TETRA Technologies(TTI) - 2023 Q4 - Annual Report

Part I Item 1. Business TETRA is a global energy services and solutions company with two main segments, focusing on environmentally conscious services and low-carbon energy expansion - TETRA Technologies, Inc. is an energy services and solutions company with global operations, focused on environmentally conscious services and solutions[22] - The company has two reportable segments: Completion Fluids & Products Division and Water & Flowback Services Division[22] - TETRA is expanding into the low-carbon energy market, utilizing its chemistry expertise, key mineral acreage (bromine and lithium), and global infrastructure[22][34] About TETRA TETRA Technologies, Inc. was incorporated in Delaware in 1981 and its common stock is traded on the NYSE under the symbol "TTI" - TETRA Technologies, Inc. was incorporated in Delaware in 1981 and has its corporate headquarters in The Woodlands, Texas[21] - The company's common stock is traded on the New York Stock Exchange (NYSE) under the symbol "TTI"[21] Products and Services The company offers a range of products and services through its Completion Fluids & Products and Water & Flowback Services divisions Completion Fluids & Products Division This division manufactures and markets clear brine fluids, additives, and calcium chloride products, while also pursuing low-carbon energy initiatives - Manufactures and markets clear brine fluids (CBFs), additives, and associated products/services for well drilling, completion, and workover operations in the oil and gas industry across multiple continents[23][26] - Also markets liquid and dry calcium chloride products for diverse non-energy markets (water treatment, industrial, food processing, road maintenance, etc.) and ultra-pure zinc bromide (TETRA PureFlow) for battery technology companies[23][31][35] - Offers environmentally friendly CBF alternatives like TETRA CS Neptune, and reconditions/recycles used CBFs[28][29] - Operates calcium chloride manufacturing facilities in the United States (four plants, two solar evaporation facilities) and Finland, with a combined production capacity of approximately 1.0 million equivalent liquid tons per year[32] - Manufactures liquid calcium bromide, zinc bromide, zinc calcium bromide, and sodium bromide at its West Memphis, Arkansas facility[33] - Pursuing low-carbon energy initiatives, including evaluating new technologies with CarbonFree Chemicals Holdings, LLC and a strategic agreement with Eos Energy Enterprises, Inc. for ultra-pure zinc bromide supply[34][35] - Completed a maiden inferred bromine and lithium brine resource estimation report for leased acreage in Southwest Arkansas and a Technical Report Summary for the 6,138-acre "Evergreen Brine Unit" in 2022/2023, identifying measured and indicated resources[36] Water & Flowback Services Division This division provides comprehensive water management and frac flowback services for onshore oil and gas operators across various regions - Provides comprehensive water management services for onshore oil and gas operators, including fresh and produced water analysis, treatment, recycling, blending, storage, transfer, and environmental risk mitigation[24][37] - Offers patented and patent-pending equipment and processes such as advanced hydrocyclones (SandStorm), water blending technologies, and the TETRA Steel 1200 rapid deployment water transfer system[37] - Also provides frac flowback services, early production facilities, production well testing, and well flow management/evaluation services in major oil and gas producing regions in the U.S., Latin America, Europe, and the Middle East[24][38][40] Former Compression Division TETRA divested its interest in the Compression Division in 2021, retaining a minority stake in CSI Compressco LP - The former Compression Division's operations were conducted through the partially-owned CSI Compressco LP subsidiary[41] - TETRA sold the general partner of CSI Compressco, including incentive distribution rights and approximately 23.1% of outstanding limited partner interests, for $13.9 million in cash on January 29, 2021[41] - As of December 31, 2023, TETRA held approximately 3.7% of CSI Compressco's outstanding common units[41] Sources of Raw Materials The company sources raw materials for its Completion Fluids & Products Division, including bromine and calcium chloride, and manages brine leases for future resource extraction - Completion Fluids & Products Division manufactures calcium chloride from underground brine or by reacting hydrochloric acid with limestone, and brominated CBFs using bromine, hydrobromic acid, zinc, ammonia water, and lime[42][43][45] - Has a long-term supply agreement with LANXESS, AG for raw material bromine, which was amended on May 25, 2023, for revised volume requirements and pricing[45] - Leases over 40,000 gross acres of brine leases near Magnolia, Arkansas, containing bromine and lithium, with Standard Lithium Ltd. having an option to acquire lithium rights in a portion of this acreage[48] - Experienced supply constraints for certain raw materials in Europe in early 2022 due to the Russia-Ukraine conflict, which decreased calcium chloride production volumes[47] Market Overview and Competition TETRA operates in competitive markets for both its Completion Fluids & Products and Water & Flowback Services divisions, facing various industry and non-energy competitors Completion Fluids & Products Division Demand for this division's products is driven by offshore activity, facing intense competition from major energy services companies and non-energy market players - Demand for products and services is driven by offshore completion and workover activity, with current market presence in onshore U.S., U.S. Gulf of Mexico, North Sea, Mexico, and parts of South America, Europe, Asia, the Middle East, and Africa[51] - Faces intense competition from major international drilling fluids and energy services companies, with competition based on service, availability, and price[52] - Non-energy markets for calcium chloride include water treatment, industrial, food processing, road maintenance, ice melt, agricultural, and consumer products, facing competitors like Occidental Chemical Corporation and Nedmag B.V.[53] Water & Flowback Services Division This division operates in a highly competitive market for water management and frac flowback services, leveraging skilled personnel and integrated solutions as key advantages - Provides water management and frac flowback services to onshore oil and gas operators in North America and internationally[54][55] - Operates in a highly competitive market, with competition based on equipment availability, qualified personnel, price, service quality, and safety record[56] - Key competitive advantages include skilled personnel, operating procedures, integrated closed-loop water management solutions, automation systems, and safety record[56] Other Business Matters This section covers TETRA's human capital management, proprietary technology, and compliance with health, safety, and environmental regulations Human Capital Management TETRA employs approximately 1,500 people globally, focusing on diversity, talent management, performance-based compensation, and a comprehensive HSEQ Management System - As of December 31, 2023, TETRA employed approximately 1,500 people worldwide[58] - Focuses on diversity and inclusion through an executive management-sponsored committee and talent management initiatives[59] - Conducts executive development and succession planning annually for senior management and key positions[60] - Compensation programs are designed to incentivize performance and build shareholder value, benchmarked with consultants[61] - Maintains a comprehensive Health, Safety, Environment, and Quality (HSEQ) Management System, including stop-work authority for employees and real-time behavior feedback for drivers[62][63][64] Proprietary Technology and Trademarks The company owns various intellectual property rights, including patents, trademarks, and trade secrets, which are protected through confidentiality agreements - Owns various intellectual property rights, including patents, trademarks, and trade secrets, which are important to its competitive position[65] - Employs confidentiality agreements and policies to protect trade secrets and proprietary information[66] Health, Safety, and Environmental Affairs Regulations TETRA's operations are subject to stringent U.S. and foreign health, safety, and environmental laws, with compliance potentially incurring significant costs and liabilities - Operations are subject to stringent and complex U.S. and foreign health, safety, and environmental laws and regulations, including those related to air emissions, wastewater, and waste disposal[68][69] - Compliance with these laws may result in significant costs, liabilities, and capital expenditures, with potential for fines, penalties, and litigation for non-compliance[69][70] - Key applicable U.S. environmental laws include the Clean Water Act, RCRA, Clean Air Act, CERCLA, and ESA[71] - New or more stringent regulations, particularly concerning hydraulic fracturing and greenhouse gas emissions, could adversely affect oil and natural gas exploration and production, impacting demand for TETRA's services[76] Item 1A. Risk Factors TETRA faces market, operational, financial, legal, regulatory, and political risks, including commodity price volatility, intense competition, supply chain issues, and cybersecurity threats - The demand and prices for TETRA's products and services are highly sensitive to the supply, demand, and prices of oil and natural gas, which have historically been volatile[78][79] - The company faces intense competition in all operating segments, with some competitors having greater resources or offering lower prices/newer equipment[81] - Profitability is dependent on factors beyond control, such as competition, supply chain constraints, raw material availability and pricing, and customer spending levels[82][83] Market Risks TETRA is exposed to market risks including volatile oil and natural gas prices, inflationary pressures, fluctuating fair values of minority investments, and dependence on third-party suppliers Oil and Natural Gas Prices (2021-2023) | Year | West Texas Intermediate Oil Price (per barrel) | Henry Hub Natural Gas Price (per MMBtu) | | :--- | :--- | :--- | | 2021 | $68.14 | $3.89 | | 2022 | $94.90 | $6.45 | | 2023 | $77.58 | $2.53 | - Inflationary pressures in 2021, 2022, and 2023 have increased operating costs and capital expenditures, which could negatively impact profitability if not recovered through higher prices[84] - Holds minority investments in publicly-traded (CSI Compressco, Standard Lithium) and privately-held (CarbonFree) companies, whose fair values may fluctuate significantly, causing volatility in financial results[85] - Changes in the economic environment, particularly depressed commodity prices, could lead to significant impairments of long-lived assets, impacting earnings[86] - Dependent on third-party suppliers for specific products and raw materials, with limited or single sources for some, posing risks of supply disruptions or increased costs due to geopolitical conflicts or sanctions[87][88] Operating and Technological Risks The company faces risks from technological obsolescence, significant operating hazards inherent in the oilfield service industry, and uncertainties in developing new low-carbon energy initiatives - Risk of technological and age-obsolescence for products, services, and equipment assets; failure to adapt to new technologies or replace older assets could lead to loss of customers and market share[89] - Operations involve significant operating hazards common in the oilfield service industry (e.g., accidents, explosions, environmental spills), and insurance coverage may not be available or cost-effective for all losses[90][91] - Uncertainty regarding the economic viability of extracting lithium or bromine from Arkansas brine leases, requiring significant time and capital for further studies and development[92] - Failure to effectively and timely execute low-carbon energy initiatives, including developing new technologies and partnerships, could adversely affect business and financial condition[93][94] Weather-Related Risks TETRA's operations are susceptible to seasonal weather conditions, including droughts and severe storms, which can disrupt activities and reduce customer demand - Certain operations, particularly onshore water management services, are seasonal and dependent on weather conditions; severe drought can prevent frac water operations[95] - Operations in the Gulf of Mexico are susceptible to adverse weather conditions like hurricanes, causing disruptions even without direct damage[96] - Adverse weather, including severe winter conditions, can significantly impact natural gas storage levels and reduce drilling/customer activity[96] Financial Risks TETRA's financial risks include common stock price volatility, restrictive debt covenants, potential inability to utilize tax benefits, and exposure to credit and foreign currency risks - The market price of common stock has been and may continue to be volatile due to operational performance, oil/natural gas prices, customer activity, earnings deviations, analyst recommendations, and global economic conditions[97][98] Common Stock Price Range (2023) | Metric | Value | | :--- | :--- | | High | $6.54 per share | | Low | $2.48 per share | - Long-term debt agreements (ABL Credit Agreement, New Term Credit Agreement) contain covenants restricting actions like incurring debt, granting liens, making investments, and paying dividends, potentially limiting future business operations or growth[99][100][101] - May not be able to utilize all net operating loss carryforwards (NOLs) or other tax benefits due to future taxable income uncertainty or Section 382 ownership change limitations, adversely affecting financial position[103][104][105] - Has continuing exposure to abandonment and decommissioning obligations associated with oil and gas properties previously owned by Maritech, which could be significant if buyers default[108][109] - Possible changes in U.S. Department of Interior's supplemental bonding and financial assurance requirements could increase risks associated with Maritech's decommissioning obligations[110][111][112] - Exposed to significant credit risks from accounts receivable with energy industry customers, particularly smaller operators, and from the ability of Maritech property buyers to satisfy decommissioning liabilities[113][114] - Operating results and cash flows of certain subsidiaries are subject to foreign currency risk, particularly the euro, British pound, Mexican peso, and Argentinian peso[115] - Exposed to interest rate risks on floating-rate credit facility debt; future refinancing terms may not be as favorable[116][117] Legal, Regulatory, and Political Risks TETRA faces legal, regulatory, and political risks from intense competition, intellectual property protection, evolving environmental laws, climate change initiatives, foreign operations, and cybersecurity threats - Operates in highly competitive and rapidly evolving industries; failure to maintain product and technology leadership could adversely affect competitive advantage, market share, and pricing power[118] - Limitations on ability to obtain, maintain, protect, or enforce intellectual property rights (patents, trade secrets) could lead to revenue loss and competitive disadvantage[119] - Subject to extensive and evolving U.S. and foreign laws and regulatory requirements (corporate governance, employees, taxation, environmental, health and safety) that increase operating costs and expose to fines, penalties, and litigation[122] - The Inflation Reduction Act of 2022 (IRA 2022) could accelerate the transition to a low-carbon economy and impose new costs on customers (e.g., methane emissions charge), potentially reducing demand for TETRA's services[128] - Operations, suppliers, and customers are subject to risks from climate change, including regulatory, political, litigation, and financial risks, potentially leading to increased costs, reduced demand for fossil fuels, and restrictions on activities[129][130][132][134][135][136] - Increasing attention to ESG matters and conservation measures may adversely impact business through increased costs, reduced demand, litigation, negative stock price impact, and reduced access to capital[137][138][139][140][141] - Foreign operations expose the company to complex regulations, restrictions on repatriating cash, anti-corruption laws, political instability, trade restrictions, and changes in tariffs/taxes[142][143][144][145] - Regulatory initiatives related to hydraulic fracturing could result in operating restrictions or delays for customers, reducing demand for TETRA's services[146][147][148][149] - Operations, reputation, and financial condition may be impaired by information or operational technology system failures, data breaches, or cyberattacks, despite significant resources allocated to protection[150][151][152][153][154] - Changes to applicable tax laws and regulations or exposure to additional income tax liabilities could affect business and future profitability[155][156][157] Item 1B. Unresolved Staff Comments This item indicates that there are no unresolved staff comments from the SEC Item 1C. Cybersecurity TETRA relies on its technology systems and implements various cybersecurity measures to assess, identify, and manage risks. While cyber incidents have occurred, none have materially affected the company to date. The Board of Directors and Audit Committee oversee cybersecurity risks, with management responsible for implementation - TETRA's operations are critically reliant on continuous and uninterrupted technology systems, including user access, cloud security, and protection against cyber incidents[159] - Implemented procedures, standards, and technical controls, including internal and third-party tools, to protect networks and applications[160] - Cybersecurity risk assessment processes include penetration testing, security audits, incident response planning, vendor risk assessments, and regulatory compliance assessments[161] - A monitoring and detection system is in place to identify cybersecurity incidents, supported by a cross-functional incident response plan and regular tabletop exercises[162] - Provides cybersecurity training and awareness to employees, including computer-based training and phishing exercises[163] - User access controls, including multi-factor authentication for some accounts, are used to limit unauthorized access based on the principle of least privilege[164] - As of the report date, no previous cybersecurity threats have materially affected or are reasonably likely to materially affect the Company, but future incidents remain a possibility[166] - Management, led by the Vice President of Information Technology, is responsible for assessing, identifying, and managing cybersecurity risks, reporting to the CFO and updating the Audit Committee quarterly and the Board annually[167][168] Item 2. Properties TETRA's properties include corporate headquarters, chemical plants, processing plants, and distribution facilities, which are deemed adequate for current needs. A significant asset is approximately 40,000 gross acres of brine leases in Arkansas, containing bromine and lithium, with ongoing development and partnership activities for resource extraction - TETRA's facilities include a corporate headquarters in The Woodlands, Texas (leased until 2027), a technical facility, and various chemical production plants and service centers globally[169][170][171][172][173] - The Completion Fluids & Products Division operates six chemical production plants in the U.S. and Finland, with a total capacity exceeding 1.1 million equivalent liquid tons per year[170] Facilities TETRA maintains various facilities globally, including chemical production plants, service centers, and a corporate headquarters, which are considered adequate for current operations - Completion Fluids & Products Division facilities include six chemical production plants in Arkansas, California, Louisiana, West Virginia, and Finland, with a total production capacity of over 1.1 million equivalent liquid tons per year[170] - The Water & Flowback Services Division operates production testing and water management service centers in the U.S. (Louisiana, New Mexico, Oklahoma, Pennsylvania, Texas) and internationally[172] - Corporate headquarters is a 153,000 sq ft office building in The Woodlands, Texas, leased until 2027, complemented by a 28,000 sq ft technical facility[173] Bromine and Lithium Resources TETRA leases significant brine acreage in Arkansas containing bromine and lithium, with ongoing resource estimation and partnership activities for future extraction - Leases approximately 40,000 gross acres of brine leases in Magnolia, Arkansas, containing bromine and lithium, intended for future development and raw material supply[174] - Standard Lithium Ltd. has an option to acquire lithium rights in approximately 35,000 gross acres of this land, with a 2.5% royalty on gross lithium revenues[174] Arkansas Brine Resource Estimation (2022) | Resource | Acreage | Inferred Resource | | :--- | :--- | :--- | | Elemental Bromine | ~40,000 gross acres | 5.25 million short tons | | Elemental Lithium | ~5,000 gross acres | 44,000 short tons | | Lithium Carbonate Equivalent (LCE) | ~5,000 gross acres | 234,000 tons | - Entered into an MOU with Saltwerx, LLC (ExxonMobil subsidiary) in June 2023 for the newly-proposed Evergreen Brine Unit (6,138 acres) in Southwest Arkansas, approved by AOGC in September 2023, for potential bromine and lithium production[176][177] Evergreen Brine Unit Resource Estimation (January 2024) | Resource | Measured Resource | Indicated Resource | Inferred Resource | | :--- | :--- | :--- | :--- | | Elemental Bromine | 329,000 tons | 543,000 tons | 541,000 tons | | Elemental Lithium | 32,000 tons | 53,000 tons | 52,000 tons | | Lithium Carbonate Equivalent (LCE) | - | - | 729,000 tons | Market Prices (January 2024) | Resource | Price | | :--- | :--- | | Lithium | ~$13,500 per ton | | Bromine | ~$3,400 per metric ton | - Extraction of lithium and bromine from brine leases requires significant time and capital; an initial preliminary economic assessment for a bromine plant was completed in early 2023, with a lithium plant assessment expected in early 2024[180] Item 3. Legal Proceedings TETRA was involved in an arbitration with LANXESS Corporation regarding bromine pricing, which was settled in May 2023, and management does not expect other ongoing lawsuits to have a material adverse effect - Filed for arbitration against LANXESS Corporation in May 2022 over a proposed non-ordinary course increase to bromine prices[181][182] - Settled the arbitration on May 25, 2023, by entering into the Third Amendment to Bromine Requirements Sales Agreement with LANXESS, which revised volume requirements, pricing, and related terms[183] - Management does not consider it reasonably possible that losses from other ongoing lawsuits or governmental proceedings will have a material adverse effect on financial condition, results of operations, or liquidity[184] Item 4. Mine Safety Disclosures This item states that there are no mine safety disclosures applicable to the company Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities TETRA's common stock is traded on the NYSE under "TTI", with approximately 200 holders of record as of February 23, 2024. The market price has been volatile, ranging from $2.48 to $6.54 per share in 2023. Information on equity compensation plans is incorporated by reference, and no Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers in Q4 2023 - TETRA's common stock is traded on the New York Stock Exchange (NYSE) under the symbol "TTI"[188] - As of February 23, 2024, there were approximately 200 holders of record of the common stock[188] - During 2023, the closing price for TETRA's common stock ranged from a high of $6.54 per share to a low of $2.48 per share[98] - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the three months ended December 31, 2023[192] Item 6. [Reserved] This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Consolidated revenues increased 13.2% to $626.3 million in 2023, with net income up 228.9% to $25.8 million, supported by segment growth, low-carbon initiatives, and $126.3 million liquidity - Consolidated revenues for 2023 increased by $73.0 million (13.2%) to $626.3 million compared to 2022[201][202] - Net income attributable to TETRA stockholders increased by $17.9 million (228.9%) to $25.8 million in 2023[201] - Consolidated gross profit as a percentage of revenue increased from 21.9% in 2022 to 24.5% in 2023[201][203] - Liquidity at the end of Q4 2023 was $126.3 million, comprising $52.5 million in unrestricted cash and $73.8 million in credit agreement availability[221] Business Overview TETRA's business overview highlights revenue growth in both divisions, commitment to low-carbon energy initiatives, and the reflection of former Compression Division operations as discontinued - Completion Fluids & Products Division revenues increased in 2023 due to higher Gulf of Mexico and international completions activity, increased industrial chemicals product pricing and volumes, and benefits from the December 2022 Peacock acquisition in Europe[196] - Water & Flowback Services revenues increased due to margin expansion efforts, investments in technology, integration, digitalization, and the full-year operation of early production facilities in Latin America[197] - TETRA is committed to low-carbon energy initiatives, including a MOU with Saltwerx (ExxonMobil) for the Evergreen Brine Unit for bromine and lithium production, with an initial economic assessment for a lithium plant expected in early 2024[197] - The former Compression Division's operations are reflected as discontinued operations for all periods presented following the GP Sale in January 2021[198] Results of Operations This section details the consolidated and divisional financial performance, including revenues, gross profit, and income before taxes, highlighting key drivers of change Consolidated Comparisons Consolidated revenues increased by 13.2% in 2023, driven by higher activity and pricing, while net income attributable to TETRA stockholders grew 228.9% Consolidated Financial Performance (2023 vs. 2022) | Metric | 2023 (In Thousands) | 2022 (In Thousands) | Change (In Thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $626,262 | $553,213 | $73,049 | 13.2% | | Gross profit | $153,645 | $121,111 | $32,534 | 26.9% | | Gross profit as % of revenue | 24.5% | 21.9% | - | - | | Exploration and pre-development costs | $12,119 | $6,635 | $5,484 | 82.7% | | General and administrative expense | $96,590 | $91,942 | $4,648 | 5.1% | | Interest expense, net | $22,349 | $15,833 | $6,516 | 41.2% | | Other income, net | $(9,112) | $(4,465) | $(4,647) | 104.1% | | Income before taxes and discontinued operations | $31,699 | $11,166 | $20,533 | 183.9% | | Provision for income taxes | $6,220 | $3,565 | $2,655 | 74.5% | | Net income attributable to TETRA stockholders | $25,784 | $7,839 | $17,945 | 228.9% | - Consolidated revenues increased due to higher activity in both Completion Fluids & Products (industrial chemicals product pricing and incremental volumes) and Water & Flowback Services (full year operations of early production facilities in Latin America)[202] - Exploration and pre-development costs increased by $5.5 million due to increased activities for Arkansas strategic initiatives, including additional front-end engineering design studies and a second exploration test well[204] - General and administrative expenses increased primarily due to a $5.1 million increase in employee compensation (headcount, merit, inflationary factors, incentive awards)[205] - Interest expense, net, increased due to a higher interest rate on the Term Credit Agreement[206] - Other income, net, increased primarily due to a $9.3 million reimbursement from a partner for Arkansas resource development, partially offset by a $4.5 million increase in foreign exchange losses (e.g., Argentina currency volatility)[207] - The consolidated effective tax rate decreased from 31.9% in 2022 to 19.6% in 2023, primarily because a significant portion of the income increase was in jurisdictions where net operating losses with valuation allowances could be utilized[208] Divisional Comparisons This section compares the financial performance of the Completion Fluids & Products Division and the Water & Flowback Services Division for 2023 versus 2022 Completion Fluids & Products Division The Completion Fluids & Products Division saw a 14.5% revenue increase and a 36.5% pretax income increase in 2023, driven by higher sales, pricing, and resource development reimbursements Completion Fluids & Products Division Performance (2023 vs. 2022) | Metric | 2023 (In Thousands) | 2022 (In Thousands) | Change (In Thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $313,030 | $273,373 | $39,657 | 14.5% | | Gross profit | $107,684 | $86,718 | $20,966 | 24.2% | | Gross profit as % of revenue | 34.4% | 31.7% | - | - | | Income before taxes and discontinued operations | $78,313 | $57,366 | $20,947 | 36.5% | - Revenue increase driven by incremental brominated product sales in the U.S. and Latin America, higher European calcium chloride pricing, increased volumes in Europe (due to resolved raw material limitations and Peacock acquisition), and expanded services to completion fluids customers[209] - Pretax income increased due to higher gross profit and a $9.3 million increase in other income from Arkansas resource development reimbursements, partially offset by a $5.5 million increase in exploration and pre-development costs[211] Water & Flowback Services Division The Water & Flowback Services Division experienced 11.9% revenue growth and 63.5% pretax income increase in 2023, driven by improved market conditions, technology investments, and early production facilities Water & Flowback Services Division Performance (2023 vs. 2022) | Metric | 2023 (In Thousands) | 2022 (In Thousands) | Change (In Thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $313,232 | $279,840 | $33,392 | 11.9% | | Gross profit | $47,138 | $35,074 | $12,064 | 34.4% | | Gross profit as % of revenue | 15.0% | 12.5% | - | - | | Income before taxes and discontinued operations | $25,724 | $15,732 | $9,992 | 63.5% | - Revenue growth boosted by improved market conditions, investments in SandStorm advanced cyclone technology, and full-year operations of three early production facilities in Latin America[212] - Gross profit improved due to higher revenues from increased activity levels and pricing improvements[213] - Pretax income increased due to higher gross profit and a $2.2 million decrease in general and administrative expenses, partially offset by a $3.9 million swing to foreign exchange losses due to Argentina's currency devaluation[214] Corporate Overhead Corporate overhead loss before taxes increased by 16.8% in 2023, primarily due to higher interest expense, increased salary-related expenses, and an impairment of the corporate office lease Corporate Overhead Loss Before Taxes (2023 vs. 2022) | Metric | 2023 (In Thousands) | 2022 (In Thousands) | Change (In Thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Loss before taxes and discontinued operations | $(72,339) | $(61,943) | $(10,396) | (16.8)% | | General and administrative expense | $49,135 | $45,077 | $4,058 | 9.0% | | Interest expense, net | $22,790 | $17,041 | $5,749 | 33.7% | | Impairments and other charges | $777 | $0 | $777 | 100.0% | - Increased loss before taxes primarily due to higher interest expense on the Term Credit Agreement, a $4.1 million increase in salary-related expenses (incentive and equity-based compensation), and a $0.8 million impairment of the corporate office lease[215] Non-GAAP Financial Measures Adjusted EBITDA is a non-GAAP financial measure used by management to assess financial performance, excluding certain non-operating charges and non-cash items - Adjusted EBITDA is a non-GAAP financial measure used by management to assess financial performance, excluding certain non-operating charges and non-cash items[217][218] Adjusted EBITDA Reconciliation (2023 vs. 2022) | Metric | 2023 (In Thousands) | 2022 (In Thousands) | | :--- | :--- | :--- | | Net income (loss) before taxes and discontinued operations | $31,699 | $11,166 | | Adjustments: | | | | Impairments and other charges | $2,966 | $2,804 | | Exploration, pre-development costs and collaborative arrangements | $2,838 | $6,635 | | Interest expense, net | $22,349 | $15,833 | | Depreciation, amortization and accretion | $34,329 | $32,819 | | Equity-based compensation expense | $10,622 | $6,880 | | Adjusted EBITDA | $106,834 | $78,111 | | Adjusted EBITDA as % of revenue | 17.1% | 14.1% | Liquidity and Capital Resources This section details TETRA's cash flows from operating, investing, and financing activities, along with other sources and uses of cash, leases, and critical accounting policies Operating Activities Consolidated cash flows from operating activities significantly increased by $51.2 million to $70.2 million in 2023, driven by higher activity, improved margins, and favorable working capital - Consolidated cash flows provided by operating activities increased by $51.2 million to $70.2 million in 2023, up from $19.0 million in 2022[222][223] - Increase in operating cash flows primarily due to increased activity levels, higher consolidated margins from product mix changes, and favorable working capital movements[223] Investing Activities Total cash capital expenditures in 2023 were $38.2 million, primarily for Water & Flowback Services and Completion Fluids & Products, supplemented by asset sales and an insurance settlement - Total cash capital expenditures in 2023 were $38.2 million, with $26.6 million for Water & Flowback Services (SandStorm units, early production facilities) and $11.1 million for Completion Fluids & Products (supporting U.S. and European activity)[224] - Investing activities also included $6.7 million from property, plant, and equipment sales, $3.9 million from marketable securities sales, and a $2.9 million insurance settlement[225] - Development of Arkansas brine resources for lithium and bromine extraction requires significant time and capital, contingent on further studies and capital commitments[226] Financing Activities Consolidated net cash used in financing activities was $4.7 million in 2023, with significant debt refinancing in January 2024, and the company remains in compliance with all debt covenants - Consolidated net cash used in financing activities was $4.7 million in 2023, including $100.5 million in borrowings and $97.5 million in repayments of revolving credit facilities, and $1.7 million in finance lease payments[228] - On January 12, 2024, the company entered into a New Term Credit Agreement for $265.0 million (a $190.0 million funded term loan and a $75.0 million delayed-draw term loan) to refinance existing debt and fund the Arkansas bromine project, maturing January 12, 2030[229][454] - The ABL Credit Agreement provides an $80 million revolving credit facility (with a $20 million accordion), subject to a borrowing base, with $68.8 million availability as of December 31, 2023, and no outstanding balance[230] - Maintains a Swedish Credit Facility for seasonal working capital ($5.0 million availability as of December 31, 2023) and a Finland Credit Agreement ($1.5 million letters of credit outstanding)[231][232] - As of December 31, 2023, TETRA was in compliance with all covenants of its debt agreements[233] Other Sources and Uses of Cash Short-term liquidity is funded by operations and vendor financing, with equity holdings available for monetization, but capital market instability and customer payment delays pose risks - Short-term liquidity is funded by cash from operations and vendor financing[234] - Equity holdings in CSI Compressco ($8.5 million) and Standard Lithium ($1.6 million) as of December 31, 2023, are available for monetization[234] - Instability in capital markets could limit the ability to raise additional debt or equity, potentially leading to dilution of common stockholders[234] - Increased delays or failures by customers to pay invoices could adversely affect liquidity and borrowing availability[234] Leases TETRA holds various operating leases for equipment and facilities, alongside finance leases for storage tanks and equipment rentals - Has operating leases for transportation equipment, office/warehouse space, operating locations, and machinery, and finance leases for facility storage tanks and equipment rentals[235] Asset Retirement Obligations The company is required to undertake specific actions for the retirement of facilities used in manufacturing, storage, and sale of products, inventories, and equipment - Required to take certain actions in connection with the retirement of facilities used in manufacturing, storage, and sale of products, inventories, and equipment[236] Product Purchase Obligations TETRA enters into supply agreements for raw materials and finished products within its Completion Fluids & Products Division, some of which include minimum or maximum purchase levels - Enters into supply agreements for raw materials and finished products in the Completion Fluids & Products Division, some with minimum/maximum purchase levels[237] Off Balance Sheet Arrangements As of December 31, 2023, TETRA has no off-balance sheet arrangements that are expected to materially affect its financial condition or results of operations - As of December 31, 2023, TETRA has no off-balance sheet arrangements that may have a current or future material effect on its consolidated financial condition or results of operations[238] Litigation Information regarding litigation, including contingencies of discontinued operations, is comprehensively detailed in Note 11 to the Consolidated Financial Statements - Information regarding litigation, including contingencies of discontinued operations, is detailed in Note 11 to the Consolidated Financial Statements[239] Critical Accounting Policies and Estimates The preparation of financial statements involves management's assumptions, estimates, and judgments, though currently no critical accounting policies materially affect the statements - The preparation of financial statements requires management to make assumptions, estimates, and judgments that affect reported amounts, which may differ materially from actual results[240] - Currently, there are no critical accounting policies and estimates that materially affect the preparation of the financial statements[242] Item 7A. Quantitative and Qualitative Disclosures about Market Risk TETRA faces interest rate risk on floating-rate debt, with the Term Credit Agreement refinanced to SOFR plus 5.75%, and currency exchange rate risk from foreign operations, without current derivative hedging - Interest on borrowings is subject to market risk from changes in applicable interest rates, as credit facilities consist of floating rate loans[243] Long-Term Debt Obligations (December 31, 2023) | Debt Type | Scheduled Maturity | Interest Rate | | :--- | :--- | :--- | | Term credit agreement | September 10, 2025 | 11.70% | | Asset-based credit agreement | May 31, 2025 | 8.75% | | Swedish credit facility | December 31, 2024 | 2.95% | - The Term Credit Agreement was refinanced on January 12, 2024, with a New Term Credit Agreement bearing interest at SOFR plus 5.75%[244] - Has currency exchange rate risk exposure related to revenues, expenses, and operating balances denominated in foreign currencies (e.g., Euro, British pound, Mexican peso, and Argentinian peso)[115][245] - May use short-term foreign-currency forward derivative contracts to mitigate currency exchange rate risk, but none were outstanding as of December 31, 2023[245][438] Item 8. Financial Statements and Supplementary Data This item refers to the financial statements and supplementary data included in Item 15 of this Annual Report Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item states that there have been no changes in or disagreements with accountants on accounting and financial disclosure Item 9A. Controls and Procedures TETRA's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of December 31, 2023. Management also assessed and determined that internal control over financial reporting was effective as of the same date, based on the COSO framework. No material changes in internal control over financial reporting occurred in Q4 2023 - Disclosure controls and procedures were evaluated and concluded to be effective as of December 31, 2023[248] - Management assessed the effectiveness of internal control over financial reporting as of December 31, 2023, based on the COSO (2013 framework), and determined it was effective[252] - Grant Thornton LLP, the independent registered public accounting firm, issued an unqualified attestation report on the effectiveness of internal control over financial reporting[253][282][288] - No changes in internal control over financial reporting occurred during Q4 2023 that materially affected or are reasonably likely to materially affect it[254] Item 9B. Other Information This item states that there is no other information to report Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item states that there are no disclosures regarding foreign jurisdictions that prevent inspections Part III Item 10. Directors, Executive Officers, and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's definitive proxy statement for the annual meeting of stockholders to be held on May 21, 2024 - Information for this item is incorporated by reference from the Proxy Statement for the annual meeting of stockholders on May 21, 2024[258] Item 11. Executive Compensation Information concerning executive compensation is incorporated by reference from the company's proxy statement, including details on the Management and Compensation Committee Report, Compensation Discussion and Analysis, and Compensation of Executive Officers - Information for this item is incorporated by reference from the Proxy Statement[259] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners and management, as well as equity compensation plan information, is incorporated by reference from the company's proxy statement - Information for this item is incorporated by reference from the Proxy Statement[260] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on certain relationships and related transactions, and director independence, is incorporated by reference from the company's proxy statement - Information for this item is incorporated by reference from the Proxy Statement[261] Item 14. Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's proxy statement - Information for this item is incorporated by reference from the Proxy Statement[262] Part IV Item 15. Exhibits, Financial Statement Schedules This section lists the financial statements, financial statement schedules, and a comprehensive list of exhibits filed as part of the Annual Report on Form 10-K, including various agreements, plans, and certifications - Includes the Reports of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Comprehensive Income (Loss), Equity, and Cash Flows, along with Notes to Consolidated Financial Statements[264] - Lists numerous exhibits, including asset purchase agreements, certificates of incorporation, bylaws, credit agreements, equity incentive plans, and certifications[266][267][268][269] Item 16. Form 10-K Summary This item indicates that there is no Form 10-K Summary provided