TETRA Technologies(TTI) - 2022 Q3 - Quarterly Report

PART I—FINANCIAL INFORMATION Financial Statements The company's unaudited consolidated financial statements detail its operational results, financial position, and cash flows Consolidated Statements of Operations The company reported increased revenue but lower net income for the third quarter and nine months ended September 30, 2022 Consolidated Statements of Operations (In Thousands) | | Three Months Ended Sep 30, | Nine Months Ended Sep 30, | | :--- | :--- | :--- | | | 2022 | 2021 | 2022 | 2021 | | Total revenues | $135,012 | $95,474 | $405,765 | $275,124 | | Gross profit | $29,473 | $15,747 | $90,000 | $40,049 | | Income (loss) before discontinued operations | ($63) | $2,495 | $9,430 | ($16,102) | | Net income attributable to TETRA stockholders | $278 | $2,513 | $9,743 | $104,474 | | Diluted EPS attributable to TETRA stockholders | $0.00 | $0.02 | $0.08 | $0.83 | Consolidated Balance Sheets Total assets and liabilities increased slightly as of September 30, 2022, compared to year-end 2021 Consolidated Balance Sheets (In Thousands) | | Sep 30, 2022 (Unaudited) | Dec 31, 2021 | | :--- | :--- | :--- | | Total current assets | $224,292 | $210,390 | | Total assets | $413,486 | $398,266 | | Total current liabilities | $111,504 | $97,142 | | Total long-term debt, net | $153,873 | $151,936 | | Total liabilities | $311,730 | $299,703 | | Total TETRA stockholders' equity | $102,969 | $99,704 | | Total liabilities and equity | $413,486 | $398,266 | Consolidated Statements of Cash Flows Operating cash flow improved significantly for the nine months ended September 30, 2022, despite higher investing activities Consolidated Statements of Cash Flows (In Thousands) | (In Thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $25,948 | $10,424 | | Net cash used in investing activities | ($28,280) | ($12,164) | | Net cash used in financing activities | ($2,771) | ($38,656) | | Decrease in cash and cash equivalents | ($6,304) | ($42,031) | | Cash and cash equivalents at end of period | $25,247 | $41,863 | Notes to Consolidated Financial Statements Notes detail the company's two operating segments, discontinued operations, revenue sources, and a key legal contingency - The company operates through two segments: Completion Fluids & Products Division and Water & Flowback Services Division[25] - In January 2021, the company sold the general partner of CSI Compressco, resulting in a primarily non-cash accounting gain of $120.6 million reported in discontinued operations[38] - The company is in arbitration with its bromine supplier, LANXESS Corporation, over a disputed price increase, with an unpredictable outcome[62] Revenue by Geography (in thousands) | Revenue by Geography (in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | United States | $285,508 | $178,983 | | International | $120,257 | $96,141 | | Total Revenue | $405,765 | $275,124 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes financial results, liquidity, capital resources, and strategic initiatives for its two operating divisions Business Overview The company's two segments benefited from strong market conditions while advancing low-carbon energy resource initiatives - The company is focused on bromine-based completion fluids, calcium chloride, water management solutions, and frac flowback services[76] - A maiden inferred resource estimation for its Arkansas acreage indicated 5.25 million short tons of elemental bromine and 234,000 short tons of Lithium Carbonate Equivalent (LCE)[81] Results of Operations Sequential revenue decreased due to seasonality, but year-over-year revenue and gross profit grew significantly Consolidated Sequential Comparison (in thousands) | Consolidated Comparison (in thousands) | Q3 2022 | Q2 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $135,012 | $140,716 | (4.1)% | | Gross profit | $29,473 | $28,107 | 4.9% | | Gross profit % | 21.8% | 20.0% | - | | Income before taxes | $2,115 | $1,280 | 65.2% | Consolidated Year-over-Year Comparison (in thousands) | Consolidated Comparison (in thousands) | 9 Months 2022 | 9 Months 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $405,765 | $275,124 | 47.5% | | Gross profit | $90,000 | $40,049 | 124.7% | | Gross profit % | 22.2% | 14.6% | - | | Income (loss) before taxes | $12,329 | ($13,963) | 188.3% | Non-GAAP Financial Measures Adjusted EBITDA, a key non-GAAP metric, remained stable sequentially at $18.6 million in Q3 2022 - Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, and other non-recurring adjustments[111] Adjusted EBITDA (in thousands) | Adjusted EBITDA (in thousands) | Q3 2022 | Q2 2022 | | :--- | :--- | :--- | | Completion Fluids & Products | $14,703 | $17,705 | | Water & Flowback Services | $13,188 | $9,945 | | Corporate & Other | ($9,296) | ($8,953) | | Total Adjusted EBITDA | $18,595 | $18,697 | Liquidity and Capital Resources The company maintained a strong liquidity position of $92.3 million while funding growth-oriented capital expenditures - Total liquidity at the end of Q3 2022 was $92.3 million, comprising cash and credit facility availability[114] - Capital expenditures for the first nine months of 2022 were $32.7 million, primarily for the Water & Flowback Services Division[117] - The company holds rights to approximately 40,000 gross acres in Arkansas with an estimated inferred resource of 5.25 million short tons of bromine and 234,000 short tons of LCE[120][121] Sources and Uses of Cash (in thousands) | Sources and Uses of Cash (in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Operating activities | $25,948 | $10,424 | | Investing activities | ($28,280) | ($12,164) | | Financing activities | ($2,771) | ($38,656) | Quantitative and Qualitative Disclosures about Market Risk The company is primarily exposed to market risks from variable interest rates and foreign currency fluctuations - The company has interest rate risk exposure, with its Term Credit Agreement bearing a variable rate of 8.77% as of September 30, 2022[141][142] - The company is exposed to foreign currency exchange rate risk from revenues and expenses denominated in various foreign currencies[32][143] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes in internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[144] - No material changes occurred in internal control over financial reporting during the quarter[145] PART II—OTHER INFORMATION Legal Proceedings The company is in an ongoing arbitration with a key supplier over a disputed price increase for elemental bromine - The company filed for arbitration against LANXESS Corporation over a disputed price increase for elemental bromine[148][149] - LANXESS filed a counterclaim to validate the price increase and seek damages; the arbitration is currently pending[150][151] Risk Factors A new risk factor related to the Inflation Reduction Act of 2022 could impact demand from oil and gas customers - A new risk factor has been identified related to the Inflation Reduction Act of 2022 (IRA 2022)[153] - The IRA 2022 could accelerate the transition away from fossil fuels and adversely affect demand for the company's services from its oil and gas customers[153] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any of its equity securities during the third quarter of 2022 - The company made no purchases of its equity securities during the period from July 1, 2022, to September 30, 2022[155] Defaults Upon Senior Securities No defaults upon senior securities were reported during the period - None reported[156] Mine Safety Disclosures No mine safety disclosures were reported for the period - None reported[157] Other Information No other material information was reported for the period - None reported[158] Exhibits The report includes required CEO/CFO certifications and financial data files formatted in XBRL - The report includes certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[160][161] - XBRL financial data files are attached as exhibits[161]