Tetra Technologies Inc 10-Q for FY2022 Q1
Tetra Technologies Inc (TTI)
10-Q
2022-05-02
For: 2022-03-31
View Original
Added on
April 11, 2026
About this 10-Q
Tetra Technologies Inc filed this 10-Q on May 2, 2022, covering the quarter ended March 31, 2022 (FY2022 Q1).
Headline figures
Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $130.04M
- up 68.2% from $77.32M a year earlier
- Net income
- $7.72M
- down 92.9% from net income of $108.71M a year earlier
- Diluted EPS
- $0.06
- down 93.0% from $0.86 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended March 31, 2022
or
For the transition period from to .
Commission File Number 1-13455
(Exact name of registrant as specified in its charter)
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | ||||
| (Address of Principal Executive Offices) | (Zip Code) | ||||
(281 ) 367-1983
(Registrant’s Telephone Number, Including Area Code)
_______________________________________________________________________
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | ☒ | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of April 29, 2022, there were 127,703,037 shares outstanding of the Company’s Common Stock, $0.01 par value per share.
| TETRA Technologies, Inc. and Subsidiaries | |||||
| Table of Contents | |||||
| Page | |||||
| PART I—FINANCIAL INFORMATION | |||||
| PART II—OTHER INFORMATION | |||||
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
Product sales | $ | $ | |||||||||||||||||||||
Services | |||||||||||||||||||||||
Total revenues | |||||||||||||||||||||||
| Cost of revenues: | |||||||||||||||||||||||
Cost of product sales | |||||||||||||||||||||||
Cost of services | |||||||||||||||||||||||
Depreciation, amortization, and accretion | |||||||||||||||||||||||
Insurance recoveries | ( | ( | |||||||||||||||||||||
Total cost of revenues | |||||||||||||||||||||||
Gross profit | |||||||||||||||||||||||
| Exploration and appraisal costs | |||||||||||||||||||||||
| General and administrative expense | |||||||||||||||||||||||
| Interest expense, net | |||||||||||||||||||||||
| Other income, net | ( | ( | |||||||||||||||||||||
| Income (loss) before taxes and discontinued operations | ( | ||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Income (loss) before discontinued operations | ( | ||||||||||||||||||||||
| Discontinued operations: | |||||||||||||||||||||||
| (Loss) income from discontinued operations, net of taxes | ( | ||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
Less: (income) loss attributable to noncontrolling interest(1) | ( | ||||||||||||||||||||||
| Net income attributable to TETRA stockholders | $ | $ | |||||||||||||||||||||
| Basic net income (loss) per common share: | |||||||||||||||||||||||
| Income (loss) from continuing operations | $ | $ | ( | ||||||||||||||||||||
| Income from discontinued operations | |||||||||||||||||||||||
| Net income attributable to TETRA stockholders | $ | $ | |||||||||||||||||||||
| Weighted average basic shares outstanding | |||||||||||||||||||||||
| Diluted net income (loss) per common share: | |||||||||||||||||||||||
| Income (loss) from continuing operations | $ | $ | ( | ||||||||||||||||||||
| Income from discontinued operations | |||||||||||||||||||||||
| Net income attributable to TETRA stockholders | $ | $ | |||||||||||||||||||||
| Weighted average diluted shares outstanding | |||||||||||||||||||||||
(1) (Income) loss attributable to noncontrolling interest includes zero and $(333 ) income for the three-month periods ended March 31, 2022 and 2021, respectively, related to discontinued operations.
See Notes to Consolidated Financial Statements
1
TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In Thousands)
(Unaudited)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Net income | $ | $ | |||||||||||||||||||||
Foreign currency translation adjustment from continuing operations, net of taxes of $ | ( | ||||||||||||||||||||||
| Comprehensive income | |||||||||||||||||||||||
| Less: Comprehensive income (loss) attributable to noncontrolling interest | ( | ||||||||||||||||||||||
| Comprehensive income attributable to TETRA stockholders | $ | $ | |||||||||||||||||||||
See Notes to Consolidated Financial Statements
2
TETRA Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands)
| March 31, 2022 | December 31, 2021 | ||||||||||
| (Unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
Cash and cash equivalents | $ | $ | |||||||||
Trade accounts receivable, net of allowances of $ | |||||||||||
Inventories | |||||||||||
Prepaid expenses and other current assets | |||||||||||
Total current assets | |||||||||||
| Property, plant, and equipment: | |||||||||||
Land and building | |||||||||||
Machinery and equipment | |||||||||||
Automobiles and trucks | |||||||||||
Chemical plants | |||||||||||
Construction in progress | |||||||||||
Total property, plant, and equipment | |||||||||||
Less accumulated depreciation | ( | ( | |||||||||
Net property, plant, and equipment | |||||||||||
| Other assets: | |||||||||||
Patents, trademarks and other intangible assets, net of accumulated amortization of $ | |||||||||||
Operating lease right-of-use assets | |||||||||||
| Investments | |||||||||||
Other assets | |||||||||||
Total other assets | |||||||||||
| Total assets | $ | $ | |||||||||
See Notes to Consolidated Financial Statements
3
TETRA Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Share Amounts)
| March 31, 2022 | December 31, 2021 | ||||||||||
| (Unaudited) | |||||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
Trade accounts payable | $ | $ | |||||||||
| Current portion of long-term debt | |||||||||||
| Compensation and employee benefits | |||||||||||
| Operating lease liabilities, current portion | |||||||||||
| Accrued taxes | |||||||||||
Accrued liabilities and other | |||||||||||
| Current liabilities associated with discontinued operations | |||||||||||
Total current liabilities | |||||||||||
| Long-term debt, net | |||||||||||
| Operating lease liabilities | |||||||||||
| Asset retirement obligations | |||||||||||
| Deferred income taxes | |||||||||||
| Other liabilities | |||||||||||
Total long-term liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Equity: | |||||||||||
| TETRA stockholders’ equity: | |||||||||||
Common stock, par value | |||||||||||
Additional paid-in capital | |||||||||||
Treasury stock, at cost; | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
Retained deficit | ( | ( | |||||||||
| Total TETRA stockholders’ equity | |||||||||||
Noncontrolling interests | ( | ( | |||||||||
Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
See Notes to Consolidated Financial Statements
4
TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Equity
(In Thousands)
(Unaudited)
| Common Stock Par Value | Additional Paid-In Capital | Treasury Stock | Accumulated Other Comprehensive Income (Loss) | Retained Deficit | Noncontrolling Interest | Total Equity | |||||||||||||||||||||||||||||||||||
| Currency Translation | |||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||
| Net income for first quarter 2022 | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||
Translation adjustment, net of taxes of $ | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Comprehensive income | |||||||||||||||||||||||||||||||||||||||||
| Equity compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Other | 7 | ( | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||
| Common Stock Par Value | Additional Paid-In Capital | Treasury Stock | Accumulated Other Comprehensive Loss | Retained Deficit | Noncontrolling Interest | Total Equity | |||||||||||||||||||||||||||||||||||
| Currency Translation | |||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||
| Net income for first quarter 2021 | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Translation adjustment, net of taxes of $ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||
| Comprehensive income | |||||||||||||||||||||||||||||||||||||||||
| Deconsolidation of CSI Compressco | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
| Equity award activity | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Treasury stock activity, net | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Equity compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Other | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||
See Notes to Consolidated Financial Statements
5
TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands, Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Reconciliation of net income to net cash provided by operating activities: | |||||||||||
| Depreciation, amortization, and accretion | |||||||||||
| Gain on GP Sale | ( | ||||||||||
| Gain on investments | ( | ( | |||||||||
| Equity-based compensation expense | |||||||||||
| Provision for doubtful accounts | |||||||||||
| Amortization and expense of financing costs | |||||||||||
| Insurance recoveries associated with damaged equipment | ( | ( | |||||||||
| Gain on sale of assets | ( | ( | |||||||||
| Other non-cash charges | ( | ||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | ( | ||||||||||
| Trade accounts payable and accrued expenses | |||||||||||
| Other | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| Investing activities: | |||||||||||
| Purchases of property, plant, and equipment, net | ( | ( | |||||||||
| Proceeds from GP Sale, net of cash divested | |||||||||||
| Proceeds from sale of property, plant, and equipment | |||||||||||
| Proceeds from insurance recoveries associated with damaged equipment | |||||||||||
| Other investing activities | ( | ||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Financing activities: | |||||||||||
| Proceeds from long-term debt | |||||||||||
| Principal payments on long-term debt | ( | ( | |||||||||
| Repurchase of common stock | ( | ||||||||||
| Debt issuance costs and other financing activities | ( | ||||||||||
| Net cash provided by (used in) financing activities | ( | ||||||||||
| Effect of exchange rate changes on cash | ( | ||||||||||
| Increase (decrease) in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents and restricted cash at beginning of period | |||||||||||
Cash and cash equivalents at beginning of period associated with discontinued operations | |||||||||||
Cash and cash equivalents and restricted cash at beginning of period associated with continuing operations | |||||||||||
Cash and cash equivalents and restricted cash at end of period associated with continuing operations | $ | $ | |||||||||
See Notes to Consolidated Financial Statements
6
TETRA Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 – ORGANIZATION, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES
Organization
We are an industrial and oil and gas products and services company operating on six continents, focused on bromine-based completion fluids, calcium chloride, water management solutions, frac flowback and production well testing services. We were incorporated in Delaware in 1981. We are composed of two segments – Completion Fluids & Products Division and Water & Flowback Services Division. Unless the context requires otherwise, when we refer to “we,” “us,” and “our,” we are describing TETRA Technologies, Inc. and its consolidated subsidiaries on a consolidated basis.
Presentation
Our unaudited consolidated financial statements include the accounts of our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The information furnished reflects all normal recurring adjustments, which are, in the opinion of management, necessary to provide a fair statement of the results for the interim periods. Operating results for the period ended March 31, 2022 are not necessarily indicative of results that may be expected for the twelve months ended December 31, 2022.
We have reflected the operations of our former Compression Division and Offshore Division as discontinued operations for all periods presented. See Note 2 - “Discontinued Operations” for further information. Unless otherwise noted, amounts and disclosures throughout these Notes to Consolidated Financial Statements relate solely to continuing operations and exclude all discontinued operations.
Significant Accounting Policies
Our significant accounting policies are described in the notes to our consolidated financial statements for the year ended December 31, 2021 included in our 2021 Annual Report. There have been no significant changes in our accounting policies or the application thereof during the first quarter of 2022.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclose contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses, and impairments during the reporting period. Actual results could differ from those estimates, and such differences could be material.
Foreign Currency Translation
We have designated the Euro, the British pound, the Canadian dollar, the Brazilian real, and the Mexican peso as the functional currencies for our operations in Finland and Sweden, the United Kingdom, Canada, Brazil,
7
Fair Value Measurements
Supplemental Cash Flow Information
Supplemental cash flow information from continuing and discontinued operations is as follows:
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (in thousands) | |||||||||||
Supplemental cash flow information(1): | |||||||||||
Interest paid | $ | $ | |||||||||
Income taxes paid | |||||||||||
| Decrease in accrued capital expenditures | |||||||||||
(1) Prior-year information includes the activity for CSI Compressco for January only.
New Accounting Pronouncements
Standards not yet adopted
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses on financial instruments not accounted for at fair value through net income. The provisions require credit impairments to be measured over the contractual life of an asset and developed with consideration for past events, current conditions, and forecasts of future economic information. Credit impairment will be accounted for as an allowance for credit losses deducted from the amortized cost basis at each reporting date. We are continuing to work through our implementation plan which includes evaluating the impact on our allowance for doubtful accounts methodology, identifying new reporting requirements, and implementing changes to business processes, systems, and controls to support adoption of the standard. Upon adoption, the allowance for doubtful accounts is expected to increase with an offsetting adjustment to retained earnings. Updates at each reporting date after initial adoption will be recorded through selling, general, and administrative expense. ASU 2016-13 will become effective for us in the first quarter of fiscal 2023. We continue to assess the potential effects of these changes to our consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)”, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. Entities may elect to apply the amendments for contract modifications made on or before December 31, 2022. During 2021, our asset-based credit agreement and term credit agreement were amended to allow replacement of LIBOR with another benchmark rate, such as the secured overnight financing rate (“SOFR”) in the event that LIBOR cannot be determined or does not fairly reflect the cost to our lenders of funding our loans. If LIBOR is not available, we cannot predict what alternative index would be negotiated with our lenders. We will assess the impact of adopting ASU 2020-04 on our consolidated financial statements if or when our contracts are modified to eliminate references to LIBOR.
8
NOTE 2 – DISCONTINUED OPERATIONS
On January 29, 2021, we entered into the Purchase and Sale Agreement with Spartan Energy Partners, LP (“Spartan”) pursuant to which we sold the general partner of CSI Compressco, including the incentive distribution rights (“IDRs”) in CSI Compressco, and approximately 23.1 % of the outstanding limited partner interests in CSI Compressco, in exchange for the combination of $13.9 million in cash and $3.1 million in contingent consideration in the form of cash and/or CSI Compressco common units if CSI Compressco achieves certain financial targets on or before December 31, 2022. Throughout this Quarterly Report, we refer to this transaction as the “GP Sale.” Following the closing of the transaction, we retained an interest in CSI Compressco representing approximately 3.7 % of the outstanding common units as of March 31, 2022. As a result of these transactions, we no longer consolidate CSI Compressco as of January 29, 2021. We recognized a primarily non-cash accounting gain of $120.6 million during the three-month period ended March 31, 2021 related to the GP Sale. The gain is included in income (loss) from discontinued operations, net of taxes in our consolidated statement of operations. We provided back-office support to CSI Compressco under a Transition Services Agreement that ended during the three-month period ended March 31, 2022. Our interest in CSI Compressco and the general partner represented substantially all of our Compression Division.
In addition, on March 1, 2018, we closed a series of related transactions that resulted in the disposition of our Offshore Division, consisting of our Offshore Services and Maritech segments. Our former Compression and Offshore Divisions are reported as discontinued operations for all periods presented. Our consolidated balance sheets and consolidated statements of operations report discontinued operations separate from continuing operations. Our consolidated statements of comprehensive income, statements of equity and statements of cash flows combine continuing and discontinued operations. Our prior-year consolidated statement of operations, statement of comprehensive income, statement of equity and statement of cash flows include CSI Compressco activity for January 1 through January 29. Our consolidated statements of cash flows for the three-month period ended March 31, 2021 included $3.0 million, of capital expenditures related to our former Compression division. A summary of financial information related to our discontinued operations is as follows:
Reconciliation of the Line Items Constituting Pretax Loss from Discontinued Operations to the After-Tax Loss from Discontinued Operations
(in thousands, unaudited)
| Three Months Ended March 31, 2022 | |||||||||||||||||||||||
| Offshore Services | |||||||||||||||||||||||
| Major classes of line items constituting loss from discontinued operations | |||||||||||||||||||||||
| General and administrative expense | $ | ||||||||||||||||||||||
| Pretax loss from discontinued operations | ( | ||||||||||||||||||||||
| Loss from discontinued operations attributable to TETRA stockholders | $ | ( | |||||||||||||||||||||
| Three Months Ended March 31, 2021 | |||||||||||||||||
| Compression | Offshore Services | Total | |||||||||||||||
| Major classes of line items constituting loss from discontinued operations | |||||||||||||||||
| Revenue | $ | $ | $ | ||||||||||||||
| Cost of revenues | |||||||||||||||||
| General and administrative expense | ( | ||||||||||||||||
| Interest expense, net | |||||||||||||||||
| Other (income) expense, net | ( | ( | |||||||||||||||
| Pretax income (loss) from discontinued operations | ( | ||||||||||||||||
| Pretax gain on disposal of discontinued operations | |||||||||||||||||
| Total pretax income from discontinued operations | |||||||||||||||||
| Income tax provision | |||||||||||||||||
| Total income from discontinued operations | |||||||||||||||||
| Income from discontinued operations attributable to noncontrolling interest | ( | ||||||||||||||||
| Income from discontinued operations attributable to TETRA stockholders | $ | ||||||||||||||||
9
Reconciliation of Major Classes of Assets and Liabilities of the Discontinued Operations to Amounts Presented Separately in the Statement of Financial Position
(in thousands)
| March 31, 2022 | |||||||||||||||||||||||
| Offshore Services | Maritech | Total | |||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||
| Carrying amounts of major classes of liabilities included as part of discontinued operations | |||||||||||||||||||||||
| Trade payables | $ | $ | $ | ||||||||||||||||||||
| Accrued liabilities and other | |||||||||||||||||||||||
| Total liabilities associated with discontinued operations | $ | $ | $ | ||||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||
| Offshore Services | Maritech | Total | |||||||||||||||||||||
| Carrying amounts of major classes of liabilities included as part of discontinued operations | |||||||||||||||||||||||
| Trade payables | $ | $ | $ | ||||||||||||||||||||
| Accrued liabilities and other | |||||||||||||||||||||||
| Total liabilities associated with discontinued operations | $ | $ | $ | ||||||||||||||||||||
NOTE 3 – REVENUE FROM CONTRACTS WITH CUSTOMERS
Our contract asset balances, primarily associated with contractual invoicing milestones and customer documentation requirements, were $29.6 million and $20.5 million as of March 31, 2022 and December 31, 2021, respectively. Contract assets, along with billed trade accounts receivable, are included in trade accounts receivable in our consolidated balance sheets.
Unearned income includes amounts in which the Company was contractually allowed to invoice prior to satisfying the associated performance obligations. We are also party to agreements in which Standard Lithium Ltd. (“Standard Lithium”) has the right to explore, produce and extract lithium in our Arkansas leases as well as additional potential resources in the Mojave region of California. The Company receives cash and stock of Standard Lithium under the terms of the arrangements. The cash and stock component of consideration received is initially recorded as unearned income based on the quoted market price at the time the stock is received, then recognized in income over the contract term. Unearned income balances were $5.7 million and $3.2 million as of March 31, 2022 and December 31, 2021, respectively, and vary based on the timing of invoicing and performance obligations being met and the timing of the receipt of stock and shares from Standard Lithium. Unearned income is included in accrued liabilities and other in our consolidated balance sheets. We recognized approximately $0.6 million and $0.3 million of income during the three-month periods ended March 31, 2022 and March 31, 2021, respectively, related to the Standard Lithium arrangements. These amounts are included in other income, net in our consolidated statements of operations. During the three-month period ended March 31, 2021, we recognized approximately $1.4 million of revenue deferred as of the preceding year end. Other income recognized during the three-month periods ended March 31, 2022 and March 31, 2021 deferred as of the end of the preceding year were not significant. During the three-month periods ended March 31, 2022 and March 31, 2021, contract costs were not significant.
10
We disaggregate revenue from contracts with customers into Product Sales and Services within each segment, as noted in our two reportable segments in Note 9. In addition, we disaggregate revenue from contracts with customers by geography based on the following table below.
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Completion Fluids & Products | |||||||||||||||||||||||
| United States | $ | $ | |||||||||||||||||||||
| International | |||||||||||||||||||||||
| Water & Flowback Services | |||||||||||||||||||||||
| United States | |||||||||||||||||||||||
| International | |||||||||||||||||||||||
| Total Revenue | |||||||||||||||||||||||
| United States | |||||||||||||||||||||||
| International | |||||||||||||||||||||||
| $ | $ | ||||||||||||||||||||||
NOTE 4 – INVENTORIES
Components of inventories as of March 31, 2022 and December 31, 2021 are as follows:
| March 31, 2022 | December 31, 2021 | ||||||||||
| (in thousands) | |||||||||||
| Finished goods | $ | $ | |||||||||
| Raw materials | |||||||||||
| Parts and supplies | |||||||||||
| Work in progress | |||||||||||
Total inventories | $ | $ | |||||||||
NOTE 5 – LONG-TERM DEBT AND OTHER BORROWINGS
Consolidated long-term debt as of March 31, 2022 and December 31, 2021, consists of the following:
| Scheduled Maturity | March 31, 2022 | December 31, 2021 | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Swedish Credit Facility | December 31, 2022 | $ | $ | |||||||||||||||||
Asset-based credit agreement(1) | May 31, 2025 | |||||||||||||||||||
Term credit agreement(2) | September 10, 2025 | |||||||||||||||||||
| Total debt | ||||||||||||||||||||
| Less current portion | ( | |||||||||||||||||||
| Total long-term debt | $ | $ | ||||||||||||||||||
(1) Net of unamortized deferred financing costs of $0.8 million and $1.6 million as of March 31, 2022 and December 31, 2021, respectively. Additional deferred financing costs of $0.6 million as of March 31, 2022, were classified as other long-term assets on the accompanying consolidated balance sheet as the deferred costs exceeded the outstanding balance.
(2) Net of unamortized discount of $4.2 million and $4.5 million as of March 31, 2022 and December 31, 2021, respectively, and net of unamortized deferred financing costs of $6.3 million and $6.7 million as of March 31, 2022 and December 31, 2021, respectively.
11
Swedish Credit Facility
In January 2022, the Company entered into a new revolving credit facility for seasonal working capital needs of subsidiaries in Sweden (“Swedish Credit Facility”). As of March 31, 2022, we had US$1.5 million outstanding and availability of approximately US$3.8 million under the Swedish Credit Facility. During each year, all outstanding loans under the Swedish Credit Facility must be repaid for at least 30 consecutive days. Borrowings bear interest at a rate of 2.95 % per annum. The Swedish Credit Facility expires on December 31, 2022 and the Company intends to renew it annually.
Finland Credit Agreement
The Company also entered into a new agreement guaranteed by certain accounts receivable and inventory in Finland (“Finland Credit Agreement”). As of March 31, 2022, there were US$1.8 million of letters of credit outstanding against the Finland Credit Agreement.
ABL Credit Agreement
As of March 31, 2022, our asset-based credit agreement (“ABL Credit Agreement’) provides for a senior secured revolving credit facility of up to $80.0 million, with a $20.0 million accordion. The credit facility is subject to a borrowing base determined monthly by reference to the value of inventory and accounts receivable, and includes a sublimit of $20.0 million for letters of credit, a swingline loan sublimit of $11.5 million, and a $15.0 million sub-facility subject to a borrowing base consisting of certain trade receivables and inventory in the United Kingdom.
As of March 31, 2022, we had $0.8 million outstanding and $6.0 million in letters of credit and guarantees under our ABL Credit Agreement. Subject to compliance with the covenants, borrowing base, and other provisions of the ABL Credit Agreement that may limit borrowings, we had availability of $58.6 million under this agreement.
Term Credit Agreement
As of March 31, 2022 TETRA had $152.5 million outstanding, net of unamortized discounts and unamortized deferred financing costs under the Term Credit Agreement. Our Term Credit Agreement requires us to offer to prepay a percentage of Excess Cash Flow (as defined in the Term Credit Agreement) within five business days of filing our Annual Report. As of March 31, 2022, the interest rate per annum on borrowings under the Term Credit Agreement is 7.25%. For additional information on our Term Credit agreement, see our 2021 Annual Report.
NOTE 6 – COMMITMENTS AND CONTINGENCIES
Litigation
We are named defendants in several lawsuits and respondents in certain governmental proceedings arising in the ordinary course of business. While the outcome of lawsuits or other proceedings against us cannot be predicted with certainty, management does not consider it reasonably possible that a loss resulting from such lawsuits or other proceedings in excess of any amounts accrued has been incurred that is expected to have a material adverse impact on our financial condition, results of operations, or liquidity.
There have been no material developments in our legal proceedings during the quarter ended March 31, 2022. For a discussion of our legal proceedings, please see our 2021 Annual Report.
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NOTE 7 – FAIR VALUE MEASUREMENTS
Financial Instruments
Investments
We retained an interest in CSI Compressco (NASDAQ: CCLP) representing approximately 3.7 % of CSI Compressco’s outstanding common units as of March 31, 2022. Our investment in CSI Compressco is recorded based on the quoted market stock price in active markets (a Level 1 fair value measurement). Changes in the value of stock are recorded in other income (expense) in our consolidated statements of operations.
In December 2021, we invested in a $5.0 million convertible note issued by CarbonFree. Our investment in CarbonFree is recorded in investments on our consolidated balance sheets based on an internal valuation (a Level 3 fair value measurement).
Recurring and nonrecurring fair value measurements by valuation hierarchy as of March 31, 2022 and December 31, 2021, are as follows:
| Fair Value Measurements Using | ||||||||||||||||||||||||||
| Total as of | Quoted Prices in Active Markets for Identical Assets or Liabilities | Significant Other Observable Inputs | Significant Unobservable Inputs | |||||||||||||||||||||||
| Description | March 31, 2022 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
Investment in CSI Compressco | $ | $ | $ | $ | ||||||||||||||||||||||
| Investment in CarbonFree | ||||||||||||||||||||||||||
| Investments | $ | |||||||||||||||||||||||||
| Fair Value Measurements Using | ||||||||||||||||||||||||||
| Total as of | Quoted Prices in Active Markets for Identical Assets or Liabilities | Significant Other Observable Inputs | Significant Unobservable Inputs | |||||||||||||||||||||||
| Description | December 31, 2021 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
Investment in CSI Compressco | $ | $ | $ | $ | ||||||||||||||||||||||
| Investment in CarbonFree | $ | $ | $ | |||||||||||||||||||||||
| Investments | $ | |||||||||||||||||||||||||
The fair values of cash, restricted cash, accounts receivable, accounts payable, accrued liabilities, short-term borrowings and long-term debt pursuant to TETRA’s ABL Credit Agreement, Swedish Credit Agreement and term credit agreement approximate their carrying amounts. See Note 5 - “Long-Term Debt and Other Borrowings” for further discussion.
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NOTE 8 – NET INCOME (LOSS) PER SHARE
The following is a reconciliation of the weighted average number of common shares outstanding with the number of shares used in the computations of net income (loss) per common and common equivalent share:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
Number of weighted average common shares outstanding | |||||||||||||||||||||||
Assumed exercise of equity awards and warrants | |||||||||||||||||||||||
Average diluted shares outstanding | |||||||||||||||||||||||
The average diluted shares outstanding excludes the impact of certain outstanding equity awards and warrants of 1,727 thousand shares for the three-month period ended March 31, 2021, as the inclusion of these shares would have been anti-dilutive due to the net loss from continuing operations recorded during these periods.
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NOTE 9 – INDUSTRY SEGMENTS
We manage our operations through two segments: Completion Fluids & Products Division and Water & Flowback Services Division.
Summarized financial information concerning the business segments is as follows:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Revenues from external customers | |||||||||||||||||||||||
| Product sales | |||||||||||||||||||||||
| Completion Fluids & Products Division | $ | $ | |||||||||||||||||||||
| Water & Flowback Services Division | |||||||||||||||||||||||
| Consolidated | $ | $ | |||||||||||||||||||||
| Services | |||||||||||||||||||||||
| Completion Fluids & Products Division | $ | $ | |||||||||||||||||||||
| Water & Flowback Services Division | |||||||||||||||||||||||
| Consolidated | $ | $ | |||||||||||||||||||||
| Total revenues | |||||||||||||||||||||||
| Completion Fluids & Products Division | $ | $ | |||||||||||||||||||||
| Water & Flowback Services Division | |||||||||||||||||||||||
| Consolidated | $ | $ | |||||||||||||||||||||
| Income (loss) before taxes | |||||||||||||||||||||||
| Completion Fluids & Products Division | $ | $ | |||||||||||||||||||||
| Water & Flowback Services Division | ( | ||||||||||||||||||||||
| Interdivision eliminations | |||||||||||||||||||||||
Corporate Overhead(1) | ( | ( | |||||||||||||||||||||
| Consolidated | $ | $ | ( | ||||||||||||||||||||
(1) Amounts reflected include the following general corporate expenses:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| General and administrative expense | $ | $ | |||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Other general corporate income, net | ( | ( | |||||||||||||||||||||
| Total | $ | $ | |||||||||||||||||||||
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and accompanying notes included in this Quarterly Report. In addition, the following discussion and analysis also should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (“SEC”) on February 28, 2022 (“2021 Annual Report”). This discussion includes forward-looking statements that involve certain risks and uncertainties.
Business Overview
We are an industrial and oil and gas products and services company operating on six continents, focused on bromine-based completion fluids, calcium chloride, water management solutions, frac flowback and production well testing services. We are composed of two segments – Completion Fluids & Products Division and Water & Flowback Services Division.
Following a steady ramp up throughout 2021, customer activity levels continued to trend upward in the first quarter of 2022 as oil prices increased to an average of over $95 per barrel, and natural gas prices averaged $4.67 per million Btu. Consolidated revenue of $130.0 million is very comparable to the pre-pandemic first quarter 2020 period, but with significantly fewer operating frac crews in the United States.
Completions Fluids & Products Division revenues improved over the fourth quarter due to higher completions activity in the Gulf of Mexico and international markets, and an increase in industrial chemicals product sales. While drilling and completion activity has not returned to pre-pandemic levels, we have successfully leveraged opportunities to expand integrated services to completion fluids customers, resulting in Completion Fluids & Products revenues reaching near pre-pandemic results. Our Completion Fluids & Products Division also continued to ship TETRA's high purity zinc bromine solution, TETRA PureFlow® to Eos Energy Enterprises, Inc. ("Eos") (NASDAQ: EOSE) under our recent strategic partnership. The size of the shipments are expected to increase as Eos expands its production capacity to meet its growing backlog and to service its increasing number of identified opportunities. Margins also improved as we have been able to negotiate higher pricing to offset inflationary pressures in certain raw materials and logistics costs.
We have not historically directly purchased any significant volumes of raw materials from Russia nor from Ukraine. Additionally, we have not historically sold any significant volumes of product into Russia or to Ukraine. However, one of our raw material providers sources one of their raw materials from Russia or Ukraine. Because of the conflict between Russia and Ukraine, our primary European supplier of hydrochloric acid advised us of supply constraints with one of their suppliers of a key raw material used in their manufacturing process. This raw material is a widely used, global commodity but the disruption to the current supply chain has caused some impact on their production which in turn has caused a reduction in delivered volumes of hydrochloric acid to our plant in Finland where we manufacture calcium chloride, which has decreased our calcium chloride production volumes. The financial impact on first quarter results for our European industrial chemicals business was not significant but could become more significant to our Northern European calcium chloride production operations as the year progresses if these supply chain challenges continue. We are working with secondary and tertiary raw material providers on options to address the situation and mitigate the financial impact and we are told from our primary provider that they expect improved deliveries and a more normalized supply chain as they progress through the second half of the year. The exact financial impact is difficult to quantify at this time and is dependent on our ability to find alternative sources of acid from suppliers not directly or indirectly impacted by the conflict or the ability of our primary supplier to source alternative raw material sources.
Our Water & Flowback Services revenues increased slightly over the fourth quarter and significantly compared to the first quarter of 2021, due to a combination of higher overall customer activity levels and significant price recovery, particularly in the United States onshore land business. We deployed our TETRA SandStormTM technology for two major long-term projects in Latin America during 2021 and continue to add SandStorm units to United States onshore markets at rates approaching pre-pandemic pricing. Despite significant recent capital investments in our Sandstorm technology, we continue to experience capacity constraints, with pricing in several regions approaching pre-pandemic levels. Our focus on produced water treatment and recycling continues to generate results with several new recycling awards in the first quarter, including our first recycling project for a mid-stream company. Revenue growth was a result of the continued increase in the number of integrated projects and customers, high utilization of SandStorm units and market share gains with private oil and gas operators.
16
We are committed to pursuing low-carbon energy initiatives that leverage our fluids and aqueous chemistry core competencies, our significant bromine and lithium assets and technologies, and our leading calcium chloride production capabilities. During the first quarter of 2022, we completed the drilling of our Arkansas exploration well and commenced gathering of fluid samples for multiple Smackover formation brine zones. We expect the ongoing bromine and lithium fluid analysis will allow us to complete an inferred resources report for both the bromine and lithium in our approximately 31,100 net acre brine leases in Arkansas. We are in the process of bidding and awarding the work for a preliminary economic assessment (“PEA”) to determine the economics of developing 3,600 net acres under which we hold exclusive brine rights to meet the demand for bromine-based fluids for both a growing oil and gas market as well as a rapidly growing energy storage market. In addition to the bromine, we plan to extract lithium from the same brine feed which we expect will greatly benefit the financial returns for the project.
Substantially all of our former Compression Division’s operations were conducted through our partially-owned CSI Compressco subsidiary. On January 29, 2021, we closed the sale of the general partner of CSI Compressco, which included the sale of the incentive distribution rights (“IDRs”) in CSI Compressco and approximately 23.1% of the outstanding limited partner interests in CSI Compressco, referred to as the “GP Sale.” We recorded a book gain of $120.6 million during 2021 in connection with the GP Sale. This gain, most of which was non-cash, was a function of CSI Compressco having a negative carrying value within our consolidated balance sheet due to our share of cumulative losses and distributions. We have reflected the operations of our former Compression Division as discontinued operations for all periods presented. See Note 2 – “Discontinued Operations” in the Notes to Consolidated Financial Statements for further information.
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Results of Operations
The following information should be read in conjunction with the Consolidated Financial Statements and the associated Notes contained elsewhere in this report. In November 2020, the SEC issued a final rule to modernize and simplify Management’s Discussion and Analysis and certain financial disclosure requirements in SEC Regulation S-K. As permitted by this final rule, the analysis herein reflects the optional approach to discuss results of operations on a sequential-quarter basis, which we believe will provide information that is most useful in assessing our quarterly results of operations going forward. Also as required by the final rule, we have included the comparison of the current quarter to the prior-year quarter for this filing only, and will cease to provide this comparison in future filings. We will continue to provide a comparison of year-to-date results to the prior year-to-date period.
Three Months Ended March 31, 2022 compared with three months ended December 31, 2021.
Consolidated Comparisons
| Three Months Ended | Period to Period Change | ||||||||||||||||||||||
| March 31, 2022 | December 31, 2021 | $ Change | % Change | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Revenues | $ | 130,037 | $ | 113,148 | $ | 16,889 | 14.9 | % | |||||||||||||||
| Gross profit | 32,420 | 19,188 | 13,232 | 69.0 | % | ||||||||||||||||||
Gross profit as a percentage of revenue | 24.9 | % | 17.0 | % | |||||||||||||||||||
| Exploration and appraisal costs | 1,930 | — | 1,930 | 100.0 | % | ||||||||||||||||||
| General and administrative expense | 20,643 | 18,972 | 1,671 | 8.8 | % | ||||||||||||||||||
General and administrative expense as a percentage of revenue | 15.9 | % | 16.8 | % | |||||||||||||||||||
| Interest expense, net | 3,324 | 4,004 | (680) | (17.0) | % | ||||||||||||||||||
| Other income, net | (2,411) | (3,030) | 619 | (20.4) | % | ||||||||||||||||||
| Income (loss) before taxes and discontinued operations | 8,934 | (758) | 9,692 | NM(1) | |||||||||||||||||||
| Income (loss) before taxes and discontinued operations as a percentage of revenue | 6.9 | % | (0.7) | % | |||||||||||||||||||
| Provision for income taxes | 1,200 | (55) | 1,255 | NM | |||||||||||||||||||
| Income (loss) before discontinued operations | 7,734 | (703) | 8,437 | NM | |||||||||||||||||||
| Discontinued operations: | |||||||||||||||||||||||
| Loss from discontinued operations, net of taxes | (15) | (475) | 460 | (96.8) | % | ||||||||||||||||||
| Net income (loss) | 7,719 | (1,178) | 8,897 | NM | |||||||||||||||||||
| Income attributable to noncontrolling interest | 1 | 37 | (36) | (97.3) | % | ||||||||||||||||||
| Net income (loss) attributable to TETRA stockholders | $ | 7,720 | $ | (1,141) | $ | 8,861 | NM | ||||||||||||||||
(1) Percent change is not meaningful
Consolidated revenues increased in the current quarter primarily due to an increase in overall activity for both the Completion Fluids & Products division and Water Management & Flowback division, as commodity prices continued to move upward for both crude oil and natural gas. See Divisional Comparisons section below for a more detailed discussion of the change in our revenues.
Consolidated gross profit as a percentage of revenue improved primarily due to a change in revenue mix, with a higher portion of revenues generated from our Completion Fluids & Products division, as well as a $3.8 million insurance settlement received in March 2022 from damage to our Lake Charles facility during Hurricane Laura in 2020. See Divisional Comparisons section below for additional discussion.
Consolidated exploration and appraisal costs were $1.9 million during the current quarter due to costs associated with our exploratory brine well in Arkansas.
Consolidated general and administrative expenses increased primarily due to $0.6 million in bad debt expense recoveries recorded in the prior quarter and a slight increase in salary and employee expenses.
18
Consolidated interest expense, net, decreased in the current year period primarily due to $13.0 million of repayments of our term credit facility during the fourth quarter of 2021.
Our consolidated provision for income taxes for the current year period is primarily attributable to taxes in certain non-U.S. jurisdictions and Texas gross margin taxes. Our consolidated effective tax rate for the three-months ended March 31, 2022 was 13.4% due to income generated during the quarter, partially offset by the utilization of net operating loss carryforwards in the United States as well as in certain non-U.S. jurisdictions for which a valuation allowance had been established. We establish a valuation allowance to reduce the deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Included in our deferred tax assets are net operating loss carryforwards and tax credits that are available to offset future income tax liabilities in the United States as well as in certain non-U.S. jurisdictions.
Income from discontinued operations, net of taxes, for the prior quarter included a loss of $0.5 million for adjustments to the gain from the GP Sale.
Divisional Comparisons
Completion Fluids & Products Division
| Three Months Ended | Period to Period Change | ||||||||||||||||||||||
| March 31, 2022 | December 31, 2021 | $ Change | % Change | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Revenues | $ | 73,194 | $ | 59,829 | $ | 13,365 | 22.3 | % | |||||||||||||||
| Gross profit | 26,147 | 15,288 | 10,859 | 71.0 | % | ||||||||||||||||||
Gross profit as a percentage of revenue | 35.7 | % | 25.6 | % | |||||||||||||||||||
| Exploration and appraisal costs | 1,930 | — | 1,930 | 100.0 | % | ||||||||||||||||||
| General and administrative expense | 6,059 | 6,194 | (135) | (2.2) | % | ||||||||||||||||||
General and administrative expense as a percentage of revenue | 8.3 | % | 10.4 | % | |||||||||||||||||||
| Interest income, net | (323) | (131) | (192) | 146.6 | % | ||||||||||||||||||
| Other income, net | (811) | (5,643) | 4,832 | (85.6) | % | ||||||||||||||||||
| Income before taxes | $ | 19,292 | $ | 14,868 | $ | 4,424 | 29.8 | % | |||||||||||||||
Income before taxes as a percentage of revenue | 26.4 | % | 24.9 | % | |||||||||||||||||||
Revenues for our Completion Fluids & Products Division increased primarily due to increased Gulf of Mexico and Middle East completion fluid sales and associated services as a result of higher drilling and completions activity following the continued improvement in commodity prices. Our Northern European industrial business was negatively impacted from lower production volumes due to inflationary pressures for certain raw materials because of global shipping constraints and geopolitical events.
Gross profit for our Completion Fluids & Products Division increased compared to the prior year period due to a $3.8 million insurance settlement received in March 2022 from damage to our Lake Charles facility, as well as more revenues from higher-margin products and associated completion services, particularly in the Gulf of Mexico. Completion Fluids & Products Division profitability in future periods will continue to be affected by the mix of its products and services, market demand for our products and services, drilling and completions activity, supply chain challenges and inflationary pressures.
Pretax income for our Completion Fluids & Products Division increased primarily due to the $10.9 million higher gross profit described above, partially offset by a $4.6 million decrease in other income, net due to prior quarter gains from our investment in Standard Lithium Ltd. (NYSE: SLI) (“Standard Lithium”), which we sold during the fourth quarter of 2021. Income before taxes also decreased due to $1.9 million of costs associated with the exploratory brine well drilled during the current year period.
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Water & Flowback Services Division
| Three Months Ended | Period to Period Change | ||||||||||||||||||||||
| March 31, 2022 | December 31, 2021 | $ Change | % Change | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Revenues | $ | 56,843 | $ | 53,319 | $ | 3,524 | 6.6 | % | |||||||||||||||
| Gross profit | 6,462 | 4,283 | 2,179 | 50.9 | % | ||||||||||||||||||
Gross profit as a percentage of revenue | 11.4 | % | 8.0 | % | |||||||||||||||||||
| General and administrative expense | 4,238 | 3,762 | 476 | 12.7 | % | ||||||||||||||||||
General and administrative expense as a percentage of revenue | 7.5 | % | 7.1 | % | |||||||||||||||||||
| Interest income, net | — | 4 | (4) | (100.0) | % | ||||||||||||||||||
| Other income, net | (458) | (632) | 174 | (27.5) | % | ||||||||||||||||||
| Income before taxes | $ | 2,682 | $ | 1,149 | $ | 1,533 | 133.4 | % | |||||||||||||||
| Income before taxes as a percentage of revenue | 4.7 | % | 2.2 | % | |||||||||||||||||||
Revenues for our Water & Flowback Services Division increased in the current year period compared to the prior quarter, primarily in our water management services due to higher overall customer activity in the North America onshore business, combined with some pricing improvements. Customer activity levels have continued to improve, especially in the North America onshore business as crude oil and natural gas prices have increased.
The Water & Flowback Services Division reported improved gross profit compared to the prior quarter. While certain costs increased, our prices for services have improved as activity recovered, resulting in improved margins.
The Water & Flowback Services Division pretax income also increased due to the improved gross profit, slightly offset by an increase in general and administrative expense, primarily due to $0.6 million in bad debt expense recoveries recorded in the prior quarter.
Corporate Overhead
| Three Months Ended | Period to Period Change | ||||||||||||||||||||||
| March 31, 2022 | December 31, 2021 | $ Change | % Change | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Depreciation and amortization | $ | 191 | $ | 386 | $ | (195) | (50.5) | % | |||||||||||||||
| General and administrative expense | 10,346 | 9,017 | 1,329 | 14.7 | % | ||||||||||||||||||
| Interest expense, net | 3,647 | 4,130 | (483) | (11.7) | % | ||||||||||||||||||
| Other (income) expense, net | (1,141) | 3,245 | (4,386) | (135.2) | % | ||||||||||||||||||
| Loss before taxes | $ | (13,043) | $ | (16,778) | $ | 3,735 | (22.3) | % | |||||||||||||||
Corporate Overhead pretax loss decreased due to an increase in other (income) expense, net and a decrease in interest expense, net, offset by an increase in general and administrative expense.
General and administrative expense for our Corporate Overhead increased compared to the prior quarter primarily due to higher salary costs associated with the impact of higher stock price on certain long-term incentive awards.
Interest expense, net decreased in the current year primarily due to $13.0 million of repayments of our term credit facility during the fourth quarter of 2021.
Corporate other (income) expense, net improved compared to the prior quarter primarily due to the change in the unit price of the CSI Compressco common units we retained, improving from a $3.2 million loss in the prior quarter to a $1.1 million gain in the current period.
20
Three months ended March 31, 2022 compared with three months ended March 31, 2021.
Consolidated Comparisons
| Three Months Ended | |||||||||||||||||||||||
| March 31, | Period to Period Change | ||||||||||||||||||||||
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Revenues | $ | 130,037 | $ | 77,324 | $ | 52,713 | 68.2 | % | |||||||||||||||
| Gross profit | 32,420 | 7,869 | 24,551 | 312.0 | % | ||||||||||||||||||
Gross profit as a percentage of revenue | 24.9 | % | 10.2 | % | |||||||||||||||||||
| Exploration and appraisal costs | 1,930 | — | 1,930 | 100.0 | % | ||||||||||||||||||
| General and administrative expense | 20,643 | 20,012 | 631 | 3.2 | % | ||||||||||||||||||
General and administrative expense as a percentage of revenue | 15.9 | % | 25.9 | % | |||||||||||||||||||
| Interest expense, net | 3,324 | 4,404 | (1,080) | (24.5) | % | ||||||||||||||||||
| Other income, net | (2,411) | (4,772) | 2,361 | (49.5) | % | ||||||||||||||||||
| Income (loss) before taxes and discontinued operations | 8,934 | (11,775) | 20,709 | 175.9 | % | ||||||||||||||||||
| Income (loss) before taxes and discontinued operations as a percentage of revenue | 6.9 | % | (15.2) | % | |||||||||||||||||||
| Provision for income taxes | 1,200 | 168 | 1,032 | 614.3 | % | ||||||||||||||||||
| Income (loss) before discontinued operations | 7,734 | (11,943) | 19,677 | 164.8 | % | ||||||||||||||||||
| Discontinued operations: | |||||||||||||||||||||||
| Income (loss) from discontinued operations, net of taxes | (15) | 120,990 | (121,005) | (100.0) | % | ||||||||||||||||||
| Net income | 7,719 | 109,047 | (101,328) | (92.9) | % | ||||||||||||||||||
| Income (loss) attributable to noncontrolling interest | 1 | (333) | 334 | (100.3) | % | ||||||||||||||||||
| Net income attributable to TETRA stockholders | $ | 7,720 | $ | 108,714 | $ | (100,994) | (92.9) | % | |||||||||||||||
Consolidated revenues increased in the current quarter primarily due to improving industry conditions compared to the prior year for both the Completion Fluids & Products division and the Water Management & Flowback division. See Divisional Comparisons section below for a more detailed discussion of the change in our revenues.
Consolidated gross profit increased in the current quarter primarily due to the increase in revenue, partially offset by an increase in costs associated with the higher activity levels described above. Gross profit as a percentage of revenue also improved, primarily due to a higher portion of revenues generated from our Completion Fluids & Products division, as well as a $3.8 million insurance settlement received in March 2022 associated with damage to our Lake Charles facility in 2020.
Consolidated exploration and appraisal costs were $1.9 million during the current quarter due to the costs associated with our exploratory brine well.
Consolidated general and administrative expenses increased for the current quarter compared to the prior year, primarily due to $2.8 million of increased wage and benefit related expenses because of reinstatement of full salaries and 401K match, partially offset by a $2.2 million decrease in professional fees primarily due to the GP Sale in the first quarter of the prior year.
Consolidated interest expense, net, decreased in the current quarter primarily due to $50.5 million of repayments of our term credit facility during 2021.
Consolidated other income, net, decreased in the current quarter, compared to the prior year quarter primarily due to a $1.8 million decrease in income related to unit price changes of our investment in CSI Compressco and a $1.1 million decrease in income from our shares in Standard Lithium, which were sold during the fourth quarter of 2021.
Consolidated provision for income taxes was $1.2 million during the current quarter, compared to $0.2 million during the prior year quarter. Our consolidated effective tax rate for the current quarter of 13.4% was
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primarily due to income generated during the quarter, partially offset by the utilization of net operating loss carryforwards in the United States as well as in certain non-U.S. jurisdictions for which a valuation allowance had been established.
Loss from discontinued operations, net of taxes, for the prior year quarter includes a $120.6 million primarily non-cash accounting gain from the deconsolidation of CSI Compressco. This gain is net of a $0.01 million tax provision after taking into consideration utilization of net operating loss and credit carryforwards.
Income (loss) attributable to noncontrolling interest included $(0.3) million from the prior year quarter associated with CSI Compressco’s results for the month of January, prior to the GP Sale.
Divisional Comparisons
Completion Fluids & Products Division
| Three Months Ended | |||||||||||||||||||||||
| March 31, | Period to Period Change | ||||||||||||||||||||||
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Revenues | $ | 73,194 | $ | 46,522 | $ | 26,672 | 57.3 | % | |||||||||||||||
| Gross profit | 26,147 | 11,650 | 14,497 | 124.4 | % | ||||||||||||||||||
Gross profit as a percentage of revenue | 35.7 | % | 25.0 | % | |||||||||||||||||||
| Exploration and appraisal costs | 1,930 | — | 1,930 | 100.0 | % | ||||||||||||||||||
| General and administrative expense | 6,059 | 4,306 | 1,753 | 40.7 | % | ||||||||||||||||||
General and administrative expense as a percentage of revenue | 8.3 | % | 9.3 | % | |||||||||||||||||||
| Interest income, net | (323) | (138) | (185) | 134.1 | % | ||||||||||||||||||
| Other income, net | (811) | (1,528) | 717 | (46.9) | % | ||||||||||||||||||
| Income before taxes | $ | 19,292 | $ | 9,010 | $ | 10,282 | 114.1 | % | |||||||||||||||
Income before taxes as a percentage of revenue | 26.4 | % | 19.4 | % | |||||||||||||||||||
Revenues for our Completion Fluids & Products Division increased compared to the prior year primarily due to increased International and Gulf of Mexico completion services as a result of increased activity following the significant improvement in commodity prices and leveraging opportunities to expand services to completion fluids customers.
Completion Fluids & Products Division gross profit for the current quarter increased compared to the prior year due to a $3.8 million insurance settlement received in March 2022 from damage to our Lake Charles facility in 2020, as well as more revenues from higher-margin completion fluids services and products.
Pretax income for our Completion Fluids & Products Division increased compared to the prior year driven by higher gross profit, partially offset by $1.9 million of costs associated with the exploratory brine well drilled during the current quarter and a $1.8 million increase in general and administrative costs due to higher activity levels. In addition, other income, net decreased due to the $1.1 million decrease in income from our Standard Lithium shares sold during the fourth quarter of 2021, partially offset by $0.3 million of higher income recognized from additional Standard Lithium shares received in May 2021 and recognized over a twelve-month term.
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Water & Flowback Services Division
| Three Months Ended | |||||||||||||||||||||||
| March 31, | Period to Period Change | ||||||||||||||||||||||
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Revenues | $ | 56,843 | $ | 30,802 | $ | 26,041 | 84.5 | % | |||||||||||||||
| Gross profit (loss) | 6,462 | (3,615) | 10,077 | 278.8 | % | ||||||||||||||||||
| Gross profit (loss) as a percentage of revenue | 11.4 | % | (11.7) | % | |||||||||||||||||||
| General and administrative expense | 4,238 | 2,686 | 1,552 | 57.8 | % | ||||||||||||||||||
General and administrative expense as a percentage of revenue | 7.5 | % | 8.7 | % | |||||||||||||||||||
| Interest income, net | — | (522) | 522 | (100.0) | % | ||||||||||||||||||
| Other income, net | (458) | (299) | (159) | 53.2 | % | ||||||||||||||||||
| Income (loss) before taxes | $ | 2,682 | $ | (5,480) | $ | 8,162 | 148.9 | % | |||||||||||||||
Income (loss) before taxes as a percentage of revenue | 4.7 | % | (17.8) | % | |||||||||||||||||||
Revenues for our Water & Flowback Services Division increased for both water management and production testing due to higher customer drilling and completion activity compared to the prior year quarter. Customer activity levels have continued to improve, especially in the North America onshore business as crude oil and natural gas prices have recovered.
Gross profit for our Water & Flowback Services Division improved substantially from a loss in the prior year to double-digit profit in the current quarter, primarily due to higher revenues resulting from the increased activity levels described above and pricing improvements as activity levels improved.
The Water & Flowback Services Division reported higher pretax income in the current quarter primarily due to an improvement in the gross profit described above, slightly offset by an increase in general and administrative expense primarily due a $1.4 million increase in salary and employee expense from higher activity levels and salary reinstatement as well as a $0.5 million decrease in interest income.
Corporate Overhead
| Three Months Ended | |||||||||||||||||||||||
| March 31, | Period to Period Change | ||||||||||||||||||||||
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| General and administrative expense | $ | 10,346 | $ | 13,020 | $ | (2,674) | (20.5) | % | |||||||||||||||
| Interest expense, net | 3,647 | 5,064 | (1,417) | (28.0) | % | ||||||||||||||||||
| Depreciation and amortization | 191 | 170 | 21 | 12.4 | % | ||||||||||||||||||
| Other income, net | (1,141) | (2,946) | 1,805 | (61.3) | % | ||||||||||||||||||
| Loss before taxes | $ | (13,043) | $ | (15,308) | $ | 2,265 | (14.8) | % | |||||||||||||||
Corporate Overhead pretax loss decreased due to lower general and administrative expense and lower interest expense, partially offset by lower other income, net. General and administrative expense decreased primarily due to $2.3 million lower professional services expenses due to the GP Sale and certain legal expenses during the prior year. Interest expense, net decreased primarily due to $50.5 million of repayments of our term credit facility during 2021. Corporate Overhead other income, net, decreased compared to the prior year primarily due to a $1.8 million decrease in income related to unit price changes of our investment in CSI Compressco.
Non-GAAP Financial Measures
We use U.S. GAAP financial measures such as revenues, gross profit, income (loss) before taxes, and net cash provided by operating activities, as well as certain non-GAAP financial measures, including Adjusted EBITDA, as performance measures for our business.
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Adjusted EBITDA. We view Adjusted EBITDA as one of our primary management tools, and we track it on a monthly basis, both in dollars and as a percentage of revenues (typically compared to the prior month, prior year period, and to budget). We define Adjusted EBITDA as earnings before interest, taxes, depreciation, amortization, impairments and certain other non-cash charges and non-recurring adjustments.
Adjusted EBITDA is used as a supplemental financial measure by our management to:
•evaluate the financial performance of our assets without regard to financing methods, capital structure, or historical cost basis; and
•determine our ability to incur and service debt and fund capital expenditures.
The following table reconciles net income (loss) to Adjusted EBITDA for the periods indicated:
| Three Months Ended | ||||||||||||||||||||||||||||||||
| March 31, 2022 | ||||||||||||||||||||||||||||||||
| Completion Fluids & Products | Water & Flowback Services | Corporate SG&A | Other and Eliminations | Total | ||||||||||||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||||||||||||||
| Revenue | $ | 73,194 | $ | 56,843 | $ | — | $ | — | $ | 130,037 | ||||||||||||||||||||||
| Net income (loss) before taxes and discontinued operations | 19,292 | 2,682 | (10,346) | (2,694) | 8,934 | |||||||||||||||||||||||||||
| Insurance settlement | (3,750) | — | — | — | (3,750) | |||||||||||||||||||||||||||
| Exploration and appraisal costs | 1,930 | — | — | — | 1,930 | |||||||||||||||||||||||||||
| Adjustment to long-term incentives | — | — | 784 | — | 784 | |||||||||||||||||||||||||||
| Former CEO stock appreciation right expense | — | — | 472 | — | 472 | |||||||||||||||||||||||||||
| Adjusted income (loss) before taxes and discontinued operations | $ | 17,472 | $ | 2,682 | $ | (9,090) | $ | (2,694) | $ | 8,370 | ||||||||||||||||||||||
| Interest expense, net | (323) | — | — | 3,647 | 3,324 | |||||||||||||||||||||||||||
| Depreciation and amortization | 1,948 | 5,543 | — | 188 | 7,679 | |||||||||||||||||||||||||||
| Equity compensation expense | — | — | 1,104 | — | 1,104 | |||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 19,097 | $ | 8,225 | $ | (7,986) | $ | 1,141 | $ | 20,477 | ||||||||||||||||||||||
| Adjusted EBITDA as % of revenue | 26.1 | % | 14.5 | % | 15.7 | % | ||||||||||||||||||||||||||
| Three Months Ended | ||||||||||||||||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||||||||||||||
| Completion Fluids & Products | Water & Flowback Services | Corporate SG&A | Other and Eliminations | Total | ||||||||||||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||||||||||||||
| Revenue | $ | 59,828 | $ | 53,320 | $ | — | $ | — | $ | 113,148 | ||||||||||||||||||||||
| Net income (loss) before taxes and discontinued operations | 14,868 | 1,148 | (9,017) | (7,757) | (758) | |||||||||||||||||||||||||||
| Adjustment to long-term incentives | — | — | 495 | — | 495 | |||||||||||||||||||||||||||
| Transaction and other expenses | (39) | 39 | 62 | — | 62 | |||||||||||||||||||||||||||
| Former CEO stock appreciation right expense | — | — | 107 | — | 107 | |||||||||||||||||||||||||||
| Restructuring and severance expenses | 324 | 57 | — | — | 381 | |||||||||||||||||||||||||||
| Stock warrant fair value adjustment | — | — | — | (56) | (56) | |||||||||||||||||||||||||||
| Impairments and other charges | — | — | — | 132 | 132 | |||||||||||||||||||||||||||
| Allowance for bad debt | — | (230) | — | — | (230) | |||||||||||||||||||||||||||
| Adjusted income (loss) before taxes and discontinued operations | $ | 15,153 | $ | 1,014 | $ | (8,353) | $ | (7,681) | $ | 133 | ||||||||||||||||||||||
| Interest expense, net | (131) | 4 | — | 4,130 | 4,003 | |||||||||||||||||||||||||||
| Depreciation and amortization | 1,767 | 5,868 | — | 251 | 7,886 | |||||||||||||||||||||||||||
| Equity compensation expense | — | — | 1,052 | — | 1,052 | |||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 16,789 | $ | 6,886 | $ | (7,301) | $ | (3,300) | $ | 13,074 | ||||||||||||||||||||||
| Adjusted EBITDA as % of revenue | 28.1 | % | 12.9 | % | 11.6 | % | ||||||||||||||||||||||||||
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| Three Months Ended | ||||||||||||||||||||||||||||||||
| March 31, 2021 | ||||||||||||||||||||||||||||||||
| Completion Fluids & Products | Water & Flowback Services | Corporate SG&A | Other and Eliminations | Total | ||||||||||||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||||||||||||||
| Revenue | $ | 46,522 | $ | 30,802 | $ | — | $ | — | $ | 77,324 | ||||||||||||||||||||||
| Net income (loss) before taxes and discontinued operations | 9,010 | (5,480) | (13,020) | (2,285) | (11,775) | |||||||||||||||||||||||||||
| Adjustment to long-term incentives | 281 | — | 2,616 | — | 2,897 | |||||||||||||||||||||||||||
| Transaction and other expenses | — | — | 2,550 | — | 2,550 | |||||||||||||||||||||||||||
| Former CEO stock appreciation right expense | — | — | 509 | — | 509 | |||||||||||||||||||||||||||
| Restructuring and severance expenses | 181 | — | 160 | — | 341 | |||||||||||||||||||||||||||
| Stock warrant fair value adjustment | — | — | — | 323 | 323 | |||||||||||||||||||||||||||
| Adjusted income (loss) before taxes and discontinued operations | $ | 9,472 | $ | (5,480) | $ | (7,185) | $ | (1,962) | $ | (5,155) | ||||||||||||||||||||||
| Interest expense, net | (138) | (522) | — | 5,064 | 4,404 | |||||||||||||||||||||||||||
| Adjusted depreciation and amortization | 1,705 | 6,899 | — | 166 | 8,770 | |||||||||||||||||||||||||||
| Equity compensation expense | — | — | 962 | — | 962 | |||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 11,039 | $ | 897 | $ | (6,223) | $ | 3,268 | $ | 8,981 | ||||||||||||||||||||||
| Adjusted EBITDA as % of revenue | 23.7 | % | 2.9 | % | 11.6 | % | ||||||||||||||||||||||||||
Adjusted EBITDA is a financial measure that is not in accordance with U.S. GAAP and should not be considered an alternative to net income, operating income, cash provided by operating activities, or any other measure of financial performance presented in accordance with U.S. GAAP. This measure may not be comparable to similarly titled financial metrics of other companies, as other companies may not calculate Adjusted EBITDA in the same manner as we do. Management compensates for the limitations of Adjusted EBITDA as an analytical tool by reviewing the comparable U.S. GAAP measures, understanding the differences between the measures, and incorporating this knowledge into management’s decision-making processes.
Liquidity and Capital Resources
We believe that our capital structure allows us to meet our financial obligations despite current uncertain operating conditions and financial markets. Our liquidity at the end of first quarter was $95.3 million. Liquidity is defined as unrestricted cash plus availability under the ABL Credit Agreement and Swedish Credit Facility. Information about the terms and covenants of our debt agreements can be found in our 2021 Annual Report and in Note 5 - Long Term Debt and Other Borrowings.
Our consolidated sources and uses of cash, which include cash activity from our former Compression Division for January 2021 prior to the closing of the GP sale, are as follows:
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (in thousands) | |||||||||||
| Operating activities | $ | 5,934 | $ | 5,825 | |||||||
| Investing activities | (5,592) | (4,301) | |||||||||
| Financing activities | 722 | (29,887) | |||||||||
Operating Activities
Consolidated cash flows provided by operating activities increased slightly compared to the first three months of 2021 primarily due to an increase in cash profit, partially offset by the effect of working capital movements and $0.9 million of prior-year cash flows provided by operating activities generated by CSI Compressco in January prior to closing of the GP Sale.
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Investing Activities
Total cash capital expenditures during the first three months of 2022 were $9.3 million, which reflects front-loading our expected full year expenditures to accommodate industry-wide activity recoveries. Our Water & Flowback Services Division spent $7.4 million on capital expenditures, primarily to deploy additional SandStorm units to meet increased demands and maintain, automate and upgrade its water management and flowback equipment fleet. Our Completion Fluids & Products Division spent $1.9 million on capital expenditures.
Investing activities during the first three months of 2022 included a $3.8 million insurance settlement received in March 2022 from damage to our Lake Charles facility in 2020.
Historically, a significant majority of our planned capital expenditures have been related to identified opportunities to grow and expand our existing businesses. We are also focused on enhancing shareholder value by capitalizing on our key mineral assets, brine mineral extraction expertise, and deep chemistry competency to expand our offerings into the low carbon energy markets. However, we continue to review all capital expenditure plans carefully in an effort to conserve cash. We currently have no long-term capital expenditure commitments. If the forecasted demand for our products and services increases or decreases, the amount of planned expenditures on growth and expansion may be adjusted.
Lithium and Bromine Exploration Targets
We have rights to the brine underlying our approximately 31,100 net acres of brine leases in the Smackover Formation in Southwest Arkansas, including rights to the bromine and lithium contained in the brine. With respect to approximately 27,500 acres of that total acreage, we had previously entered into an agreement granting Standard Lithium an option to acquire lithium rights. The agreements governing this option contemplate a 2.5% royalty that Standard Lithium would pay us based on gross lithium revenues. Additional information on these exploration targets is described in Part I, “Item 2. Properties” in our 2021 Annual Report.
In August 2021, we announced the completion of a preliminary technical assessment by an independent geological consulting firm to assess lithium and bromine exploration targets in our approximately 31,100 net acres. During the first quarter of 2022, we incurred $1.9 million to complete the drilling of our Arkansas exploration well and obtain fluid samples for multiple Smackover formation brine zones. We expect the ongoing bromine and lithium fluid analysis will allow us to complete an inferred resources report for both the bromine and lithium in our approximately 31,100 net acre brine leases in Arkansas. We are in the process of bidding and awarding the work for a PEA to determine the economics of developing 3,600 net acres under which we hold exclusive brine rights to meet the demand for bromine-based fluids for both a growing oil and gas market as well as a rapidly growing energy storage market. In addition to the bromine, we plan to extract lithium from the same brine feed which we expect will greatly benefit the financial returns for the project.
Financing Activities
As a result of TETRA’s strong cash flow from operations in 2020 and the proceeds from the GP Sale, during the first three months of 2021, we repaid $29.5 million on our term credit agreement. We repaid an additional $21.0 million on our term credit agreement during 2021 using proceeds from the sale of Standard Lithium shares and cash flows from operations. We may supplement our existing cash balances and cash flow from operating activities with short-term borrowings, long-term borrowings, issuances of equity and debt securities, and other sources of capital. We are aggressively managing our working capital and capital expenditure needs in order to maximize our liquidity in the current environment.
Long-Term Debt
Asset-Based Credit Agreement. As of March 31, 2022, our ABL Credit Agreement provides for a senior secured revolving credit facility of up to $80.0 million, with a $20.0 million accordion. The credit facility is subject to a borrowing base to be determined by reference to the value of inventory and accounts receivable, and includes a sublimit of $20.0 million for letters of credit, a swingline loan sublimit of $11.5 million, and a $15.0 million sub-facility subject to a borrowing base consisting of certain trade receivables and inventory in the United Kingdom. The amounts we may borrow under the ABL Credit Agreement are derived from our accounts receivable, certain accrued receivables and certain inventory. Changes in demand for our products and services have an impact on our eligible accounts receivable, accrued receivables and the value of our inventory, which could result in significant changes to
26
our borrowing base and therefore our availability under our ABL Credit Agreement. As of March 31, 2022, we had $0.8 million outstanding and $6.0 million in letters of credit and guarantees against our ABL Credit Agreement and availability of $58.6 million, subject to compliance with the covenants, borrowing base, and other provisions of the ABL Credit Agreement.
Swedish Credit Facility. In January 2022, the Company entered into a revolving credit facility for seasonal working capital needs of subsidiaries in Sweden. As of March 31, 2022, we had $1.5 million outstanding and availability of approximately $3.8 million United States dollars under this agreement. During each year, all outstanding loans under the Swedish Credit Facility must be repaid for at least 30 consecutive days. Borrowings bear interest at a rate of 2.95% per annum. The Swedish Credit Facility expires on December 31, 2022 and the Company intends to renew it annually.
Finland Credit Agreement. The Company also entered into a new credit agreement guaranteed by certain accounts receivable and inventory in Finland (“Finland Credit Agreement”). As of March 31, 2022, there were US$1.8 million of letters of credit outstanding against the Finland Credit Agreement.
Term Credit Agreement. The term credit agreement is scheduled to mature on September 10, 2025. Our term credit agreement requires us to offer to prepay a percentage of Excess Cash Flow (as defined in the term credit agreement) within five business days of filing our Annual Report. As of April 29, 2022, $163.1 million in aggregate principal amount of our term credit agreement is outstanding.
Other Sources and Uses of Cash
In addition to the aforementioned credit facilities and senior notes, we fund our short-term liquidity requirements from cash generated by our operations and from short-term vendor financing. In addition, as of March 31, 2022, the market value of our investment in CSI Compressco was $7.3 million, with no holding restrictions on our ability to monetize our interest. We also hold a $5.0 million investment in convertible notes issued by CarbonFree as of March 31, 2022. In addition, we are party to agreements in which Standard Lithium has the right to explore, produce and extract Lithium in our Arkansas leases as well as additional potential resources in the Mojave region of California. We expect to receive 400,000 shares of Standard Lithium stock during the second quarter of 2022 under the terms of this agreement.
Should additional capital be required, the ability to raise such capital through the issuance of additional debt or equity securities may currently be limited. Instability or volatility in the capital markets at the times we need to access capital may affect the cost of capital and the ability to raise capital for an indeterminable length of time. If it is necessary to issue additional equity to fund our capital needs, additional dilution of our common stockholders will occur. We periodically evaluate engaging in strategic transactions and may consider divesting non-core assets where our evaluation suggests such transactions are in the best interest of our business. In challenging economic environments, we may experience increased delays and failures by customers to pay our invoices. If our customers delay paying or fail to pay us a significant amount of our outstanding receivables, it could have an adverse effect on our liquidity. An increase of unpaid receivables would also negatively affect our borrowing availability under the ABL Credit Agreement.
As of March 31, 2022, we had no “off balance sheet arrangements” that may have a current or future material effect on our consolidated financial condition or results of operations.
Critical Accounting Policies and Estimates
There have been no material changes or developments in the evaluation of the accounting estimates and
the underlying assumptions or methodologies pertaining to our Critical Accounting Policies and Estimates disclosed
in our 2021 Annual Report. In preparing our consolidated financial statements, we make assumptions, estimates, and judgments that affect the amounts reported. These judgments and estimates may change as new events occur, as new information is acquired, and as changes in our operating environments are encountered. Actual results are likely to differ from our current estimates, and those differences may be material.
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Commitments and Contingencies
Litigation
For information regarding litigation, see - Note 6 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements.
Long-Term Debt
For information on our credit agreements, see our 2021 Annual Report and Note 5 - “Long-Term Debt and Other Borrowings” in the Notes to Consolidated Financial Statements.
Leases
We have operating leases for some of our transportation equipment, office space, warehouse space, operating locations, and machinery and equipment. Information about the terms and covenants of our lease agreements can be found in our 2021 Annual Report.
Product Purchase Obligations
In the normal course of our Completion Fluids & Products Division operations, we enter into supply agreements with certain manufacturers of various raw materials and finished products. Some of these agreements have terms and conditions that specify a minimum or maximum level of purchases over the term of the agreement. Other agreements require us to purchase the entire output of the raw material or finished product produced by the manufacturer. Our purchase obligations under these agreements apply only with regard to raw materials and finished products that meet specifications set forth in the agreements. We recognize a liability for the purchase of such products at the time we receive them. Information about our product purchase obligations can be found in our 2021 Annual Report.
Cautionary Statement for Purposes of Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements in this Quarterly Report are identifiable by the use of the following words, the negative of such words, and other similar words: “anticipates”, “assumes”, “believes”, “budgets”, “could”, “estimates”, “expects”, “forecasts”, “goal”, “intends”, “may”, “might”, “plans”, “predicts”, “projects”, “schedules”, “seeks”, “should”, “targets”, “will”, and “would”.
These forward-looking statements include statements concerning the exploration targets of lithium and bromine, the potential extraction of lithium and bromine from the leased acreage and the economic viability thereof, the timing and cost of such activities, and statements regarding the Company's beliefs, expectations, plans, goals, future events and performance, and other statements that are not purely historical.
Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Part II, “Item 1A. Risk Factors” and elsewhere in this report and in our 2021 Annual Report, and those described from time to time in our future reports filed with the SEC.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Interest Rate Risk
The interest on our borrowings is subject to market risk exposure related to changes in applicable interest rates. Borrowings under our Swedish Credit Facility bear interest at a fixed rate of 2.95%. Borrowings under our ABL Credit Agreement bear interest at an agreed-upon percentage rate spread above LIBOR. Borrowings under the Term Credit Agreement bear interest at a rate per annum equal to, at the option of TETRA, either (i) LIBOR (subject to a 1% floor) plus a margin of 6.25% per annum or (ii) a base rate plus a margin of 5.25% per annum. The following table sets forth as of March 31, 2022, the principal amount due under our long-term debt obligations and their respective weighted average interest rates. We are not a party to an interest rate swap contract or other derivative instrument designed to hedge our exposure to interest rate fluctuation risk.
| Interest | March 31, 2022 | |||||||||||||||||||
| Scheduled Maturity | Rate | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Swedish Credit Facility | December 31, 2022 | 2.95% | $ | |||||||||||||||||
| Asset-based credit agreement | September 10, 2023 | 4.75% | 800 | |||||||||||||||||
| Term credit agreement | September 10, 2025 | 7.25% | 163,071 | |||||||||||||||||
| TETRA total debt, including current portion | $ | 165,404 | ||||||||||||||||||
Exchange Rate Risk
We are exposed to fluctuations between the U.S. dollar and the euro with regard to our euro-denominated operating activities. We also have currency exchange rate risk exposure related to revenues, expenses, operating receivables, and payables denominated in foreign currencies. We may enter into 30-day foreign-currency forward derivative contracts as part of a program designed to mitigate the currency exchange rate risk exposure on selected transactions of certain foreign subsidiaries. Although contracts pursuant to this program will serve as an economic hedge of the cash flow of our currency exchange risk exposure, they are not expected to be formally designated as hedge contracts or qualify for hedge accounting treatment. Accordingly, any change in the fair value of these derivative instruments during a period will be included in the determination of earnings for that period. As of March 31, 2022, we did not have any foreign currency exchange contracts outstanding.
Item 4. Controls and Procedures.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2022, the end of the period covered by this quarterly report.
There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
29
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
For information regarding litigation, see “Item 1. Legal Proceedings” in our 2021 Annual Report and Note 6 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements.
Item 1A. Risk Factors.
As of the date of this filing, TETRA and its operations continue to be subject to the risk factors previously disclosed in the “Risk Factors” sections contained in our 2021 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) None.
(b) None.
(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) | Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Publicly Announced Plans or Programs(1) | ||||||||||||||||||||||
| January 1 – January 31, 2022 | — | $ | — | — | $ | — | ||||||||||||||||||||
| February 1 – February 28, 2022 | — | — | — | — | ||||||||||||||||||||||
| March 1 – March 31, 2022 | — | — | — | — | ||||||||||||||||||||||
| Total | — | — | $ | — | ||||||||||||||||||||||
(1)In January 2004, our Board of Directors authorized the repurchase of up to $20 million of our common stock. On October 28, 2021, our Board of Directors terminated the repurchase program.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information.
None.
30
Item 6. Exhibits.
Exhibits:
| 31.1* | |||||
| 31.2* | |||||
| 32.1** | |||||
| 32.2** | |||||
| 101.SCH+ | XBRL Taxonomy Extension Schema Document. | ||||
| 101.CAL+ | XBRL Taxonomy Extension Calculation Linkbase Document. | ||||
| 101.DEF+ | XBRL Taxonomy Extension Definition Linkbase Document. | ||||
| 101.LAB+ | XBRL Taxonomy Extension Label Linkbase Document. | ||||
| 101.PRE+ | XBRL Taxonomy Extension Presentation Linkbase Document. | ||||
| 104* | Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL documents | ||||
* Filed with this report.
** Furnished with this report.
*** Management contract or compensatory plan or arrangement.
+ Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Operations for the three-month periods ended March 31, 2022 and 2021; (ii) Consolidated Statements of Comprehensive Income for the three-month periods ended March 31, 2022 and 2021; (iii) Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021; (iv) Consolidated Statements of Equity for the three-month periods ended March 31, 2022 and 2021 ; (v) Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2022 and 2021; and (vi) Notes to Consolidated Financial Statements for the three months ended March 31, 2022.
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| TETRA Technologies, Inc. | |||||||||||
| Date: | May 2, 2022 | By: | /s/Brady M. Murphy | ||||||||
| Brady M. Murphy | |||||||||||
| President and Chief Executive Officer | |||||||||||
| Principal Executive Officer | |||||||||||
| Date: | May 2, 2022 | By: | /s/Elijio V. Serrano | ||||||||
| Elijio V. Serrano | |||||||||||
| Senior Vice President and Chief Financial Officer | |||||||||||
| Principal Financial Officer | |||||||||||
| Date: | May 2, 2022 | By: | /s/Richard D. O’Brien | ||||||||
| Richard D. O’Brien | |||||||||||
| Vice President – Finance and Global Controller | |||||||||||
| Principal Accounting Officer | |||||||||||
32
Exhibit 31.1
Certification Pursuant to
Rule 13a-14(a) or 15d-14(a) of the Exchange Act
As Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Brady M. Murphy, certify that:
1.I have reviewed this report on Form 10-Q for the fiscal quarter ended March 31, 2022, of TETRA Technologies, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
| Date: | May 2, 2022 | /s/Brady M. Murphy | ||||||
| Brady M. Murphy | ||||||||
| President and | ||||||||
| Chief Executive Officer | ||||||||
Exhibit 31.2
Certification Pursuant to
Rule 13a-14(a) or 15d-14(a) of the Exchange Act
As Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Elijio V. Serrano, certify that:
1.I have reviewed this report on Form 10-Q for the fiscal quarter ended March 31, 2022, of TETRA Technologies, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
| Date: | May 2, 2022 | /s/Elijio V. Serrano | ||||||
| Elijio V. Serrano | ||||||||
| Senior Vice President and Chief Financial Officer | ||||||||
Exhibit 32.1
Certification Pursuant to
18 U.S.C. Section 1350
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of TETRA Technologies, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brady M. Murphy, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Dated: | May 2, 2022 | /s/Brady M. Murphy | ||||||
| Brady M. Murphy | ||||||||
| President and Chief Executive Officer | ||||||||
| TETRA Technologies, Inc. | ||||||||
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
Certification Pursuant to
18 U.S.C. Section 1350
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of TETRA Technologies, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Elijio V. Serrano, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Dated: | May 2, 2022 | /s/Elijio V. Serrano | ||||||
| Elijio V. Serrano | ||||||||
| Senior Vice President and Chief Financial Officer | ||||||||
| TETRA Technologies, Inc. | ||||||||
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.