases, and from short-term vendor financing. Should additional capital be required, we believe that we have the ability to raise such capital through the issuance of additional debt or equity securities. However, instabilitysecurities may currently be limited. Instability or volatility in the capital markets at the times we need to access capital may also affect the cost of capital and the ability to raise capital for an indeterminable length of time. If it is necessary to issue additional equity to fund our capital needs, additional dilution to our common stockholders will occur.
On April 11, 2019, we filed a universal shelf Registration Statement on Form S-3 with the SEC. On May 1, 2019, the Registration Statement on Form S-3 was declared effective by the SEC. Pursuant to this registration statement, we have the ability to sell debt or equity securities in one or more public offerings up to an aggregate public offering price of $464.1 million, inclusive of $64.1 million of our common stock issuable upon conversion of our currently outstanding warrants. This shelf registration statement currently provides us additional flexibility with regard to potential financings that we may undertake when market conditions permit or our financial condition may require.
The Second Amended and Restated Partnership Agreement of CCLP requires that within 45 days after the end of each quarter, CCLP distribute all of its available cash, as defined in the Second Amended and Restated Partnership Agreement, to its common unitholders of record on the applicable record date. During the threenine months ended March 31,September 30, 2019, CCLP distributed $0.5$1.4 million in cash, including $0.3$0.9 million to its public unitholders, reflecting the reduction in quarterly distributions announced previously by CCLP in December 2018. There can be no assurance that quarterly distributions from CCLP will increase from this amount per unit going forward.
Off Balance Sheet Arrangements
As of March 31,September 30, 2019, we had no “off balance sheet arrangements” that may have a current or future material effect on our consolidated financial condition or results of operations.
Recently Adopted Accounting Guidance
We adopted the new lease accounting standard on January 1, 2019. The new lease standard had a material impact to our consolidated financial statements, resulting from the inclusion of operating lease right-of-use assets and operating lease liabilities in our consolidated balance sheet. Refer to Part I, Item 1. Financial Statements- Note A - "Organization, Basis of Presentation and Significant Accounting Policies" and Note K - “Leases” for further discussion.
Commitments and Contingencies
Litigation
We are named defendants in several lawsuits and respondents in certain governmental proceedings arising in the ordinary course of business. While the outcome of lawsuits or other proceedings against us cannot be predicted with certainty, management does not consider it reasonably possible that a loss resulting from such lawsuits or other proceedings in excess of any amounts accrued has been incurred that is expected to have a material adverse impact on our financial condition, results of operations, or liquidity.
Contingencies of Discontinued Operations
During 2011, in connection with the sale of a significant majority of Maritech's oil and gas producing properties, the buyers of the properties assumed the associated decommissioning liabilities pursuant to the purchase and sale agreements. To the extent that a buyer of these properties fails to perform the abandonment and decommissioning work required, a previous owner, including Maritech, may be required to perform the abandonment and decommissioning obligation. As the former parent company of Maritech, we also may be responsible for performing these abandonment and decommissioning obligations. In Marchearly 2018, we closed the Maritech Asset Purchase Agreement with Orinoco Natural Resources, LLC ("Orinoco") that provided for the purchase by Orinoco of Maritech's remaining oil and gas properties and related assets. Also in early 2018, we closed the Maritech Membership Interest Purchase Agreement with Orinoco that provided for the purchase by Orinoco of the Maritech Properties. Also in March 2018, we finalized the Maritech Equity Purchase Agreement with Orinoco that provided for the purchase by Orinocoall of the Maritech Equity Interests.outstanding membership interests in Maritech. As a result of these transactions, we have effectively exited the businessesbusiness of our Maritech segment andsegment.
Under the Maritech Asset Purchase Agreement, Orinoco assumed all of Maritech's remaining abandonmentMaritech’s decommissioning liabilities related to the leases sold to Orinoco (the “Orinoco Lease Liabilities”) and, under the Maritech Membership Interest Purchase Agreement, Orinoco assumed all other liabilities of Maritech, including the decommissioning obligations.liabilities associated with the oil and gas properties previously sold by Maritech (the “Legacy Liabilities”), subject to certain limited exceptions unrelated to the decommissioning liabilities. To the extent that Maritech or Orinoco fails to satisfy decommissioning liabilities associated with any of the Orinoco Lease Liabilities or the Legacy Liabilities, we may be required to satisfy such liabilities under third party indemnity agreements and corporate guarantees that we previously provided to the US Department of the Interior and other parties, respectively.
Pursuant to a Bonding Agreement entered into as part of these transactions (the "Bonding Agreement"), Orinoco provided non-revocable performance bonds in an aggregate amount of $46.8 million to cover the performance by Orinoco and Maritech of the asset retirement obligations of Maritech (the “Initial Bonds”) and agreed to replace, within 90 days following the closing, the Initial Bonds with other non-revocable performance bonds, meeting certain requirements, in the aggregate sum of $47.0 million (collectively, the “Interim Replacement Bonds”). Orinoco further agreed to replace, within 180 days following the closing, the Interim Replacement Bonds with a maximum of three non-revocable performance bonds in the aggregate sum of $47.0 million, meeting certain requirements (the “Final Bonds”). Among the other requirements of the Final Bonds was that they must provide coverage for all of the asset retirement obligations of Maritech instead of only relating to specific properties. In the event Orinoco does not provide the Interim Replacement Bonds or the Final Bonds, Orinoco is required to make certain cash escrow payments to us.
The payment obligations of Orinoco under the Bonding Agreement were guaranteed by Thomas M. Clarke and Ana M. Clarke pursuant to a separate guaranty agreement (the “Clarke Bonding Guaranty Agreement”). Orinoco has not delivered such replacement bonds and it has not made any of the agreed upon cash escrow payments and we filed a lawsuit against Orinoco and the Clarkes to enforce the terms of the Bonding Agreement and the Clarke Bonding Guaranty Agreement. A summary judgment was granted in favor of Orinoco and the Clarkes which dismissed our present claims against Orinoco under the Bonding Agreement and against the Clarkes under the Clarke Bonding Guaranty Agreement. We believe this judgment should not have been granted and have begun the process of appealing it. The Initial Bonds, which are non-revocable, remain in effect.
If we become liable in the future for any decommissioning liability associated with any property covered by either an Initial Bond or an Interim Replacement Bond while such bonds are outstanding and the payment made to us under such bond is not sufficient to satisfy such liability, the Bonding Agreement provides that Orinoco will pay us an amount equal to such deficiency and if Orinoco fails to pay any such amount, such amount must be paid by the Clarkes under the Clarke Bonding Guaranty Agreement. However, if the Final Bonds or the full amount of the escrowed cash have been provided, neither Orinoco nor the Clarkes would be liable to pay us for any such deficiency. Our financial condition and results of operations may be negatively affected if Orinoco is unable to cover any such deficiency or if we become liable for a significant portion of the decommissioning liabilities.
In early 2018, we also closed the sale of our Offshore Division to Epic Companies, LLC (“Epic Companies,” formerly known as Epic Offshore Specialty, LLC). Part of the consideration we received was a promissory note of Epic Companies in the original principal amount of $7.5 million (the “Epic Promissory Note”) payable to us in full, together with interest at a rate of 1.52% per annum, on December 31, 2019, along with a personal guaranty agreement from Thomas M. Clarke and Ana M. Clarke guaranteeing the payment obligations of Epic Companies pursuant to the Epic Promissory Note (the “Clarke Promissory Note Guaranty Agreement”). Additionally, pursuant to the Equity Interest Purchase Agreement (the “Offshore Services Purchase Agreement”) and other agreements with Epic Companies, certain other amounts relating to the Offshore Division totaling approximately $1.5 million were payable to us. At the end of August 2019, Epic Companies filed for bankruptcy. Although the Epic Promissory Note is not currently due and is guaranteed by the Clarke Promissory Note Guaranty Agreement, we recorded a reserve of $7.5 million for the full amount of the promissory note including accrued interest, and certain other receivables in
the amount of $1.5 million at September 30, 2019. We continue to monitor this matter and seek to vigorously pursue our rights to collect all amounts payable to us, including the amounts owed under the Epic Promissory Note when due, including by enforcing our rights under the Clarke Promissory Note Guaranty Agreement.
Contractual Obligations
Our contractual obligations and commitments principally include obligations associated with our outstanding
indebtedness and obligations under operating leases. The table below summarizes our consolidated contractual cash obligations as of March 31,September 30, 2019:
| | | | Payments Due | | Payments Due |
| | Total | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter |
| | (In Thousands) | | (In Thousands) |
Long-term debt - TETRA | | $ | 230,701 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 230,701 |
| | $ | 230,500 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 10,000 |
| | $ | 220,500 |
|
Long-term debt - CCLP | | 645,930 |
| | — |
| | — |
| | — |
| | 295,930 |
| | — |
| | 350,000 |
| | 657,430 |
| | — |
| | — |
| | — |
| | 295,930 |
| | 11,500 |
| | 350,000 |
|
Interest on debt - TETRA | | 114,270 |
| | 13,553 |
| | 18,071 |
| | 18,071 |
| | 18,071 |
| | 17,672 |
| | 28,832 |
| | 107,766 |
| | 4,522 |
| | 18,088 |
| | 18,088 |
| | 18,088 |
| | 17,993 |
| | 30,987 |
|
Interest on debt - CCLP | | 230,286 |
| | 35,665 |
| | 47,553 |
| | 47,553 |
| | 40,452 |
| | 26,250 |
| | 32,813 |
| | 209,158 |
| | 12,066 |
| | 48,264 |
| | 48,264 |
| | 41,156 |
| | 26,595 |
| | 32,813 |
|
Purchase obligations | | 101,625 |
| | 7,125 |
| | 9,500 |
| | 9,500 |
| | 9,500 |
| | 9,500 |
| | 56,500 |
| | 96,875 |
| | 2,375 |
| | 9,500 |
| | 9,500 |
| | 9,500 |
| | 9,500 |
| | 56,500 |
|
Asset retirement obligations(1) | | 12,331 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 12,331 |
| | 12,603 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 12,603 |
|
Operating and finance leases | | 86,702 |
| | 13,498 |
| | 15,569 |
| | 11,505 |
| | 9,009 |
| | 7,770 |
| | 29,351 |
| |
Operating leases | | | 82,291 |
| | 4,870 |
| | 17,721 |
| | 12,798 |
| | 9,591 |
| | 7,871 |
| | 29,440 |
|
Total contractual cash obligations(2) | | $ | 1,421,845 |
| | $ | 69,841 |
| | $ | 90,693 |
| | $ | 86,629 |
| | $ | 372,962 |
| | $ | 61,192 |
| | $ | 740,528 |
| | $ | 1,396,623 |
| | $ | 23,833 |
| | $ | 93,573 |
| | $ | 88,650 |
| | $ | 374,265 |
| | $ | 83,459 |
| | $ | 732,843 |
|
| |
(1) | We have estimated the timing of these paymentsfor asset retirement obligation liabilities based upon our plans. The amounts shown represent the discounted obligation as of March 31,September 30, 2019. |
| |
(2) | Amounts exclude other long-term liabilities reflected in our Consolidated Balance Sheet that do not have known payment streams. These excluded amounts include approximately$0.8 million of liabilities under FASB Codification Topic 740, “Accounting for Uncertainty in Income Taxes,” as we are unable to reasonably estimate the ultimate amount or timing of settlements. These excluded amounts also include approximately $18.3 million of liabilities related to the CCLP Preferred Units. The CCLP Preferred Units are expected to be serviced with non-cash paid-in-kind distributions, and may be satisfied either through conversions to CCLP common units or redemptions for cash, at CCLP's election. Refer to Part I, Item 1. Financial Statements- Note F – "CCLP Series A Convertible Preferred Units," for further discussion. |
For additional information about our contractual obligations as of December 31, 2018, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2018 Annual Report. on Form 10-K. Cautionary Statement for Purposes of Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements in this Quarterly Report are identifiable by the use of the following words, the negative of such words, and other similar words: “anticipates", "assumes", “believes,” "budgets", “could,” “estimates,” "expects", "forecasts", "goal", "intends", "may", "might", "plans", "predicts", "projects", "schedules", "seeks", "should", "targets", "will", and "would".
Such forward-looking statements reflect our current views with respect to future events and financial performance and are based on assumptions that we believe to be reasonable, but such forward-looking statements are subject to numerous risks, and uncertainties, including, but not limited to:
economic and operating conditions that are outside of our control, including the supply, demand, and prices of oil and natural gas;
the availability of adequate sources of capital to us;
the levels of competition we encounter;
the activity levels of our customers;
our operational performance;
the availability of raw materials and labor at reasonable prices;
risks related to acquisitions and our growth strategy;
restrictions under our debt agreements and the consequences of any failure to comply with debt covenants;
the effect and results of litigation, regulatory matters, settlements, audits, assessments, and contingencies;
risks related to our foreign operations;
information technology risks including the risk from cyberattack, and
| |
• | other risks and uncertainties under “Item 1A. Risk Factors” in our 2018 Annual Report, and as included in our other filings with the SEC, which are available free of charge on the SEC website at www.sec.gov. |
The risks and uncertainties referred to above are generally beyond our ability to control and we cannot predict all the risks and uncertainties that could cause our actual results to differ from those indicated by the forward-looking statements. If any of these risks or uncertainties materialize, or if any of the underlying assumptions prove incorrect, actual results may vary from those indicated by the forward-looking statements, and such variances may be material.
All subsequent written and oral forward-looking statements made by or attributable to us or to persons acting on our behalf are expressly qualified in their entirety by reference to these risks and uncertainties. You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to update or revise any forward-looking statements we may make, except as may be required by law.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Market risk is the risk of loss arising from adverse changes in market rates and prices. Fora discussion of our indirect exposure to fluctuatingcommodityprices, please read “Risk Factors —CertainBusinessRisks” in our 2018 Annual Report.We depend on U.S. and international demand for and production ofoil andnatural gas, and a reduction in this demand or production could adversely affect the demand or the prices we charge for our services, which could cause our revenuesand operating cash flows to decreasein thefuture.We do notcurrently hedge, and do notintend to hedge,our indirect exposure to fluctuating commodity prices.
Interest Rate Risk
As of March 31,September 30, 2019, due to borrowings made during the period then ended, we had a balancebalances outstanding under the Term Credit Agreement, and ABL Credit Agreement, and such borrowingsCCLP Credit Agreement that bear interest at variable rates of interest.rates.
| | | | Expected Maturity Date | | | | Fair Market Value | | Expected Maturity Date | | | | Fair Market Value |
($ amounts in thousands) | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total | | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total | |
March 31, 2019 | | | | | | | | | | | | | | | | | |
September 30, 2019 | | | | | | | | | | | | | | | | | |
U.S. dollar variable rate - TETRA | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 230,701 |
| | $ | 230,701 |
| | $ | 230,701 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 10,000 |
| | $ | 220,500 |
| | $ | 230,500 |
| | $ | 230,500 |
|
Weighted average interest rate (variable) | | | — | % | | — | % | | — | % | | — | % | | 3.81 | % | | 8.29 | % | | | | |
U.S. dollar variable rate - CCLP | | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 11,500 |
| | $ | — |
| | $ | 11,500 |
| | $ | 11,500 |
|
Weighted average interest rate (variable) | | — | % | | — | % | | — | % | | — | % | | — | % | | 8.08 | % | | | | | | — | % | | — | % | | — | % | | — | % | | 6.00 | % | | — | % | | | | |
U.S. dollar fixed rate - CCLP | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 295,930 |
| | $— | | $ | 350,000 |
| | $ | 645,930 |
| | $ | 600,900 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 295,930 |
| | $ | — |
| | $ | 350,000 |
| | $ | 645,930 |
| | $ | 614,000 |
|
Weighted average interest rate (fixed) | | — | % | | — | % | | — | % | | 7.25 | % | | — | % | | 7.50 | % | | | | |
| | — | % | | — | % | | — | % | | 7.25 | % | | — | % | | 7.50 | % | | | | |
|
Exchange Rate Risk
As of March 31,September 30, 2019, there have been no material changes pertaining to our exchange rate exposures as disclosed in our 2018 Annual Report. Item 4. Controls and Procedures.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31,September 30, 2019, the end of the period covered by this quarterly report.
As discussed above in this Quarterly Report on Form 10-Q, in February 2018, we completed the acquisition of SwiftWater, and in December 2018, we purchased JRGO. SwiftWater and JRGO were both excluded from our assessment of the effectiveness of internal control over financial reporting as of December 31, 2018, as disclosed in our 2018 Annual Report in accordance with SEC Staff guidance permitting the exclusion for the year in which an acquisition is completed. During the quarter ended March 31, 2019, we completed our integration of SwiftWater and the oversight, policies, procedures, and monitoring that support our internal control over financial reporting has been extended to include SwiftWater. We are continuing to integrate JRGO into our internal control over financial reporting processes. In executing this integration, we are analyzing, evaluating, and, where necessary, making changes in controls and procedures related to the JRGO business, which we expect to be completed in fiscal year 2019. We will include both SwiftWater and JRGO in our annual assessment of internal control over financial reporting for our fiscal year ending December 31, 2019.
In connection with the adoption of the new lease accounting standard on January 1, 2019, we evaluated and updated certain internal controls to facilitate the proper capture and assessment of contractual information required to support proper preparation of financial information upon adoption.
There were no other changes in our internal control over financial reporting that occurred during the quarter ended March 31,September 30, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
We are named defendants in several lawsuits and respondents in certain governmental proceedings arising in the ordinary course of business. While the outcome of lawsuits or other proceedings against us cannot be predicted with certainty, management does not consider it reasonably possible that a loss resulting from such lawsuits or other proceedings in excess of amounts accrued has been incurred that is expected to have a material adverse impact on our financial condition, results of operations, or liquidity.
Environmental Proceedings
One of our subsidiaries, TETRA Micronutrients, Inc. ("TMI"), previously owned and operated a production facility located in Fairbury, Nebraska. TMI is subject to an Administrative Order on Consent issued to American Microtrace, Inc. (n/k/a/ TETRA Micronutrients, Inc.) in the proceeding styledIn the Matter of American Microtrace Corporation, EPA I.D. No. NED00610550, Respondent, Docket No. VII-98-H-0016, dated September 25, 1998 (the "Consent Order"), with regard to the Fairbury facility. TMI is liable for ongoing environmental monitoring at the Fairbury facility under the Consent Order; however, the current owner of the Fairbury facility is responsible for costs associated with the closure of that facility.
Item 1A. Risk Factors.
We have described in the 2018 Annual Report significant risk factors and periodically update those risks for material developments. Provided below is an update to our risk factors as previously disclosed in the 2018 Annual Report.
We have continuing exposure to decommissioning liabilities associated with oil and gas properties previously owned by Maritech.
From 2001 to 2012, Maritech sold various oil and gas producing properties in numerous transactions to different buyers. In connection with those sales, the buyers generally assumed the decommissioning liabilities associated with the properties sold (the "Legacy Liabilities") and generally became the successor operator. In some cases, Maritech retained certain liabilities and we provided guaranties of Maritech’s retained liabilities. Some buyers of these Maritech properties subsequently sold certain of these properties to other buyers, who also assumed the financial responsibilities associated with the properties' operations, including decommissioning liabilities, and these buyers also typically became the successor operator of the properties. To the extent that a buyer of these properties fails to perform the decommissioning work required, a previous owner, including Maritech, may be required to perform operations to satisfy the decommissioning liabilities. As a result of the third-party indemnity agreements and corporate guaranties we have previously provided to the US Department of the Interior and to other private third-parties as the former parent company of Maritech, we may be responsible for satisfying these decommissioning obligations if they are not satisfied by the current owners and operators of the properties or by Maritech. Significant decommissioning liabilities that were assumed by the buyers of the Maritech properties in these previous sales remain unperformed. If oil and natural gas pricing levels continue to be depressed or further deteriorate, one or more of these buyers may be unable to perform the decommissioning work required on a property previously owned by Maritech. If these buyers, or any successor owners of the Maritech properties, are unable to satisfy and extinguish their decommissioning liabilities due to bankruptcy or other liquidity issues, the US Department of the Interior may seek to impose those decommissioning obligations on Maritech and on us due to our third party
Thereindemnity agreements, and contractual commitments and guaranties issued from time to time by us to the US Department of the Interior and various third parties. The amount of cash necessary to satisfy these obligations could be significant and could adversely affect our business, results of operations, financial condition, and cash flows.
In March 2018, pursuant to a series of transactions, Maritech sold the remaining offshore leases held by Maritech to Orinoco Natural Resources, LLC ("Orinoco") and, immediately thereafter, we sold all equity interest in Maritech to Orinoco. The assignments for six of the offshore leases conveyed to Orinoco have not been approved by the US Department of the Interior and Maritech remains an owner of record for these leases. Maritech also remains a recognized operator of a portion of four other offshore properties. Under the Maritech Asset Purchase Agreement, Orinoco assumed all of Maritech's decommissioning liabilities related to the leases conveyed to Orinoco (the “Orinoco Lease Liabilities”) and, under the Maritech Membership Interest Purchase Agreement, Orinoco assumed all other liabilities of Maritech, including the Legacy Liabilities, subject to limited exceptions unrelated to the decommissioning liabilities. Pursuant to a Bonding Agreement executed in connection with such purchase agreements, Orinoco provided non-revocable bonds in the aggregate amount of approximately $46.8 million to secure the performance of certain of Maritech’s decommissioning obligations related to the Orinoco Lease Liabilities and certain of Maritech’s remaining current decommissioning obligations (not including the Legacy Liabilities). Orinoco was required to replace, within 90 days and then 180 following the closing, the initial bonds delivered at closing with other non-revocable performance bonds, meeting certain additional requirements, in the aggregate sum of $47.0 million or make cash escrow payments. Among the other requirements of the final replacement bonds was that they must provide coverage for all of the asset retirement obligations of Maritech instead of only relating to specific properties. The payment obligations of Orinoco under the Bonding Agreement are guaranteed by Thomas M. Clarke and Ana M. Clarke pursuant to a separate guaranty agreement (the “Clarke Bonding Guaranty Agreement”). Orinoco has not delivered such replacement bonds and neither it nor the Clarkes has made any of the escrow payments required pursuant to the terms of the Bonding Agreement. We filed a lawsuit against Orinoco and the Clarkes to enforce the terms of the Bonding Agreement and the Clarke Bonding Guaranty Agreement. A summary judgment was granted in favor of Orinoco and the Clarkes which has the effect of dismissing our present claims for the replacement bonds and the escrow payments provided for in the Bonding Agreement. We believe this judgment should not have been no materialgranted and we have begun the process of appealing it. The non-revocable performance bonds delivered at the closing remain in effect.
If in the future we become liable for decommissioning liabilities associated with any property covered by either an initial bond or stage 1 permanent bond, the Bonding Agreement provides that if we call any of the initial bonds or the stage 1 permanent bonds to satisfy such liability and the amount of the bond payment is not sufficient to pay for such liability, Orinoco will pay us for the additional amount required. To the extent Orinoco is unable to cover any such deficiency or we become liable for a significant portion of the Legacy Liabilities, our financial condition and results of operations may be negatively affected.
Possible changes in the informationUS Department of Interior's supplemental bonding and financial assurance requirements may increase our risks associated with the decommissioning obligations pertaining to our Risk Factorsoil and gas properties previously owned by Maritech.
Recent and additional anticipated changes to the supplemental bonding and financial assurance program managed by the US Department of the Interior could require all oil and gas owners and operators with infrastructure in the Gulf of Mexico to provide additional supplemental bonds or other acceptable financial assurance for decommissioning liabilities. These changes have the potential to adversely impact the financial condition of lease owners and operators in the Gulf of Mexico and increase the number of such owners and operators seeking bankruptcy protection, given current oil and gas prices. In July 2016, the US Department of the Interior issued a Notice to Lessees and Operators (“2016 NTL”) that strengthened requirements for the posting of additional financial assurance by offshore lease owners and operators to assure that sufficient security is available to satisfy and extinguish decommissioning obligations with respect to offshore wells, platforms, pipelines and other facilities. The 2016 NTL, which became effective in September 2016, eliminated the past practice of waiving supplemental bonding requirements where lease owners or operators, or their guarantors, could demonstrate a certain level of financial strength. Instead, under the 2016 NTL, the US Department of the Interior will allow lease owners and operators to "self-insure," but only up to 10% of their "tangible net worth," which is defined as
disclosedthe difference between a company’s total assets and the value of all liabilities and intangible assets. It is unclear how this self-insurance allowance relates to lease owners or operators with a guarantor presently in
our 2018 Annual Report.place. In addition, the 2016 NTL is being held in abeyance by the US Department of the Interior, which creates additional and significant uncertainty for Gulf of Mexico lease owners and operators and for us through the third party indemnity agreements
we have provided for Maritech liabilities to the US Department of the Interior and/or to third parties through our private guarantees.
The US Department of the Interior also recently increased its estimates for decommissioning liabilities in the Gulf of Mexico, causing the potential need for additional supplemental bonding and/or other financial assurances to be dramatically increased. When coupled with the volatile and currently low prices of oil and gas, it is difficult to predict the impact of the rule and regulatory changes already promulgated and as may be forthcoming by the US Department of the Interior relating to financial assurance for decommissioning liabilities. The US Department of the Interior's revisions to its supplemental bonding process could result in demands for the posting of increased financial assurances by owners and operators in the Gulf of Mexico, including Maritech, Orinoco and the other entities to whom Maritech divested its Gulf of Mexico assets, but such demands cannot be directly placed on us due to the fact that we are only a former parent company of Maritech and are only a guarantor as opposed to an actual lease owner or operator. This may force lease owners and operators of leases and other infrastructure in the Gulf of Mexico to obtain surety bonds or other forms of financial assurance, the costs of which could be significant. Moreover, recent and anticipated changes to the bonding and financial assurance program for the Gulf of Mexico are likely to result in the loss of supplemental bonding waivers for a large number of lease owners and operators of infrastructure in the Gulf of Mexico, which will in turn force these owners and operators to seek additional surety bonds which could exceed the surety bond market’s ability to provide such additional financial assurance. Lease owners and operators who have already leveraged their assets could face difficulty obtaining surety bonds because of concerns the surety may have about the priority of their liens on their collateral as well as the creditworthiness of such lease owners and operators. Consequently, anticipated changes to the bonding and financial assurance program could result in additional lease owners and operators in the Gulf of Mexico initiating bankruptcy proceedings, which in turn could result in the US Department of the Interior seeking to impose decommissioning costs on predecessors in interest and providers of third party indemnity agreements in the event that the current lease owners and/or operators cannot meet their decommissioning obligations. As a result, this could increase the risk that we may be required to step in and satisfy remaining decommissioning liabilities of Maritech and any buyer of the Maritech properties, including Orinoco, through our third party indemnity agreements and private guarantees, which obligations could be significant and could adversely affect our business, results of operations, financial condition and cash flows.
We are exposed to significant credit risks.
We face credit risk associated with the significant amounts of accounts receivable we have with our customers in the energy industry. Many of our customers, particularly those associated with our onshore operations, are small- to medium-sized oil and gas operators that may be more susceptible to declines in oil and gas commodity prices or generally increased operating expenses than larger companies. Our ability to collect from our customers is impacted by the current volatile oil and natural gas price environment.
As discussed in the preceding risk factors, we face the risk of having to satisfy decommissioning liabilities on properties presently or formerly owned by Maritech. Continued decreased oil and natural gas prices have resulted in reduced revenues and cash flows for oil and gas lease owners and operators, including companies that have purchased Maritech properties or are joint-owners in properties presently and formerly owned by Maritech and from whom Maritech is entitled to receive payments upon satisfaction of certain decommissioning obligations. Consequently, we face credit risk associated with the ability of these companies to satisfy their decommissioning liabilities. If these companies are unable to satisfy their obligations, it will increase the possibility that we will become liable for such decommissioning obligations in the future.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) None.
(b) None.
(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
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Period | | Total Number of Shares Purchased | | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) | | Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Publicly Announced Plans or Programs(1) |
January 1 – January 31, 2019 | | — |
| | $ | — |
| — |
| | $ | 14,327,000 |
|
February 1 – February 28, 2019 | | 68,412 |
| (2) | 2.49 |
| — |
| | 14,327,000 |
|
March 1 – March 31, 2019 | | — |
| | — |
| — |
| | 14,327,000 |
|
Total | | 68,412 |
| | |
| — |
| | $ | 14,327,000 |
|
|
| | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased | | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) | | Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Publicly Announced Plans or Programs(1) |
July 1 – July 31, 2019 | | 2,169 |
| (2) | $ | 1.50 |
| — |
| | $ | 14,327,000 |
|
August 1 – August 31, 2019 | | 29,126 |
| (2) | 1.51 |
| — |
| | 14,327,000 |
|
September 1 – September 30, 2019 | | 154 |
| (2) | 2.01 |
| — |
| | 14,327,000 |
|
Total | | 31,449 |
| | |
| — |
| | $ | 14,327,000 |
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(1) | In January 2004, our Board of Directors authorized the repurchase of up to $20 million of our common stock.Purchases will be made from time to time in open market transactions at prevailing market prices. The repurchase program may continue until the authorized limit is reached, at which time the Board of Directors may review the option of increasing the authorized limit. |
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(2) | Shares we received in connection with the exercise of certain employee stock options or the vesting of certain shares of employee restricted stock. These shares were not acquired pursuant to the stock repurchase program. |
Item 3. Defaults Upon Senior Securities.
None.
Item 4.Mine Safety Disclosures.
None.
Item 5. Other Information.
None.
Item 6. Exhibits.
Exhibits:
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10.1*10.1 | |
10.2* | |
10.3* | |
10.4* | |
31.1* | |
31.2* | |
32.1** | |
32.2** | |
101.INS+ | XBRL Instance Document. |
101.SCH+ | XBRL Taxonomy Extension Schema Document. |
101.CAL+ | XBRL Taxonomy Extension Calculation Linkbase Document. |
101.LAB+ | XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE+ | XBRL Taxonomy Extension Presentation Linkbase Document. |
101.DEF+ | XBRL Taxonomy Extension Definition Linkbase Document. |
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** | Furnished with this report. |
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+ | Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Operations for the three and nine month periods ended March 31,September 30, 2019 and 2018; (ii) Consolidated Statements of Comprehensive Income for the three and nine month periods ended March 31,September 30, 2019 and 2018; (iii) Consolidated Balance Sheets as of March 31,September 30, 2019 and December 31, 2018; (iv) Consolidated Statements of Cash Flows for the threenine month periods ended March 31,September 30, 2019 and 2018; and (v) Notes to Consolidated Financial Statements for the threenine months ended March 31,September 30, 2019. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| TETRA Technologies, Inc. |
| | | |
Date: | May 9,November 7, 2019 | By: | /s/Brady M. Murphy |
| | | Brady M. Murphy |
| | | President |
| | | Chief Executive Officer |
| | | |
Date: | May 9,November 7, 2019 | By: | /s/Elijio V. Serrano |
| | | Elijio V. Serrano |
| | | Senior Vice President |
| | | Chief Financial Officer |
| | | |
Date: | May 9,November 7, 2019 | By: | /s/Richard D. O'Brien |
| | | Richard D. O'Brien |
| | | Vice President – Finance and Global Controller |
| | | Principal Accounting Officer |