TETRA Technologies(TTI) - 2019 Q4 - Annual Report

Part I Business TETRA Technologies, Inc. is a diversified oil and gas services company with three divisions, focusing on completion fluids, water management, and natural gas compression services Company Overview TETRA Technologies operates three primary divisions providing specialized products and services for well drilling, completion, water management, and natural gas compression - TETRA operates through three primary reporting segments: Completion Fluids & Products, Water & Flowback Services, and Compression[15] - The Completion Fluids & Products Division manufactures and markets clear brine fluids (CBFs) and calcium chloride products for both energy and non-energy markets globally[16] - The Water & Flowback Services Division offers comprehensive water management, frac flowback, and production well testing services to onshore and offshore operators[17] - The Compression Division provides natural gas compression services and equipment, primarily through its partially owned subsidiary, CSI Compressco LP (CCLP)[18][35] Products and Services Divisions offer specialized products including environmentally friendly completion fluids, integrated water management solutions, and natural gas compression services with a large fleet - The Completion Fluids & Products Division's flagship technology is TETRA CS Neptune®, an environmentally friendly, high-density completion fluid[21] - The Water & Flowback Services Division provides a 'Last Mile' infrastructure solution for water management, utilizing automation to enhance safety and efficiency[27] Compression Services Fleet by Horsepower (as of Dec 31, 2019) | Range of Horsepower Per Package | Number of Packages | Aggregate Horsepower | % of Total Aggregate Horsepower | | :--- | :--- | :--- | :--- | | Low horsepower (0-100) | 3,265 | 153,062 | 13.0% | | Medium-horsepower (101-1,000) | 1,554 | 436,058 | 37.0% | | High-horsepower (1,001 and over) | 426 | 588,625 | 50.0% | | Total | 5,245 | 1,177,745 | 100.0% | Market Overview and Competition The company's market demand is highly sensitive to volatile oil and gas prices, facing intense competition across its completion fluids, water management, and compression services segments - Demand for the company's products and services is significantly dependent on oil and natural gas prices and production levels[43] - Key competitors in the non-energy calcium chloride markets include Occidental Chemical Corporation, Vitro, and NedMag[47] - Major competitors in the compression services business include Archrock, Kodiak Gas Services, and USA Compression[53] - No single customer accounted for 10% or more of total consolidated revenues in 2019[54] Other Business Matters The company reported a $35.5 million compression equipment backlog, employed 2,600 people, holds numerous patents, and operates under extensive environmental regulations - The Compression Division's equipment sales backlog was $35.5 million as of December 31, 2019, all expected to be recognized in 2020[55] - As of December 31, 2019, the company had approximately 2,600 employees[57] - The company owned or licensed 31 issued U.S. patents and 32 foreign patents, with additional applications pending, expiring at various times through 2035[58] - The company is subject to numerous environmental laws and regulations, including the Clean Water Act, Clean Air Act, and CERCLA, which can impose significant costs and liabilities[64] Risk Factors Significant risks include volatile oil and gas markets, COVID-19 impacts, intense competition, potential asset impairments, financing challenges, and substantial decommissioning liabilities from a former subsidiary - Demand for products and services is highly sensitive to volatile oil and gas prices. A severe drop in oil prices began in February 2020, which could materially adversely affect the business[72][74] - The COVID-19 pandemic poses a significant risk by reducing global economic activity, depressing oil demand, and potentially disrupting operations and workforce availability[76] - The company has continuing exposure to potentially significant abandonment and decommissioning obligations associated with oil and gas properties previously owned by its former subsidiary, Maritech[104] - As of December 31, 2019, the company's stockholders' equity was $34.4 million, and its market capitalization was $46.5 million as of March 12, 2020, putting it at risk of failing to meet NYSE continued listing standards which require market capitalization and stockholders' equity to be above $50 million[97] - During the two-year period ending December 31, 2019, the company recorded $98.8 million in impairments of long-lived assets, including a $91.6 million impairment of its El Dorado, Arkansas plant in Q4 2019[84] - In Q4 2019, the company recorded a full goodwill impairment of $25.9 million for its Water Management reporting unit[86] Unresolved Staff Comments There are no unresolved staff comments - None[140] Properties Company properties include chemical plants, service centers, and fabrication facilities, with corporate headquarters leased in The Woodlands, Texas - The Completion Fluids & Products Division operates seven chemical production plants with a total capacity of over 1.5 million equivalent liquid tons per year[142] - The Compression Division's main facilities include owned offices and fabrication facilities in Midland, Texas, on 38.5 acres of land[147] - The company's corporate headquarters is a leased 153,000 square foot office building in The Woodlands, Texas, with a lease expiring in 2027[148] Legal Proceedings The company is involved in ordinary course legal proceedings, which management does not expect to materially adversely affect its financial condition or operations - Management does not expect any ongoing legal proceedings to have a material adverse effect on the company's financial condition[149] Mine Safety Disclosures There are no mine safety disclosures - None[150] Part II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities TETRA's common stock trades on the NYSE under 'TTI', with a $14.3 million remaining stock repurchase authorization, though no repurchases occurred from 2006-2019 - The company's common stock is traded on the NYSE under the symbol 'TTI'[152] - A stock repurchase program authorized in 2004 has approximately $14.3 million remaining, but no shares were repurchased between 2006 and 2019[153][154] Selected Financial Data Selected financial data shows 2019 revenues of $1.038 billion and a net loss attributable to stockholders of $147.4 million, significantly impacted by impairments Selected Consolidated Financial Data (2015-2019) | Metric | 2019 (In Thousands) | 2018 (In Thousands) | 2017 (In Thousands) | 2016 (In Thousands) | 2015 (In Thousands) | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues | $1,037,933 | $998,775 | $723,098 | $617,391 | $1,010,641 | | Gross profit | $91,799 | $162,298 | $108,390 | $60,839 | $181,157 | | Goodwill impairment | $25,784 | $— | $— | $106,205 | $177,006 | | Net loss | $(160,500) | $(84,240) | $(62,183) | $(239,393) | $(209,467) | | Net loss attributable to TETRA stockholders | $(147,413) | $(61,617) | $(39,048) | $(161,462) | $(126,183) | | Total assets | $1,271,922 | $1,385,527 | $1,308,614 | $1,315,540 | $1,636,202 | | Long-term debt, net | $842,871 | $815,560 | $629,855 | $623,730 | $853,228 | | Total equity | $162,826 | $312,749 | $352,561 | $400,466 | $514,180 | Management's Discussion and Analysis of Financial Condition and Results of Operation Consolidated revenues rose 3.9% to $1.04 billion in 2019, but gross profit declined 43.4% due to significant impairments, while operating cash flow improved to $90.2 million Results of Operations Consolidated revenues increased 3.9% in 2019, but gross profit decreased 43.4% due to impairments, despite revenue growth in Completion Fluids and Compression divisions Consolidated Results Comparison (2019 vs. 2018) | Metric | 2019 (In Thousands) | 2018 (In Thousands) | Change (In Thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $1,037,933 | $998,775 | $39,158 | 3.9% | | Gross profit | $91,799 | $162,298 | $(70,499) | (43.4)% | | Goodwill impairment | $25,784 | $— | $25,784 | 100.0% | | Loss before taxes | $(144,123) | $(36,426) | $(107,697) | 295.7% | | Net loss attributable to TETRA | $(147,413) | $(61,617) | $(85,796) | 139.2% | - The Completion Fluids & Products division's gross profit decrease was driven by a $91.8 million impairment of its El Dorado, Arkansas production plant[176][186] - The Water & Flowback Services division recorded a full goodwill impairment of $25.8 million in Q4 2019 due to a declining energy industry outlook[163][173] - The Compression Division's gross profit increased due to higher fleet utilization, which reached 90.1% in 2019, and improved customer contract pricing[165][194] Liquidity and Capital Resources Liquidity is managed through separate capital structures, with consolidated debt at $842.9 million and operating cash flow at $90.2 million in 2019, supporting significant capital expenditures - The company emphasizes that TETRA and its subsidiary CCLP have separate capital structures with no cross-default or cross-collateralization provisions[198] Condensed Consolidating Balance Sheet (Dec 31, 2019) | (In Thousands) | TETRA (In Thousands) | CCLP (In Thousands) | Consolidated (In Thousands) | | :--- | :--- | :--- | :--- | | Total assets | $390,242 | $822,246 | $1,271,922 | | Long-term debt, net | $204,633 | $638,238 | $842,871 | | Total equity | $34,373 | $48,991 | $162,826 | Consolidated Cash Flow Summary | (In Thousands) | 2019 (In Thousands) | 2018 (In Thousands) | | :--- | :--- | :--- | | Operating activities | $90,232 | $46,586 | | Investing activities | $(106,442) | $(188,646) | | Financing activities | $(5,925) | $154,994 | - As of December 31, 2019, TETRA had $63.3 million available under its ABL Credit Agreement, and CCLP had $17.2 million available under its credit agreement[201] Commitments and Contingencies The company has $1.37 billion in contractual obligations and significant contingent liabilities related to decommissioning from a former subsidiary and uncollectible receivables from a bankrupt buyer Consolidated Contractual Cash Obligations (as of Dec 31, 2019) | Obligation | Total (In Thousands) | | :--- | :--- | | Long-term debt - TETRA | $221,500 | | Long-term debt - CCLP | $649,430 | | Interest on debt - TETRA | $99,148 | | Interest on debt - CCLP | $197,628 | | Purchase obligations | $94,950 | | Operating leases | $93,821 | | Total | $1,368,679 | - The company faces significant contingent liabilities for decommissioning obligations from its former Maritech subsidiary, which were assumed by Orinoco Natural Resources, LLC in a 2018 sale. TETRA is in a legal dispute with Orinoco over failure to provide required replacement performance bonds[244][246] - Following the bankruptcy of Epic Companies, which acquired the Offshore Services business, TETRA recorded a full reserve of $7.5 million for a promissory note and $1.5 million for other receivables in Q3 2019[248][249] Quantitative and Qualitative Disclosures about Market Risk This item is not applicable - Not Applicable[254] Financial Statements and Supplementary Data Financial statements and supplementary data are provided in Item 15 of this report - The required financial statements and supplementary data are located in Item 15 of the Form 10-K[255] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There are no changes in or disagreements with accountants on accounting and financial disclosure - None[256] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2019 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2019[257] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2019, based on the COSO framework[261] - No material changes were made to the company's internal control over financial reporting during the fourth quarter of 2019[263] Other Information There is no other information to report - None[274] Part III Directors, Executive Officers, and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the definitive proxy statement - Information is incorporated by reference from the registrant's proxy statement[276] Executive Compensation Executive compensation information is incorporated by reference from the definitive proxy statement - Information is incorporated by reference from the registrant's proxy statement[277] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership and related stockholder matters information is incorporated by reference from the definitive proxy statement - Information is incorporated by reference from the registrant's proxy statement[278] Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the definitive proxy statement - Information is incorporated by reference from the registrant's proxy statement[279] Principal Accounting Fees and Services Principal accounting fees and services information is incorporated by reference from the definitive proxy statement - Information is incorporated by reference from the registrant's proxy statement[280] Part IV Exhibits, Financial Statement Schedules This section details the consolidated financial statements, independent auditor reports, and a comprehensive list of exhibits filed with the Form 10-K - This item contains the list of financial statements, financial statement schedules, and exhibits filed with the Form 10-K[283] Form 10-K Summary There is no Form 10-K summary - None[289]