8-K
TETRA TECHNOLOGIES INC (TTI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): November 01, 2021
TETRA Technologies, Inc.
(Exact Name of Registrant as Specified in Charter)
| Delaware | 1-13455 | 74-2148293 |
|---|---|---|
| (State or Other Jurisdiction of Incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
24955 Interstate 45 North
The Woodlands, Texas 77380
(Address of Principal Executive Offices, and Zip Code)
(281) 367-1983
Registrant’s Telephone Number, Including Area Code
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ☐ | Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| --- | --- |
| ☐ | Pre-commencement communication pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| --- | --- |
| ☐ | Pre-commencement communication pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| --- | --- |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock | TTI | NYSE |
| Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). | ||
| --- | --- | --- |
| 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. | ☐ |
Item 2.02. Results of Operations and Financial Condition.
On November 1, 2021, TETRA Technologies, Inc., a Delaware corporation (the “Company”), issued a news release announcing its financial results for the third quarter 2021. The news release is furnished herewith as Exhibit 99.1 and is incorporated herein by reference.
The information furnished in this Item 2.02 and in Exhibit 99.1 to this Current Report shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
| Exhibit Number | Description |
|---|---|
| 99.1 | News Release datedttiq32021pressrelease-2021.htmNovember 1, 2021issued by TETRA Technologies, Inc. |
| 104 | Cover Page Interactive Data File (embedded within the inline XBRL document) |
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 hereunto duly authorized.
| TETRA Technologies, Inc. | |
|---|---|
| By: | /s/ Brady M. Murphy |
| Brady M. Murphy. | |
| President and Chief Executive Officer | |
| Date: November 1, 2021 | |
| --- |
4
Document
Exhibit 99.1
TETRA TECHNOLOGIES, INC. ANNOUNCES
THIRD QUARTER 2021 INCOME BEFORE DISCONTINUED OPERATIONS
OF $2.5 MILLION AND ADJUSTED EBITDA OF $15.0 MILLION
THE WOODLANDS, Texas, November 1, 2021 / PR Newswire / - TETRA Technologies, Inc. (“TETRA” or the “Company”) (NYSE:TTI) today announced third quarter 2021 results.
Third quarter 2021 revenue increased 30% from the same quarter a year ago, to $95 million. Compared to the second quarter of 2021, revenue declined 7% as the second quarter reflects the seasonal peak in our Europe industrial calcium chloride business. Excluding the $14 million of incremental revenue from this seasonal peak, revenue increased sequentially by 8% on stronger Water & Flowback Services activity. The Company estimates that third quarter revenue was negatively impacted by approximately $11 million due to Hurricane Ida in the Gulf of Mexico and delayed international completion fluids deliveries due to global logistics and shipping challenges.
Net income before discontinued operations was $2.5 million, including the benefit of $6.2 million of mark-to-market gains from TETRA’s equity ownership in Standard Lithium Ltd. and CSI Compressco LP and including $1.3 million of non-recurring credits, net of charges. This compares to a net loss before discontinued operations of $6.7 million in the second quarter, including $4.7 million of non-recurring charges and expenses. Net income per share from continuing operations in the third quarter was $0.02. Excluding the non-recurring credits, net income per share from continuing operations was $0.01 in the third quarter.
Adjusted EBITDA was $15.0 million, inclusive of the mark-to-market gains of $6.2 million and excluding non-recurring credits, net of charges of $1.3 million. The mark-to-market gains were largely offset by lower earnings resulting from delays on completion fluid projects in the Gulf of Mexico due to Hurricane Ida, delays on international deliveries due to global shipping issues, and inflationary costs on our chemicals production which are expected to continue at least into the fourth quarter. Third quarter adjusted EBITDA increased $2.1 million, or 16%, over the second quarter of 2021 reflecting higher mark-to-market gains and stronger operational performance from Water & Flowback Services.
Cash flow from operating activities was $2.8 million in the third quarter of 2021, compared to $1.8 million in the second quarter of 2021. Adjusted free cash flow from continuing operations was $1.0 million. This compares to a use of cash of $4.5 million of adjusted free cash flow from continuing operations in the second quarter of 2021.
Brady Murphy, TETRA’s Chief Executive Officer, stated, “Our third quarter results reflect continued success in executing our strategies in an improving oil and gas market and the rapidly evolving low carbon energy markets. Our 30% year-on-year revenue growth would have been even higher without the impact of Hurricane Ida and the well-known global logistics challenges that delayed multiple completion fluid deliveries to international customers. With the third quarter product deliveries delayed into the fourth quarter, in addition to the return of Gulf of Mexico activity plus the recent Brazil offshore awards, we expect materially higher fourth quarter revenues for Completion Fluids & Products. Despite the challenges presented by Hurricane Ida and the global logistics issues, we were able to generate $15 million of adjusted EBITDA – the highest since the start of the global pandemic in the first quarter of 2020, and $1.0 million of positive adjusted free cash flow. Adjusted free cash flow improved sequentially by $5.5 million reflecting aggressive working capital management and the stronger earnings from Water & Flowback Services. We again reduced long term debt, by $8 million in the third quarter. We do not have any amounts drawn on our asset-based loan (ABL) facility. Furthermore, we amended our ABL to increase availability by more than $10 million and extended the maturity to 2025, both to create financial flexibility to capitalize on a recovering oil and gas market and our low carbon initiatives.
“As anticipated, Water & Flowback Services adjusted EBITDA margins improved sequentially from 5.3% in the second quarter to 10.9% in the third quarter, an improvement of 560 basis points on a sequential revenue increase of 24%. Multiple factors contributed to this improvement, including fully mobilized and operational TETRA SandStormTM projects in Argentina, pricing improvements from many of our U.S. operations and customers, and profitable market penetration through our integrated water management projects – which reached a record high in the third quarter of 55 projects for 27 different customers. This reflects the continued acceptance of this highly efficient and differentiated offering. During the third quarter we were awarded additional work in Argentina with an early production facility and additional TETRA SandStormTM units, which we will build and operate on a multi-year contract starting in early 2022.
“Completion Fluids & Products adjusted EBITDA margins were 35.1% in the third quarter including the benefit of mark-to-market gains from our equity holdings in Standard Lithium. Excluding the mark-to-market gains, adjusted EBITDA margins were 21.9% reflecting the impact of Hurricane Ida during the quarter and inflationary pressures in certain raw materials and logistics costs. We were awarded another deepwater completion fluids project in Brazil with a major integrated service company, which is in addition to the project we previously mentioned in our last earnings press release. Despite a pause in Gulf of Mexico activity from Hurricane Ida, we continue to benefit from the recently announced three-year completion fluids and services contract for a super major oil and gas operator. These market share gains reflect our consistently strong services levels across the globe, differentiated offerings for high value complex wells and competitive advantages from our vertically integrated business model which is especially important in today’s challenging supply chain environment.
“We continue to make good progress with our low carbon energy initiatives. In the third quarter we received and shipped our second TETRA PureFlowTM high purity zinc bromide order to a publicly traded energy storage
technology company. We anticipate having a long-term strategic supplier agreement in place with this customer before year-end, which is expected to include material orders for 2022 and collaborative planning for longer term product supply and demand based on the significant compound annual growth rate (CAGR) anticipated for energy storage. Standard Lithium completed the preliminary engineering assessment (PEA) study to extract lithium from brine from our acreage in the Smackover Formation in Arkansas. As a reminder TETRA maintains a royalty stream from the commercial production of lithium by Standard Lithium after they exercise the option and all the mineral rights to the bromine on this acreage, which we estimate to have exploration targets of 2.54 million to 8.58 million tons of bromine. The Standard Lithium PEA indicates very attractive economics as the acreage has an estimated 1,317,262 tons of Lithium Carbonate Equivalent at the inferred resource category, which is 49% higher from what was previously estimated. In addition to the Standard Lithium option agreement, TETRA has previously communicated that we estimate an exploration target between 85,000 and 286,000 tons of lithium on acreage not included in the Standard Lithium agreement, where TETRA holds 100% of the lithium rights not subject to any option. We intend to drill a well in the fourth quarter on our dedicated acreage to obtain lithium and bromines samples, allowing us to move from an exploration target to an inferred resources target phase. We then intend to move towards a PEA study in early 2022 and believe there is significant value in our mineral rights in the Smackover Formation in Arkansas from a combination of our option agreement with Standard Lithium, our bromine assets to meet the growing demands for completion fluids and energy storage, and our 100% TETRA lithium assets that are not subject to any option. We will continue to evolve these assets to create shareholder value.
“We have reduced our term loan by over $44 million from $220 million on September 30, 2020 to $176 million as of September 30, 2021. We repaid $8 million in the third quarter of 2021 and expect to repay at least an additional $10 million in the fourth quarter of 2021. During the third quarter of 2021, we recorded mark-to-market gains of $6.2 million on our equity holdings of CSI Compressco LP and Standard Lithium. As of September 30, 2021, the market value of these investments was $22 million, with no holding restrictions on our ability to monetize these investments.
This press release includes the following financial measures that are not presented in accordance with generally accepted accounting principles in the United States (“GAAP”): Adjusted earnings per share from continuing operations, Adjusted EBITDA, and Adjusted EBITDA Margin (Adjusted EBITDA as a percent of revenue) on consolidated and segment basis, Adjusted income/(loss) before tax, adjusted free cash flow from continuing operations, and net debt. Please see Schedules E through H for reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures.
Third Quarter Results and Highlights
A summary of key financial metrics for the third quarter are as follows:
| Third Quarter 2021 Results | ||||||
|---|---|---|---|---|---|---|
| Three Months Ended | ||||||
| September 30, 2021 | June 30, 2021 | September 30, 2020 | ||||
| (In Thousands, Except per Share Amounts) | ||||||
| Revenue | $ | 95,474 | $ | 102,326 | $ | 73,484 |
| Income (loss) before discontinued operations | 2,495 | (6,654) | (9,559) | |||
| Adjusted EBITDA before discontinued operations | 15,022 | 12,967 | 7,360 | |||
| GAAP EPS from continuing operations | 0.02 | (0.05) | (0.08) | |||
| Adjusted EPS from continuing operations | 0.01 | (0.02) | (0.06) | |||
| GAAP net cash provided by operating activities | 2,817 | 1,788 | 4,440 | |||
| Adjusted free cash flow from continuing operations | $ | 1,000 | $ | (4,450) | $ | 7,499 |
Completion Fluids & Products third quarter 2021 revenue of $48.7 million declined 25% from the second quarter of 2021 reflecting the seasonal high from Europe calcium chloride sales in the second quarter, in addition to an estimated $11 million negative revenue impact from Hurricane Ida in the Gulf of Mexico plus loop currents and international shipping delays. Completion Fluids & Products income before taxes was $14.7 million in the third quarter (30.1% of revenue) compared to $16.4 million (25.4% of revenue) in the second quarter of 2021. Adjusted EBITDA of $17.1 million decreased $0.8 million sequentially. Third quarter Adjusted EBITDA includes $6.4 million favorable mark-to-market adjustment from TETRA’s investment in Standard Lithium.
Water & Flowback Services revenue was $46.8 million in the third quarter of 2021, an increase of 24% from the second quarter of 2021, and loss before taxes was $1.8 million. Adjusted EBITDA of $5.1 million (10.9% of revenue) increased 156% sequentially due to stronger domestic activity and some pricing improvements helping offset ongoing inflationary pressures.
Free Cash Flow and Balance Sheet
Cash from operating activities was $2.8 million in the third quarter while adjusted free cash flow from continuing operations was $1.0 million. Liquidity at the end of third quarter was $90 million. Liquidity is defined as unrestricted cash plus availability under the revolving credit facility. At the end of the third quarter unrestricted cash was $42 million and availability under our credit facility was $48 million. Debt was $164 million after the $8.2 million pay down in July, while net debt was $122 million.
Non-recurring Charges and Expenses Items
Non-recurring charges and expenses are reflected on Schedule E and include $3.2 million of non-cash stock warrant fair value adjustment income, $1.6 million of legal, settlement and other expenses and $0.2 million of cumulative adjustments to long-term incentives and appreciation right expenses.
Conference Call
TETRA will host a conference call to discuss these results tomorrow, November 2, 2021, at 10:30 a.m. Eastern Time. The phone number for the call is 1-888-347-5303. The conference call will also be available by live audio webcast and may be accessed through the Company's investor relations website at http://ir.tetratec.com/events-and-webcasts. A replay of the conference call will be available at 1-877-344-7529 conference number 10161269, for one week following the conference call and the archived webcast will be available through the Company's website for thirty days following the conference call.
Investor Contact
For further information: Elijio Serrano, CFO, TETRA Technologies, Inc., The Woodlands, Texas, Phone: (281) 367-1983, www.tetratec.com
Financial Statements, Schedules and Non-GAAP Reconciliation Schedules (Unaudited)
Schedule A: Consolidated Income Statement
Schedule B: Condensed Consolidated Balance Sheet
Schedule C: Consolidated Statements of Cash Flows
Schedule D: Statement Regarding Use of Non-GAAP Financial Measures
Schedule E: Non-GAAP Reconciliation of Adjusted Income (Loss) From Continuing Operations
Schedule F: Non-GAAP Reconciliation of Adjusted EBITDA
Schedule G: Non-GAAP Reconciliation of Net Debt
Schedule H: Non-GAAP Reconciliation to Adjusted Free Cash Flow From Continuing Operations
Company Overview and Forward-Looking Statements
TETRA Technologies, Inc. is an industrial and oil & 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. Calcium chloride is used in the oil and gas, industrial, agricultural, road, food and beverage markets. TETRA is evolving its business model by expanding into the low carbon energy markets with its chemistry expertise, key mineral acreage and global infrastructure. Recently announced initiatives include commercialization of TETRA PureFlowTM an ultra-pure zinc bromide for stationary batteries and energy storage; advancing an innovative carbon capture utilization and storage technology with CarbonFree to capture CO2 and mineralize emissions to make commercial, carbon-negative chemicals; and development of TETRA’s lithium and bromine mineral acreage to meet the growing demand for oil and gas products and energy storage. Visit the Company's website at www.tetratec.com.
Cautionary Statement Regarding Forward Looking Statements
This news release includes certain statements that are deemed to be forward-looking statements. Generally, the use of words such as “may,” “see,” “expectation,” “expect,” “intend,” “estimate,” “projects,” “anticipate,” “believe,” “assume,” “could,” “should,” “plans,” “targets” or similar expressions that convey the uncertainty of future events, activities, expectations or outcomes identify forward-looking statements that the Company intends to be included within the safe harbor protections provided by the federal securities laws. These forward-looking statements include statements concerning economic and operating conditions that are outside of our control, including statements concerning the anticipated recovery of the oil and gas industry; the effects of curtailments in completion fluid projects in the Gulf of Mexico related to Hurricane Ida; customer delays for international completion fluids related to global shipping and logistics issues; potential revenue associated with prospective energy storage projects or our pending carbon capture partnership; exploration targets of lithium and bromine, the potential extraction of lithium and bromine from the leased acreage, the economic viability thereof, and the timing and costs of such activities; statements regarding debt reduction, projections concerning the Company's business activities, financial guidance, estimated earnings, earnings per share, and statements regarding the Company's beliefs, expectations, plans, goals, future events and performance, and other statements that are not purely historical. The potential quantity and grade of the exploration targets included in this news release is conceptual in nature, there has been insufficient exploration to estimate a mineral resource, and it is uncertain if further exploration will result in the estimation of a mineral resource. The exploration targets expressed should not be misrepresented or misconstrued as an estimate of a mineral resource or mineral reserve. These forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Such statements are subject to a number of risks and uncertainties, many of which are beyond the control of the Company. Investors are cautioned that any such statements are not guarantees of future performances or results and that actual results or developments may differ materially from those projected in the forward-looking statements. Some of the factors that could affect actual results are described in the section titled “Risk Factors” contained in the Company's Annual Reports on Form 10-K, as well as other risks identified from time to time in its reports on Form 10-Q and Form 8-K filed with the Securities and Exchange Commission.
Schedule A: Consolidated Income Statement (Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| September 30, 2021 | June 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | ||||||
| (In Thousands, Except per Share Amounts) | ||||||||||
| Revenues | $ | 95,474 | $ | 102,326 | $ | 73,484 | $ | 275,124 | $ | 302,257 |
| Cost of sales, services, and rentals | 71,419 | 77,208 | 53,567 | 209,241 | 218,289 | |||||
| Depreciation, amortization, and accretion | 8,308 | 8,236 | 9,657 | 25,495 | 28,934 | |||||
| Impairments and other charges | — | 449 | 97 | 449 | 97 | |||||
| Insurance recoveries | — | — | (52) | (110) | (126) | |||||
| Total cost of revenues | 79,727 | 85,893 | 63,269 | 235,075 | 247,194 | |||||
| Gross profit | 15,747 | 16,433 | 10,215 | 40,049 | 55,063 | |||||
| General and administrative expense | 18,714 | 17,351 | 16,123 | 56,077 | 60,333 | |||||
| Interest expense, net | 4,083 | 3,886 | 4,338 | 12,373 | 14,234 | |||||
| Warrants fair value adjustment expense (income) | (3,164) | 2,698 | — | (143) | (327) | |||||
| Other income, net | (6,968) | (2,232) | (788) | (14,295) | (1,308) | |||||
| Income (loss) before taxes and discontinued operations | 3,082 | (5,270) | (9,458) | (13,963) | (17,869) | |||||
| Provision for income taxes | 587 | 1,384 | 101 | 2,139 | 1,877 | |||||
| Income (loss) before discontinued operations | 2,495 | (6,654) | (9,559) | (16,102) | (19,746) | |||||
| Discontinued operations: | ||||||||||
| Income (loss) from discontinued operations, net of taxes | 18 | (126) | (12,039) | 120,882 | (49,195) | |||||
| Net income (loss) | 2,513 | (6,780) | (21,598) | 104,780 | (68,941) | |||||
| Less: (income) loss attributable to noncontrolling interest(1) | — | 27 | 8,296 | (306) | 32,833 | |||||
| Net income (loss) attributable to TETRA stockholders | $ | 2,513 | $ | (6,753) | $ | (13,302) | $ | 104,474 | $ | (36,108) |
| Basic per share information: | ||||||||||
| Income (loss) from continuing operations | $ | 0.02 | $ | (0.05) | $ | (0.08) | $ | (0.13) | $ | (0.16) |
| Income (loss) from discontinued operations | $ | 0.00 | $ | 0.00 | $ | (0.02) | $ | 0.96 | $ | (0.13) |
| Net income (loss) attributable to TETRA stockholders | $ | 0.02 | $ | (0.05) | $ | (0.10) | $ | 0.83 | $ | (0.29) |
| Weighted average shares outstanding | 126,733 | 126,583 | 125,893 | 126,489 | 125,789 | |||||
| Diluted per share information: | ||||||||||
| Income (loss) from continuing operations | $ | 0.02 | $ | (0.05) | $ | (0.08) | $ | (0.13) | $ | (0.16) |
| Income (loss) from discontinued operations | $ | 0.00 | $ | 0.00 | $ | (0.02) | $ | 0.96 | $ | (0.13) |
| Net income (loss) attributable to TETRA stockholders | $ | 0.02 | $ | (0.05) | $ | (0.10) | $ | 0.83 | $ | (0.29) |
| Weighted average shares outstanding | 128,694 | 126,583 | 125,893 | 126,489 | 125,789 |
(1) (Income)/loss attributable to noncontrolling interest includes zero income for both the three-month periods ended September 30, 2021 and June 30, 2021, and $8,342 loss for the three-month period ended September 30, 2020, and $333 income and $32,957 loss for the nine-month periods ended September 30, 2021 and 2020, respectively, related to discontinued operations.
Schedule B: Condensed Consolidated Balance Sheet (Unaudited)
| September 30,<br>2021 | December 31,<br>2020 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (In Thousands) | ||||||||||
| (Unaudited) | ||||||||||
| ASSETS | ||||||||||
| Current assets: | ||||||||||
| Cash and cash equivalents | $ | 41,863 | $ | 67,252 | ||||||
| Restricted cash | — | 65 | ||||||||
| Trade accounts receivable | 79,118 | 64,078 | ||||||||
| Inventories | 72,286 | 76,658 | ||||||||
| Assets of discontinued operations | — | 710,006 | ||||||||
| Prepaid expenses and other current assets | 16,121 | 13,487 | ||||||||
| Total current assets | 209,388 | 931,546 | ||||||||
| Property, plant, and equipment, net | 87,348 | 96,856 | ||||||||
| Patents, trademarks and other intangible assets, net | 38,071 | 41,487 | ||||||||
| Deferred tax assets, net | 44 | 52 | ||||||||
| Operating lease right-of-use assets | 38,795 | 43,448 | ||||||||
| Investments | 22,412 | 2,675 | ||||||||
| Other assets | 15,178 | 16,775 | ||||||||
| Total long-term assets | 201,848 | 201,293 | ||||||||
| Total assets | $ | 411,236 | $ | 1,132,839 | LIABILITIES AND EQUITY | |||||
| --- | --- | --- | --- | --- | ||||||
| Current liabilities: | ||||||||||
| Trade accounts payable | $ | 41,268 | $ | 22,573 | ||||||
| Unearned income | 1,432 | 2,675 | ||||||||
| Accrued liabilities and other | 48,552 | 38,791 | ||||||||
| Liabilities of discontinued operations | 1,327 | 734,039 | ||||||||
| Total current liabilities | 92,579 | 798,078 | ||||||||
| Long-term debt, net | 164,228 | 199,894 | ||||||||
| Deferred income taxes | 1,817 | 1,942 | ||||||||
| Asset retirement obligations | 12,840 | 12,484 | ||||||||
| Warrants liability | 56 | 198 | ||||||||
| Operating lease liabilities | 33,145 | 37,569 | ||||||||
| Other liabilities | 6,493 | 11,612 | ||||||||
| Total long-term liabilities | 218,579 | 263,699 | ||||||||
| Commitments and contingencies | ||||||||||
| TETRA stockholders’ equity | 101,191 | (9,640) | ||||||||
| Noncontrolling interests | (1,113) | 80,702 | ||||||||
| Total equity | 100,078 | 71,062 | ||||||||
| Total liabilities and equity | $ | 411,236 | $ | 1,132,839 |
Schedule C: Consolidated Statements of Cash Flows (Unaudited)
| Nine Months Ended<br>September 30, | ||||
|---|---|---|---|---|
| 2021 | 2020 | |||
| (In Thousands) | ||||
| Operating activities: | ||||
| Net income (loss) | $ | 104,780 | $ | (68,941) |
| Reconciliation of net income (loss) to net cash provided by operating activities: | ||||
| Depreciation, amortization, and accretion | 25,524 | 88,906 | ||
| Gain on GP Sale | (120,574) | — | ||
| Impairment and other charges | 449 | 14,445 | ||
| Gain on retained CSI Compressco units and Standard Lithium shares | (11,803) | — | ||
| Equity-based compensation expense | 3,611 | 4,847 | ||
| Amortization and expense of financing costs and deferred financing gains | 2,320 | 3,698 | ||
| Debt-related expenses | — | 4,777 | ||
| Warrants fair value adjustment | (143) | (326) | ||
| Gain on sale of assets | (479) | (4,340) | ||
| Other non-cash charges | (340) | 5,814 | ||
| Changes in operating assets and liabilities: | ||||
| Accounts receivable | (15,246) | 62,039 | ||
| Inventories | 2,449 | 11,780 | ||
| Prepaid expenses and other current assets | (2,927) | (916) | ||
| Trade accounts payable and accrued expenses | 25,231 | (57,844) | ||
| Other | (2,428) | 888 | ||
| Net cash provided by operating activities | 10,424 | 64,827 | ||
| Investing activities: | ||||
| Purchases of property, plant, and equipment, net | (14,620) | (22,011) | ||
| Proceeds from sale of CCLP, net of cash divested | 566 | — | ||
| Proceeds on sale of property, plant, and equipment | 1,016 | 24,704 | ||
| Insurance recoveries associated with damaged equipment | 110 | 643 | ||
| Other investing activities | 764 | (576) | ||
| Net cash (used in) provided by investing activities | (12,164) | 2,760 | ||
| Financing activities: | ||||
| Proceeds from long-term debt | — | 404,060 | ||
| Principal payments on long-term debt | (37,477) | (408,666) | ||
| CSI Compressco distributions | — | (932) | ||
| Tax remittances on equity based compensation | — | (341) | ||
| Dividend payments attributable to noncontrolling interest | (99) | — | ||
| Debt issuance costs and other financing activities | (1,080) | (3,897) | ||
| Net cash used in financing activities | (38,656) | (9,776) | ||
| Effect of exchange rate changes on cash | (1,635) | (355) | ||
| (Decrease) increase in cash and cash equivalents | (42,031) | 57,456 | ||
| Cash and cash equivalents and restricted cash at beginning of period | 83,894 | 17,768 | ||
| Cash and cash equivalents at beginning of period associated with discontinued operations | 16,577 | 2,370 | ||
| Cash and cash equivalents and restricted cash at beginning of period associated with continuing operations | 67,317 | 15,398 | ||
| Cash and cash equivalents and restricted cash at end of period | 41,863 | 75,224 | ||
| Cash and cash equivalents at end of period associated with discontinued operations | — | 6,757 | ||
| Cash and cash equivalents and restricted cash at end of period associated with continuing operations | $ | 41,863 | $ | 68,467 |
Schedule D: Statement Regarding Use of Non-GAAP Financial Measures
In addition to financial results determined in accordance with U.S. GAAP, this press release may include the following non-GAAP financial measures for the Company: net debt; adjusted consolidated and segment income (loss) before taxes, special charges and discontinued operations; adjusted diluted earnings (loss) per share from continuing operations; consolidated and segment adjusted EBITDA; adjusted free cash flow and free cash flow from continuing operations; and segment adjusted EBITDA as a percent of revenue (“Adjusted EBITDA margin”). The following schedules provide reconciliations of these non-GAAP financial measures to their most directly comparable U.S. GAAP measures. The non-GAAP financial measures should be considered in addition to, not as a substitute for, financial measures prepared in accordance with U.S. GAAP, as more fully discussed in the Company’s financial statements and filings with the Securities and Exchange Commission.
Management believes that the exclusion of the special charges from the historical results of operations enables management to evaluate more effectively the Company’s operations over the prior periods and to identify operating trends that could be obscured by the excluded items.
Adjusted income (loss) from continuing operations is defined as the Company’s income (loss) before noncontrolling interests and discontinued operations, excluding certain special or other charges (or credits), and including noncontrolling interest attributable to continued operations. Adjusted income (loss) from continuing operations is used by management as a supplemental financial measure to assess financial performance, without regard to charges or credits that are considered by management to be outside of its normal operations.
Adjusted diluted earnings (loss) per share from continuing operations is defined as the Company’s diluted earnings (loss) per share excluding certain special or other charges (or credits), discontinued operations and noncontrolling interest attributable to discontinued operations. Adjusted diluted earnings (loss) per share is used by management as a supplemental financial measure to assess financial performance, without regard to charges or credits that are considered by management to be outside of its normal operations.
Adjusted EBITDA (and Adjusted EBITDA as a percent of revenue) is defined as earnings before interest, taxes, depreciation, amortization, impairments and certain non-cash charges, non-recurring adjustments and discontinued operations. Adjusted EBITDA (and Adjusted EBITDA margin) is used by management as a supplemental financial measure to assess the financial performance of the Company’s assets, without regard to financing methods, capital structure or historical cost basis and to assess the Company’s ability to incur and service debt and fund capital expenditures.
Adjusted free cash flow from continuing operations is defined as cash from operations less discontinued operations EBITDA and discontinued operations capital expenditures, less capital expenditures net of sales proceeds and cost of equipment sold and including cash distributions to TETRA from CSI Compressco LP and cash from other investments. Management uses this supplemental financial measure to:
•assess the Company’s ability to retire debt;
•evaluate the capacity of the Company to further invest and grow; and
•to measure the performance of the Company as compared to its peer group.
Adjusted free cash flow from continuing operations do not necessarily imply residual cash flow available for discretionary expenditures, as they exclude cash requirements for debt service or other non-discretionary expenditures that are not deducted.
Net debt is defined as the sum of the carrying value of long-term and short-term debt on its consolidated balance sheet, less cash, excluding restricted cash on the balance sheet. Management views net debt as a measure of TETRA’s ability to reduce debt, add to cash balances, pay dividends, repurchase stock, and fund investing and financing activities.
Schedule E: Non-GAAP Reconciliation of Adjusted Income (Loss) From Continuing Operations (Unaudited)
| Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| September 30, 2021 | June 30, 2021 | September 30, 2020 | ||||
| (In Thousands, Except per Share Amounts) | ||||||
| Income (loss) before taxes and discontinued operations | $ | 3,082 | $ | (5,270) | $ | (9,458) |
| Provision for income taxes | (587) | (1,384) | (101) | |||
| Noncontrolling interest attributed to continuing operations | — | 27 | 46 | |||
| Income (loss) from continuing operations | 2,495 | (6,627) | (9,513) | |||
| Adjustment to long-term incentives | 656 | 627 | — | |||
| Transaction and other expenses | 1,350 | (345) | 124 | |||
| Former CEO stock appreciation right expense | (466) | 714 | — | |||
| Restructuring charges | 295 | 1,033 | 665 | |||
| Stock warrant fair value adjustment | (3,164) | 2,698 | — | |||
| Severance expenses | — | — | 1,260 | |||
| Adjusted income (loss) from continuing operations | $ | 1,166 | $ | (1,900) | $ | (7,464) |
| Diluted per share information | ||||||
| Income (loss) from continuing operations | $ | 0.02 | $ | (0.05) | $ | (0.08) |
| Adjusted income (loss) from continuing operations | $ | 0.01 | $ | (0.02) | $ | (0.06) |
| Diluted weighted average shares outstanding | 128,694 | 126,583 | 125,893 |
Schedule F: Non-GAAP Reconciliation of Adjusted EBITDA (Unaudited)
| Three Months Ended September 30, 2021 | ||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Completion Fluids & Products | Water & Flowback Services | Corporate SG&A | Other and Eliminations | Total | ||||||||||||||||||||||||
| (In Thousands, Except Percents) | ||||||||||||||||||||||||||||
| Revenues | $ | 48,691 | $ | 46,783 | $ | — | $ | — | $ | 95,474 | ||||||||||||||||||
| Net income (loss) before taxes and <br>discontinued operations | 14,675 | (1,807) | (8,408) | (1,378) | 3,082 | |||||||||||||||||||||||
| Adjustment to long-term incentives | — | — | 656 | — | 656 | |||||||||||||||||||||||
| Transaction and other expenses | 630 | 693 | 27 | — | 1,350 | |||||||||||||||||||||||
| Former CEO stock appreciation right expense | — | — | (466) | — | (466) | |||||||||||||||||||||||
| Restructuring expenses | 254 | 41 | — | — | 295 | |||||||||||||||||||||||
| Stock warrant fair value adjustment | — | — | — | (3,164) | (3,164) | |||||||||||||||||||||||
| Adjusted income (loss) before taxes and discontinued operations | $ | 15,559 | $ | (1,073) | $ | (8,191) | $ | (4,542) | $ | 1,753 | ||||||||||||||||||
| Adjusted interest (income) expense, net | (165) | 2 | — | 4,246 | 4,083 | |||||||||||||||||||||||
| Adjusted depreciation and amortization | 1,712 | 6,192 | — | 225 | 8,129 | |||||||||||||||||||||||
| Equity compensation expense | — | — | 1,057 | — | 1,057 | |||||||||||||||||||||||
| Adjusted EBITDA | $ | 17,106 | $ | 5,121 | $ | (7,134) | $ | (71) | $ | 15,022 | ||||||||||||||||||
| Adjusted EBITDA as a % of revenue | 35.1 | % | 10.9 | % | 15.7 | % | Three Months Ended June 30, 2021 | |||||||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |||||||||||||||
| Completion Fluids & Products | Water & Flowback Services | Corporate SG&A | Other and Eliminations | Total | ||||||||||||||||||||||||
| (In Thousands, Except Percents) | ||||||||||||||||||||||||||||
| Revenues | $ | 64,607 | $ | 37,719 | $ | — | $ | — | $ | 102,326 | ||||||||||||||||||
| Net income (loss) before taxes and <br>discontinued operations | 16,427 | (4,978) | (9,543) | (7,176) | (5,270) | |||||||||||||||||||||||
| Adjustment to long-term incentives | — | — | 627 | — | 627 | |||||||||||||||||||||||
| Transaction and other expenses | (391) | 145 | (99) | — | (345) | |||||||||||||||||||||||
| Former CEO stock appreciation right expense | — | — | 714 | — | 714 | |||||||||||||||||||||||
| Restructuring expenses | 291 | 742 | — | — | 1,033 | |||||||||||||||||||||||
| Stock warrant fair value adjustment | — | — | — | 2,698 | 2,698 | |||||||||||||||||||||||
| Adjusted income (loss) before taxes and discontinued operations | $ | 16,327 | $ | (4,091) | $ | (8,301) | $ | (4,478) | $ | (543) | ||||||||||||||||||
| Adjusted interest (income) expense, net | (162) | 3 | — | 4,044 | 3,885 | |||||||||||||||||||||||
| Adjusted depreciation and amortization | 1,701 | 6,087 | — | 245 | 8,033 | |||||||||||||||||||||||
| Equity compensation expense | — | — | 1,592 | — | 1,592 | |||||||||||||||||||||||
| Adjusted EBITDA | $ | 17,866 | $ | 1,999 | $ | (6,709) | $ | (189) | $ | 12,967 | ||||||||||||||||||
| Adjusted EBITDA as a % of revenue | 27.7 | % | 5.3 | % | 12.7 | % | ||||||||||||||||||||||
| Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |||||||||||||||
| Completion Fluids & Products | Water & Flowback Services | Corporate SG&A | Other and Eliminations | Total | ||||||||||||||||||||||||
| (In Thousands, Except Percents) | ||||||||||||||||||||||||||||
| Revenues | $ | 51,950 | $ | 21,534 | $ | — | $ | — | $ | 73,484 | ||||||||||||||||||
| Net income (loss) before taxes and <br>discontinued operations | 11,756 | (7,746) | (8,958) | (4,510) | (9,458) | |||||||||||||||||||||||
| Severance | 177 | 150 | 933 | — | 1,260 | |||||||||||||||||||||||
| Transaction and other expenses | — | 124 | — | — | 124 | |||||||||||||||||||||||
| Restructuring and severance expenses | 665 | — | — | — | 665 | |||||||||||||||||||||||
| Impairments and other charges | (113) | — | 97 | — | (16) | |||||||||||||||||||||||
| Adjusted income (loss) before taxes and discontinued operations | 12,485 | (7,472) | (7,928) | (4,510) | (7,425) | |||||||||||||||||||||||
| Adjusted interest (income) expense, net | (291) | (77) | — | 4,706 | 4,338 | |||||||||||||||||||||||
| Adjusted depreciation and amortization | 1,710 | 7,584 | — | 170 | 9,464 | |||||||||||||||||||||||
| Equity compensation expense | — | — | 983 | — | 983 | |||||||||||||||||||||||
| Adjusted EBITDA | $ | 13,904 | $ | 35 | $ | (6,945) | $ | 366 | $ | 7,360 | ||||||||||||||||||
| Adjusted EBITDA as a % of revenue | 26.8 | % | 0.2 | % | 10.0 | % |
Schedule G: Non-GAAP Reconciliation of Net Debt (Unaudited)
The following reconciliation of net debt is presented as a supplement to financial results prepared in accordance with GAAP.
| September 30,<br>2021 | December 31,<br>2020 | |||
|---|---|---|---|---|
| (In Thousands) | ||||
| Non-restricted cash | $ | 41,863 | $ | 67,252 |
| Asset-Based Credit Agreement | — | — | ||
| Term Credit Agreement | $ | 164,228 | $ | 199,894 |
| Net debt | $ | 122,365 | $ | 132,642 |
Schedule H: Non-GAAP Reconciliation to Adjusted Free Cash Flow From Continuing Operations (Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| September 30, 2021 | June 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | ||||||
| (In Thousands) | ||||||||||
| Cash from operating activities | $ | 2,817 | $ | 1,788 | $ | 4,440 | $ | 10,424 | $ | 64,827 |
| Discontinued operations operating activities (adjusted EBITDA) | — | — | (4,451) | (416) | 13,729 | |||||
| Cash from continued operating activities | 2,817 | 1,788 | 8,891 | 10,840 | 51,098 | |||||
| Less: Continuing operations capital expenditures, net of proceeds from asset sales | (1,869) | (6,290) | (1,560) | (10,624) | (8,249) | |||||
| Distributions from CSI Compressco LP (1) | 52 | 52 | 168 | 104 | 506 | |||||
| Cash (distributed to partners) received from other investments | — | — | — | 2,354 | — | |||||
| Adjusted Free Cash Flow From Continuing Operations | $ | 1,000 | $ | (4,450) | $ | 7,499 | $ | 2,674 | $ | 43,355 |
(1) Following the GP Sale on January 29, 2021, TETRA retained a 10.9% limited partner interest in CCLP.