TETRA Technologies(US:TTI)2020-08-07 11:27PART I—FINANCIAL INFORMATION Financial Statements TETRA Technologies reported a significant Q2 2020 revenue decline and net loss, with total assets decreasing to $1.19 billion and positive operating cash flow for the first six months Financial Metrics ($ in thousands) | Financial Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $192,441 | $288,796 | $415,383 | $532,524 | | Gross Profit | $20,321 | $48,366 | $59,738 | $84,576 | | Loss Before Taxes | $(35,129) | $(5,711) | $(44,206) | $(22,776) | | Net Loss Attributable to TETRA Stockholders | $(21,255) | $(6,913) | $(22,806) | $(17,751) | | Net Loss Per Share (Basic & Diluted) | $(0.17) | $(0.06) | $(0.18) | $(0.14) | Balance Sheet Items ($ in thousands) | Balance Sheet Item | June 30, 2020 (Unaudited) | December 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $308,987 | $351,354 | | Total Assets | $1,188,594 | $1,271,922 | | Total Current Liabilities | $147,327 | $188,723 | | Long-term Debt, net | $843,292 | $842,871 | | Total Equity | $112,686 | $162,826 | | Total Liabilities and Equity | $1,188,594 | $1,271,922 | Cash Flow Activities ($ in thousands) | Cash Flow Activity (Six Months Ended June 30) | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $60,387 | $38,377 | | Net Cash Used in Investing Activities | $(14,063) | $(71,254) | | Net Cash Provided by (Used in) Financing Activities | $(6,486) | $18,715 | | Increase (Decrease) in Cash | $39,012 | $(14,057) | Notes to Consolidated Financial Statements This section details company structure, accounting policies, and financial items, including $14.3 million in asset impairments, separate debt structures for TETRA and CCLP, and ongoing litigation - The company operates through three divisions: Completion Fluids & Products, Water & Flowback Services, and Compression, with separate capital structures for TETRA and its subsidiary CSI Compressco LP (CCLP) without cross-default provisions2830 - Significant impairments were recorded due to the COVID-19 pandemic and oil price decline, including $5.4 million in Q1 2020 for the Midland manufacturing facility and an additional $9.0 million in Q2 2020 for non-core compressor equipment and inventory636465 - The company is involved in litigation regarding decommissioning liabilities for the divested Maritech segment and a separate lawsuit for a $7.5 million promissory note default related to the Offshore Division sale9294 - Subsequent to the quarter end, on July 2, 2020, the company completed the sale of its Midland manufacturing facility for $17.0 million107 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the severe impact of COVID-19 and low commodity prices on operations, leading to a 33.4% Q2 2020 consolidated revenue decline, cost reductions, and separate liquidity management for TETRA and CCLP - The business was significantly impacted by depressed commodity prices and the COVID-19 pandemic, leading to reduced demand, especially for the Water & Flowback Services and Compression divisions113114 - The company shut down its Midland manufacturing facility, which was sold on July 2, 2020, for $17.0 million, and no longer intends to fabricate new compressor packages116 - Cost reduction measures have been implemented, including reductions in capital expenditures, workforce and salary reductions, suspension of 401(k) matching, and reduced SG&A expenses119 - CCLP completed a debt exchange offer, resulting in a permanent reduction of $9.6 million in long-term debt and an extension of maturity dates for certain remaining debt balances118 Results of Operations Q2 2020 consolidated revenue decreased 33.4% to $192.4 million, with significant declines in Water & Flowback Services and Compression, while Completion Fluids & Products saw gross profit increase 5.1% Consolidated Performance (Q2 2020 vs Q2 2019, $ in thousands) | Metric (Q2 2020 vs Q2 2019) | Amount | % Change | | :--- | :--- | :--- | | Consolidated Revenues | $(96,355) | (33.4)% | | Consolidated Gross Profit | $(28,045) | (58.0)% | | Net Loss Attributable to TETRA | $(14,342) | 207.5% | Division Performance (Q2 2020 vs Q2 2019) | Division Performance (Q2 2020 vs Q2 2019) | Revenue Change | Gross Profit Change | | :--- | :--- | :--- | | Completion Fluids & Products | (10.6)% | +5.1% | | Water & Flowback Services | (66.2)% | (164.6)% | | Compression | (29.1)% | (78.8)% | Liquidity and Capital Resources TETRA and CCLP maintain separate capital structures; consolidated debt was $843.3 million as of June 30, 2020, with $60.4 million cash from operations and significantly reduced capital expenditures - The company and its subsidiary CCLP have separate capital structures with no cross-default provisions or cross-guarantees between their respective debt agreements163164 Debt and Cash Balances (June 30, 2020, $ in millions) | Entity | Total Long-Term Debt (Net) | Cash Balance | | :--- | :--- | :--- | | TETRA | $205.7 | $50.0 | | CCLP | $637.6 | $6.8 | | Consolidated | $843.3 | $56.7 | - Capital expenditures for the first six months of 2020 were $19.6 million, with full-year 2020 planned capex reduced to $10-$15 million for TETRA (ex-Compression) and $28-$35 million for the Compression Division168169170 - CCLP completed an exchange offer for its 7.25% Senior Notes due 2022, exchanging $215.2 million of old notes for new 7.50% First Lien Notes and 10.00%/10.75% Second Lien Notes, extending maturities to 2025 and 2026178 Quantitative and Qualitative Disclosures about Market Risk This section is marked 'Not Applicable', indicating no new or material changes to the company's market risk disclosures from the last annual report - The company has indicated that there are no new quantitative and qualitative disclosures about market risk to report for this period197 Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2020, with no material changes to internal control over financial reporting - Based on an evaluation by management, the CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2020198 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls199 PART II—OTHER INFORMATION Legal Proceedings The company is involved in various lawsuits and governmental proceedings, which management does not expect to have a material adverse impact on financial condition or results - The company is a defendant in various lawsuits and governmental proceedings arising from normal business operations201 - Management does not expect these legal proceedings to have a no material adverse impact on the company's financial condition or results201 Risk Factors This section updates risk factors, highlighting significant negative impacts of the COVID-19 pandemic, including declining demand, operational disruptions, potential customer defaults, and future asset impairment charges - The primary updated risk factor relates to the negative impacts of the COVID-19 pandemic on the business, financial condition, and liquidity202203 - Specific risks from the pandemic include declining demand for products as customers cut budgets, operational challenges with remote work, supply chain disruptions, and increased cybersecurity threats206 - The company warns of potential financial impacts such as late customer payments, contractual defaults from bankruptcies, higher future borrowing costs, and the need for significant asset impairment charges206 Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity sales occurred; no shares were repurchased under the $20 million program, with $14.3 million remaining, though 11,590 shares were acquired for employee equity awards - No shares were purchased as part of the publicly announced stock repurchase program during the quarter209 - As of June 30, 2020, approximately $14.3 million remained authorized for future repurchases under the existing plan209 - The company acquired 11,590 shares during the quarter, not as part of the buyback program, but in connection with the exercise or vesting of employee equity awards209210