TETRA Technologies(TTI) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Q3 2024 revenue was $142 million, down 6% YoY and from Q1 2024 [10] - Adjusted EBITDA for Q3 was$ 23.5 million, down $2.5 million YoY but up$ 700,000 from Q1 2024 [10] - Trailing 12 months adjusted EBITDA was $101 million [15] - Trailing 12 months adjusted free cash flow was over$ 7 million, despite $23 million investment in Arkansas [15] - Current liquidity is approximately$ 197 million, including a $75 million delayed draw feature for the Arkansas bromine project [15] - Net leverage ratio at the end of Q3 was 1.5x [39] - Return on capital for the trailing 12 months was 16.6%, compared to a weighted average cost of capital of 11%-12% [39] Business Segment Performance Completion Fluids & Products - Q3 adjusted EBITDA margin was 31.7%, with a record 32.1% excluding unrealized gains/losses on investments, up 200 basis points YoY and 80 basis points from Q1 2024 [9][16] - Major deepwater completions fluid award in Brazil, a multi-well, multi-year contract for high-density bromine-based completion fluids [11] - Introduction of TETRA X, a new corrosion inhibitor for high-temperature downhole environments, expected to expand market share [17] - Q4 expected to be comparable to slightly down from Q3 due to hurricane impacts on deepwater completion schedules [18] Water & Flowback Services - Q3 adjusted EBITDA margin was 14.6%, consistent with goals [19] - Record produced water recycling for frac reuse, with another record expected in Q4 [12][21] - Automation efforts are reducing labor costs, the highest cost in this segment, with 20% of the fleet automated and another 20% to be upgraded in 2025 [19][21] - Q4 revenue expected to be down, but margins to remain in the mid-teens due to increased recycling and automation [34] Market Performance - U.S. onshore frac crew activity down close to 25% over the past 18 months, impacting completion-related revenues [19] - Gulf of Mexico remains a technically challenging market, with TETRA recognized as the performance leader by Kimberlite [14] - Brazil deepwater market is growing, with TETRA securing a second major deepwater fluid award in three years [11] Strategic Initiatives and Industry Competition - Focus on automation and technology deployment to enhance efficiency and safety in Water & Flowback Services [20] - Progress in water desalination and beneficial reuse, with pilot projects in the Permian Basin and discussions with multiple major customers [22] - Collaboration with Eos Energy for long-duration energy storage electrolyte, with increased manufacturing capacity to meet demand [23] - Arkansas bromine project has compelling economics, with a$ 270 million CapEx investment expected to yield $90-$ 115 million in annual adjusted EBITDA [24] - Lithium project engineering studies ongoing, with a focus on near-term strategic initiatives like TETRA CS Neptune Fluids and PureFlow+ electrolyte shipments [26] Management Commentary on Operating Environment and Future Outlook - Despite hurricane disruptions and lower U.S. land completion activity, Q3 financial performance met expectations [8] - Strong momentum for 2025, driven by deepwater market recovery, automation, produced water recycling, and electrolyte sales [43] - Visibility for Completion Fluids & Products segment is the highest in many years, with a strong backlog for 2025 [30] - Q4 adjusted EBITDA expected to be modestly below Q3, but a material ramp-up is anticipated in Q1 2025 [33] Other Important Information - Industrial chemicals business, primarily calcium chloride, generates approximately $140 million annually, with EBITDA margins around 30% [32] - Marketable securities holdings of over$ 14 million, including Standard Lithium and Kodiak Gas Services, provide additional liquidity [39] - Cost reduction actions initiated in Q3, including a 6% reduction in SG&A headcount [42] Q&A Session Summary Deepwater Projects and CS Neptune - Additional CS Neptune projects in the Gulf of Mexico are likely in 2025, with discussions ongoing with operators [28][46] - Neptune projects are unique, with no competing offerings in the same price range, making TETRA the preferred choice [47] Water & Flowback Business Outlook - 2025 expected to be flattish in terms of activity, with a focus on margin enhancement through automation and recycling [48] Water Desalination and Bromine Project - Water desalination technology is proprietary, with pre-treatment and post-treatment processes unique to TETRA [64][66] - Bromine project likely to be staged, with initial production targeting 66% of DFS volumes and significant CapEx savings [59][62] Lithium Royalties and Standard Lithium - AOGC ruling on lithium royalties expected soon, with TETRA holding a 2.5% royalty on Standard Lithium's production [69][72] - Standard Lithium received a grant from the Department of Energy and partnered with Equinor, indicating strong future production potential [73][74] Automation and TETRA X - Automation in Water & Flowback Services is well-received, with maximum utilization of automated equipment [83] - TETRA X, a high-temperature corrosion inhibitor, is expected to contribute to premium pricing in high-temperature well markets [86] PureFlow+ Electrolyte Business - TETRA is prepared to meet Eos Energy's demand for PureFlow+ and full electrolyte, with blending capacity expanded in West Memphis [90] - Margins for the electrolyte business are expected to be consistent with the oil and gas sector [92] Middle East Sandstorm Deployment - Sandstorm deployment in the Middle East is progressing, with trials expected in Q1 2025 [94]