UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022March 31, 2023
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.) |
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24955 Interstate 45 North | |
The Woodlands, | |
Texas | 77380 |
(Address of Principal Executive Offices) | (Zip Code) |
(281) 367-1983
(Registrant’s Telephone Number, Including Area Code)
_______________________________________________________________________
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
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 |
Preferred Share Purchase Right | N/A | 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 ☒ 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 ☒ 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.
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Large accelerated filer | ☐ | Accelerated filer | ☒ |
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 ☒
As of July 29, 2022,April 28, 2023, there were 128,255,427129,399,384 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 June 30, | | Six Months Ended June 30, | | Three Months Ended March 31, | |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | |
Revenues: | Revenues: | | | | | | | | Revenues: | | | | |
Product sales | Product sales | $ | 70,301 | | $ | 62,583 | | $ | 140,356 | | | $ | 107,615 | | Product sales | $ | 65,535 | | $ | 70,055 | |
Services | Services | 70,415 | | 39,743 | | 130,397 | | | 72,035 | | Services | 80,674 | | 59,982 | |
Total revenues | Total revenues | 140,716 | | 102,326 | | 270,753 | | | 179,650 | | Total revenues | 146,209 | | 130,037 | |
Cost of revenues: | Cost of revenues: | | | | | Cost of revenues: | | | | |
Cost of product sales | Cost of product sales | 48,341 | | 42,477 | | 94,345 | | | 74,460 | | Cost of product sales | 42,395 | | 46,004 | |
Cost of services | Cost of services | 54,258 | | 34,731 | | 101,942 | | | 63,362 | | Cost of services | 61,671 | | 47,684 | |
Depreciation, amortization, and accretion | Depreciation, amortization, and accretion | 7,748 | | 8,236 | | 15,427 | | | 17,187 | | Depreciation, amortization, and accretion | 8,670 | | 7,679 | |
Impairments and other charges | 2,262 | | 449 | | 2,262 | | | 449 | | |
| Insurance recoveries | Insurance recoveries | — | | — | | (3,750) | | | (110) | | Insurance recoveries | (2,850) | | (3,750) | |
Total cost of revenues | Total cost of revenues | 112,609 | | 85,893 | | 210,226 | | | 155,348 | | Total cost of revenues | 109,886 | | 97,617 | |
Gross profit | Gross profit | 28,107 | | 16,433 | | 60,527 | | | 24,302 | | Gross profit | 36,323 | | 32,420 | |
Exploration and appraisal costs | 634 | | — | | 2,564 | | | — | | |
Exploration and pre-development costs | | Exploration and pre-development costs | 720 | | 1,930 | |
General and administrative expense | General and administrative expense | 23,620 | | 17,351 | | 44,263 | | | 37,363 | | General and administrative expense | 23,191 | | 20,643 | |
Interest expense, net | Interest expense, net | 3,610 | | 3,886 | | 6,934 | | | 8,290 | | Interest expense, net | 5,092 | | 3,324 | |
| Other (income) expense, net | (1,037) | | 466 | | (3,448) | | | (4,306) | | |
Income (loss) before taxes and discontinued operations | 1,280 | | (5,270) | | 10,214 | | | (17,045) | | |
(Benefit) provision for income taxes | (479) | | 1,384 | | 721 | | | 1,552 | | |
Income (loss) before discontinued operations | 1,759 | | (6,654) | | 9,493 | | | (18,597) | | |
Discontinued operations: | | |
(Loss) income from discontinued operations, net of taxes | (34) | | (126) | | (49) | | | 120,864 | | |
Net income (loss) | 1,725 | | (6,780) | | 9,444 | | | 102,267 | | |
Less: loss (income) attributable to noncontrolling interests(1) | 20 | | 27 | | 21 | | | (306) | | |
Net income (loss) attributable to TETRA stockholders | $ | 1,745 | | $ | (6,753) | | $ | 9,465 | | | $ | 101,961 | | |
Basic net income (loss) per common share: | | | | | | | | |
Income (loss) from continuing operations | $ | 0.01 | | $ | (0.05) | | $ | 0.07 | | | $ | (0.15) | | |
Other income, net | | Other income, net | (214) | | (2,411) | |
Income before taxes and discontinued operations | | Income before taxes and discontinued operations | 7,534 | | 8,934 | |
Provision for income taxes | | Provision for income taxes | 1,489 | | 1,200 | |
Income before discontinued operations | | Income before discontinued operations | 6,045 | | 7,734 | |
| Loss from discontinued operations, net of taxes | | Loss from discontinued operations, net of taxes | (12) | | (15) | |
Net income | | Net income | 6,033 | | 7,719 | |
Loss attributable to noncontrolling interests | | Loss attributable to noncontrolling interests | 7 | | 1 | |
Net income attributable to TETRA stockholders | | Net income attributable to TETRA stockholders | $ | 6,040 | | $ | 7,720 | |
Basic net income per common share: | | Basic net income per common share: | | | | |
Income from continuing operations | | Income from continuing operations | $ | 0.05 | | $ | 0.06 | |
Income from discontinued operations | Income from discontinued operations | — | | — | | — | | | 0.96 | | Income from discontinued operations | — | | — | |
Net income (loss) attributable to TETRA stockholders | $ | 0.01 | | $ | (0.05) | | $ | 0.07 | | | $ | 0.81 | | |
Net income attributable to TETRA stockholders | | Net income attributable to TETRA stockholders | $ | 0.05 | | $ | 0.06 | |
Weighted average basic shares outstanding | Weighted average basic shares outstanding | 127,992 | | 126,583 | | 127,627 | | | 126,365 | | Weighted average basic shares outstanding | 128,940 | | 127,259 | |
Diluted net income (loss) per common share: | | | | | | | | |
Income (loss) from continuing operations | $ | 0.01 | | $ | (0.05) | | $ | 0.07 | | | $ | (0.15) | | |
Diluted net income per common share: | | Diluted net income per common share: | | | | |
Income from continuing operations | | Income from continuing operations | $ | 0.05 | | $ | 0.06 | |
Income from discontinued operations | Income from discontinued operations | — | | — | | — | | | 0.96 | | Income from discontinued operations | — | | — | |
Net income (loss) attributable to TETRA stockholders | $ | 0.01 | | $ | (0.05) | | $ | 0.07 | | | $ | 0.81 | | |
Net income attributable to TETRA stockholders | | Net income attributable to TETRA stockholders | $ | 0.05 | | $ | 0.06 | |
Weighted average diluted shares outstanding | Weighted average diluted shares outstanding | 130,099 | | 126,583 | | 129,654 | | | 126,365 | | Weighted average diluted shares outstanding | 129,975 | | 129,211 | |
(1) (Income) loss attributable to noncontrolling interests includes zero for the three months ended June 30, 2022 and 2021, respectively, and zero and $(333) income for the six months ended June 30, 2022 and 2021, respectively, related to discontinued operations.
See Notes to Consolidated Financial Statements
TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In Thousands)
(Unaudited)
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| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net income (loss) | $ | 1,725 | | | $ | (6,780) | | | $ | 9,444 | | | $ | 102,267 | |
Foreign currency translation adjustment from continuing operations, net of taxes of $0 in 2022 and 2021 | (3,414) | | | 2,157 | | | (3,222) | | | (622) | |
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Comprehensive income (loss) | (1,689) | | | (4,623) | | | 6,222 | | | 101,645 | |
Less: Comprehensive (income) loss attributable to noncontrolling interests | 20 | | | 27 | | | 21 | | | (306) | |
Comprehensive income (loss) attributable to TETRA stockholders | $ | (1,669) | | | $ | (4,596) | | | $ | 6,243 | | | $ | 101,339 | |
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| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
Net income | $ | 6,033 | | | $ | 7,719 | | | | | |
Foreign currency translation adjustment from continuing operations, net of taxes of $0 in 2023 and 2022 | 1,421 | | | 192 | | | | | |
Unrealized gain on investment in CarbonFree | 121 | | | — | | | | | |
Comprehensive income | 7,575 | | | 7,911 | | | | | |
Less: Comprehensive loss attributable to noncontrolling interests | 7 | | | 1 | | | | | |
Comprehensive income attributable to TETRA stockholders | $ | 7,582 | | | $ | 7,912 | | | | | |
See Notes to Consolidated Financial Statements
TETRA Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands)
| | | June 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
| | (Unaudited) | | | | (Unaudited) | | |
ASSETS | ASSETS | | | | ASSETS | | | |
Current assets: | Current assets: | | | | Current assets: | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 36,332 | | $ | 31,551 | Cash and cash equivalents | $ | 16,683 | | $ | 13,592 |
| Trade accounts receivable, net of allowances of $541 in 2022 and $289 in 2021 | 104,062 | | 91,202 | |
Trade accounts receivable, net of allowances of $517 in 2023 and $538 in 2022 | | Trade accounts receivable, net of allowances of $517 in 2023 and $538 in 2022 | 117,604 | | 129,631 |
Inventories | Inventories | 62,604 | | 69,098 | Inventories | 83,941 | | 72,113 |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | 20,698 | | 18,539 | Prepaid expenses and other current assets | 18,587 | | 23,112 |
Total current assets | Total current assets | 223,696 | | 210,390 | Total current assets | 236,815 | | 238,448 |
Property, plant, and equipment: | Property, plant, and equipment: | | | | Property, plant, and equipment: | | | |
Land and building | Land and building | 24,420 | | 26,380 | Land and building | 24,336 | | 25,723 |
Machinery and equipment | Machinery and equipment | 342,274 | | 345,454 | Machinery and equipment | 313,968 | | 318,693 |
Automobiles and trucks | Automobiles and trucks | 14,079 | | 16,174 | Automobiles and trucks | 11,112 | | 11,832 |
Chemical plants | Chemical plants | 59,402 | | 61,565 | Chemical plants | 63,757 | | 63,528 |
Construction in progress | Construction in progress | 12,776 | | 5,349 | Construction in progress | 9,657 | | 7,660 |
Total property, plant, and equipment | Total property, plant, and equipment | 452,951 | | 454,922 | Total property, plant, and equipment | 422,830 | | 427,436 |
Less accumulated depreciation | Less accumulated depreciation | (358,233) | | (365,946) | Less accumulated depreciation | (317,579) | | (325,856) |
Net property, plant, and equipment | Net property, plant, and equipment | 94,718 | | 88,976 | Net property, plant, and equipment | 105,251 | | 101,580 |
Other assets: | Other assets: | | | | Other assets: | | | |
Patents, trademarks and other intangible assets, net of accumulated amortization of $45,022 in 2022 and $44,323 in 2021 | 34,752 | | 36,958 | |
Patents, trademarks and other intangible assets, net of accumulated amortization of $48,241 in 2023 and $46,996 in 2022 | | Patents, trademarks and other intangible assets, net of accumulated amortization of $48,241 in 2023 and $46,996 in 2022 | 32,005 | | 32,955 |
| Operating lease right-of-use assets | Operating lease right-of-use assets | 35,127 | | 36,973 | Operating lease right-of-use assets | 33,973 | | 33,818 |
Investments | Investments | 14,167 | | 11,233 | Investments | 13,902 | | 14,286 |
Other assets | Other assets | 14,154 | | 13,736 | Other assets | 13,638 | | 13,279 |
Total other assets | Total other assets | 98,200 | | 98,900 | Total other assets | 93,518 | | 94,338 |
Total assets | Total assets | $ | 416,614 | | $ | 398,266 | Total assets | $ | 435,584 | | $ | 434,366 |
See Notes to Consolidated Financial Statements
TETRA Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Share Amounts)
| | | June 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
| | (Unaudited) | | | | (Unaudited) | | |
LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | | | | LIABILITIES AND EQUITY | | | |
Current liabilities: | Current liabilities: | | | | Current liabilities: | | | |
Trade accounts payable | Trade accounts payable | $ | 44,999 | | $ | 37,943 | Trade accounts payable | $ | 49,334 | | $ | 49,121 |
Current portion of long-term debt | Current portion of long-term debt | 11 | | — | Current portion of long-term debt | 2,162 | | 3 |
Compensation and employee benefits | Compensation and employee benefits | 23,485 | | 20,811 | Compensation and employee benefits | 19,700 | | 30,958 |
Operating lease liabilities, current portion | Operating lease liabilities, current portion | 8,255 | | 8,108 | Operating lease liabilities, current portion | 8,249 | | 7,795 |
Accrued taxes | Accrued taxes | 7,295 | | 7,085 | Accrued taxes | 8,961 | | 9,913 |
Accrued liabilities and other | Accrued liabilities and other | 24,155 | | 21,810 | Accrued liabilities and other | 22,127 | | 25,557 |
Current liabilities associated with discontinued operations | Current liabilities associated with discontinued operations | 1,367 | | 1,385 | Current liabilities associated with discontinued operations | 914 | | 920 |
Total current liabilities | Total current liabilities | 109,567 | | 97,142 | Total current liabilities | 111,447 | | 124,267 |
Long-term debt, net | Long-term debt, net | 153,191 | | 151,936 | Long-term debt, net | 160,510 | | 156,455 |
Operating lease liabilities | Operating lease liabilities | 29,160 | | 31,429 | Operating lease liabilities | 27,716 | | 28,108 |
Asset retirement obligations | Asset retirement obligations | 13,244 | | 12,984 | Asset retirement obligations | 13,828 | | 13,671 |
Deferred income taxes | Deferred income taxes | 1,432 | | 1,669 | Deferred income taxes | 2,059 | | 2,038 |
| Other liabilities | Other liabilities | 4,484 | | 4,543 | Other liabilities | 3,871 | | 3,430 |
Total long-term liabilities | Total long-term liabilities | 201,511 | | 202,561 | Total long-term liabilities | 207,984 | | 203,702 |
Commitments and contingencies | 0 | | 0 | |
Commitments and contingencies (Note 7) | | Commitments and contingencies (Note 7) | | | |
Equity: | Equity: | | | | Equity: | | | |
TETRA stockholders’ equity: | TETRA stockholders’ equity: | | | | TETRA stockholders’ equity: | | | |
Common stock, par value 0.01 per share; 250,000,000 shares authorized at June 30, 2022 and December 31, 2021; 131,394,102 shares issued at June 30, 2022 and 130,075,838 shares issued at December 31, 2021 | 1,314 | | 1,301 | |
Common stock, par value 0.01 per share; 250,000,000 shares authorized at March 31, 2023 and December 31, 2022; 132,522,347 shares issued at March 31, 2023 and 131,800,975 shares issued at December 31, 2022 | | Common stock, par value 0.01 per share; 250,000,000 shares authorized at March 31, 2023 and December 31, 2022; 132,522,347 shares issued at March 31, 2023 and 131,800,975 shares issued at December 31, 2022 | 1,325 | | 1,318 |
Additional paid-in capital | Additional paid-in capital | 476,381 | | 475,624 | Additional paid-in capital | 479,993 | | 477,820 |
Treasury stock, at cost; 3,138,675 shares held at June 30, 2022, and at December 31, 2021 | (19,957) | | (19,957) | |
Treasury stock, at cost; 3,138,675 shares held at March 31, 2023 and December 31, 2022 | | Treasury stock, at cost; 3,138,675 shares held at March 31, 2023 and December 31, 2022 | (19,957) | | (19,957) |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (50,154) | | (46,932) | Accumulated other comprehensive loss | (47,521) | | (49,063) |
Retained deficit | Retained deficit | (300,867) | | (310,332) | Retained deficit | (296,453) | | (302,493) |
Total TETRA stockholders’ equity | Total TETRA stockholders’ equity | 106,717 | | 99,704 | Total TETRA stockholders’ equity | 117,387 | | 107,625 |
Noncontrolling interests | Noncontrolling interests | (1,181) | | (1,141) | Noncontrolling interests | (1,234) | | (1,228) |
Total equity | Total equity | 105,536 | | 98,563 | Total equity | 116,153 | | 106,397 |
Total liabilities and equity | Total liabilities and equity | $ | 416,614 | | $ | 398,266 | Total liabilities and equity | $ | 435,584 | | $ | 434,366 |
See Notes to Consolidated Financial Statements
TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Equity
(In Thousands)
(Unaudited)
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| Common Stock Par Value | | Additional Paid-In Capital | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Retained Deficit | | Noncontrolling Interest | | Total Equity |
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Balance at December 31, 2021 | $ | 1,301 | | | $ | 475,624 | | | $ | (19,957) | | | $ | (46,932) | | | | | $ | (310,332) | | | $ | (1,141) | | | $ | 98,563 | |
Net income for first quarter 2022 | — | | | — | | | — | | | — | | | | | 7,720 | | | (1) | | | 7,719 | |
Translation adjustment, net of taxes of $0 | — | | | — | | | — | | | 192 | | | | | — | | | — | | | 192 | |
Comprehensive income | | | | | | | | | | | | | | | 7,911 | |
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Equity compensation expense | — | | | 1,104 | | | — | | | — | | | | | — | | | — | | | 1,104 | |
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Other | 7 | | | (673) | | | — | | | — | | | | | — | | | (10) | | | (676) | |
Balance at March 31, 2022 | $ | 1,308 | | | $ | 476,055 | | | $ | (19,957) | | | $ | (46,740) | | | | | $ | (302,612) | | | $ | (1,152) | | | $ | 106,902 | |
Net income for second quarter 2022 | — | | | — | | | — | | | — | | | | | 1,745 | | | (20) | | | 1,725 | |
Translation adjustment, net of taxes of $0 | — | | | — | | | — | | | (3,414) | | | | | — | | | — | | | (3,414) | |
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Comprehensive loss | | | | | | | | | | | | | | | (1,689) | |
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Equity compensation expense | — | | | 1,159 | | | — | | | — | | | | | — | | | — | | | 1,159 | |
Other | 6 | | | (833) | | | — | | | — | | | | | — | | | (9) | | | (836) | |
Balance at June 30, 2022 | $ | 1,314 | | | $ | 476,381 | | | $ | (19,957) | | | $ | (50,154) | | | | | $ | (300,867) | | | $ | (1,181) | | | $ | 105,536 | |
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| Common Stock Par Value | | Additional Paid-In Capital | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Retained Deficit | | Noncontrolling Interest | | Total Equity |
| | | | Currency Translation | | Unrealized Gain (Loss) on Investment | | | |
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Balance at December 31, 2022 | $ | 1,318 | | | $ | 477,820 | | | $ | (19,957) | | | $ | (48,991) | | | $ | (72) | | | $ | (302,493) | | | $ | (1,228) | | | $ | 106,397 | |
Net income (loss) for first quarter 2023 | — | | | — | | | — | | | — | | | — | | | 6,040 | | | (7) | | | 6,033 | |
Translation adjustment, net of taxes of $0 | — | | | — | | | — | | | 1,421 | | | — | | | — | | | — | | | 1,421 | |
Other comprehensive income | — | | | — | | | — | | | — | | | 121 | | | — | | | — | | | 121 | |
Comprehensive income | | | | | | | | | | | | | | | 7,575 | |
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Treasury stock activity, net | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Equity-based compensation(1) | — | | | 3,514 | | | — | | | — | | | — | | | — | | | — | | | 3,514 | |
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Other | 7 | | | (1,341) | | | — | | | — | | | — | | | — | | | 1 | | | (1,333) | |
Balance at March 31, 2023 | $ | 1,325 | | | $ | 479,993 | | | $ | (19,957) | | | $ | (47,570) | | | $ | 49 | | | $ | (296,453) | | | $ | (1,234) | | | $ | 116,153 | |
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(1) Equity-based compensation for the three months ended March 31, 2023 includes $2.3 million for a portion of short-term incentive compensation that was settled through grants of restricted stock units rather than cash.
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| Common Stock Par Value | | Additional Paid-In Capital | | Treasury Stock | | Accumulated Other Comprehensive Loss | | Retained Deficit | | Noncontrolling Interest | | Total Equity |
| | | | Currency Translation | | | |
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Balance at December 31, 2020 | $ | 1,289 | | | $ | 472,134 | | | $ | (19,484) | | | $ | (49,914) | | | $ | (413,665) | | | $ | 80,702 | | | $ | 71,062 | |
Net income for first quarter 2021 | — | | | — | | | — | | | — | | | 108,714 | | | 333 | | | 109,047 | |
Translation adjustment, net of taxes of $0 | — | | | — | | | — | | | (2,779) | | | — | | | — | | | (2,779) | |
Comprehensive income | | | | | | | | | | | | | 106,268 | |
Deconsolidation of CSI Compressco | — | | | — | | | — | | | 7,168 | | | — | | | (82,775) | | | (75,607) | |
Equity award activity | 6 | | | — | | | — | | | — | | | — | | | — | | | 6 | |
Treasury stock activity, net | — | | | — | | | (449) | | | — | | | — | | | — | | | (449) | |
Equity compensation expense | — | | | 962 | | | — | | | — | | | — | | | 580 | | | 1,542 | |
Other | — | | | (574) | | | — | | | — | | | — | | | 219 | | | (355) | |
Balance at March 31, 2021 | $ | 1,295 | | | $ | 472,522 | | | $ | (19,933) | | | $ | (45,525) | | | $ | (304,951) | | | $ | (941) | | | $ | 102,467 | |
Net loss for second quarter 2021 | — | | | — | | | — | | | — | | | (6,753) | | | (27) | | | (6,780) | |
Translation adjustment, net of taxes of $0 | — | | | — | | | — | | | 2,157 | | | — | | | — | | | 2,157 | |
Comprehensive loss | | | | | | | | | | | | | (4,623) | |
Dividend | — | | | — | | | — | | | — | | | — | | | (119) | | | (119) | |
Equity award activity | 2 | | | — | | | — | | | — | | | — | | | — | | | 2 | |
Treasury stock activity, net | — | | | — | | | (6) | | | — | | | — | | | — | | | (6) | |
Equity compensation expense | — | | | 1,592 | | | — | | | — | | | — | | | — | | | 1,592 | |
Other | — | | | (242) | | | — | | | — | | | — | | | (14) | | | (256) | |
Balance at June 30, 2021 | $ | 1,297 | | | $ | 473,872 | | | $ | (19,939) | | | $ | (43,368) | | | $ | (311,704) | | | $ | (1,101) | | | $ | 99,057 | |
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| Common Stock Par Value | | Additional Paid-In Capital | | Treasury Stock | | Accumulated Other Comprehensive Loss | | Retained Deficit | | Noncontrolling Interest | | Total Equity |
| | | | Currency Translation | | | |
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Balance at December 31, 2021 | $ | 1,301 | | | $ | 475,624 | | | $ | (19,957) | | | $ | (46,932) | | | $ | (310,332) | | | $ | (1,141) | | | $ | 98,563 | |
Net income (loss) for first quarter 2022 | — | | | — | | | — | | | — | | | 7,720 | | | (1) | | | 7,719 | |
Translation adjustment, net of taxes of $0 | — | | | — | | | — | | | 192 | | | — | | | — | | | 192 | |
Comprehensive income | | | | | | | | | | | | | 7,911 | |
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Equity compensation expense | — | | | 1,104 | | | — | | | — | | | — | | | — | | | 1,104 | |
Other | 7 | | | (673) | | | — | | | — | | | — | | | (10) | | | (676) | |
Balance at March 31, 2022 | $ | 1,308 | | | $ | 476,055 | | | $ | (19,957) | | | $ | (46,740) | | | $ | (302,612) | | | $ | (1,152) | | | $ | 106,902 | |
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See Notes to Consolidated Financial Statements
TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands, Unaudited)
| | | Six Months Ended June 30, | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Operating activities: | Operating activities: | | | | Operating activities: | | | |
Net income | Net income | $ | 9,444 | | | $ | 102,267 | | Net income | $ | 6,033 | | | $ | 7,719 | |
Reconciliation of net income to net cash provided by operating activities: | Reconciliation of net income to net cash provided by operating activities: | | Reconciliation of net income to net cash provided by operating activities: | |
Depreciation, amortization, and accretion | Depreciation, amortization, and accretion | 15,427 | | | 17,215 | | Depreciation, amortization, and accretion | 8,670 | | | 7,679 | |
Gain on GP Sale | — | | | (120,574) | | |
Impairment and other charges | 2,262 | | | 449 | | |
Gain on investments | (390) | | | (5,613) | | |
| Loss (gain) on investments | | Loss (gain) on investments | 505 | | | (1,100) | |
Equity-based compensation expense | Equity-based compensation expense | 2,263 | | | 2,554 | | Equity-based compensation expense | 1,276 | | | 1,104 | |
Provision for doubtful accounts | 244 | | | 216 | | |
Provision for (recovery of) credit losses | | Provision for (recovery of) credit losses | (21) | | | 61 | |
| Amortization and expense of financing costs | Amortization and expense of financing costs | 1,573 | | | 1,429 | | Amortization and expense of financing costs | 884 | | | 780 | |
Insurance recoveries associated with damaged equipment | Insurance recoveries associated with damaged equipment | (3,750) | | | (110) | | Insurance recoveries associated with damaged equipment | (2,850) | | | (3,750) | |
| Warrants fair value adjustment | — | | | 3,021 | | |
| | Gain on sale of assets | Gain on sale of assets | (719) | | | (275) | | Gain on sale of assets | (170) | | | (218) | |
Other non-cash charges | (313) | | | (176) | |
Other non-cash credits | | Other non-cash credits | (100) | | | (101) |
Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | | | Changes in operating assets and liabilities: | | | |
Accounts receivable | Accounts receivable | (14,581) | | | (15,694) | | Accounts receivable | 12,626 | | | (13,185) | |
Inventories | Inventories | 4,519 | | | 5,456 | | Inventories | (11,313) | | | 4,579 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | (2,282) | | | (2,442) | | Prepaid expenses and other current assets | 4,496 | | | 2,510 | |
Trade accounts payable and accrued expenses | Trade accounts payable and accrued expenses | 11,185 | | | 21,295 | | Trade accounts payable and accrued expenses | (11,179) | | | 9 | |
Other | Other | (1,079) | | | (1,411) | | Other | 128 | | | (153) | |
Net cash provided by operating activities | Net cash provided by operating activities | 23,803 | | | 7,607 | | Net cash provided by operating activities | 8,985 | | | 5,934 | |
Investing activities: | Investing activities: | | | | Investing activities: | | | |
Purchases of property, plant, and equipment, net | Purchases of property, plant, and equipment, net | (20,412) | | | (12,489) | | Purchases of property, plant, and equipment, net | (12,784) | | | (9,305) | |
Proceeds from GP Sale, net of cash divested | — | | | 18 | | |
| Proceeds from sale of property, plant, and equipment | Proceeds from sale of property, plant, and equipment | 1,194 | | | 754 | | Proceeds from sale of property, plant, and equipment | 289 | | | 416 | |
Proceeds from insurance recoveries associated with damaged equipment | Proceeds from insurance recoveries associated with damaged equipment | 3,750 | | | 110 | | Proceeds from insurance recoveries associated with damaged equipment | 2,850 | | | 3,750 | |
Other investing activities | Other investing activities | (451) | | | 1,156 | | Other investing activities | (1,552) | | | (453) | |
Net cash used in investing activities | Net cash used in investing activities | (15,919) | | | (10,451) | | Net cash used in investing activities | (11,197) | | | (5,592) | |
Financing activities: | Financing activities: | | | | Financing activities: | | | |
Proceeds from long-term debt | 1,667 | | | — | | |
Principal payments on long-term debt | (3,267) | | | (29,320) | | |
Proceeds from long-term debt and credit agreements | | Proceeds from long-term debt and credit agreements | 52,756 | | | 1,533 | |
Principal payments on long-term debt and credit agreements | | Principal payments on long-term debt and credit agreements | (47,362) | | | (811) | |
Payments on financing lease obligations | Payments on financing lease obligations | (1,174) | | | — | | Payments on financing lease obligations | (258) | | | — | |
| Debt issuance costs and other financing activities | — | | | (455) | | |
Net cash used in financing activities | (2,774) | | | (29,775) | | |
| Net cash provided by financing activities | | Net cash provided by financing activities | 5,136 | | | 722 | |
Effect of exchange rate changes on cash | Effect of exchange rate changes on cash | (329) | | | (896) | | Effect of exchange rate changes on cash | 167 | | | 236 | |
Increase (decrease) in cash and cash equivalents | 4,781 | | | (33,515) | | |
Cash and cash equivalents and restricted cash at beginning of period | 31,551 | | | 83,894 | | |
Cash and cash equivalents at beginning of period associated with discontinued operations | — | | | 16,577 | | |
Cash and cash equivalents and restricted cash at beginning of period associated with continuing operations | 31,551 | | | 67,317 | | |
| Cash and cash equivalents and restricted cash at end of period associated with continuing operations | $ | 36,332 | | | $ | 50,379 | | |
Increase in cash and cash equivalents | | Increase in cash and cash equivalents | 3,091 | | | 1,300 | |
Cash and cash equivalents at beginning of period | | Cash and cash equivalents at beginning of period | 13,592 | | | 31,551 | |
| Cash and cash equivalents at end of period | | Cash and cash equivalents at end of period | $ | 16,683 | | | $ | 32,851 | |
See Notes to Consolidated Financial Statements
TETRA Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 – ORGANIZATION, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES
Organization
We are an industrial and oil and gas products and services company operating on six continents, focused on bromine-based completion fluids, calcium chloride, water management solutions, frac flowback and production well testing services. We were incorporated in Delaware in 1981 and are composed of 2two segments – Completion Fluids & Products Division and Water & Flowback Services Division. Unless the context requires otherwise, when we refer to “we,” “us,” and “our,” we are describing TETRA Technologies, Inc. and its subsidiaries on a consolidated basis.
Presentation
Our unaudited consolidated financial statements include the accounts of our wholly owned or controlled 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 June 30, 2022March 31, 2023 are not necessarily indicative of results that may be expected for the twelve months ended December 31, 2022.2023.
We have reflected the operations of our former Compression Division and Offshore Division as discontinued operations for all periods presented. See Note 2 - “Discontinued Operations” for further information. Unless otherwise noted, amounts and disclosures throughout these Notes to Consolidated Financial Statements relate solely to continuing operations and exclude all discontinued operations.
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, 20212022 and notes thereto included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 202227, 2023 (the “20212022 Annual Report”).
Tax Benefits Preservation Plan
On February 28, 2023, the Board of Directors adopted a Tax Benefits Preservation Plan (the “Tax Plan”) designed to protect the availability of the Company’s net operating loss carryforwards and other tax attributes (collectively, the “Tax Attributes”), which may be utilized in certain circumstances to reduce the Company’s future income tax obligations. The Tax Plan is intended to reduce the likelihood that any changes in the Company’s investor base would limit the Company’s future use of its Tax Attributes as a result of the Company experiencing an “ownership change” under Section 382 (“Section 382”) of the Internal Revenue Code of 1986, as amended (the “Code”). If a corporation experiences an “ownership change,” any NOLs, losses or deductions attributable to a “net unrealized built-in loss” and other Tax Attributes could be substantially limited, and timing of the usage of such Tax Attributes could be substantially delayed. A corporation generally will experience an ownership change if one or more stockholders (or group of stockholders) who are each deemed to own at least 5% of the corporation’s stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a testing period (generally, a rolling three-year period).
In adopting the Tax Plan, the Board of Directors declared a dividend of one Series A Junior Participating Preferred Stock purchase right (the “Rights”) for each outstanding share of Common Stock pursuant to the terms of the Tax Plan. Initially, each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $0.01 per share, of the Company (the “Preferred Stock”) at a price of $20.00 per one one-thousandth of a share of Preferred Stock (the “Purchase Price”), subject to adjustment. The Rights will cause substantial dilution to a person or group that acquires 4.99% or more of the Common Stock (or to a person or group that already owns 4.99% or more of the Company’s Common Stock if
such person or group acquires additional shares representing 2% of the Company’s then outstanding shares of Common Stock) without prior approval from the Board of Directors.
The Rights will expire at the earliest of: (i) the close of business on February 28, 2026 (the “Final Expiration Date”); (ii) the time at which the Rights are redeemed pursuant to the Tax Plan, (iii) the time at which the Rights are exchanged pursuant to the Tax Plan; (iv) the closing of any merger or other acquisition transaction involving the Company pursuant to an agreement as described in the penultimate paragraph of Section 1.3 of the Tax Plan; (v) the close of business on the effective date of the repeal of Section 382 of the Code if the Board determines that the Tax Plan is no longer necessary or desirable for the preservation of the Tax Attributes; or (vi) the close of business on the first day of a taxable year of the Company following a Board determination that no Tax Attributes may be carried forward or otherwise utilized.
The Tax Plan adopted by the Board of Directors is similar to plans adopted by other publicly held companies with significant NOLs or other substantial tax benefits and is not designed to prevent any action that the Board of Directors determines to be in the best interest of the Company and its stockholders. As discussed further in the Company’s definitive proxy statement for the annual meeting of stockholders, which is anticipated to be held on May 24, 2023, the Company intends to submit the Tax Plan to our stockholders for ratification at such meeting.
The Rights are in all respects subject to and governed by the provisions of the Tax Plan. The foregoing summary provides only a general description of the Tax Plan and does not purport to be complete. The Tax Plan, which specifies the terms of the Rights and includes as Exhibit A the Form of Certificate of Designation of Series A Junior Participating Preferred Stock of the Company and as Exhibit B the Form of Right Certificate, is attached to the Company’s Current Report on Form 8-K, which was filed with the SEC on March 1, 2023, as Exhibit 4.1 and is incorporated herein by reference. The foregoing summary should be read together with the entire Tax Plan and is qualified in its entirety by reference to the Tax Plan.
Significant Accounting Policies
Our significant accounting policies are described in the notes to our consolidated financial statements for the year ended December 31, 20212022 included in our 20212022 Annual Report. There have been no significant changes in our accounting policies or the application thereof during the secondfirst quarter of 2022.2023.
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 be material.
Reclassifications
Certain previously reported financial information has been reclassified to conform to the current year's presentation. The impact of reclassifications was not significant to the prior year's overall presentation.
Foreign Currency Translation
We have designated the Euro, the British pound, the Canadian dollar, the Brazilian real, and the Mexican peso as the functional currencies for our operations in Finland and Sweden, the United Kingdom, Canada, Brazil,
and certain of our operations in Mexico, respectively. The United States dollar is the designated functional currency for all of our other non-U.S. operations. The cumulative translation effects of translating the applicable accounts from the functional currencies into the United States dollar at current exchange rates are included as a separate component of equity. Foreign currency exchange (gains) and losses are included in other (income) expense, net and totaled $(0.8)$0.2 million and $(1.6)$(0.8) million during the three and six months ended June 30,March 31, 2023 and 2022, respectively, and $(0.2) million and $(1.0) million during the three and six months ended June 30, 2021, respectively.
Fair Value Measurements
We utilize fair value measurements to account for certain items and account balances within our consolidated financial statements. Fair value measurements are utilized on a recurring basis in the determination of the carrying values of certain investments. See Note 8 - “Fair Value Measurements” for further discussion. Fair
value measurements are also utilized on a nonrecurring basis in certain circumstances, including the impairment of long-lived assets (a Level 3 fair value measurement).
Supplemental Cash Flow Information
Supplemental cash flow information from continuing and discontinued operations is as follows:
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 |
| (in thousands) |
Supplemental cash flow information(1): | | | |
Interest paid | $ | 8,056 | | | $ | 7,577 | |
Income taxes paid | 1,470 | | | 853 | |
Decrease in accrued capital expenditures | 1,712 | | | 1,434 | |
(1) Prior-year information includes the activity for CSI Compressco for January only. | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| (in thousands) |
Interest paid | $ | 4,513 | | | $ | 3,096 | |
Income taxes paid | $ | 1,358 | | | $ | 741 | |
| | | |
| March 31, 2023 | | December 31, 2022 |
| (in thousands) |
Accrued capital expenditures | $ | 2,490 | | | $ | 4,901 | |
New Accounting Pronouncements
Standards not yetStandard adopted during 2023
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”Instruments”. ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently usedpreviously-used incurred loss methodology, which will result in the more timely recognition of 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. On January 1, 2023, we adopted ASU 2016-13 will become effective for us in the first quarter2016-13. The adoption of fiscal 2023. We continue to assess the potential effects of these changes tothis standard did not have a material impact on our consolidated financial statements.
Standard not yet adopted
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)”, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848.” Entities may elect to apply the amendments for contract modifications made on or before December 31, 2022.2024. During the three months ended September 30, 2021, our asset-based credit agreement and term credit agreement were amended to allow replacement of LIBOR with another benchmark rate, such as the secured overnight financing rate (“SOFR”) in the event that LIBOR cannot be determined or does not fairly reflect the cost to our lenders of funding our loans. If LIBOR is not available, we cannot predict what alternative index would be negotiated with our lenders. We will assess the impact of adopting ASU 2020-04, as extended by ASU 2022-06, on our consolidated financial statements if or when our contracts are modified to eliminate references to LIBOR.
NOTE 2 – DISCONTINUED OPERATIONS
On January 29, 2021, we entered into the Purchase and Sale Agreement with Spartan Energy Partners, LP (“Spartan”) pursuant to which we sold the general partner of CSI Compressco, including the incentive distribution rights (“IDRs”) in CSI Compressco LP, (“CSI Compressco”), and approximately 23.1% of the outstanding limited partner interests in CSI Compressco, in exchange for the combination of $13.9 million in cash and $3.1 million in contingent consideration in the form of cash and/or CSI Compressco common units if CSI Compressco achieves certain financial targets on or before December 31, 2022. Throughout this Quarterly Report, we refer to this transaction as the “GP Sale.”Following the closing of the transaction, we retained an interest in CSI Compressco representing approximately 3.7% of the outstanding common units as of June 30, 2022. As a result of these transactions, we no longer consolidate CSI Compressco as of January 29, 2021. We recognized a primarily non-cash accounting gain of $120.6 million during the three-month period ended March 31, 2021 related to the GP Sale. The gain is included in income (loss) from discontinued operations, net of taxes in our consolidated statement of operations. We provided back-office support to CSI Compressco under a Transition Services Agreement that ended during the three-month period ended March 31, 2022. During the three months ended June 30, 2022, we sold equipment to CSI Compressco for approximately $0.3 million. Our interest in CSI Compressco and the general partner represented substantially all of our Compression Division.
In addition, on March 1, 2018, we closed a series of related transactions that resulted in the disposition of our Offshore Division, consisting of our Offshore Services and Maritech segments. Our former Compression and Offshore Divisions areDivision is reported as discontinued operations for all periods presented. Our consolidated balance sheets and consolidated statements of operations report discontinued operations separate from continuing operations. Our consolidated statements of comprehensive income, statements of equity and statements of cash flows combine continuing and discontinued operations. Our prior-year consolidated statement ofloss from discontinued operations statement of comprehensive income, statement of equity and statement of cash flows include CSI Compressco activity for January 1 through January 29 in 2021. Our consolidated statements of cash flows for the six-month periodthree months ended June 30, 2021 included $3.0 million,March 31, 2023 and 2022 consist of capital expenditures related togeneral and administrative expense associated with ongoing litigation for our former Compression division.Offshore Division. A summary of additional 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, unaudited)
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| | | Three Months Ended June 30, 2022 |
| | | Offshore Services | | Maritech | | Total |
Major classes of line items constituting loss from discontinued operations | | | | | | | |
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Cost of revenues | | | $ | 54 | | | $ | — | | | $ | 54 | |
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General and administrative expense | | | 8 | | | — | | | $ | 8 | |
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Other expense, net | | | — | | | (28) | | | (28) | |
Pretax income (loss) from discontinued operations | | | (62) | | | 28 | | | (34) | |
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Loss from discontinued operations attributable to TETRA stockholders | | | | | | | $ | (34) | |
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| Three Months Ended June 30, 2021 |
| Compression | | Offshore Services | | Total |
Major classes of line items constituting loss from discontinued operations | | | | | |
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General and administrative expense | — | | | 5 | | | 5 | |
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Other (income) expense, net | 121 | | | — | | | 121 | |
Pretax loss from discontinued operations | (121) | | | (5) | | | (126) | |
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Loss from discontinued operations attributable to TETRA stockholders | | | | | $ | (126) | |
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| | | Six Months Ended June 30, 2022 |
| | | Offshore Services | | Maritech | | Total |
Major classes of line items constituting income from discontinued operations | | | | | | | |
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Cost of revenues | | | 55 | | | — | | | 55 | |
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General and administrative expense | | | 22 | | | — | | | 22 | |
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Other expense, net | | | — | | | (28) | | | (28) | |
Pretax income (loss) from discontinued operations | | | (77) | | | 28 | | | (49) | |
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Loss from discontinued operations attributable to TETRA stockholders | | | | | | | $ | (49) | |
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| Six Months Ended June 30, 2021 |
| Compression | | Offshore Services | | Total |
Major classes of line items constituting loss from discontinued operations | | | | | |
Revenue | $ | 18,968 | | | $ | — | | | $ | 18,968 | |
Cost of revenues | 11,474 | | | 28 | | | 11,502 | |
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General and administrative expense | 2,795 | | | — | | | 2,795 | |
Interest expense, net | 4,336 | | | — | | | 4,336 | |
Other expense, net | 15 | | | — | | | 15 | |
Pretax income (loss) from discontinued operations | 348 | | | (28) | | | 320 | |
Pretax gain on disposal of discontinued operations | | | | | 120,574 | |
Total pretax income from discontinued operations | | | | | 120,894 | |
Income tax provision | | | | | 30 | |
Total income from discontinued operations | | | | | 120,864 | |
Income from discontinued operations attributable to noncontrolling interest | | | | | (333) | |
Income from discontinued operations attributable to TETRA stockholders | | | | | $ | 120,531 | |
Reconciliation of Major Classes of Assets and Liabilities of the Discontinued Operations to Amounts Presented Separately in the Statement of Financial Position
(in thousands)
| | | | June 30, 2022 | | | March 31, 2023 |
| | | Offshore Services | | Maritech | | Total | | | Offshore Services | | Maritech | | Total |
| | | | (unaudited) | | | (unaudited) |
| Carrying amounts of major classes of liabilities included as part of discontinued operations | Carrying amounts of major classes of liabilities included as part of discontinued operations | | | Carrying amounts of major classes of liabilities included as part of discontinued operations | | |
Trade payables | Trade payables | | $ | 1,272 | | | $ | — | | | $ | 1,272 | | Trade payables | | $ | 319 | | | $ | — | | | $ | 319 | |
| Accrued liabilities and other | Accrued liabilities and other | | — | | | 95 | | | 95 | | Accrued liabilities and other | | 500 | | | 95 | | | 595 | |
| Total liabilities associated with discontinued operations | Total liabilities associated with discontinued operations | | $ | 1,272 | | | $ | 95 | | | $ | 1,367 | | Total liabilities associated with discontinued operations | | $ | 819 | | | $ | 95 | | | $ | 914 | |
| | | | | | | | | | | | | | | | | | | |
| | | December 31, 2021 |
| | | Offshore Services | | Maritech | | Total |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Carrying amounts of major classes of liabilities included as part of discontinued operations | | | | | | | |
Trade payables | | | $ | 1,157 | | | $ | — | | | $ | 1,157 | |
| | | | | | | |
Accrued liabilities and other | | | — | | | 228 | | | 228 | |
| | | | | | | |
| | | | | | | |
Total liabilities associated with discontinued operations | | | $ | 1,157 | | | $ | 228 | | | $ | 1,385 | |
| | | | | | | | | | | | | | | | | | | |
| | | December 31, 2022 |
| | | Offshore Services | | Maritech | | Total |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Carrying amounts of major classes of liabilities included as part of discontinued operations | | | | | | | |
Trade payables | | | $ | 319 | | | $ | — | | | $ | 319 | |
| | | | | | | |
Accrued liabilities and other | | | 506 | | | 95 | | | 601 | |
| | | | | | | |
| | | | | | | |
Total liabilities associated with discontinued operations | | | $ | 825 | | | $ | 95 | | | $ | 920 | |
NOTE 3 – REVENUE FROM CONTRACTS WITH CUSTOMERS
Our contract asset balances, primarily associated with contractual invoicing milestones and/or customer documentation requirements, were $32.2$28.8 million and $20.5$33.1 million as of June 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. Contract assets, along with billed trade accounts receivable, are included in trade accounts receivable in our consolidated balance sheets.
Unearned income includes amounts in which the Company was contractually allowed to invoice prior to satisfying the associated performance obligations. We are also party to agreements in which Standard Lithium Ltd. (NYSE: SLI) (“Standard Lithium”) has the right to explore, and an option to acquire the rights to produce and extract lithium in our Arkansas leases as well as other potential resources in the Mojave region of California. The Company receives cash and stock of Standard Lithium under the terms of the arrangements. The cash and stock component of consideration received is initially recorded as unearned income based on the quoted market price at the time the stock is received, then recognized in income over the contract term. Unearned income balances were $7.9$4.2 million and $3.2$3.7 million as of June 30, 2022March 31, 2023 and December 31, 2021,2022, respectively, and vary based on the timing of invoicing and performance obligations being met and the timing of the receipt of stock and sharescash from Standard Lithium. Unearned income is included in accrued liabilities and other in our consolidated balance sheets. WeDuring the three-month periods ended March 31, 2023 and March 31, 2022, contract costs were not significant.
During the three-month periods ended March 31, 2023 and March 31, 2022, we recognized approximately $0.8$0.7 million and $0.5$0.3 million of revenue, respectively, deferred in unearned income as of the beginning of the period. We also recognized approximately $0.9 million and $0.6 million of income during the six-monththree-month periods ended June 30,March 31, 2023 and March 31, 2022, and June 30, 2021, respectively, related to the Standard Lithium arrangements. These amounts are included in other income, net in our consolidated statements of operations. Other revenue recognized during the three-month and six-month periods ended June 30, 2022 and the three-month period ended June 30, 2021 deferred as of the beginning of the period was not significant. During the six-month period ended June 30, 2021, we recognized approximately $1.4 million of revenue deferred as of the preceding year end. During the three-month and six-month periods ended June 30, 2022 and June 30, 2021, contract costs were not significant.
We disaggregate revenue from contracts with customers into Product Sales and Services within each segment, as noted in our 2two reportable segments in Note 10 - “Industry Segments.” In addition, we disaggregate revenue from contracts with customers by geography based on the following table below.
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended March 31, | |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | |
| | (in thousands) | | (in thousands) |
Completion Fluids & Products | Completion Fluids & Products | | Completion Fluids & Products | | |
United States | United States | $ | 34,344 | | | $ | 25,229 | | | $ | 73,188 | | | $ | 49,824 | | United States | $ | 32,824 | | | $ | 38,843 | | |
International | International | 40,454 | | | 39,378 | | | 74,804 | | | 61,304 | | International | 36,218 | | | 34,351 | | |
| | 74,798 | | | 64,607 | | | 147,992 | | | 111,128 | | | 69,042 | | | 73,194 | | |
Water & Flowback Services | Water & Flowback Services | | Water & Flowback Services | | |
United States | United States | 61,654 | | | 35,463 | | | 114,417 | | | 64,395 | | United States | 68,338 | | | 52,763 | | |
International | International | 4,264 | | | 2,256 | | | 8,344 | | | 4,127 | | International | 8,829 | | | 4,080 | | |
| | 65,918 | | | 37,719 | | | 122,761 | | | 68,522 | | | 77,167 | | | 56,843 | | |
| Total Revenue | Total Revenue | | Total Revenue | | |
United States | United States | 95,998 | | | 60,692 | | | 187,605 | | | 114,219 | | United States | 101,162 | | | 91,606 | | |
International | International | 44,718 | | | 41,634 | | | 83,148 | | | 65,431 | | International | 45,047 | | | 38,431 | | |
| | $ | 140,716 | | | $ | 102,326 | | | $ | 270,753 | | | $ | 179,650 | | | $ | 146,209 | | | $ | 130,037 | | |
NOTE 4 – INVENTORIES
Components of inventories as of June 30, 2022March 31, 2023 and December 31, 20212022 are as follows:
| | | June 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
| | (in thousands) | | (in thousands) |
Finished goods | Finished goods | $ | 52,924 | | | $ | 59,925 | | Finished goods | $ | 71,590 | | | $ | 60,481 | |
Raw materials | Raw materials | 2,872 | | | 2,827 | | Raw materials | 4,521 | | | 3,734 | |
Parts and supplies | Parts and supplies | 5,048 | | | 4,713 | | Parts and supplies | 6,063 | | | 6,432 | |
Work in progress | Work in progress | 1,760 | | | 1,633 | | Work in progress | 1,767 | | | 1,466 | |
Total inventories | Total inventories | $ | 62,604 | | | $ | 69,098 | | Total inventories | $ | 83,941 | | | $ | 72,113 | |
Finished goods inventories include newly manufactured clear brine fluids as well as used brines that are repurchased from certain customers for recycling.
NOTE 5 – INVESTMENTS
Our investments as of March 31, 2023 and December 31, 2022 consist of the following:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| (in thousands) |
Investment in CSI Compressco | $ | 6,443 | | | $ | 6,967 | |
Investment in CarbonFree | 5,939 | | | 6,139 | |
Investment in Standard Lithium | 1,520 | | | 1,180 | |
Total Investments | $ | 13,902 | | | $ | 14,286 | |
Following the closingJanuary 2021 sale of the GP Sale,general partner of CSI Compressco LP (“CSI Compressco”), we continue to own approximately 3.7% of the outstanding CSI Compressco common units (NASDAQ: CCLP) as of June 30, 2022. March 31, 2023.
We have an intellectual property joint development agreement in place with CarbonFree to evaluate potential new technologies. CarbonFree is a carbon capture company with patented technologies that capture CO2 and mineralize emissions to make commercial, carbon-negative chemicals. In December 2021, we invested $5.0 million in a convertible note issued by CarbonFree. Our exposure to potential losses by CarbonFree is limited to our investment in the convertible note and associated capitalized and accrued interest.
In addition, we are party to agreements in which Standard Lithium has the right to explore, and an option to acquire the rights to produce and extract lithium in our Arkansas leases as well as additional potential resources in the Mojave region of California. The Company receives cash and stock of Standard Lithium (NYSE:SLI) under the terms of the arrangements. The cash and stock component of consideration received is initially recorded as unearned income based on the quoted market price at the time the stock is received, then recognized in income over the contract term.
See Note 8 - “Fair Value Measurements” for further information.
In May 2021, we signed a memorandum of understanding (“MOU”) with CarbonFree, a carbon capture company with patented technologies that capture CO2 and mineralize emissions to make commercial, carbon-negative chemicals. Although the MOU expired in May 2022 at the end of its twelve-month term, we have an intellectual property joint development agreement in place with CarbonFree to evaluate potential new technologies. In December 2021, we invested $5.0 million in a convertible note issued by CarbonFree. Our exposure to potential losses by CarbonFree is limited to our investment in the convertible note and associated accrued interest.
Our investments as of June 30, 2022 and December 31, 2021, consist of the following:
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| (in thousands) |
Investment in CSI Compressco | $ | 6,862 | | | $ | 6,233 | |
Investment in CarbonFree | 5,609 | | | 5,000 | |
Investment in Standard Lithium | $ | 1,696 | | | $ | — | |
Total Investments | $ | 14,167 | | | $ | 11,233 | |
NOTE 6 – LONG-TERM DEBT AND OTHER BORROWINGS
Consolidated long-term debt as of June 30, 2022March 31, 2023 and December 31, 2021,2022 consists of the following:
| | | | Scheduled Maturity | | June 30, 2022 | | December 31, 2021 | | | Scheduled Maturity | | March 31, 2023 | | December 31, 2022 |
| | | | | | (in thousands) | | | | | (in thousands) |
Term Credit Agreement(1) | | Term Credit Agreement(1) | | September 10, 2025 | | $ | 155,282 | | | $ | 154,570 | |
Asset-Based Credit Agreement(2) | | Asset-Based Credit Agreement(2) | | May 31, 2025 | | 5,229 | | | 1,885 | |
Argentina Credit Agreement | | Argentina Credit Agreement | | October 19, 2023 | | 1,700 | | | — | |
Swedish Credit Facility | Swedish Credit Facility | | December 31, 2022 | | $ | 11 | | | $ | — | | Swedish Credit Facility | | December 31, 2023 | | 461 | | | 3 | |
Asset-based credit agreement(1) | | May 31, 2025 | | — | | | 67 | | |
Term credit agreement(2) | | September 10, 2025 | | 153,191 | | | 151,869 | | |
Total debt | Total debt | | | | 153,202 | | | 151,936 | | Total debt | | | | 162,672 | | | 156,458 | |
Less current portion | Less current portion | | | | (11) | | | — | | Less current portion | | | | (2,162) | | | (3) | |
Total long-term debt | Total long-term debt | | | | $ | 153,191 | | | $ | 151,936 | | Total long-term debt | | | | $ | 160,510 | | | $ | 156,455 | |
(1) Net of unamortized deferred financing costsdiscount of zero$3.1 million and $1.5$3.4 million as of June 30, 2022March 31, 2023 and December 31, 2021, respectively. Deferred financing costs of $1.3 million as of June 30, 2022, were classified as other long-term assets on the accompanying consolidated balance sheet as there was no outstanding balance on our asset-based credit agreement.
(2) Net of unamortized discount of $4.0 million and $4.5 million as of June 30, 2022 and December 31, 2021, respectively, and net of unamortized deferred financing costs of $5.9$4.7 million and $6.7$5.1 million as of June 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.
(2) Net of unamortized deferred financing costs of $1.0 million and $1.1 million as of March 31, 2023 and December 31, 2022, respectively.
Swedish Credit Facility
In January 2022, the Company entered into a revolving credit facility for seasonal working capital needs of subsidiaries in Sweden (“Swedish Credit Facility”). As of June 30, 2022, we had less than US$0.1 million outstanding and availability of approximately US$4.9 million under the Swedish Credit Facility. During each year, all outstanding loans under the Swedish Credit Facility must be repaid for at least 30 consecutive days. Borrowings bear interest at a rate of 2.95% per annum. The Swedish Credit Facility expires on December 31, 2022 and the Company intends to renew it annually.
FinlandTerm Credit Agreement
The Company also entered into a new As of March 31, 2023, we had $155.3 million outstanding, net of unamortized discounts and unamortized deferred financing costs under our term credit agreement guaranteed by certain accounts receivable and inventory in Finland (“FinlandTerm Credit Agreement”). The Term Credit Agreement requires us to offer to prepay a percentage of Excess Cash Flow (as defined in the Term Credit Agreement) within five business days of filing our Annual Report. As of June 30, March 31, 2023, the interest rate per annum on borrowings under the Term Credit Agreement is 10.88%. For additional information on our Term Credit agreement, see our 2022 there were US$1.4 million of letters of credit outstanding against the Finland Credit Agreement.Annual Report.
ABL Credit Agreement
As of June 30, 2022,March 31, 2023, our asset-based credit agreement (“ABL Credit Agreement’Agreement”) provides for a senior secured revolving credit facility of up to $80.0 million, with a $20.0 million accordion. The credit facility is subject to a borrowing base determined monthly by reference to the value of inventory and accounts receivable, and includes a sublimit of $20.0 million for letters of credit, a swingline loan sublimit of $11.5 million, and a $15.0 million sub-facility subject to a borrowing base consisting of certain trade receivables and inventory in the United Kingdom.
As of June 30, 2022,March 31, 2023, we had zero$6.2 million outstanding and $6.0$8.3 million in letters of credit and guarantees under our ABL Credit Agreement, respectively. Subject to compliance with the covenants, borrowing base, and other provisions of the ABL Credit Agreement that may limit borrowings, we had availability of $61.8$65.4 million under this agreement.
Argentina Credit Agreement
In January 2023, the Company entered into a revolving credit facility for certain working capital and capital expenditure needs for its subsidiary in Argentina (“Argentina Credit Facility”). As of June 30, 2022March 31, 2023, we had $153.2$1.7 million outstanding netand availability of unamortized discountsapproximately $0.3 million under the Argentina Credit Agreement. Borrowings bear interest at a rate of 2.50% per annum. The Argentina Credit Facility expires on October 19, 2023 and unamortized deferred financing costsis backed by a letter of credit under our termABL Credit Agreement.
Swedish Credit Facility
In January 2022, the Company entered into a revolving credit facility for seasonal working capital needs of subsidiaries in Sweden (“Swedish Credit Facility”). As of March 31, 2023, we had $0.5 million outstanding and availability of approximately $4.4 million under the Swedish Credit Facility. During each year, all outstanding loans under the Swedish Credit Facility must be repaid for at least 30 consecutive days. Borrowings bear interest at a rate of 2.95% per annum. The Swedish Credit Facility expires on December 31, 2023 and the Company intends to renew it annually.
Finland Credit Agreement
In January 2022, the Company also entered into an agreement guaranteed by certain accounts receivable and inventory in Finland (“TermFinland Credit Agreement”). As of March 31, 2023, there were $1.5 million of letters of credit outstanding against the Finland Credit Agreement. The TermFinland Credit Agreement requires usexpires on January 31, 2024 and the Company intends to offer to prepay a percentage of Excess Cash Flow (as defined in the Term Credit Agreement) within five business days of filing our Annual Report. As of June 30, 2022, the interest rate per annum on borrowings under the Term Credit Agreement is 7.92%. For additional information on our Term Credit agreement, see our renew it annually.
Covenants
Our credit agreements contain certain affirmative and negative covenants, including covenants that restrict the ability to pay dividends or other restricted payments. As of June 30, 2022,March 31, 2023, we are in compliance with all covenants under the credit agreements.
NOTE 7 – 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.
We have a Bromine Requirements Sales Agreement (“Sales Agreement”) to purchase a certain volume of elemental bromine from LANXESS Corporation (formerly Chemtura Corporation) (“LANXESS”), included in Product Purchase Obligations below. LANXESS notified us of a proposed non-ordinary course increase to the price of bromine, which we believe is not justified nor appropriate under the Sales Agreement. After lengthy discussions, we and LANXESS were unable to reach an agreement regarding the validity of the proposed price increase; therefore, we filed for arbitration in May 2022 seeking declaratory relief, among other relief, declaring that the proposed price increase is invalid. In September 2022, LANXESS filed a counterclaim with the American Arbitration Association seeking declaratory relief, among other relief, declaring that the proposed price increase was valid and seeking damages in the amount of the price increase from July 1, 2022 forward. In October 2022, we filed a reply to LANXESS’ counterclaim disputing the counterclaim and amending our original demand. The arbitration is currently pending, and the final hearing is set to begin on March 4, 2024. Discussions with LANXESS regarding this arbitration are ongoing. We are unable to predict the duration, scope, or impact of this proceeding on our consolidated financial statements.
There have been no other material developments in our legal proceedings during the quarter ended June 30, 2022.March 31, 2023. For aadditional discussion of our legal proceedings, please see our 20212022 Annual Report.
Product Purchase Obligations
In the normal course of our Completion Fluids & Products Division operations, we enter into supply agreements with certain manufacturers of various raw materials and finished products. Some of these agreements have terms and conditions that specify a minimum or maximum level of purchases over the term of the agreement. Other agreements require us to purchase the entire output of the raw material or finished product produced by the manufacturer. Our purchase obligations under these agreements apply only with regard to raw materials and finished products that meet specifications set forth in the agreements. We recognize a liability for the purchase of such products at the time we receive them. As of June 30, 2022,March 31, 2023, the aggregate amount of the fixed and determinable portion of the purchase obligation pursuant to our Completion Fluids & Products Division’s supply agreements was approximately $104.6$113.9 million, including $3.0$11.4 million for the remainder of 2022,2023, an average of $15.7$17.9 million per year from 20232024 to 20262027 and $40.2$30.8 million thereafter, extending through 2029.
Asset Purchase Obligation
In March 2023, we signed a purchase and sale agreement to acquire a chemical plant in Brazil to expand our completion fluids operational capacity. The new facility is adjacent to our existing facility. and the purchase price is $3.2 million, consisting of $0.6 million due at closing and two payments of $1.3 million due on each of the first and second anniversary of closing. The acquisition is expected to close during the second quarter of 2023, subject to government approval. This investment, in addition to the Gulf of Mexico and North Sea investments during the fourth quarter of 2022, complete our planned expansions in three of our key offshore markets.
NOTE 8 – FAIR VALUE MEASUREMENTS
Financial Instruments
Investments
We retained an interest in CSI Compressco (NASDAQ: CCLP) representing approximately 3.7% of CSI Compressco’s outstanding common units as of June 30, 2022.
InMarch 31, 2023 and in December 2021, we invested in a $5.0 million convertible note issued by CarbonFree. In addition, we receive cash and stock of Standard Lithium under the terms of our arrangements as noted in Note 5 - “Investments.”
Our investmentinvestments in CarbonFree isCSI Compressco and Standard Lithium are recorded in investments on our consolidated balance sheets based on the quoted market stock price (Level 1 fair value measurements). The stock component of consideration received from Standard Lithium is initially recorded as unearned income based on the quoted market price at the time the stock is received, then recognized in income over the contract term. Changes in the value of stock are recorded in other (income) expense, net in our consolidated statements of operations.
Our investment in CarbonFree is recorded in our consolidated financial statements based on an internal valuation with assistance from a third-party valuation specialist (a Level 3 fair value measurement). The valuation is impacted by key assumptions, including the assumed probability and timing of potential debt or equity offerings.
We are party The convertible note includes an option to agreements in which Standard Lithium hasconvert the right to explore, produce and extract lithium in our Arkansas leases as well as additional potential resourcesnote into equity interests issued by CarbonFree. The change in the Mojave region of California. The Company receives cash and stock of Standard Lithium (NYSE:SLI) under the termsfair value of the arrangements. The cash and stock component of consideration receivedembedded option is initially recorded as unearned income based on the quoted market price at the time the stock is received, then recognized in income over the contract term.
Our investments in CSI Compressco and Standard Lithium are recorded based on the quoted market stock price in active markets (a Level 1 fair value measurement). Changes in the value of stock are recordedincluded in other income (expense)(income) expense, net in our consolidated statements of operations. The change in the fair value of the convertible note, excluding the embedded option, is included in other comprehensive income (loss) in our consolidated statements of comprehensive income. The change in our investment in CarbonFree for the three-month period ended March 31, 2023 is as follows:
| | | | | | | |
| Three Months Ended March 31, 2023 | | |
| (in thousands) |
Balance at beginning of period | $ | 6,139 | | | |
Change in fair value of embedded option | (321) | | | |
Change in fair value of convertible note, excluding embedded option | 121 | | | |
Balance at end of period | $ | 5,939 | | | |
Recurring and nonrecurring fair value measurements by valuation hierarchy as of June 30, 2022March 31, 2023 and December 31, 2021,2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 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 | | June 30, 2022 | | (Level 1) | | (Level 2) | | (Level 3) |
| | (in thousands) |
Investment in CSI Compressco | | $ | 6,862 | | | $ | 6,862 | | | $ | — | | | $ | — | |
Investment in CarbonFree | | 5,609 | | | — | | | — | | | 5,609 | |
Investment in Standard Lithium | | 1,696 | | | 1,696 | | | — | | | — | |
| | | | | | | | |
Investments | | $ | 14,167 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 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, 2021 | | (Level 1) | | (Level 2) | | (Level 3) |
| | (in thousands) |
Investment in CSI Compressco | | $ | 6,233 | | | $ | 6,233 | | | $ | — | | | $ | — | |
Investment in CarbonFree | | $ | 5,000 | | | $ | — | | | — | | | $ | 5,000 | |
| | | | | | | | |
Investments | | $ | 11,233 | | | | | | | |
Impairments
During the second quarter of 2022, our Completion Fluids & Products and Water & Flowback Services Divisions each recorded certain inventory and long-lived tangible asset impairments. Our Water & Flowback Services Division recorded impairments, including $1.3 million of equipment, $0.2 million of inventory, and $0.5 million for land and buildings. The Completion Fluids & Products Division also recorded a $0.2 million impairment related to obsolete inventory. The inventory and equipment were written down to zero or scrap value. The fair value of land and buildings of $0.4 million was estimated based on recent sales price per square acre or square foot of comparable properties (a Level 3 fair value measurement) in accordance with the fair value hierarchy.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 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 | | March 31, 2023 | | (Level 1) | | (Level 2) | | (Level 3) |
| | (in thousands) |
Investment in CSI Compressco | | $ | 6,443 | | | $ | 6,443 | | | $ | — | | | $ | — | |
Investment in CarbonFree | | 5,939 | | | — | | | — | | | 5,939 | |
Investment in Standard Lithium | | 1,520 | | | 1,520 | | | — | | | — | |
| | | | | | | | |
Investments | | $ | 13,902 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 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, 2022 | | (Level 1) | | (Level 2) | | (Level 3) |
| | (in thousands) |
Investment in CSI Compressco | | $ | 6,967 | | | $ | 6,967 | | | $ | — | | | $ | — | |
Investment in CarbonFree | | 6,139 | | | — | | | — | | | 6,139 | |
Investment in Standard Lithium | | 1,180 | | | 1,180 | | | — | | | — | |
| | | | | | | | |
Investments | | $ | 14,286 | | | | | | | |
Other
The fair values of cash, restricted cash, accounts receivable, accounts payable, accrued liabilities, short-term borrowings and long-term debt pursuant to TETRA’sour Term Credit Agreement, ABL Credit Agreement, SwedishArgentina Credit Agreement, and TermSwedish Credit Agreement approximate their carrying amounts. See Note 6 - “Long-Term Debt and Other Borrowings” for further discussion.
NOTE 9 – 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 June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in thousands) |
Number of weighted average common shares outstanding | 127,992 | | | 126,583 | | | 127,627 | | | 126,365 | |
Assumed exercise of equity awards and warrants | 2,107 | | | — | | | 2,027 | | | — | |
Average diluted shares outstanding | 130,099 | | | 126,583 | | | 129,654 | | | 126,365 | |
The average diluted shares outstanding excludes the impact of certain outstanding equity awards and warrants of 2,013,000 and 1,740,000 shares for the three and six-month periods ended June 30, 2021, respectively, as the inclusion of these shares would have been anti-dilutive due to the net loss from continuing operations recorded during these periods. | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
| (in thousands) |
Number of weighted average common shares outstanding | 128,940 | | | 127,259 | | | | | |
Assumed vesting of equity awards | 1,035 | | | 1,952 | | | | | |
Average diluted shares outstanding | 129,975 | | | 129,211 | | | | | |
NOTE 10 – INDUSTRY SEGMENTS
We manage our operations through 2two segments: Completion Fluids & Products Division and Water & Flowback Services Division.
Summarized financial information concerning the business segments is as follows:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended March 31, | |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | |
| | | (in thousands) | | (in thousands) |
Revenues from external customers | Revenues from external customers | | | | | | | | Revenues from external customers | | | | |
Product sales | Product sales | | | | | Product sales | | | | |
Completion Fluids & Products Division | Completion Fluids & Products Division | $ | 70,227 | | | $ | 62,565 | | | $ | 140,115 | | | $ | 107,583 | | Completion Fluids & Products Division | $ | 65,515 | | | $ | 69,888 | | |
Water & Flowback Services Division | Water & Flowback Services Division | 74 | | | 18 | | | 241 | | | 32 | | Water & Flowback Services Division | 20 | | | 167 | | |
Consolidated | Consolidated | $ | 70,301 | | | $ | 62,583 | | | $ | 140,356 | | | $ | 107,615 | | Consolidated | $ | 65,535 | | | $ | 70,055 | | |
| Services | Services | | | | | Services | | | | |
Completion Fluids & Products Division | Completion Fluids & Products Division | $ | 4,571 | | | $ | 2,042 | | | $ | 7,877 | | | $ | 3,545 | | Completion Fluids & Products Division | $ | 3,527 | | | $ | 3,306 | | |
Water & Flowback Services Division | Water & Flowback Services Division | 65,844 | | | 37,701 | | | 122,520 | | | 68,490 | | Water & Flowback Services Division | 77,147 | | | 56,676 | | |
Consolidated | Consolidated | $ | 70,415 | | | $ | 39,743 | | | $ | 130,397 | | | $ | 72,035 | | Consolidated | $ | 80,674 | | | $ | 59,982 | | |
| | Total revenues | Total revenues | | | | | Total revenues | | | | |
Completion Fluids & Products Division | Completion Fluids & Products Division | $ | 74,798 | | | $ | 64,607 | | | $ | 147,992 | | | $ | 111,128 | | Completion Fluids & Products Division | $ | 69,042 | | | $ | 73,194 | | |
Water & Flowback Services Division | Water & Flowback Services Division | 65,918 | | | 37,719 | | | 122,761 | | | 68,522 | | Water & Flowback Services Division | 77,167 | | | 56,843 | | |
| Consolidated | Consolidated | $ | 140,716 | | | $ | 102,326 | | | $ | 270,753 | | | $ | 179,650 | | Consolidated | $ | 146,209 | | | $ | 130,037 | | |
| Income (loss) before taxes | Income (loss) before taxes | | | | | Income (loss) before taxes | | | | |
Completion Fluids & Products Division | Completion Fluids & Products Division | $ | 15,261 | | | $ | 16,427 | | | $ | 34,553 | | | $ | 25,438 | | Completion Fluids & Products Division | $ | 18,442 | | | $ | 19,292 | | |
Water & Flowback Services Division | Water & Flowback Services Division | 1,644 | | | (4,978) | | | 4,326 | | | (10,458) | | Water & Flowback Services Division | 6,378 | | | 2,682 | | |
Interdivision eliminations | 3 | | | 3 | | | 6 | | | 6 | | |
Interdivision Eliminations | | Interdivision Eliminations | — | | | 3 | | |
Corporate Overhead(1) | Corporate Overhead(1) | (15,628) | | | (16,722) | | | (28,671) | | | (32,031) | | Corporate Overhead(1) | (17,286) | | | (13,043) | | |
Consolidated | Consolidated | $ | 1,280 | | | $ | (5,270) | | | $ | 10,214 | | | $ | (17,045) | | Consolidated | $ | 7,534 | | | $ | 8,934 | | |
(1) Amounts reflected include the following general corporate expenses:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended March 31, | |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | |
| | | (in thousands) | | (in thousands) |
General and administrative expense | General and administrative expense | $ | 11,542 | | | $ | 9,543 | | | $ | 21,888 | | | $ | 22,564 | | General and administrative expense | $ | 11,059 | | | $ | 10,346 | | |
Depreciation and amortization | Depreciation and amortization | 172 | | | 248 | | | 363 | | | 418 | | Depreciation and amortization | 109 | | | 191 | | |
Interest expense | Interest expense | 3,894 | | | 4,044 | | | 7,541 | | | 9,107 | | Interest expense | 5,460 | | | 3,647 | | |
Warrants fair value adjustment (income) expense | — | | | 2,698 | | | — | | | 3,021 | | |
Other general corporate income, net | 20 | | | 189 | | | (1,121) | | | (3,079) | | |
| Other general corporate (income) expense, net | | Other general corporate (income) expense, net | 658 | | | (1,141) | | |
Total | Total | $ | 15,628 | | | $ | 16,722 | | | $ | 28,671 | | | $ | 32,031 | | Total | $ | 17,286 | | | $ | 13,043 | | |
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 should also should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 20212022 filed with the Securities and Exchange Commission (“SEC”) on February 28, 27, 2023 (“2022 (“2021 Annual Report”). This discussion includes forward-looking statements that involve certain risks and uncertainties. Business Overview
We are an industrial and oil and gas products and services company operating on six continents, focused on bromine-based completion fluids, calcium chloride, water management solutions, frac flowback and production well testing services. Calcium chloride is used in the oil and gas industry, and also has broad industrial applications to the agricultural, road, food and beverage and lithium production markets. We are composed of two segments – Completion Fluids & Products Division and Water & Flowback Services Division.
Customer activity levels continued to trend upward as sustained high oil prices increased to an average of approximately $109 per barrel for the second quarter of 2022, and natural gas prices averaged $7.50 per million Btu. As a result, second quarterFirst-quarter consolidated revenue of $270.8$146.2 million is verywas comparable to thefourth-quarter levels and greater than pre-pandemic period, butlevels, although with significantly fewer operating frac crews in the United States.
Completion Fluids & Products Division revenues were slightly higherincreased 4% sequentially with the seasonal increase for our Northern Europe industrial chemicals business partially offset by lower Gulf of Mexico and international fluid sales as the first quarter benefiteddespite significant projects that had previously moved up from sales pulling forward from the second quarter. However with much higher oil prices continuing to drive demand, revenues were significantly higher compared to the prior year quarter, primarily due to higher completions activity in the Gulf of Mexico and international markets. While drilling and completion activity has not returned to pre-pandemic levels, we have continued to successfully leverage opportunities to expand integrated services to completion fluids customers, resulting in Completion Fluids & Products revenues reaching near pre-pandemic levels. Our Completion Fluids & Products Division also continued to ship TETRA's high purity zinc bromine solution, TETRA PureFlow® to Eos Energy Enterprises, Inc. ("Eos") (NASDAQ: EOSE) under our recent strategic partnership. Our sales to Eos increased materially during the second quarter compared to the first quarter of 2022 as Eos expands its production2023 into the fourth quarter of 2022. The stronger performance was also driven by improved pricing and volumes in the industrial chemicals business where capacity is almost back to meet its growing backlog andlevels experienced prior to service its increasing number of identified opportunities
We have not historically directly purchased any significant volumes of raw materials from Russia nor from Ukraine. Additionally, we have not historically sold any significant volumes of product to Russia or to Ukraine. However, one of our raw material providers sourced one of their raw materials from Russia or Ukraine. Because of the ongoing conflict between Russia and Russia/Ukraine toward the end ofconflict. Results for the first quarter of 2023 also reflect a full-quarter contribution from the fluids acquisition late last year in the North Sea, which performed above expectations. The outlook for international and offshore markets activity growth remains strong. With the planned expansion of our primary European supplier of certain raw materials advised us of supply constraints with one of their suppliers of a key raw material usedBrazil completion fluids blending and storage facility in their manufacturing process. This raw material is a widely used, global commodity but the disruption to the current supply chain has caused some impact on their production which in turn has caused a reduction in delivered volumes of certain raw materials to our plant in Finland where we manufacture calcium chloride, which has decreased our calcium chloride production volumes and had some impact on second quarter margins. Our supplier has sourced their material from an alternative locationof 2023, we have now completed or committed to three strategic investments to grow our market position and resumed supplying reduced volumes to us. We are also continuing to work with secondary and tertiary raw material providers on options to address the situation and mitigate the financial impact and we are told from our primary provider that they expect improved deliveries and a more normalized supply chain as they progress through the second half of the year. The exact financial impact remains difficult to quantify at this time and is dependent on our ability to find alternative sources of certain raw materials from suppliers not directly or indirectly impacted by the conflict or the ability of our primary supplier to source alternative raw material sources.add capacity in key offshore markets.
Our Water & Flowback Services revenues improved over the first quarter andincreased significantly compared to the secondfirst quarter of 2021 due to a combination of continued increasesthe prior year, driven primarily by growth in customer activity levels and continued price recovery, particularlyour domestic TETRA SandStormTM business, as well as from the first two early production facilities in the United States onshore land business. The second quarter revenue for our United States land business was the highest sinceLatin America that became operational in the third quarter of 2019, despite significantly lower drilling2022. The early production facilities are longer-term, high-margin projects with stable and fracking activity compared to prior years. We continue to addpredictable cash flows and we anticipate commencing operation on a third early production facility in the second quarter of 2023. Our fleet of TETRA SandStormTM (“SandStorm”) units to United States onshore marketsadvanced cyclone technology separators remains at rates approaching pre-pandemic pricing. We continue to see strong utilization for our SandStorm technology and continue to invest additional capital for new units as activity remains strong. During the quarter, we secured a patent on this unique sand filtration technology. Our focus on produced water treatment and recycling continues to generate results with four new recycling projects added during the second quarter. Revenue growth
was a result of the continued increase in the number of integrated projects and customers, high utilization with continued market penetration and positive pricing progression. Water & Flowback Services revenues decreased slightly compared to the fourth quarter due to the timing of SandStorm units and market share gains with private oil and gas operators.certain customer completion schedules.
We are committed to pursuing low-carbon energy initiatives that leverage our fluids and aqueous chemistry core competencies, our significant bromine and lithium assets and technologies, and our leading calcium chloride production capabilities. During the first quarter of 2022, we completed the drilling of our Arkansas exploration well and, during the second quarter of 2022, we secured samples for multiple Smackover formation brine zones. Ongoingmaiden inferred bromine and lithium fluid analysis from these samples is being used to progress abrine resource estimation report for both the bromine and lithium in our approximately 31,100 net acre brine leases in Arkansas. The resource report is expected to be completedleased acreage in the third quarter of 2022. We are alsoSmackover Formation in the process of completing an engagement agreement with an engineering firm to begin work on a Preliminary Economic Assessment (“PEA”) to determine the economics of developing 3,600 net acres under which we hold exclusive brine rights to meet the demand for bromine-based fluids for both a growing oil and gas marketSouthwest Arkansas, as well as a rapidly growing energy storage market. In additionfront-end engineering and design study for the design of a brine-to-bromine processing plant, pipeline and related assets. Additional steps are required before making a decision to develop the bromine we planassets, including further studies to ultimately extract lithium fromanalyze the same brine feed, which we expect will greatly benefitresource and completion of a pre-feasibility and/or feasibility study. A second exploratory well on our acreage in Arkansas is in progress as of April 28, 2023 with the financial returns forintent to improve the project.
Substantially allaccuracy of our former Compression Division’s operations were conducted through our partially-owned CSI Compressco subsidiary. On January 29, 2021, we closed the sale of the general partner of CSI Compressco, which included the sale of the incentive distribution rights (“IDRs”) in CSI Compresscolithium and approximately 23.1% of the outstanding limited partner interests in CSI Compressco, referred to as the “GP Sale.” We recorded a book gain of $120.6 million during 2021 in connection with the GP Sale. This gain, most of which was non-cash, was a function of CSI Compressco having a negative carrying value within our consolidated balance sheet due to our share of cumulative losses and distributions. We have reflected the operations of our former Compression Division as discontinued operations for all periods presented. See Note 2 – “Discontinued Operations” in the Notes to Consolidated Financial Statements for further information.bromine resource estimates.
Results of Operations
The following information should be read in conjunction with the Consolidated Financial Statements and the associated Notes contained elsewhere in this report. In November 2020, the SEC issued a final rule to modernize and simplify Management’s Discussion and Analysis and certain financial disclosure requirements in SEC Regulation S-K. As permitted by this final rule, theThe analysis herein reflects the optional approach to discuss results of operations on a sequential-quarter basis, which we believe will provideprovides information that is most useful in assessing our quarterly results of operations going forward.operations.
Three months ended June 30, 2022March 31, 2023 compared with three months ended MarchDecember 31, 2022.
Consolidated Comparisons
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Period to Period Change |
| June 30, | | March 31, | | $ Change | | % Change |
| 2022 | | 2022 | | |
| (in thousands, except percentages) |
Revenues | $ | 140,716 | | | $ | 130,037 | | | $ | 10,679 | | | 8.2 | % |
Gross profit | 28,107 | | | 32,420 | | | (4,313) | | | (13.3) | % |
Gross profit as a percentage of revenue | 20.0 | % | | 24.9 | % | | | | |
Exploration and appraisal costs | 634 | | | 1,930 | | | (1,296) | | | (67.2) | % |
General and administrative expense | 23,620 | | | 20,643 | | | 2,977 | | | 14.4 | % |
General and administrative expense as a percentage of revenue | 16.8 | % | | 15.9 | % | | | | |
Interest expense, net | 3,610 | | | 3,324 | | | 286 | | | 8.6 | % |
| | | | | | | |
Other income, net | (1,037) | | | (2,411) | | | 1,374 | | | (57.0) | % |
Income before taxes and discontinued operations | 1,280 | | | 8,934 | | | (7,654) | | | (85.7) | % |
Income before taxes and discontinued operations as a percentage of revenue | 0.9 | % | | 6.9 | % | | | | |
(Benefit) provision for income taxes | (479) | | | 1,200 | | | (1,679) | | | NM(1) |
Income before discontinued operations | 1,759 | | | 7,734 | | | (5,975) | | | (77.3) | % |
Discontinued operations: | | | | | | | |
Loss from discontinued operations, net of taxes | (34) | | | (15) | | | (19) | | | 126.7 | % |
Net income | 1,725 | | | 7,719 | | | (5,994) | | | (77.7) | % |
Loss attributable to noncontrolling interests | 20 | | | 1 | | | 19 | | | NM |
Net income attributable to TETRA stockholders | $ | 1,745 | | | $ | 7,720 | | | $ | (5,975) | | | (77.4) | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Period to Period Change |
| March 31, | | December 31, | | $ Change | | % Change |
| 2023 | | 2022 | | |
| (in thousands, except percentages) |
Revenues | $ | 146,209 | | | $ | 147,448 | | | $ | (1,239) | | | (0.8) | % |
Gross profit | 36,323 | | | 31,111 | | | 5,212 | | | 16.8 | % |
Gross profit as a percentage of revenue | 24.8 | % | | 21.1 | % | | | | |
Exploration and pre-development costs | 720 | | | 3,135 | | | (2,415) | | | (77.0) | % |
General and administrative expense | 23,191 | | | 23,846 | | | (655) | | | (2.7) | % |
General and administrative expense as a percentage of revenue | 15.9 | % | | 16.2 | % | | | | |
Interest expense, net | 5,092 | | | 4,900 | | | 192 | | | 3.9 | % |
| | | | | | | |
Other (income) expense, net | (214) | | | 393 | | | (607) | | | (154.5) | % |
Income (loss) before taxes and discontinued operations | 7,534 | | | (1,163) | | | 8,697 | | | NM(1) |
Income (loss) before taxes and discontinued operations as a percentage of revenue | 5.2 | % | | (0.8) | % | | | | |
Provision for income taxes | 1,489 | | | 666 | | | 823 | | | 123.6 | % |
Income (loss) before discontinued operations | 6,045 | | | (1,829) | | | 7,874 | | | (430.5) | % |
Discontinued operations: | | | | | | | |
Loss from discontinued operations, net of taxes | (12) | | | (75) | | | 63 | | | (84.0) | % |
Net income (loss) | 6,033 | | | (1,904) | | | 7,937 | | | (416.9) | % |
Loss attributable to noncontrolling interests | 7 | | | — | | | 7 | | | 100.0 | % |
Net income (loss) attributable to TETRA stockholders | $ | 6,040 | | | $ | (1,904) | | | $ | 7,944 | | | (417.2) | % |
(1) Percent change is not meaningful
Consolidated revenuesincreased are comparable between the current and previous quarters, with the decrease in revenues from thecurrent quarter primarily due to Water & Flowback Services division mostly offset by an increase in overall activity for both the Completion Fluids & Products division. See Divisional Comparisons section below for a more detailed discussion of the change in our revenues.
Consolidated gross profit as a percentage of revenue increased primarily due to our Completion Fluids & Products division benefiting from increased overall activity levels and margins, as well as a $2.9 million insurance settlement received in March 2023, which was related to damage to our Lake Charles facility during Hurricane Laura in 2020. See Divisional Comparisons section below for additional discussion.
Consolidated exploration and pre-development costs decreased primarily due to completion of the front-end engineering and design study for our potential brine to bromine processing plant in Southwest Arkansas during the prior quarter.
Consolidated other (income) expense, net, increased in the current quarter, compared to the prior quarter primarily due to a $0.9 million increase in unrealized gain from our Standard Lithium shares received in April 2022 and a $1.5 million decrease in foreign exchange losses compared to the previous quarter. These changes are partially offset by a $1.4 million increase in unrealized loss due to the change in the unit price of the CSI Compressco common units we own and a $0.4 million increase in unrealized loss from the change in fair value of the CarbonFree convertible note embedded option.
Consolidated provision for income tax was $1.5 million during the current quarter, compared to a $0.7 million provision during the prior quarter. Our consolidated effective tax rate for the three months ended March 31, 2023 was 19.8% due to income generated during the quarter, partially offset by the utilization of net operating loss carryforwards in the United States and certain other non-U.S. jurisdictions for which a valuation allowance had been established. 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 United States and certain other non-U.S. jurisdictions.
Divisional Comparisons
Completion Fluids & Products Division
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Period to Period Change |
| March 31, | | December 31, | | $ Change | | % Change |
| 2023 | | 2022 | | |
| (in thousands, except percentages) |
Revenues | $ | 69,042 | | | $ | 66,219 | | | $ | 2,823 | | | 4.3 | % |
Gross profit | 25,010 | | | 19,993 | | | 5,017 | | | 25.1 | % |
Gross profit as a percentage of revenue | 36.2 | % | | 30.2 | % | | | | |
Exploration and pre-development costs | 720 | | | 3,135 | | | (2,415) | | | (77.0) | % |
General and administrative expense | 7,173 | | | 6,730 | | | 443 | | | 6.6 | % |
General and administrative expense as a percentage of revenue | 10.4 | % | | 10.2 | % | | | | |
Interest income, net | (395) | | | (304) | | | (91) | | | 29.9 | % |
Other income, net | (930) | | | (24) | | | (906) | | | NM(1) |
Income before taxes and discontinued operations | $ | 18,442 | | | $ | 10,456 | | | $ | 7,986 | | | 76.4 | % |
Income before taxes and discontinued operations as a percentage of revenue | 26.7 | % | | 15.8 | % | | | | |
(1) Percent change is not meaningful
Revenues for our Completion Fluids & Products Division increased primarily due to increased pricing for industrial chemical sales, as well as higher sales volume in Europe.
Gross profit for our Completion Fluids & Products Division increased compared to the prior quarter period primarily due to the pricing and sales volume impact mentioned above, as well as a $2.9 million insurance settlement received in March 2023 related to damage to our Lake Charles facility during Hurricane Laura in 2020. Gross profit as a percentage of revenue improved compared to the prior quarter due to the insurance settlement related to our Lake Charles facility and the shift to a higher margin mix of products. Our profitability in future periods will continue to be affected by the mix of our products and services, market demand for our products and services, drilling and completions activity, supply chain challenges and inflationary pressures.
Income before taxes and discontinued operations for our Completion Fluids & Products Division increased primarily due to the $5.0 million higher gross profit described above, a $2.4 million decrease in exploration and pre-development costs associated with front-end engineering design for our potential Southwest Arkansas bromine development, a $0.4 million decrease in foreign exchange losses and a $0.9 million increase in unrealized gain from our investment in Standard Lithium shares received in April 2022. These changes were partially offset by the $0.4 million unrealized loss from the change in fair value of the CarbonFree convertible note embedded option.
Water & Flowback Services Division
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Period to Period Change |
| March 31, | | December 31, | | $ Change | | % Change |
| 2023 | | 2022 | | |
| (in thousands, except percentages) |
Revenues | $ | 77,167 | | | $ | 81,229 | | | $ | (4,062) | | | (5.0) | % |
Gross profit | 11,422 | | | 11,281 | | | 141 | | | 1.2 | % |
Gross profit as a percentage of revenue | 14.8 | % | | 13.9 | % | | | | |
General and administrative expense | 4,959 | | | 5,895 | | | (936) | | | (15.9) | % |
General and administrative expense as a percentage of revenue | 6.4 | % | | 7.3 | % | | | | |
| | | | | | | |
Interest income, net | 27 | | | 140 | | | (113) | | | (80.7) | % |
Other income, net | 58 | | | 322 | | | (264) | | | (82.0) | % |
Income before taxes and discontinued operations | $ | 6,378 | | | $ | 4,924 | | | $ | 1,454 | | | 29.5 | % |
Income before taxes and discontinued operations as a percentage of revenue | 8.3 | % | | 6.1 | % | | | | |
Revenues for our Water & Flowback Services Division decreased in the current quarter compared to the prior quarter, primarily in our Production Testing business due to the lower overall customer activity in the North America onshore business impacted by the timing of customer completion schedules.
Gross profit for our Water & Flowback Services Division remained flat compared to the prior quarter as the effect of lower revenue was offset by a more profitable sales mix. Gross profit as a percentage of revenue increased reflecting the continued margin expansion efforts driven by investments in technology, integration, digitalization and the benefit of our early production facilities in Argentina. Our SandStorm fleet remains at high utilization with continued market penetration and positive pricing progression.
The Water & Flowback Services Division income before taxes and discontinued operations increased due to a decrease in general and administrative expenses, including a $0.4 million decrease in wages and benefits, a $0.3 million decrease in general expenses and a $0.3 million decrease in professional fees, as well as a $0.3 million decrease in foreign exchange losses.
Corporate Overhead
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Period to Period Change |
| March 31, | | December 31, | | $ Change | | % Change |
| 2023 | | 2022 | | |
| (in thousands, except percentages) |
Depreciation and amortization | $ | 109 | | | $ | 163 | | | $ | (54) | | | (33.1) | % |
General and administrative expense | 11,059 | | | 11,221 | | | (162) | | | (1.4) | % |
Interest expense, net | 5,460 | | | 5,064 | | | 396 | | | 7.8 | % |
| | | | | | | |
Other expense, net | 658 | | | 95 | | | 563 | | | 592.6 | % |
Loss before taxes and discontinued operations | $ | (17,286) | | | $ | (16,543) | | | $ | (743) | | | 4.5 | % |
Corporate overhead loss before taxes and discontinued operations increased primarily due to a $0.4 million increase in interest expense due to an increase in the interest rate on our Term Credit Agreement and higher borrowings under our ABL Credit Agreement. Other expense, net increased primarily due to a $1.4 million decrease in unrealized gains related to unit price changes of our investment in CSI Compressco, partially offset by a $0.8 million decrease in foreign exchange losses.
Three months ended March 31, 2023 compared with three months ended March 31, 2022.
Consolidated Comparisons
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | |
| March 31, | | Period to Period Change |
| 2023 | | 2022 | | $ Change | | % Change |
| (in thousands, except percentages) |
Revenues | $ | 146,209 | | | $ | 130,037 | | | $ | 16,172 | | | 12.4 | % |
Gross profit | 36,323 | | | 32,420 | | | 3,903 | | | 12.0 | % |
Gross profit as a percentage of revenue | 24.8 | % | | 24.9 | % | | | | |
Exploration and pre-development costs | 720 | | | 1,930 | | | (1,210) | | | (62.7) | % |
General and administrative expense | 23,191 | | | 20,643 | | | 2,548 | | | 12.3 | % |
General and administrative expense as a percentage of revenue | 15.9 | % | | 15.9 | % | | | | |
Interest expense, net | 5,092 | | | 3,324 | | | 1,768 | | | 53.2 | % |
| | | | | | | |
Other income, net | (214) | | | (2,411) | | | 2,197 | | | (91.1) | % |
Income before taxes and discontinued operations | 7,534 | | | 8,934 | | | (1,400) | | | 15.7 | % |
Income before taxes and discontinued operations as a percentage of revenue | 5.2 | % | | 6.9 | % | | | | |
Provision for income taxes | 1,489 | | | 1,200 | | | 289 | | | 24.1 | % |
Income before discontinued operations | 6,045 | | | 7,734 | | | (1,689) | | | 21.8 | % |
Discontinued operations: | | | | | | | |
Loss from discontinued operations, net of taxes | (12) | | | (15) | | | 3 | | | (20.0) | % |
Net income | 6,033 | | | 7,719 | | | (1,686) | | | (21.8) | % |
Loss attributable to noncontrolling interests | 7 | | | 1 | | | 6 | | | 600.0 | % |
Net income attributable to TETRA stockholders | $ | 6,040 | | | $ | 7,720 | | | $ | (1,680) | | | (21.8) | % |
Consolidated revenues increased in the current year primarily due to improving industry conditions compared to the prior year for our Water & Flowback Services division, as sustained high commodity prices continued for both crude oil and natural gas.well as the first two early production facilities in Argentina that commenced operations in the third quarter of 2022, partially offset by lower revenues from our Completion Fluids & Products division. See Divisional Comparisons section below for a more detailed discussion of the change in our revenues.
Consolidated gross profit increased in the current year primarily due to the increase in revenue, partially offset by an increase in costs associated with the higher Water & Flowback Services division activity levels described above. Gross profit as a percentage of revenue decreased primarilyslightly due to a $2.9 million insurance settlement received in March 2023 associated with damage to our Lake Charles facility in 2020, compared to the $3.8 million insurance settlement received in March 2022 from prior damage to our Lake Charles facility, and $2.3 million of impairments recognized in the current quarter. See Divisional Comparisons section below for additional discussion.2022.
Consolidated exploration and appraisalpre-development costs decreased as$1.2 million compared to the drillingprior year following completion of the front-end engineering and design study during the fourth quarter of 2022 associated with our exploratory brine well in Arkansas was completed during the first quarter of 2022 and sample analysis continued during the second quarter.Arkansas.
Consolidated general and administrative expenses increased compared to the prior year, primarily due to $2.3$2.1 million of increased salarywage and employee expenses. Higher salarybenefit-related expenses were mainly due todriven by divisional headcount additions as operational activity levels increased, as well as higher short and long-term variable incentive costs drivenexpense and higher travel expenses, partially offset by strong year-to-date financial and stock price performance, as well as divisional headcount additionslower stock-based compensation expense. In addition, professional fees increased $0.5 million compared to support increased activity levels.the prior year.
19Consolidated interest expense, net, increased in the current year primarily due to an increase in the interest rate on our Term Credit Agreement and higher borrowings under our ABL Credit Agreement.
Consolidated other income, net, decreased in the current quarter,year, compared to the prior quarteryear primarily due to the changea $1.6 million net decrease in the unit price of theunrealized gains on investments in CSI Compressco, common units we retained, from a $1.1 million gain in the prior quarter to a $0.5 million loss in the current period,Standard Lithium and CarbonFree, and a $0.8$1.0 million unrealized loss from our investmentdecrease in Standard Lithium shares received in April 2022. These decreases are partially offset by a $0.6 million unrealized gain on our investment in CarbonFree recognized during the second quarter, as well as a $0.3 million increase in gains on asset sales.foreign exchange gains.
Consolidated benefitprovision for income taxtaxes was $0.5$1.5 million during the current quarter,year, compared to a $1.2 million expense during the prior quarter.year. Our consolidated effective tax rate for the three months ended June 30, 2022current year was negative 37.4% due primarily19.8% during the current year, compared to 13.4% during the prior year. The increase in our tax provision and effective tax rate compared to the impact that changesprior year was primarily due to income generated in the full-year forecast had on our interim reporting under Accounting Standards Codification 740, Income Taxes.certain non-U.S. jurisdictions for which a net operating loss carryforward is not available for offset. 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 United States as well as in certain non-U.S. jurisdictions.
Divisional Comparisons
Completion Fluids & Products Division
| | | Three Months Ended | | Period to Period Change | | Three Months Ended | |
| | June 30, | | March 31, | | $ Change | | % Change | | March 31, | | Period to Period Change |
| | 2022 | | 2022 | | | 2023 | | 2022 | | $ Change | | % Change |
| | (in thousands, except percentages) | | (in thousands, except percentages) |
Revenues | Revenues | $ | 74,798 | | | $ | 73,194 | | | $ | 1,604 | | | 2.2 | % | Revenues | $ | 69,042 | | | $ | 73,194 | | | $ | (4,152) | | | (5.7) | % |
Gross profit | Gross profit | 22,062 | | | 26,147 | | | (4,085) | | | (15.6) | % | Gross profit | 25,010 | | | 26,147 | | | (1,137) | | | (4.3) | % |
Gross profit as a percentage of revenue | Gross profit as a percentage of revenue | 29.5 | % | | 35.7 | % | | | | Gross profit as a percentage of revenue | 36.2 | % | | 35.7 | % | | | | |
Exploration and appraisal costs | 635 | | | 1,930 | | | (1,295) | | | (67.1) | % | |
Exploration and pre-development costs | | Exploration and pre-development costs | 720 | | | 1,930 | | | (1,210) | | | (62.7) | % |
General and administrative expense | General and administrative expense | 6,184 | | | 6,059 | | | 125 | | | 2.1 | % | General and administrative expense | 7,173 | | | 6,059 | | | 1,114 | | | 18.4 | % |
General and administrative expense as a percentage of revenue | General and administrative expense as a percentage of revenue | 8.3 | % | | 8.3 | % | | | | | General and administrative expense as a percentage of revenue | 10.4 | % | | 8.3 | % | | | | |
Interest income, net | Interest income, net | (283) | | | (323) | | | 40 | | | (12.4) | % | Interest income, net | (395) | | | (323) | | | (72) | | | 22.3 | % |
Other (income) expense, net | 265 | | | (811) | | | 1,076 | | | (132.7) | % | |
Income before taxes | $ | 15,261 | | | $ | 19,292 | | | $ | (4,031) | | | (20.9) | % | |
Income before taxes as a percentage of revenue | 20.4 | % | | 26.4 | % | | | | | |
Other income, net | | Other income, net | (930) | | | (811) | | | (119) | | | 14.7 | % |
Income before taxes and discontinued operations | | Income before taxes and discontinued operations | $ | 18,442 | | | $ | 19,292 | | | $ | (850) | | | (4.4) | % |
Income before taxes and discontinued operations as a percentage of revenue | | Income before taxes and discontinued operations as a percentage of revenue | 26.7 | % | | 26.4 | % | | | | |
Revenues for our Completion Fluids & Products Division increased slightly asdecreased compared to the seasonal uplift from our Northern European chemicals business wasprior year primarily due to lower activity in the Gulf of Mexico due to the timing of projects, partially offset by lower Gulf of Mexicohigher sales volumes in Latin America and international fluid sales asonshore in the first quarter benefited from sales pulled forward from the second quarter.United States.
Gross profit for our Completion Fluids & Products Division decreased compared to the prior quarter periodyear due to a $3.8 million insurance settlement received in March 2022 from damage to our Lake Charles facility. Completion Fluids & Products Division profitability in future periods will continue to be affected by the mix of its products and services, market demand for our products and services, drilling and completions activity, supply chain challenges and inflationary pressures.
Pretax income for our Completion Fluids & Products Division decreased primarily due to the $4.1 million lower gross profit described above, a $1.1 million increase in foreign exchange losses and a $0.8 million unrealized loss from our investment in Standard Lithium shares received in April 2022. These decreases were partially offset by a $1.3 million decrease in costs associated with the conclusion of our exploratory brine well drilled during the first quarter of 2022 as well as $0.6 million unrealized gain on our investment in CarbonFree recognized during the second quarter.
Water & Flowback Services Division
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Period to Period Change |
| June 30, | | March 31, | | $ Change | | % Change |
| 2022 | | 2022 | | |
| (in thousands, except percentages) |
Revenues | $ | 65,918 | | | $ | 56,843 | | | $ | 9,075 | | | 16.0 | % |
Gross profit | 6,214 | | | 6,462 | | | (248) | | | (3.8) | % |
Gross profit as a percentage of revenue | 9.4 | % | | 11.4 | % | | | | |
General and administrative expense | 5,894 | | | 4,238 | | | 1,656 | | | 39.1 | % |
General and administrative expense as a percentage of revenue | 8.9 | % | | 7.5 | % | | | | |
| | | | | | | |
Interest income, net | (2) | | | — | | | (2) | | | NM |
Other income, net | (1,322) | | | (458) | | | (864) | | | 188.6 | % |
Income before taxes | $ | 1,644 | | | $ | 2,682 | | | $ | (1,038) | | | (38.7) | % |
Income before taxes as a percentage of revenue | 2.5 | % | | 4.7 | % | | | | |
Revenues for our Water & Flowback Services Division increased for both water management and production testing in the current quarter compared to the prior quarter, primarily due to the continued higher overall customer activity in the North America onshore business. The higher customer activity can be attributed to sustained high commodity prices.
Gross profit for our Water & Flowback Services Division decreased compared to the prior quarter due to impairment expenses for obsolete assets and inventory. Excluding the impairment, gross profit is consistent with increased activity level with similar pricing fall through. We expect the third-quarter Adjusted EBITDA margins to further improve reflecting continued better pricing for our United States onshore land business, stronger activity levels and the commencement of operations of two early production facilities in Argentina.
The Water & Flowback Services Division pretax income decreased due to a decrease in gross profit and an increase in general and administrative expense. General and administrative expense increased due to higher compensation and benefits from higher salaries, additional headcountrevenues, as well as a $0.5 million increase professional services from contract labor. Income for our Water & Flowback Services Division also increased due to a $0.2 million increase in gains on sales of assets and $0.7 million increase in foreign exchange gains.
Corporate Overhead
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Period to Period Change |
| June 30, | | March 31, | | $ Change | | % Change |
| 2022 | | 2022 | | |
| (in thousands, except percentages) |
Depreciation and amortization | $ | 171 | | | $ | 191 | | | $ | (20) | | | (10.5) | % |
General and administrative expense | 11,542 | | | 10,346 | | | 1,196 | | | 11.6 | % |
Interest expense, net | 3,895 | | | 3,647 | | | 248 | | | 6.8 | % |
| | | | | | | |
Other (income) expense, net | 20 | | | (1,141) | | | 1,161 | | | (101.8) | % |
Loss before taxes | $ | (15,628) | | | $ | (13,043) | | | $ | (2,585) | | | 19.8 | % |
Corporate overhead pretax loss increased due to a $1.2 million increase in general and administrative expense and a $1.2$0.9 million decrease in other (income) expense, net. General and administrative expense increasedinsurance settlements received in 2023 compared to the prior quarter primarily due to higher salary costs associated with the impact of higher stock price on certain long-term incentive awards and the impact of current year financial performance on accrued short-term incentives. Other (income) expense, net decreased compared to the prior quarter, from a $1.1 million gain in the prior quarter to a $0.5 million loss in the current period, due to the change in the unit price of the CSI Compressco common units we retained. These changes were partially offset by a $0.5 million increase in foreign exchange gains.
Six months ended June 30, 2022 compared with six months ended June 30, 2021.
Consolidated Comparisons
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended | | | | |
| June 30, | | Period to Period Change |
| 2022 | | 2021 | | $ Change | | % Change |
| (in thousands, except percentages) |
Revenues | $ | 270,753 | | | $ | 179,650 | | | $ | 91,103 | | | 50.7 | % |
Gross profit | 60,527 | | | 24,302 | | | 36,225 | | | 149.1 | % |
Gross profit as a percentage of revenue | 22.4 | % | | 13.5 | % | | | | |
Exploration and appraisal costs | 2,564 | | | — | | | 2,564 | | | 100.0 | % |
General and administrative expense | 44,263 | | | 37,363 | | | 6,900 | | | 18.5 | % |
General and administrative expense as a percentage of revenue | 16.3 | % | | 20.8 | % | | | | |
Interest expense, net | 6,934 | | | 8,290 | | | (1,356) | | | (16.4) | % |
| | | | | | | |
Other income, net | (3,448) | | | (4,306) | | | 858 | | | (19.9) | % |
Income (loss) before taxes and discontinued operations | 10,214 | | | (17,045) | | | 27,259 | | | 159.9 | % |
Income (loss) before taxes and discontinued operations as a percentage of revenue | 3.8 | % | | (9.5) | % | | | | |
(Benefit) provision for income taxes | 721 | | | 1,552 | | | (831) | | | (53.5) | % |
Income (loss) before discontinued operations | 9,493 | | | (18,597) | | | 28,090 | | | 151.0 | % |
Discontinued operations: | | | | | | | |
Income (loss) from discontinued operations, net of taxes | (49) | | | 120,864 | | | (120,913) | | | (100.0) | % |
Net income | 9,444 | | | 102,267 | | | (92,823) | | | (90.8) | % |
Loss (income) attributable to noncontrolling interests | 21 | | | (306) | | | 327 | | | (106.9) | % |
Net income attributable to TETRA stockholders | $ | 9,465 | | | $ | 101,961 | | | $ | (92,496) | | | (90.7) | % |
Consolidated revenues increased in the current year primarily due to improving industry conditions compared to the prior year for both the Completion Fluids & Products division and the Water Management & Flowback division. See Divisional Comparisons section below for a more detailed discussion of the change in our revenues.
Consolidated gross profit increased in the current year primarily due to the increase in revenue, partially offset by an increase in costs associated with the higher activity levels described above. Gross profit as a percentage of revenue also increased, primarily due to the significant improvement in profitability for our Water and Flowback Services Division, as well as a $3.8 million insurance settlement received in March 2022 associated with damage to our Lake Charles facility in 2020.
Consolidated exploration and appraisal costs were $2.6 million during the current year due to the exploration and sample analysis costs associated with our exploratory brine well in Arkansas.
Consolidated general and administrative expenses increased compared to the prior year, primarily due to $7.6 million of increased wage and benefit related expenses driven by reinstatement of full salaries and 401K match as well as higher short and long-term incentive expenses, and divisional headcount additions as operational activity levels increased. Higher wage and benefit related expenses were partially offset by a $1.5 million decrease in professional fees primarily due to the GP Sale in the first quarter of the prior year.
Consolidated interest expense, net, decreased in the current year primarily due to $50.5 million of repayments of our term credit facility during 2021.
Consolidated other income, net, decreased in the current year, compared to the prior year primarily due to a $5.2 million net decrease in unrealized gains on investments in CSI Compressco, Standard Lithium and CarbonFree, partially offset by a $3.0 million warrants fair value adjustment recognized in the prior year, a $0.6 million increase in foreign exchange gains, and a $0.3 million increase in gains on sales of assets.
Consolidated provision for income taxes was $0.7 million during the current year, compared to $1.6 million during the prior year. Our consolidated effective tax rate for the current year of 7.1% was primarily due to income generated during the current year, partially offset by the utilization of net operating loss carryforwards in the United States as well as in certain non-U.S. jurisdictions for which a valuation allowance had been established. 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 United States as well as in certain non-U.S. jurisdictions.
Consolidated loss from discontinued operations, net of taxes, for the prior year includes a $120.6 million primarily non-cash accounting gain from the deconsolidation of CSI Compressco. This gain is net of a $0.01 million tax provision after taking into consideration utilization of net operating loss and credit carryforwards.
Consolidated loss (income) attributable to noncontrolling interests included $0.3 million income from the prior year associated with CSI Compressco’s results for the month of January, prior to the GP Sale.
Divisional Comparisons
Completion Fluids & Products Division
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended | | | | |
| June 30, | | Period to Period Change |
| 2022 | | 2021 | | $ Change | | % Change |
| (in thousands, except percentages) |
Revenues | $ | 147,992 | | | $ | 111,128 | | | $ | 36,864 | | | 33.2 | % |
Gross profit | 48,209 | | | 30,194 | | | 18,015 | | | 59.7 | % |
Gross profit as a percentage of revenue | 32.6 | % | | 27.2 | % | | | | |
Exploration and appraisal costs | 2,564 | | | — | | | 2,564 | | | 100.0 | % |
General and administrative expense | 12,243 | | | 8,904 | | | 3,339 | | | 37.5 | % |
General and administrative expense as a percentage of revenue | 8.3 | % | | 8.0 | % | | | | |
Interest income, net | (606) | | | (300) | | | (306) | | | 102.0 | % |
Other income, net | (545) | | | (3,848) | | | 3,303 | | | (85.8) | % |
Income before taxes | $ | 34,553 | | | $ | 25,438 | | | $ | 9,115 | | | 35.8 | % |
Income before taxes as a percentage of revenue | 23.3 | % | | 22.9 | % | | | | |
Revenues for our Completion Fluids & Products Division increased compared to the prior year primarily due to increased International and Gulf of Mexico completion fluids product sales as a result of increased activity following the significant improvement in commodity prices and leveraging opportunities to expand services to completion fluids customers.
Gross profit for our Completion Fluids & Products Division increased compared to the prior year due to more revenues from higher-margin completion fluids services and products, as well as a $3.8 million insurance settlement received in March 2022 from damage to our Lake Charles facility in 2020.
Pretax incomeIncome before taxes and discontinued operations for our Completion Fluids & Products Division increaseddecreased compared to the prior year driven by higherlower gross profit, partially offset by $2.6 million of costs associated with the exploratory brine well drilled during the current year and a $3.3$1.1 million increase in general and administrative costs due to reinstatement of full salaries and 401K match as well as higher short and long-termshort-term incentive expenses, and divisional headcount additions during 2022 to support higher activity levels. In addition, other income, net decreased due to the $3.5levels, partially offset by a $1.2 million decrease in income from our Standard Lithium shares, most of which were sold duringcosts associated with the fourth quarter of 2021, Other income, net also includes a $0.6 million unrealized gain on our investment in CarbonFree recognized duringexploratory brine project compared to the second quarter.
prior period.
Water & Flowback Services Division
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended | | | | |
| June 30, | | Period to Period Change |
| 2022 | | 2021 | | $ Change | | % Change |
| (in thousands, except percentages) |
Revenues | $ | 122,761 | | | $ | 68,522 | | | $ | 54,239 | | | 79.2 | % |
Gross profit (loss) | 12,676 | | | (5,479) | | | 18,155 | | | NM |
Gross profit (loss) as a percentage of revenue | 10.3 | % | | (8.0) | % | | | | |
General and administrative expense | 10,132 | | | 5,895 | | | 4,237 | | | 71.9 | % |
General and administrative expense as a percentage of revenue | 8.3 | % | | 8.6 | % | | | | |
Interest income, net | (1) | | | (518) | | | 517 | | | (99.8) | % |
Other income, net | (1,781) | | | (398) | | | (1,383) | | | 347.5 | % |
Income (loss) before taxes | $ | 4,326 | | | $ | (10,458) | | | $ | 14,784 | | | NM |
Income (loss) before taxes as a percentage of revenue | 3.5 | % | | (15.3) | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | |
| March 31, | | Period to Period Change |
| 2023 | | 2022 | | $ Change | | % Change |
| (in thousands, except percentages) |
Revenues | $ | 77,167 | | | $ | 56,843 | | | $ | 20,324 | | | 35.8 | % |
Gross profit | 11,422 | | | 6,462 | | | 4,960 | | | (76.8) | % |
Gross profit as a percentage of revenue | 14.8 | % | | 11.4 | % | | | | |
General and administrative expense | 4,959 | | | 4,238 | | | 721 | | | 17.0 | % |
General and administrative expense as a percentage of revenue | 6.4 | % | | 7.5 | % | | | | |
Interest expense, net | 27 | | | — | | | 27 | | | 100.0 | % |
Other (income) expense, net | 58 | | | (458) | | | 516 | | | (112.7) | % |
Income before taxes and discontinued operations | $ | 6,378 | | | $ | 2,682 | | | $ | 3,696 | | | (137.8) | % |
Income before taxes and discontinued operations as a percentage of revenue | 8.3 | % | | 4.7 | % | | | | |
Revenues for our Water & Flowback Services Division increased significantly for both water management and production testing due to much overall higher customer drilling and completion activity. Customer activity levels have continued to improve, primarily in our North America land business, as commodity prices recovered during 2022 and remained strong. Revenues have not only recovered but remained high for both crude oil and natural gas comparedalso increased in Latin America due to two early production facilities that began operations in the prior year period.third quarter of 2022.
Gross profit for our Water & Flowback Services Division improved substantially from a loss in the prior year to double-digit profit in the current year primarily due to higher revenues resulting from the increased activity levels described above and pricing improvements as activity levels improved.improved and new higher-margin projects commenced.
Pretax incomeIncome before taxes and discontinued operations for our Water & Flowback Services Division increased in the current year primarily due to an improvement in the gross profit described above, and a $0.9 million increase in foreign exchange gains,partially offset by an increase in general and administrative expense primarily due a $3.2$0.7 million increase in salary and employee expense due to reinstatement of full salaries and 401K match as well asfrom higher short and long-term incentive expenses, and divisional headcount additions to support higher activity levels;levels, partially offset by a $0.6$0.3 million increasedecrease in general expenses primarily due to increased rent to support higher activity; and a $0.4 million increase in professional services also supporting higher activity.foreign exchange gains.
Corporate Overhead
| | | Six months ended | | | Three Months Ended | |
| | June 30, | | Period to Period Change | | March 31, | | Period to Period Change |
| | 2022 | | 2021 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change |
| | (in thousands, except percentages) | | (in thousands, except percentages) |
Depreciation and amortization | Depreciation and amortization | 363 | | | 418 | | | (55) | | | (13.2) | % | Depreciation and amortization | $ | 109 | | | $ | 191 | | | $ | (82) | | | (42.9) | % |
General and administrative expense | General and administrative expense | $ | 21,888 | | | $ | 22,564 | | | $ | (676) | | | (3.0) | % | General and administrative expense | 11,059 | | | 10,346 | | | 713 | | | 6.9 | % |
Interest expense, net | Interest expense, net | 7,541 | | | 9,107 | | | (1,566) | | | (17.2) | % | Interest expense, net | 5,460 | | | 3,647 | | | 1,813 | | | 49.7 | % |
Other income, net | (1,121) | | | (58) | | | (1,063) | | | NM | |
Loss before taxes | $ | (28,671) | | | $ | (32,031) | | | $ | 3,360 | | | (10.5) | % | |
Other (income) expense, net | | Other (income) expense, net | 658 | | | (1,141) | | | 1,799 | | | (157.7) | % |
Loss before taxes and discontinued operations | | Loss before taxes and discontinued operations | $ | (17,286) | | | $ | (13,043) | | | $ | (4,243) | | | 32.5 | % |
Corporate overhead pretax loss before taxes and discontinued operations increased due to a $0.7 million increase in general and administrative expense, as well as a $1.8 million increase in interest expense, net due to an increase in the interest rate on our Term Credit Agreement and higher borrowings under our ABL Credit Agreement, and a $1.8 million decrease in other income, net. Corporate general and administrative expenses increased compared to the prior year, primarily due to increased wage and benefit-related expenses driven by higher short and long-term incentive expenses. Other income, net decreased primarily due to a $1.6 million decrease in interest expense, net due to lower debt levels, as well as a $1.1 million increase in other income, net. Other income, net increased primarily due to a $3.0 million warrants fair value adjustment recognized in the prior year and a $0.6 million increase in foreign exchangeunrealized gains partially offset by a $2.4 million decrease in income related to unit price changes of our investment in CSI Compressco.Compressco, and a $0.4 million decrease in foreign exchange gains.
Non-GAAP Financial Measures
We use U.S. GAAP financial measures such as revenues, gross profit, income (loss) before taxes and discontinued operations, and net cash provided by operating activities, as well as certain non-GAAP financial measures, including Adjusted EBITDA, as performance measures for our business.
Adjusted EBITDA. We view Adjusted EBITDA as one of our primary management tools, and we trackiton a monthly basis, both in dollars and as a percentage of revenues(typically compared to the prior month,prior yearperiod,and to budget). We define Adjusted EBITDA as earningsnet income (loss) before interest, taxes depreciation, amortization,and discontinued operations, excluding impairments, exploration and appraisalpre-development costs, certain special, non-recurring or other charges (or credits), interest, depreciation and amortization and certain other non-cash chargesitems such as equity-based compensation expense. The most directly comparable GAAP financial measure is net income (loss) before taxes and non-recurring adjustments.discontinued operations. Exploration and pre-development costs represent expenditures incurred to evaluate potential future development of TETRA’s lithium and bromine properties in Arkansas. Such costs include exploratory drilling and associated engineering studies and are excluded from Adjusted EBITDA because they do not relate to the Company’s current business operations. Adjustments to long-term incentives represent cumulative adjustments to valuation of long-term cash incentive compensation awards that are related to prior years. These costs are excluded from Adjusted EBITDA because they do not relate to the current year and are considered to be outside of normal operations. Long-term incentives are earned over a three-year period and the costs are recorded over the three-year period they are earned. The amounts accrued or incurred are based on a cumulative of the three-year period. Equity-based compensation expense represents compensation that has been or will be paid in equity and is excluded from Adjusted EBITDA because it is a non-cash item.
Adjusted EBITDA is used by management as a supplemental financial measure by our management to:
•evaluate theto assess financial performance, without regard to charges or credits that are considered by management to be outside of our assetsits normal operations and without regard to financing methods, capital structure or historical cost basis;basis, and
•determine our to assess the Company’s ability to incur and service debt and fund capital expenditures.
The following tabletables reconcilesreconcile net income (loss) before taxes and discontinued operations to Adjusted EBITDA for the periods indicated:
| | | Three Months Ended | | Three Months Ended |
| | June 30, 2022 | | March 31, 2023 |
| | Completion Fluids & Products | | Water & Flowback Services | | Corporate SG&A | | Other and Eliminations | | | Total | | Completion Fluids & Products | | Water & Flowback Services | | Corporate SG&A | | Other and Eliminations | | | Total |
| | (in thousands, except percentages) | | (in thousands, except percentages) |
Revenue | Revenue | $ | 74,798 | | | $ | 65,918 | | | $ | — | | | $ | — | | | | $ | 140,716 | | Revenue | $ | 69,042 | | | $ | 77,167 | | | $ | — | | | $ | — | | | | $ | 146,209 | |
Net income (loss) before taxes and discontinued operations | Net income (loss) before taxes and discontinued operations | 15,261 | | | 1,644 | | | (11,542) | | | (4,083) | | | | 1,280 | | Net income (loss) before taxes and discontinued operations | 18,442 | | | 6,378 | | | (11,059) | | | (6,227) | | | | 7,534 | |
Impairments | 220 | | | 2,042 | | | — | | | — | | | | 2,262 | | |
Exploration and appraisal costs | 634 | | | — | | | — | | | — | | | | 634 | | |
Insurance recoveries | | Insurance recoveries | (2,850) | | | — | | | — | | | — | | | | (2,850) | |
| Exploration and pre-development costs | | Exploration and pre-development costs | 720 | | | — | | | — | | | — | | | | 720 | |
Adjustment to long-term incentives | Adjustment to long-term incentives | — | | | — | | | 1,450 | | | — | | | | 1,450 | | Adjustment to long-term incentives | — | | | — | | | 353 | | | — | | | | 353 | |
| Former CEO stock appreciation right expense (credit) | | Former CEO stock appreciation right expense (credit) | — | | | — | | | (307) | | | — | | | | (307) | |
Transactions and other expenses | Transactions and other expenses | — | | | 556 | | | — | | | — | | | | 556 | | Transactions and other expenses | — | | | — | | | 82 | | | — | | | | 82 | |
| Adjusted income (loss) before taxes and discontinued operations | $ | 16,115 | | | $ | 4,242 | | | $ | (10,092) | | | $ | (4,083) | | | | $ | 6,182 | | |
| Interest expense, net | (283) | | | (2) | | | — | | | 3,895 | | | | 3,610 | | |
Depreciation and amortization | 1,873 | | | 5,705 | | | — | | | 168 | | | | 7,746 | | |
Equity compensation expense | — | | | — | | | 1,159 | | | — | | | | 1,159 | | |
Interest (income) expense, net | | Interest (income) expense, net | (395) | | | 27 | | | — | | | 5,460 | | | | 5,092 | |
Depreciation, amortization and accretion | | Depreciation, amortization and accretion | 2,052 | | | 6,509 | | | — | | | 109 | | | | 8,670 | |
Equity-based compensation expense | | Equity-based compensation expense | 17 | | | — | | | 1,276 | | | — | | | | 1,293 | |
Adjusted EBITDA | Adjusted EBITDA | $ | 17,705 | | | $ | 9,945 | | | $ | (8,933) | | | $ | (20) | | | | $ | 18,697 | | Adjusted EBITDA | $ | 17,986 | | | $ | 12,914 | | | $ | (9,655) | | | $ | (658) | | | | $ | 20,587 | |
| Adjusted EBITDA as % of revenue | Adjusted EBITDA as % of revenue | 23.7 | % | | 15.1 | % | | | 13.3 | % | Adjusted EBITDA as % of revenue | 26.1 | % | | 16.7 | % | | | 14.1 | % |
| | | Three Months Ended | | Three Months Ended |
| | March 31, 2022 | | December 31, 2022 |
| | Completion Fluids & Products | | Water & Flowback Services | | Corporate SG&A | | Other and Eliminations | | | Total | | Completion Fluids & Products | | Water & Flowback Services | | Corporate SG&A | | Other and Eliminations | | | Total |
| | (in thousands, except percentages) | | (in thousands, except percentages) |
Revenue | Revenue | $ | 73,194 | | | $ | 56,843 | | | $ | — | | | $ | — | | | | $ | 130,037 | | Revenue | $ | 66,219 | | | $ | 81,229 | | | $ | — | | | $ | — | | | | $ | 147,448 | |
Net income (loss) before taxes and discontinued operations | Net income (loss) before taxes and discontinued operations | 19,292 | | | 2,682 | | | (10,346) | | | (2,694) | | | | 8,934 | | Net income (loss) before taxes and discontinued operations | 10,456 | | | 4,924 | | | (11,221) | | | (5,322) | | | | (1,163) | |
Insurance settlement | (3,750) | | | — | | | — | | | — | | | | (3,750) | | |
Exploration and appraisal costs | 1,930 | | | — | | | — | | | — | | | | 1,930 | | |
Impairments | | Impairments | 342 | | | 200 | | | — | | | — | | | | 542 | |
Exploration and pre-development costs | | Exploration and pre-development costs | 3,135 | | | — | | | — | | | — | | | | 3,135 | |
Adjustment to long-term incentives | Adjustment to long-term incentives | — | | | — | | | 784 | | | — | | | | 784 | | Adjustment to long-term incentives | — | | | — | | | 131 | | | — | | | | 131 | |
| Former CEO stock appreciation right expense | — | | | — | | | 472 | | | — | | | | 472 | | |
Transactions and other expenses | | Transactions and other expenses | 576 | | | — | | | — | | | — | | | | 576 | |
Former CEO stock appreciation right expense (credit) | | Former CEO stock appreciation right expense (credit) | — | | | — | | | (57) | | | — | | | | (57) | |
| Adjusted income (loss) before taxes and discontinued operations | $ | 17,472 | | | $ | 2,682 | | | $ | (9,090) | | | $ | (2,694) | | | | $ | 8,370 | | |
| Interest expense, net | (323) | | | — | | | — | | | 3,647 | | | | 3,324 | | |
Depreciation and amortization | 1,948 | | | 5,543 | | | — | | | 188 | | | | 7,679 | | |
Equity compensation expense | — | | | — | | | 1,104 | | | — | | | | 1,104 | | |
Interest (income) expense, net | | Interest (income) expense, net | (304) | | | 140 | | | — | | | 5,064 | | | | 4,900 | |
Depreciation, amortization and accretion | | Depreciation, amortization and accretion | 1,787 | | | 6,808 | | | — | | | 163 | | | | 8,758 | |
Equity-based compensation expense | | Equity-based compensation expense | — | | | — | | | 3,519 | | | — | | | | 3,519 | |
Adjusted EBITDA | Adjusted EBITDA | $ | 19,097 | | | $ | 8,225 | | | $ | (7,986) | | | $ | 1,141 | | | | $ | 20,477 | | Adjusted EBITDA | $ | 15,992 | | | $ | 12,072 | | | $ | (7,628) | | | $ | (95) | | | | $ | 20,341 | |
| Adjusted EBITDA as % of revenue | Adjusted EBITDA as % of revenue | 26.1 | % | | 14.5 | % | | | 15.7 | % | Adjusted EBITDA as % of revenue | 24.2 | % | | 14.9 | % | | | 13.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 |
| Completion Fluids & Products | | Water & Flowback Services | | Corporate SG&A | | Other and Eliminations | | Total |
| (in thousands, except percents) |
Revenues | $ | 73,194 | | | $ | 56,843 | | | $ | — | | | $ | — | | | $ | 130,037 | |
Net income (loss) before taxes and discontinued operations | 19,292 | | | 2,682 | | | (10,346) | | | (2,694) | | | 8,934 | |
Insurance settlement | (3,750) | | | — | | | — | | | — | | | (3,750) | |
Exploration and pre-development costs | 1,930 | | | — | | | — | | | — | | | 1,930 | |
Adjustment to long-term incentives | — | | | — | | | 784 | | | — | | | 784 | |
| | | | | | | | | |
Former CEO stock appreciation right expense | — | | | — | | | 472 | | | — | | | 472 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Interest (income) expense, net | (323) | | | — | | | — | | | 3,647 | | | 3,324 | |
Depreciation, amortization and accretion | 1,948 | | | 5,543 | | | — | | | 188 | | | 7,679 | |
Equity-based compensation expense | — | | | — | | | 1,104 | | | — | | | 1,104 | |
Adjusted EBITDA | $ | 19,097 | | | $ | 8,225 | | | $ | (7,986) | | | $ | 1,141 | | | $ | 20,477 | |
| | | | | | | | | |
Adjusted EBITDA as a % of revenue | 26.1 | % | | 14.5 | % | | | | | | 15.7 | % |
Adjusted EBITDA is a financial measure that is not in accordance with U.S. GAAP and should not be considered an alternative to net income, operating income, cash provided by operating activities, or any other measure of financial performance presented in accordance with U.S. GAAP. This measure may not be comparable to similarly titled financial metrics of other companies, as other companies may not calculate Adjusted EBITDA in the same manner as we do. Management compensates for the limitations of Adjusted EBITDA as an analytical tool by reviewing the comparable U.S. GAAP measures, understanding the differences between the measures, and incorporating this knowledge into management’s decision-making processes.
Liquidity and Capital Resources
We believe that our capital structure allows us to meet our financial obligations despite current uncertain operating conditions and financial markets.obligations. Our liquidity at the end of the secondfirst quarter was $103.0$86.7 million. Liquidity is defined as unrestricted cash plus availability under the ABL Credit Agreement, SwedishArgentina Credit Facility and FinlandSwedish Credit Agreement.Facility. Information about the terms and covenants of our debt agreements can be found in our 20212022 Annual Report and in Note 6 - Long Term Debt and Other Borrowings.
Our consolidated sources and uses of cash which include cash activity from our former Compression Division for January 2021 prior to the closing of the GP sale, are as follows:
| | | Six Months Ended June 30, | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
| | (in thousands) | | (in thousands) |
Operating activities | Operating activities | $ | 23,803 | | | $ | 7,607 | | Operating activities | $ | 8,985 | | | $ | 5,934 | |
Investing activities | Investing activities | (15,919) | | | (10,451) | | Investing activities | $ | (11,197) | | | $ | (5,592) | |
Financing activities | Financing activities | (2,774) | | | (29,775) | | Financing activities | $ | 5,136 | | | $ | 722 | |
Operating Activities
Consolidated cash flows provided by operating activities increased compared to the first sixthree months of 20212022 primarily due to an increase in cash profit partially offset by the effect ofand working capital movements and $0.9 million of prior-year cash flows provided by operating activities generated by CSI Compressco in January prior to closing of the GP Sale.changes.
Investing Activities
Total cash capital expenditures during the first sixthree months of 20222023 were $20.4$12.8 million, which reflects front-loading our expected full yearincreased expenditures to accommodate industry-wide activity recoveries.recoveries as well as traditional front-loading of expected annual expenditures. Our Water & Flowback Services Division spent $15.9$10.3 million on capital expenditures, primarily to deploy additional SandStorm units to meet increased demands and maintain, automate and upgrade its water management and flowback equipment fleet. Water and Flowback Services Division capital expenditures also included expenditures related to construction of the third early production facilitiesfacility in Argentina, including approximately $2.0 million of costs that were reimbursed by customers.Argentina. Our Completion Fluids & Products Division spent $4.4$2.4 million on capital expenditures.expenditures, primarily supporting higher activity levels in the United States and Europe.
Investing activities during the first sixthree months of 2023 and 2022 included a$2.9 million and $3.8 million, respectively, for insurance settlement received in March 2022settlements from damage to our Lake Charles facility in 2020.
Historically, a significant majority of our planned capital expenditures have been related to identified opportunities to grow and expand our existing businesses. We are also focused on enhancing shareholder value by capitalizing on our key mineral assets, brine mineral extraction expertise, and deep chemistry competency to expand our offerings into the low carbon energy markets. However, we continue to review all capital expenditure plans carefully in an effort to conserve cash. We currently have no long-term capital expenditure commitments.commitments, other than the asset purchase obligation described in Note 7 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements. If the forecasted demand for our products and services increases or decreases, the amount of planned expenditures on growth and expansion may be adjusted.
Lithium and Bromine Exploration TargetsInferred Resources
We have rights to the brine underlying our approximately 31,100 net40,000 gross acres of brine leases in the Smackover Formation in Southwest Arkansas, including rights to the bromine and lithium contained in the brine. With respect to approximately 27,50035,000 acres of that total acreage, we had previously entered into an agreement grantinggranted Standard Lithium an option to acquire the lithium rights. The agreements governing this option contemplate a 2.5% royalty that Standard Lithium would pay us based on gross lithium revenues. Additional information on these exploration targetsinferred resources is described in Part I, “Item 2. Properties” in our 20212022 Annual Report.
In August 2021,During early 2023, we announcedcompleted an initial economic assessment for a bromine extraction plant. We expect an initial economic assessment to follow in late 2023 for a lithium extraction plant, subject to the progress of early engineering. Only upon completion of an indicated resources study, pre-feasibility and/or feasibility study and attainment of capital commitment from either a preliminary technical assessment by an independent geological consulting firm to assess lithium and bromine exploration targetsjoint venture partner, governments grants or loans, or other cost-effective sources of capital that will not over-lever TETRA, in our approximately 31,100 net acres. During the first six months 2022, we incurred $2.6 million to complete the drilling of our Arkansas exploration well and obtain and analyze fluid samples for multiple Smackover formation brine zones. Ongoing bromine and lithium fluid analysis from these samples is being used to progress a resource report for both the bromine and lithium in our approximately 31,100 net acre brine leases in Arkansas. The resource report is expected to be completed in the third quarter of 2022. We have engaged an engineering firm to begin work on a PEA to determine the economics of developing 3,600 net acres under which we hold exclusive brine rights to meet the demand for bromine-based fluids for both a growing oil and gas market as well as a rapidly growing energy storage market. In addition to confirmation of a successful recapitalization of the bromine,long-duration zinc-bromide battery storage manufacturers, would we planproceed to ultimately extract lithium from the same brine feed which we expect will greatly benefit the financial returns for the project.a final investment decision.
Financing Activities
As a result of TETRA’s strong cash flow from operations in 2020 and the proceeds from the GP Sale, during the first six months of 2021, we repaid $29.3 million on our term credit agreement. We repaid an additional $21.0 million on our term credit agreement during 2021 using proceeds from the sale of Standard Lithium shares and cash flows from operations. Our financing activities for the fist sixfirst three months of 20222023 include $1.2$52.8 million of borrowings and $47.4 million of repayments under the ABL Credit Agreement, Argentina Credit Facility and Swedish Credit Facility, as well as $0.3 million of capital lease payments associated with equipment leased primarily for the early production facilities in Argentina. We may supplement our existing cash balances and cash flow from operating activities with short-term borrowings, long-term borrowings, issuances of equity and debt securities, and other sources of capital. We are aggressively managing our working capital and capital expenditure needs in order to maximize our liquidity in the current environment.
Long-Term Debt
Term Credit Agreement. The Term Credit Agreement is scheduled to mature on September 10, 2025. Our Term Credit Agreement requires us to offer to prepay a percentage of Excess Cash Flow (as defined in the Term Credit Agreement) within five business days of filing our Annual Report. As of March 31, 2023, $163.1 million in aggregate principal amount of our Term Credit Agreement is outstanding.
Asset-Based Credit Agreement. As of June 30, 2022,March 31, 2023, our ABL Credit Agreement provides for a senior secured revolving credit facility of up to $80.0 million, with a $20.0 million accordion. The credit facility is subject to a borrowing base to be determined by reference to the value of inventory and accounts receivable, and includes a sublimit of $20.0 million for letters of credit, a swingline loan sublimit of $11.5 million, and a $15.0 million sub-facility subject to a borrowing base consisting of certain trade receivables and inventory in the United Kingdom. The amounts we may borrow under the ABL Credit Agreement are derived from our accounts receivable, certain accrued receivables and certain inventory. Changes in demand for our products and services have an impact on our eligible accounts receivable, accrued receivables and the value of our inventory, which could result in significant changes to our borrowing base and therefore our availability under our ABL Credit Agreement. As of June 30, 2022,March 31, 2023, we had zero$6.2 million outstanding and$6.0 $8.3 million in letters of credit and guarantees against our ABL Credit Agreement and availability of $61.8$65.4 million, subject to compliance with the covenants, borrowing base, and other provisions of the ABL Credit Agreement.
Argentina Credit Facility. In January 2023, the Company entered into a revolving credit facility for certain working capital and capital expenditure needs for its subsidiary in Argentina (“Argentina Credit Facility”). As of March 31, 2023, we had $1.7 million outstanding and availability of approximately $0.3 million under the Argentina Credit Agreement. Borrowings bear interest at a rate of 2.50% per annum. The Argentina Credit Facility expires on October 19, 2023 and is backed by a letter of credit under our ABL Credit Agreement.
Swedish Credit Facility. In January 2022, the Company entered into a revolving credit facility for seasonal working capital needs of subsidiaries in Sweden. As of June 30, 2022,March 31, 2023, we had less than $0.1$0.5 million outstanding and availability of approximately $4.9$4.4 million United States dollars under this agreement. During each year, all outstanding loans under the Swedish Credit Facility must be repaid for at least 30 consecutive days. Borrowings
bear interest at a rate of 2.95% per annum. The Swedish Credit Facility expires on December 31, 20222023 and the Company intends to renew it annually.
Finland Credit Agreement. TheIn January 2022, the Company also entered into a new credit agreement guaranteed by certain accounts receivable and inventory in Finland (“Finland Credit Agreement”). As of June 30, 2022,March 31, 2023, there were US$1.4$1.5 million of letters of credit outstanding against the Finland Credit Agreement.
Term The Finland Credit Agreement. The Term Credit Agreement is scheduled expires on January 31, 2024 and the Company intends to mature on September 10, 2025. Our Term Credit Agreement requires us to offer to prepay a percentage of Excess Cash Flow (as defined in the Term Credit Agreement) within five business days of filing our Annual Report. As of July 29, 2022, $163.1 million in aggregate principal amount of our Term Credit Agreement is outstanding.renew it annually.
Other Sources and Uses of Cash
In addition to the aforementioned credit facilities, and senior notes, we fund our short-term liquidity requirements from cash generated by our operations and from short-term vendor financing. In addition, as of June 30, 2022,March 31, 2023, the market value of our investments in CSI Compressco and Standard Lithium were $6.9$6.4 million and $1.7$1.5 million, respectively, with no holding restrictions on our ability to monetize our interest.interests. We also hold an investment in a convertible notesnote issued by CarbonFree valued at $5.6$5.9 million as of June 30, 2022, excluding accrued interest.March 31, 2023. In addition, we are party to agreements in which Standard Lithium has the right to explore for, and an option to acquire the right to produce and extract Lithiumlithium in our Arkansas leases as well as additional potential resources in the Mojave region of California. We received an additional 400,000 shares of Standard Lithium stock during the second quarter of 2022in April 2023 under the terms of this agreement.
On May 5, 2022, we filed a universal shelf Registration Statement on Form S-3 with the SEC. On May 17, 2022, 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 $400 million. This shelf registration statement currently provides us additional flexibility with regards to potential financing that we may undertake when market conditions permit or our financial condition may require.
Should additional capital be required, the ability to raise such capital through the issuance of additional debt or equity securities may currently be limited. Instability or volatility in the capital markets at the times we need to
access capital may 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 of our common stockholders will occur. We periodically evaluate engaging in strategic transactions and may consider divesting non-core assets where our evaluation suggests such transactions are in the best interest of our business. In challenging economic environments, we may experience increased delays and failures by customers to pay our invoices. If our customers delay paying or fail to pay us a significant amount of our outstanding receivables, it could have an adverse effect on our liquidity. An increase of unpaid receivables would also negatively affect our borrowing availability under the ABL Credit Agreement.
As of June 30, 2022,March 31, 2023, 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.
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 20212022 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.
Commitments and Contingencies
Litigation
For information regarding litigation, see - Note 7 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements and Part II, “Item 1. Legal Proceedings” in this report.
Long-Term Debt
For information on our credit agreements, see our 20212022 Annual Report and Note 6 - “Long-Term Debt and Other Borrowings” in the Notes to Consolidated Financial Statements.
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 facility storage tanks and equipment rentals. Information about the terms and covenants of our lease agreements can be found in our 20212022 Annual Report.
Product and Asset Purchase Obligations
For information on product and asset purchase obligations, see - Note 7 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements.
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”.
These forward-looking statements include statements concerning the exploration targetsinferred mineral resources of lithium and bromine, the potential extraction of lithium and bromine from the leased acreage, andthe development of the assets including construction of bromine extraction plants, the economic viability thereof, the demand for such resources, and the timing and cost of such activities,activities; the ability to obtain an indicated or measured resources report and an initial economic assessment, indicated or measured resources report, and/or pre-feasibility or feasibility studies regarding our lithium and bromine acreage; statements regarding the Company's beliefs, expectations, plans, goals, future events and performance,performance; and other statements that are not purely historical. With respect to the Company's disclosures of inferred mineral resources, including bromine and lithium carbonate equivalent concentrations, it is uncertain if further exploration will ever result in the estimation of a higher category of mineral resource or a mineral reserve. Inferred mineral resources are considered to have the lowest level of geological confidence of all mineral resources. Investors are cautioned that inferred mineral resources do not have demonstrated economic value. Inferred mineral resources have a high degree of uncertainty as to their existence and as to whether they can be economically or legally commercialized. A significant amount of exploration must be completed in order to determine whether an inferred mineral resource may be upgraded to a higher category. Therefore, investors are cautioned not to assume that all or any part of an inferred mineral resource exists, that it can be economically or legally commercialized, or that it will ever be upgraded to a higher category. Investors should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement, and the Company undertakes no obligation to update or revise any forward-looking statements, except as may be required by law.
Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date whenon which they are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations, forecasts or projections. These risks and uncertainties include, but are not limited to, those described in Part II, “Item 1A. Risk Factors” and elsewhere in this report and in our 20212022 Annual Report, and those described from time to time in our future reports filed with the SEC.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Interest Rate Risk
The interest on our borrowings is subject to market risk exposure related to changes in applicable interest rates. Borrowings under our Swedish Credit Facility bear interest at a fixed rate of 2.95%. Borrowings under our ABL Credit Agreement bear interest at an agreed-upon percentage rate spread above LIBOR. Borrowings under the Term Credit Agreement bear interest at a rate per annum equal to, at the option of TETRA, either (i) LIBOR (subject to a 1% floor) plus a margin of 6.25% per annum or (ii) a base rate plus a margin of 5.25% per annum. Borrowings under our ABL Credit Agreement bear interest at an agreed-upon percentage rate spread above LIBOR. Borrowings under our Argentina Credit Facility and Swedish Credit Facility bear interest at fixed rates of 2.50% and 2.95%, respectively. The following table sets forth as of June 30, 2022,March 31, 2023, the principal amount due under our long-term debt obligations and their respective weighted average interest rates. We are not a party to an interest rate swap contract or other derivative instrument designed to hedge our exposure to interest rate fluctuation risk.
| | | Interest | | June 30, 2022 | | Interest | | March 31, 2023 |
| | | Scheduled Maturity | | Rate | | | | Scheduled Maturity | | Rate | |
| | | | | | | (in thousands) | | | | | | | (in thousands) |
Term Credit Agreement | | Term Credit Agreement | | September 10, 2025 | | 10.88% | | $ | 163,072 | |
Asset-Based Credit Agreement | | Asset-Based Credit Agreement | | May 31, 2025 | | 8.75% | | 6,200 | |
Argentina Credit Facility | | Argentina Credit Facility | | October 19, 2023 | | 2.50% | | 1,700 | |
Swedish Credit Facility | Swedish Credit Facility | | December 31, 2022 | | 2.95% | | $ | 11 | | Swedish Credit Facility | | December 31, 2023 | | 2.95% | | 461 | |
Asset-based credit agreement | | September 10, 2023 | | 4.75% | | — | | |
Term credit agreement | | September 10, 2025 | | 7.92% | | 163,071 | | |
TETRA total debt, including current portion | TETRA total debt, including current portion | | | | $ | 163,082 | | TETRA total debt, including current portion | | | | $ | 171,433 | |
Exchange Rate Risk
We are exposed to fluctuations between the U.S. dollar and the euro with regard to our euro-denominated operating activities. We also have currency exchange rate risk exposure related to revenues, expenses, operating receivables, and payables denominated in foreign currencies. We may enter into 30-dayshort-term foreign-currency forward derivative contracts as part of a program designed to mitigate the currency exchange rate risk exposure on selected
transactions of certain foreign subsidiaries. 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 expected to be formally designated as hedge contracts or qualify for hedge accounting treatment. Accordingly, any change in the fair value of these derivative instruments during a period will be included in the determination of earnings for that period. As of June 30, 2022,March 31, 2023, we did not have any foreign currency exchange contracts outstanding.
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 June 30, 2022,March 31, 2023, the end of the period covered by this quarterly report.
There were no changes in our internal controlcontrols over financial reporting that occurred during the quarter ended June 30, 2022,March 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal controlcontrols over financial reporting.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
On May 31, 2022, TETRA filed a demand for arbitration with the American Arbitration Association (“AAA”) under a certain Bromine Requirements Sales Agreement between TETRA and LANXESS Corporation (formerly Chemtura Corporation, “LANXESS”) (the “Sales Agreement”).
Under the Sales Agreement, TETRA agreed to purchase a certain volume of elemental bromine. LANXESS notified TETRA of a proposed non-ordinary course increase to the price of bromine, which TETRA believes is not justified nor appropriate under the Sales Agreement. After lengthy discussions, TETRA and LANXESS were unable to reach an agreement regarding the validity of the proposed price increase; therefore, TETRA filed for arbitration seeking declaratory relief, among other relief, declaring that the proposed price increase is invalid.
On September 19, 2022, LANXESS filed a counterclaim with the AAA seeking declaratory relief, among other relief, declaring that the proposed price increase was valid and seeking damages in the amount of the price increase from July 1, 2022 forward.
On October 4, 2022, TETRA filed a reply to LANXESS’ counterclaim disputing the counterclaim and amending its original demand.
The arbitration is currently pending, and nothe final hearing date has been set.is set to begin on March 4, 2024. TETRA is presently unable to predict the duration, scope, or result of this proceeding. Discussions with LANXESS regarding this arbitration are ongoing.
For more information regarding litigation, see “Item 1. Legal Proceedings” in our 20212022 Annual Report and Note 7 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements. Item 1A. Risk Factors.
As of the date of this filing, TETRA and its operations continue to be subject to the risk factors previously disclosed in the “Risk Factors” sections contained in our 20212022 Annual Report. In addition, we are subject to the following supplemental risk factor.
We may not be able to utilize all or a portion of our net operating loss carryforwards or other tax benefits to offset future taxable income for U.S. federal, state or foreign tax purposes, which could adversely affect our financial position, results of operations and cash flows. We have adopted a Tax Benefits Preservation Plan that is designed to protect our Tax Attributes.
As of December 31, 2022, we had United States. federal, state, and foreign deferred tax assets associated with net operating loss carryforwards (“NOLs”) equal to approximately $86.2 million, $11.1 million, and $7.8 million, respectively. In those countries and states in which NOLs are subject to an expiration period, our NOLs, if not utilized, will expire at various dates from 2023 through 2042.
We may be limited in the portion of our NOLs that we can use in the future to offset taxable income for United States, federal, state, and foreign income tax purposes. Utilization of these NOLs depends on many factors, including our future taxable income, which cannot be assured.
Under Section 382 (“Section 382”) of the Internal Revenue Code of 1986, as amended (the “Code”), if a corporation experiences an “ownership change,” any NOLs, losses or deductions attributable to a “net unrealized built-in loss” and other tax attributes (“Tax Attributes”) could be substantially limited, and timing of the usage of such Tax Attributes could be substantially delayed. A corporation generally will experience an ownership change if one or more stockholders (or group of stockholders) who are each deemed to own at least 5% of the corporation’s stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a testing period (generally, a rolling three-year period). Utilization of our Tax Attributes may be subject to a significant annual limitation as a result of prior or future “ownership changes.” Determining the limitations under Section 382 is
technical and highly complex, and no assurance can be given that upon further analysis our ability to take advantage of our NOLs or other Tax Attributes may be limited to a greater extent than we currently anticipate.
The Board of Directors has adopted the Tax Plan to protect the availability of the Company’s Tax Attributes. The Tax Plan is designed to reduce the likelihood that we experience an ownership change by deterring certain acquisitions of our common stock. There can be no assurances, however, that the deterrent mechanism will be effective, and, therefore, such acquisitions may still occur. In addition, the Tax Plan could adversely affect the marketability of our common stock by discouraging existing or potential investors from acquiring our common stock or additional shares of our common stock. If the Company is unable to use the Tax Attributes in years in which it has taxable income, the Company will pay significantly more in cash tax than if it were able to utilize the Tax Attributes, and those tax costs would negatively impact the Company’s financial position, results of operations and cash flows.
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.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
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)
|
April 1 – April 30, 2022 | | — | | | $ | — | | | — | | | $ | — | |
May 1 – May 31, 2022 | | — | | | — | | | — | | | — | |
June 1 – June 30, 2022 | | — | | | — | | | — | | | — | |
Total | | — | | | | | — | | | $ | — | |
(1)In January 2004, our Board of Directors authorized the repurchase of up to $20 million of our common stock.On October 28, 2021, our Board of Directors terminated the repurchase program.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information.
None.
Item 6. Exhibits.
Exhibits:
| | | | | |
3.1 | |
3.2 | |
3.3 | |
4.1 | |
31.1* | |
31.2* | |
32.1** | |
32.2** | |
10.1*+ | |
10.2*+ | |
10.3*+ | |
101.SCH++ | XBRL Taxonomy Extension Schema Document. |
101.CAL++ | XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF++ | XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB++ | XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE++ | XBRL Taxonomy Extension Presentation Linkbase Document. |
104* | Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL documents |
* Filed with this report.
** Furnished with this report.
+ Portions have been omitted pursuant to Regulation S-K Item 601(b)(10)(iv), because the omitted information is both not material and is the type that the Company treats as private or confidential.
++ 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 six-monththree-month periods ended June 30, 2022March 31, 2023 and 2021;2022; (ii) Consolidated Statements of Comprehensive Income for the three and six-monththree-month periods ended June 30, 2022March 31, 2023 and 2021;2022; (iii) Consolidated Balance Sheets as of June 30, 2022March 31, 2023 and December 31, 2021;2022; (iv) Consolidated Statements of Equity for the six-monththree-month periods ended June 30,March 31, 2023 and 2022 and 2021 ; (v) Consolidated Statements of Cash Flows for the six-monththree-month periods ended June 30, 2022March 31, 2023 and 2021;2022; and (vi) Notes to Consolidated Financial Statements for the sixthree months ended June 30, 2022.
March 31, 2023.
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.
| | | | | | | | | | | |
| | TETRA Technologies, Inc. |
| | | |
Date: | August 2, 2022May 1, 2023 | By: | /s/Brady M. Murphy |
| | | Brady M. Murphy |
| | | President and Chief Executive Officer |
| | | Principal Executive Officer |
| | | |
Date: | August 2, 2022May 1, 2023 | By: | /s/Elijio V. Serrano |
| | | Elijio V. Serrano |
| | | Senior Vice President and Chief Financial Officer |
| | | Principal Financial Officer |
| | | |
Date: | August 2, 2022May 1, 2023 | By: | /s/Richard D. O’Brien |
| | | Richard D. O’Brien |
| | | Vice President – Finance and Global Controller |
| | | Principal Accounting Officer |