Notes to Consolidated Financial Statements
(Unaudited)
NOTE A – ORGANIZATION, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES
Organization
We are a geographically diversified oil and gas services company, focused on completion fluids and associated products and services, water management, frac flowback, production well testing and offshore rig cooling services, and compression services and equipment. We were incorporated in Delaware in 1981. We are composed of three divisions – Completion Fluids & Products, Water & Flowback Services, and Compression. 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 September 30, 2019 are not necessarily indicative of results that may be expected for the twelve months ended December 31, 2019.
We consolidate the financial statements of CSI Compressco LP and its subsidiaries ("CCLP") as part of our Compression Division, as we determined that CCLP is a variable interest entity and we are the primary beneficiary. We control the financial interests of CCLP and have the ability to direct the activities of CCLP that most significantly impact its economic performance through our ownership of its general partner. The share of CCLP net assets and earnings that is not owned by us is presented as noncontrolling interest in our consolidated financial statements. Our cash flows from our investment in CCLP are limited to the quarterly distributions we receive on our CCLP common units and general partner interest (including incentive distribution rights) and the amounts collected for services we perform on behalf of CCLP, as TETRA's capital structure and CCLP's capital structure are separate, and do not include cross default provisions, cross collateralization provisions, or cross guarantees.
The accompanying unaudited consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the U.S. Securities and Exchange Commission ("SEC") and do not include all information and footnotes required by U.S. generally accepted accounting principles ("U.S. GAAP") for complete financial statements. These financial statements should be read in conjunction with the financial statements for the year ended December 31, 2018 and notes thereto included in our Annual Report on Form 10-K, which we filed with the SEC on March 4, 2019.
Significant Accounting Policies
We have added policies for the recording of leases in conjunction with the adoption of the new lease standard discussed in our "Leases" and "New Accounting Pronouncements" sections below. Other than the additional lease policies described herein, there have been no significant changes in our accounting policies or the application of these policies.
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.
Impairments and Other Charges
During the second quarter of 2019, our Compression Division recorded impairments of $2.3 million on certain units of its low-horsepower compression fleet, reflecting the decision to dispose of these units upon management's determination that refurbishing this equipment was not economic given limited current and forecasted demand for such equipment. A recoverability analysis was performed on the remaining low-horsepower fleet and it was concluded that the remaining fleet was recoverable from estimated future cash flows. During the third quarter of 2019, we recorded a charge of $0.8 million for the carrying value of a compressor unit that was written off due to being destroyed by fire.
Goodwill
Our Water & Flowback Services Division consists of two reporting units, Production Testing and Water Management. During the third quarter of 2019, as part of our internal long-term outlook for each of these reporting units, we updated our assessment of the Water Management reporting unit and determined that the current decreased energy industry outlook was an indicator requiring further analysis for impairment of goodwill. As part of the first step of goodwill impairment testing for our Water Management reporting unit, the only reporting unit with goodwill as of September 30, 2019, we updated our assessment of the future cash flows, applying expected long-term growth rates, discount rates, and terminal values that we consider reasonable for the reporting unit. We calculated a present value of the cash flows for the Water Management reporting unit to arrive at an estimate of fair value using a combination of the income approach and the market approach. Based on these assumptions, we determined that the fair value of the Water Management reporting unit exceeded its carrying value, which includes approximately $25.8 million of goodwill, by approximately 17%. Specific uncertainties affecting the estimated fair value of our Water Management reporting unit includes the impact of competition, prices of oil and natural gas, and future overall activity levels in the regions in which it operates, the activity levels of our significant customers, and other factors affecting the rate of future growth of this reporting unit. These factors will continue to be reviewed and assessed going forward. Negative developments with regard to these factors could have a further negative effect on the fair value of the Water Management reporting unit.
Leases
As a lessee, unless the lease meets the criteria of short-term and is excluded per our policy election described below, we initially recognize a lease liability and related right-of-use asset on the commencement date. The right-of-use asset represents our right to use an underlying asset and the lease liability represents our obligation to make lease payments to the lessor over the lease term.
Long-term operating leases are included in operating lease right-of-use assets, accrued liabilities and other, and operating lease liabilities in our consolidated balance sheet as of September 30, 2019. Long-term finance leases are not material. We determine whether a contract is or contains a lease at inception of the contract. Where we are a lessee in a contract that includes an option to extend or terminate the lease, we include the extension period or exclude the period covered by the termination option in our lease term, if it is reasonably certain that we would exercise the option.
As an accounting policy election, we do not include short-term leases on our balance sheet. Short-term leases include leases with a term of 12 months or less, inclusive of renewal options we are reasonably certain to exercise. The lease payments for short-term leases are included as operating lease costs on a straight-line basis over the lease term in cost of revenues or general and administrative expense based on the use of the underlying asset. We recognize lease costs for variable lease payments not included in the determination of a lease liability in the period in which an obligation is incurred.
As allowed by U.S. GAAP, we do not separate nonlease components from the associated lease component for our compression services contracts and instead account for those components as a single component based on the accounting treatment of the predominant component. In our evaluation of whether Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 842 "Leases" or ASC 606 "Revenue from Contracts with Customers" is applicable to the combined component based on the predominant component, we determined the services nonlease component is predominant, resulting in the ongoing recognition of our compression services contracts following ASC 606.
Our operating and finance leases are recognized at the present value of lease payments over the lease term. When the implicit discount rate is not readily determinable, we use our incremental borrowing rate to calculate the discount rate used to determine the present value of lease payments. Consistent with other long-lived assets or asset groups that are held and used, we test for impairment of our right-of-use assets when impairment indicators are present.
Foreign Currency Translation
The cumulative translation effects of translating the applicable accounts from the functional currencies into the U.S. dollar at current exchange rates are included as a separate component of equity. Foreign currency exchange (gains) and losses are included in other (income) expense, net and totaled $(1.7) million and $(2.2) million during the three and nine months ended September 30, 2019, respectively, and $(0.1) million and $(0.4) million during the three and nine months ended September 30, 2018, respectively.
New Accounting Pronouncements
Standards adopted in 2019
In February 2016, the FASB issued Accounting Standards Update ("ASU") 2016-02, "Leases (Topic 842)" to increase comparability and transparency among different organizations. Organizations are required to recognize right-of-use lease assets and lease liabilities in the balance sheet related to the right to use the underlying asset for the lease term. In addition, through improved disclosure requirements, ASC 842 will enable users of financial statements to further understand the amount, timing, and uncertainty of cash flows arising from leases. We adopted the standard effective January 1, 2019. The standard had a material impact on our consolidated balance sheet, specifically, the reporting of our operating leases. The impact in the reporting of our finance leases was insignificant.
We chose to transition using a modified retrospective approach which allows for the recognition of a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption rather than the earliest period presented. Comparative information is reported under the accounting standards that were in effect for those periods. In addition, upon transition, we elected the package of practical expedients, which allows us to continue to apply historical lease classifications to existing contracts. Upon adoption, we recognized $60.6 million in operating right-of-use assets, $12.0 million in accrued liabilities and other, and $50.7 million in operating lease liabilities in our consolidated balance sheet. In addition, we also recognized a $2.8 million cumulative effect adjustment to increase retained earnings, primarily as a result of a deferred gain from a previous sale and leaseback transaction on our corporate headquarters facility that was accounted for as an operating lease. Refer to Note K - “Leases” for further information on our leases.
In February 2018, the FASB issued ASU 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220)" that gives entities the option to reclassify the income tax effects of the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. This was effective for us on January 1, 2019, however, as we do not have associated tax effects in accumulated other comprehensive income, there was no impact.
In June 2018, the FASB issued ASU 2018-07, “Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” to align the measurement and classification guidance for share-based payments to nonemployees with the guidance currently applied to employees, with certain exceptions. We adopted this ASU during the three months ended March 31, 2019, with no material impact to our consolidated financial statements.
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 has an effective date of the first quarter of fiscal 2020. We continue to assess the potential effects of these changes to our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. The ASU is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods, with early adoption permitted, under a prospective adoption. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, "Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." ASU 2018-15 clarifies the accounting for implementation costs in cloud computing arrangements. ASU 2018-15 is effective for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted. We are currently assessing the potential effects of these changes to our consolidated financial statements.
NOTE B – INVENTORIES
Components of inventories as of September 30, 2019 and December 31, 2018 are as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
|
(In Thousands)
|
|
Finished goods
|
$
|
69,326
|
|
|
$
|
69,762
|
|
|
Raw materials
|
3,043
|
|
|
3,503
|
|
|
Parts and supplies
|
46,815
|
|
|
47,386
|
|
|
Work in progress
|
23,222
|
|
|
22,920
|
|
|
Total inventories
|
$
|
142,406
|
|
|
$
|
143,571
|
|
Finished goods inventories include newly manufactured clear brine fluids as well as used brines that are repurchased from certain customers for recycling. Work in progress inventory consists primarily of new compressor packages located in the CCLP fabrication facility in Midland, Texas.
NOTE C – 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:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(In Thousands)
|
|
Number of weighted average common shares outstanding
|
125,568
|
|
|
125,689
|
|
|
125,620
|
|
|
123,557
|
|
|
Assumed exercise of equity awards and warrants
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Average diluted shares outstanding
|
125,568
|
|
|
125,689
|
|
|
125,620
|
|
|
123,557
|
|
For the three and nine month periods ended September 30, 2019 and September 30, 2018, the average diluted shares outstanding excludes the impact of all outstanding equity awards and warrants, as the inclusion of these shares would have been anti-dilutive due to the net losses recorded during the periods. In addition, for the three and nine month periods ended September 30, 2019 and September 30, 2018, the calculation of diluted earnings per common share excludes the impact of the CSI Compressco LP Series A Convertible Preferred Units (the "CCLP Preferred Units"), as the inclusion of the impact from conversion of the CCLP Preferred Units into CCLP common units would have been anti-dilutive.
NOTE D – DISCONTINUED OPERATIONS
On March 1, 2018, we closed a series of related transactions that resulted in the disposition of our Offshore Division. As a result, we have accounted for our Offshore Division, consisting of our Offshore Services and Maritech segments, as discontinued operations and have revised prior period financial statements to exclude these businesses from continuing operations. During the three months ended September 30, 2019, as a result of the bankruptcy filing of Epic Companies, LLC, we recorded a reserve for the full amount of certain other receivables of discontinued operations in the amount of $1.5 million and for the full amount of a $7.5 million promissory note, including accrued interest, that we received as part of the consideration for the sale. See Note H - "Commitments and Contingencies" for further discussion. 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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2019
|
|
Three Months Ended
September 30, 2018
|
|
|
Offshore Services
|
|
Maritech
|
|
Total
|
|
Offshore Services
|
|
Maritech
|
|
Total
|
|
Major classes of line items constituting pretax loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cost of revenues
|
(273
|
)
|
|
—
|
|
|
(273
|
)
|
|
125
|
|
|
—
|
|
|
125
|
|
|
Depreciation, amortization, and accretion
|
52
|
|
|
—
|
|
|
52
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
General and administrative expense
|
1,734
|
|
|
—
|
|
|
1,734
|
|
|
192
|
|
|
—
|
|
|
192
|
|
|
Other (income) expense, net
|
117
|
|
|
—
|
|
|
117
|
|
|
(1,113
|
)
|
|
—
|
|
|
(1,113
|
)
|
|
Pretax income (loss) from discontinued operations
|
(1,630
|
)
|
|
—
|
|
|
(1,630
|
)
|
|
796
|
|
|
—
|
|
|
796
|
|
|
Pretax loss on disposal of discontinued operations
|
|
|
|
|
(7,500
|
)
|
|
|
|
|
|
—
|
|
|
Total pretax income (loss) from discontinued operations
|
|
|
|
|
(9,130
|
)
|
|
|
|
|
|
796
|
|
|
Income tax expense
|
|
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
Total income (loss) from discontinued operations
|
|
|
|
|
$
|
(9,130
|
)
|
|
|
|
|
|
$
|
796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
Offshore Services
|
|
Maritech
|
|
Total
|
|
Offshore Services
|
|
Maritech
|
|
Total
|
|
Major classes of line items constituting pretax loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,487
|
|
|
$
|
187
|
|
|
$
|
4,674
|
|
|
Cost of revenues
|
(251
|
)
|
|
—
|
|
|
(251
|
)
|
|
11,013
|
|
|
139
|
|
|
11,152
|
|
|
Depreciation, amortization, and accretion
|
52
|
|
|
—
|
|
|
52
|
|
|
1,873
|
|
|
212
|
|
|
2,085
|
|
|
General and administrative expense
|
2,483
|
|
|
—
|
|
|
2,483
|
|
|
1,729
|
|
|
187
|
|
|
1,916
|
|
|
Other (income) expense, net
|
117
|
|
|
—
|
|
|
117
|
|
|
(1,035
|
)
|
|
—
|
|
|
(1,035
|
)
|
|
Pretax loss from discontinued operations
|
(2,401
|
)
|
|
—
|
|
|
(2,401
|
)
|
|
(9,093
|
)
|
|
(351
|
)
|
|
(9,444
|
)
|
|
Pretax loss on disposal of discontinued operations
|
|
|
|
|
(7,500
|
)
|
|
|
|
|
|
(33,813
|
)
|
|
Total pretax loss from discontinued operations
|
|
|
|
|
(9,901
|
)
|
|
|
|
|
|
(43,257
|
)
|
|
Income tax benefit
|
|
|
|
|
—
|
|
|
|
|
|
|
(2,326
|
)
|
|
Total loss from discontinued operations
|
|
|
|
|
$
|
(9,901
|
)
|
|
|
|
|
|
$
|
(40,931
|
)
|
Reconciliation of Major Classes of Assets and Liabilities of the Discontinued Operations to Amounts Presented Separately in the Statement of Financial Position
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
|
Offshore Services
|
|
Maritech
|
|
Total
|
|
Offshore Services
|
|
Maritech
|
|
Total
|
|
Carrying amounts of major classes of assets included as part of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
$
|
16
|
|
|
$
|
—
|
|
|
$
|
16
|
|
|
$
|
—
|
|
|
$
|
1,340
|
|
|
$
|
1,340
|
|
|
Other current assets
|
—
|
|
|
—
|
|
|
—
|
|
|
14
|
|
|
—
|
|
|
14
|
|
|
Assets of discontinued operations
|
$
|
16
|
|
|
$
|
—
|
|
|
$
|
16
|
|
|
$
|
14
|
|
|
$
|
1,340
|
|
|
$
|
1,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amounts of major classes of liabilities included as part of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade payables
|
$
|
901
|
|
|
$
|
—
|
|
|
$
|
901
|
|
|
$
|
740
|
|
|
$
|
—
|
|
|
$
|
740
|
|
|
Accrued liabilities
|
885
|
|
|
121
|
|
|
1,006
|
|
|
1,330
|
|
|
2,075
|
|
|
3,405
|
|
|
Liabilities of discontinued operations
|
$
|
1,786
|
|
|
$
|
121
|
|
|
$
|
1,907
|
|
|
$
|
2,070
|
|
|
$
|
2,075
|
|
|
$
|
4,145
|
|
NOTE E – LONG-TERM DEBT AND OTHER BORROWINGS
We believe our capital structure, excluding CCLP, ("TETRA") and CCLP's capital structure should be considered separately, as there are no cross default provisions, cross collateralization provisions, or cross guarantees between CCLP's debt and TETRA's debt.
Consolidated long-term debt as of September 30, 2019 and December 31, 2018, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
|
|
|
(In Thousands)
|
|
TETRA
|
|
Scheduled Maturity
|
|
|
|
|
Asset-based credit agreement (presented net of unamortized deferred financing costs of $1.4 million as of September 30, 2019)
|
|
September 2023
|
$
|
8,585
|
|
|
$
|
—
|
|
|
Term credit agreement (presented net of the unamortized discount of $6.6 million as of September 30, 2019 and $7.2 million as of December 31, 2018 and net of unamortized deferred financing costs of $9.8 million as of September 30, 2019 and $10.2 million as of December 31, 2018)
|
|
September 2025
|
204,112
|
|
|
182,547
|
|
|
TETRA total debt
|
|
|
212,697
|
|
|
182,547
|
|
|
Less current portion
|
|
|
—
|
|
|
—
|
|
|
TETRA total long-term debt
|
|
|
$
|
212,697
|
|
|
$
|
182,547
|
|
|
|
|
|
|
|
|
|
CCLP
|
|
|
|
|
|
|
CCLP asset-based credit agreement (presented net of unamortized deferred financing costs of $0.9 million as of September 30, 2019)
|
|
June 2023
|
10,559
|
|
|
—
|
|
|
CCLP 7.25% Senior Notes (presented net of the unamortized discount of $1.8 million as of September 30, 2019 and $2.2 million as of December 31, 2018 and net of unamortized deferred financing costs of $3.1 million as of September 30, 2019 and $3.9 million as of December 31, 2018)
|
|
August 2022
|
291,028
|
|
|
289,797
|
|
|
CCLP 7.50% Senior Secured Notes (presented net of unamortized deferred financing costs of $6 million as of September 30, 2019 and $6.8 million as of December 31, 2018)
|
|
April 2025
|
343,988
|
|
|
343,216
|
|
|
CCLP total debt
|
|
|
645,575
|
|
|
633,013
|
|
|
Less current portion
|
|
|
—
|
|
|
—
|
|
|
CCLP total long-term debt
|
|
|
$
|
645,575
|
|
|
$
|
633,013
|
|
|
Consolidated total long-term debt
|
|
|
$
|
858,272
|
|
|
$
|
815,560
|
|
As of September 30, 2019, TETRA had a $10.0 million outstanding balance and $6.9 million in letters of credit against its asset-based credit agreement ("ABL Credit Agreement"). As of September 30, 2019, subject to compliance with the covenants, borrowing base, and other provisions of the agreement that may limit borrowings, TETRA had an availability of $41.6 million under this agreement. There was an $11.5 million balance outstanding and $3.0 million in letters of credit against the CCLP asset-based credit agreement ("CCLP Credit Agreement") as of September 30, 2019. On June 26, 2019, CCLP entered into an amendment of the CCLP Credit Agreement that, among other things, revised and increased the borrowing base, including adding the value of certain CCLP inventory in the determination of the borrowing base. As of September 30, 2019, and subject to compliance with the covenants, borrowing base, and other provisions of the agreements that may limit borrowings under the CCLP Credit Agreement, CCLP had availability of $7.8 million.
TETRA and CCLP credit and senior note agreements contain certain affirmative and negative covenants, including covenants that restrict the ability to pay dividends or other restricted payments. TETRA and CCLP are both in compliance with all covenants of their respective credit and senior note agreements as of September 30, 2019.
NOTE F – CCLP SERIES A CONVERTIBLE PREFERRED UNITS
In January 2019, CCLP began redeeming CCLP Preferred Units for cash, resulting in 2,660,569 CCLP Preferred Units being redeemed during the nine months ended September 30, 2019 for an aggregate of $28.0 million, which includes approximately $1.3 million of redemption premium that was paid and charged to other (income) expense, net in the accompanying consolidated statements of operations. The last redemption of the remaining outstanding CCLP Preferred Units, along with a final cash payment made in lieu of paid-in-kind units, occurred on August 8, 2019, for an aggregate cash payment of $5.0 million, of which $0.6 million was paid to us.
NOTE G – FAIR VALUE MEASUREMENTS
Financial Instruments
Warrants
The Warrants are valued using a Black Scholes option valuation model that includes implied volatility of the trading price (a Level 3 fair value measurement).
Contingent Consideration
The fair value of the remaining contingent consideration associated with the February 2018 acquisition of SwiftWater Energy Services, LLC ("SwiftWater") is based on a probability simulation utilizing forecasted revenues and EBITDA of the water management business of SwiftWater and all of our pre-existing operations in the Permian Basin (a Level 3 fair value measurement). At September 30, 2019, based on a forecast of SwiftWater 2019 revenues and EBITDA, the estimated fair value for the liability associated with the remaining contingent purchase price consideration was $0.2 million, resulting in $0.8 million being credited to other (income) expense, net, during the nine months ended September 30, 2019. During the nine months ended September 30, 2019, the sellers received a payment of $10.0 million based on SwiftWater's performance during 2018. In addition, as part of the purchase of JRGO Energy Services LLC ("JRGO") during December 2018, the sellers were paid contingent consideration of $1.4 million during the nine month period ended September 30, 2019, based on JRGO's performance during the fourth quarter of 2018.
Derivative Contracts
We and CCLP each enter into short term foreign currency forward derivative contracts with third parties as part of a program designed to mitigate the currency exchange rate risk exposure on selected transactions of certain foreign subsidiaries. As of September 30, 2019, we and CCLP had the following foreign currency derivative contracts outstanding relating to portions of our foreign operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Contracts
|
|
US Dollar Notional Amount
|
|
Traded Exchange Rate
|
|
Settlement Date
|
|
|
|
(In Thousands)
|
|
|
|
|
|
Forward purchase Euro
|
|
$
|
9,472
|
|
|
1.12
|
|
12/19/2019
|
|
Forward purchase Euro
|
|
8,687
|
|
|
1.11
|
|
10/18/2019
|
|
Forward sale pounds sterling
|
|
1,867
|
|
|
1.24
|
|
10/18/2019
|
|
Forward purchase Mexican peso
|
|
774
|
|
|
19.38
|
|
10/18/2019
|
|
Forward purchase Norwegian krone
|
|
5,063
|
|
|
8.89
|
|
10/18/2019
|
|
Forward sale Mexican peso
|
|
8,844
|
|
|
19.56
|
|
10/18/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Contracts
|
|
British Pound Notional Amount
|
|
Traded Exchange Rate
|
|
Settlement Date
|
|
|
|
(In Thousands)
|
|
|
|
|
|
Forward purchase Euro
|
|
2,316
|
|
|
0.89
|
|
10/18/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Contracts
|
|
Swedish Krona Notional Amount
|
|
Traded Exchange Rate
|
|
Settlement Date
|
|
|
|
(In Thousands)
|
|
|
|
|
|
Forward purchase Euro
|
|
15,980
|
|
|
10.65
|
|
10/18/2019
|
Under this program, we and CCLP may enter into similar derivative contracts from time to time. 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 formally designated as hedge contracts or qualify for hedge accounting treatment. Accordingly, any change in the fair value of these derivative contracts during a period will be included in the determination of earnings for that period.
The fair values of foreign currency derivative contracts are based on quoted market values (a Level 2 fair value measurement). The fair values of our and CCLP's foreign currency derivative contracts as of September 30, 2019 and December 31, 2018, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivative contracts
|
Balance Sheet Location
|
|
Fair Value at September 30, 2019
|
|
Fair Value at December 31, 2018
|
|
|
|
|
|
(In Thousands)
|
|
Forward purchase contracts
|
|
Current assets
|
|
$
|
12
|
|
|
$
|
41
|
|
|
Forward sale contracts
|
|
Current assets
|
|
122
|
|
|
76
|
|
|
Forward sale contracts
|
|
Current liabilities
|
|
—
|
|
|
(126
|
)
|
|
Forward purchase contracts
|
|
Current liabilities
|
|
(504
|
)
|
|
(168
|
)
|
|
Net asset (liability)
|
|
|
|
$
|
(370
|
)
|
|
$
|
(177
|
)
|
None of our foreign currency derivative contracts contain credit risk related contingent features that would require us to post assets or collateral for contracts that are classified as liabilities. During the three and nine month periods ended September 30, 2019, we recognized $1.0 million and $1.8 million of net (gains) losses, respectively, reflected in other (income) expense, net, associated with our foreign currency derivative program. During the three and nine months ended September 30, 2018, we recognized $0.6 million and $(0.1) million of net (gains) losses, respectively, reflected in other (income) expense, net, associated with our foreign currency derivative program.
Recurring fair value measurements by valuation hierarchy as of September 30, 2019 and December 31, 2018, 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
|
September 30, 2019
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
(In Thousands)
|
|
Warrants liability
|
$
|
(1,038
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1,038
|
)
|
|
Asset for foreign currency derivative contracts
|
134
|
|
|
—
|
|
|
134
|
|
|
—
|
|
|
Liability for foreign currency derivative contracts
|
(504
|
)
|
|
—
|
|
|
(504
|
)
|
|
—
|
|
|
Acquisition contingent consideration liability
|
(200
|
)
|
|
—
|
|
|
—
|
|
|
(200
|
)
|
|
Net liability
|
$
|
(1,608
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2018
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
(In Thousands)
|
|
CCLP Series A Preferred Units
|
$
|
(27,019
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(27,019
|
)
|
|
Warrants liability
|
(2,073
|
)
|
|
—
|
|
|
—
|
|
|
(2,073
|
)
|
|
Asset for foreign currency derivative contracts
|
117
|
|
|
—
|
|
|
117
|
|
|
—
|
|
|
Liability for foreign currency derivative contracts
|
(294
|
)
|
|
—
|
|
|
(294
|
)
|
|
—
|
|
|
Acquisition contingent consideration liability
|
(12,452
|
)
|
|
—
|
|
|
—
|
|
|
(12,452
|
)
|
|
Net liability
|
$
|
(41,721
|
)
|
|
|
|
|
|
|
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 and Term Credit Agreement, and the CCLP Credit Agreement approximate their carrying amounts. The fair values of the publicly traded CCLP 7.25% Senior Notes at September 30, 2019 and December 31, 2018, were approximately $269.2 million and $266.3 million, respectively. Those fair values compare to the face amount of $295.9 million both at September 30, 2019 and December 31, 2018. The fair values of the CCLP 7.50% Senior Secured Notes at September 30, 2019 and December 31, 2018 were approximately $344.8 million and $332.5 million, respectively. These fair values compare to aggregate principal amount of such notes at both September 30, 2019 and December 31, 2018, of $350.0 million. We based the fair values of the CCLP 7.25% Senior Notes and the CCLP 7.50% Senior Secured Notes as of September 30, 2019 on recent trades for these notes.
NOTE H – 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.
Contingencies of Discontinued Operations
In early 2018, we closed the Maritech Asset Purchase Agreement with Orinoco Natural Resources, LLC ("Orinoco") that provided for the purchase by Orinoco of Maritech's remaining oil and gas properties and related assets. Also in early 2018, we closed the Maritech Membership Interest Purchase Agreement with Orinoco that provided for the purchase by Orinoco of all of the outstanding membership interests in Maritech. As a result of these transactions, we have effectively exited the business of our Maritech segment.
Under the Maritech Asset Purchase Agreement, Orinoco assumed all of Maritech’s decommissioning liabilities related to the leases sold to Orinoco (the “Orinoco Lease Liabilities”) and, under the Maritech Membership Interest Purchase Agreement, Orinoco assumed all other liabilities of Maritech, including the decommissioning liabilities associated with the oil and gas properties previously sold by Maritech (the “Legacy Liabilities”), subject to certain limited exceptions unrelated to the decommissioning liabilities. To the extent that Maritech or Orinoco fails to satisfy decommissioning liabilities associated with any of the Orinoco Lease Liabilities or the Legacy Liabilities, we may be required to satisfy such liabilities under third party indemnity agreements and corporate guarantees that we previously provided to the US Department of the Interior and other parties, respectively.
Pursuant to a Bonding Agreement entered into as part of these transactions (the "Bonding Agreement"), Orinoco provided non-revocable performance bonds in an aggregate amount of $46.8 million to cover the performance by Orinoco and Maritech of the asset retirement obligations of Maritech (the “Initial Bonds”) and agreed to replace, within 90 days following the closing, the Initial Bonds with other non-revocable performance bonds, meeting certain requirements, in the aggregate sum of $47.0 million (collectively, the “Interim Replacement Bonds”). Orinoco further agreed to replace, within 180 days following the closing, the Interim Replacement Bonds with a maximum of three non-revocable performance bonds in the aggregate sum of $47.0 million, meeting certain requirements (the “Final Bonds”). Among the other requirements of the Final Bonds was that they must provide coverage for all of the asset retirement obligations of Maritech instead of only relating to specific properties. In the event Orinoco does not provide the Interim Replacement Bonds or the Final Bonds, Orinoco is required to make certain cash escrow payments to us.
The payment obligations of Orinoco under the Bonding Agreement were guaranteed by Thomas M. Clarke and Ana M. Clarke pursuant to a separate guaranty agreement (the “Clarke Bonding Guaranty Agreement”). Orinoco has not delivered such replacement bonds and it has not made any of the agreed upon cash escrow payments and we filed a lawsuit against Orinoco and the Clarkes to enforce the terms of the Bonding Agreement and the Clarke Bonding Guaranty Agreement. A summary judgment was granted in favor of Orinoco and the Clarkes which dismissed our present claims against Orinoco under the Bonding Agreement and against the Clarkes under the Clarke Bonding Guaranty Agreement. We believe this judgment should not have been granted and have begun the process of appealing it. The Initial Bonds, which are non-revocable, remain in effect.
If we become liable in the future for any decommissioning liability associated with any property covered by either an Initial Bond or an Interim Replacement Bond while such bonds are outstanding and the payment made to us under such bond is not sufficient to satisfy such liability, the Bonding Agreement provides that Orinoco will pay us an amount equal to such deficiency and if Orinoco fails to pay any such amount, such amount must be paid by the Clarkes under the Clarke Bonding Guaranty Agreement. However, if the Final Bonds or the full amount of the escrowed cash have been provided, neither Orinoco nor the Clarkes would be liable to pay us for any such deficiency. Our financial condition and results of operations may be negatively affected if Orinoco is unable to cover any such deficiency or if we become liable for a significant portion of the decommissioning liabilities.
In early 2018, we also closed the sale of our Offshore Division to Epic Companies, LLC (“Epic Companies,” formerly known as Epic Offshore Specialty, LLC). Part of the consideration we received was a promissory note of Epic Companies in the original principal amount of $7.5 million (the “Epic Promissory Note”) payable to us in full, together with interest at a rate of 1.52% per annum, on December 31, 2019, along with a personal guaranty agreement from Thomas M. Clarke and Ana M. Clarke guaranteeing the payment obligations of Epic Companies pursuant to the Epic Promissory Note (the “Clarke Promissory Note Guaranty Agreement”). Additionally, pursuant to the Equity Interest Purchase Agreement (the “Offshore Services Purchase Agreement”) and other agreements with Epic Companies, certain other amounts relating to the Offshore Division totaling approximately $1.5 million were payable to us. At the end of August 2019, Epic Companies filed for bankruptcy. Although the Epic Promissory Note is not currently due and is guaranteed by the Clarke Promissory Note Guaranty Agreement, we recorded a reserve of $7.5 million for the full amount of the promissory note including accrued interest, and certain other receivables in the amount of $1.5 million at September 30, 2019. We continue to monitor this matter and seek to vigorously pursue our rights to collect all amounts payable to us, including the amounts owed under the Epic Promissory Note when due, including by enforcing our rights under the Clarke Promissory Note Guaranty Agreement.
NOTE I – INDUSTRY SEGMENTS
We manage our operations through three Divisions: Completion Fluids & Products, Water & Flowback Services, and Compression.
Summarized financial information concerning the business segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(In Thousands)
|
|
Revenues from external customers
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
|
|
|
|
|
|
|
|
|
Completion Fluids & Products Division
|
$
|
55,444
|
|
|
$
|
58,050
|
|
|
$
|
185,578
|
|
|
$
|
181,394
|
|
|
Water & Flowback Services Division
|
100
|
|
|
941
|
|
|
831
|
|
|
1,617
|
|
|
Compression Division
|
37,833
|
|
|
43,079
|
|
|
134,099
|
|
|
102,125
|
|
|
Consolidated
|
$
|
93,377
|
|
|
$
|
102,070
|
|
|
$
|
320,508
|
|
|
$
|
285,136
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
|
|
|
|
|
|
|
|
Completion Fluids & Products Division
|
$
|
3,896
|
|
|
$
|
5,027
|
|
|
$
|
15,110
|
|
|
$
|
11,344
|
|
|
Water & Flowback Services Division
|
72,741
|
|
|
77,572
|
|
|
223,812
|
|
|
221,342
|
|
|
Compression Division
|
75,933
|
|
|
72,182
|
|
|
219,041
|
|
|
198,482
|
|
|
Consolidated
|
$
|
152,570
|
|
|
$
|
154,781
|
|
|
$
|
457,963
|
|
|
$
|
431,168
|
|
|
|
|
|
|
|
|
|
|
|
Interdivision revenues
|
|
|
|
|
|
|
|
|
|
|
Completion Fluids & Products Division
|
$
|
—
|
|
|
$
|
(4
|
)
|
|
$
|
—
|
|
|
$
|
(5
|
)
|
|
Water & Flowback Services Division
|
—
|
|
|
55
|
|
|
—
|
|
|
330
|
|
|
Compression Division
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Interdivision eliminations
|
—
|
|
|
(51
|
)
|
|
—
|
|
|
(325
|
)
|
|
Consolidated
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
|
|
|
|
|
|
|
Completion Fluids & Products Division
|
$
|
59,340
|
|
|
$
|
63,073
|
|
|
$
|
200,688
|
|
|
$
|
192,733
|
|
|
Water & Flowback Services Division
|
72,841
|
|
|
78,568
|
|
|
224,643
|
|
|
223,289
|
|
|
Compression Division
|
113,766
|
|
|
115,261
|
|
|
353,140
|
|
|
300,607
|
|
|
Interdivision eliminations
|
—
|
|
|
(51
|
)
|
|
—
|
|
|
(325
|
)
|
|
Consolidated
|
$
|
245,947
|
|
|
$
|
256,851
|
|
|
$
|
778,471
|
|
|
$
|
716,304
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
|
|
|
|
|
|
|
|
Completion Fluids & Products Division
|
$
|
11,318
|
|
|
$
|
8,713
|
|
|
$
|
32,118
|
|
|
$
|
21,143
|
|
|
Water & Flowback Services Division
|
2,578
|
|
|
5,809
|
|
|
7,269
|
|
|
20,668
|
|
|
Compression Division
|
(3,464
|
)
|
|
(7,844
|
)
|
|
(14,748
|
)
|
|
(30,517
|
)
|
|
Interdivision eliminations
|
(1
|
)
|
|
5
|
|
|
6
|
|
|
9
|
|
|
Corporate Overhead(1)
|
(17,931
|
)
|
|
(19,631
|
)
|
|
(54,921
|
)
|
|
(53,870
|
)
|
|
Consolidated
|
$
|
(7,500
|
)
|
|
$
|
(12,948
|
)
|
|
$
|
(30,276
|
)
|
|
$
|
(42,567
|
)
|
|
|
|
|
(1)
|
Amounts reflected include the following general corporate expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(In Thousands)
|
|
General and administrative expense
|
$
|
12,573
|
|
|
$
|
13,037
|
|
|
$
|
39,012
|
|
|
$
|
37,506
|
|
|
Depreciation and amortization
|
167
|
|
|
172
|
|
|
507
|
|
|
487
|
|
|
Interest expense
|
5,495
|
|
|
5,268
|
|
|
16,533
|
|
|
14,152
|
|
|
Warrants fair value adjustment (income) expense
|
78
|
|
|
(179
|
)
|
|
(1,035
|
)
|
|
22
|
|
|
Other general corporate (income) expense, net
|
(382
|
)
|
|
1,333
|
|
|
(96
|
)
|
|
1,703
|
|
|
Total
|
$
|
17,931
|
|
|
$
|
19,631
|
|
|
$
|
54,921
|
|
|
$
|
53,870
|
|
NOTE J – REVENUE FROM CONTRACTS WITH CUSTOMERS
Performance Obligations. Revenue is generally recognized when we transfer control of our products or services to our customers. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or providing services to our customers. We receive cash equal to the invoice price for most sales of product and services and payment terms typically range from 30 to 60 days from the date we invoice our customer. Since the period between when we deliver products or services and when the customer pays for such products or services is not expected to exceed one year, we have elected not to calculate or disclose a financing component for our customer contracts.
Depending on the terms of the arrangement, we may also defer the recognition of revenue for a portion of the consideration received because we have to satisfy a future performance obligation. For example, consideration received from customers during the fabrication of new compressor packages is typically deferred until control of the compressor package is transferred to our customer.
For any arrangements with multiple performance obligations, we use management's estimated selling price to determine the stand-alone selling price for separate performance obligations. For revenue associated with mobilization of service equipment as part of a service contract arrangement, such revenue, if significant, is deferred and amortized over the estimated service period.
Product Sales. Product sales revenues are generally recognized when we ship products from our facility to our customer. The product sales for our Completion Fluid & Products Division consist primarily of clear brine fluids ("CBFs"), additives, and associated manufactured products. Product sales for our Water & Flowback Services Division are typically attributed to specific performance obligations within certain production testing service arrangements. Parts and equipment sales comprise the product sales for the Compression Division.
Services. Service revenues represent revenue recognized over time, as our customer arrangements typically provide agreed upon day-rates (monthly service rates for compression services) and we recognize service revenue based upon the number of days services have been performed. Service revenue recognized over time is associated with a majority of our Water & Flowback Services Division arrangements, compression service and aftermarket service contracts within our Compression Division, and a small portion of Completion Fluids & Products Division revenue that is associated with completion fluid service arrangements. With the exception of the initial terms of the compression services contracts for medium- and high-horsepower compressor packages of our Compression Division, our customer contracts are generally for terms of one year or less. The majority of the service arrangements in the Water & Flowback Services Division are for a period of 90 days or less.
As of September 30, 2019, we had $69.9 million of remaining contractual performance obligations for compression services. As a practical expedient, this amount does not reflect revenue for compression service contracts whose original expected duration is less than twelve months and does not consider the effects of the time value of money. Expected revenue to be recognized in the future for completion of performance obligations of compression service contracts are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Total
|
|
|
(In Thousands)
|
|
Compression service contracts remaining performance obligations
|
$
|
18,830
|
|
|
$
|
37,710
|
|
|
$
|
11,834
|
|
|
$
|
1,551
|
|
|
$
|
—
|
|
|
$
|
69,925
|
|
Sales taxes, value added taxes, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. We have elected to recognize the cost for freight and shipping costs as part of cost of product sales when control over our products (i.e. delivery) has transferred to the customer.
Use of Estimates. In recognizing revenue for variable consideration arrangements, the amount of variable consideration recognized is limited so that it is probable that significant amounts of revenues will not be reversed in future periods when the uncertainty is resolved. For products returned by the customer, we estimate the expected returns based on an analysis of historical experience. For volume discounts earned by the customer, we estimate the discount (if any) based on our estimate of the total expected volume of products sold or services to be provided to the customer during the discount period. In certain contracts for the sale of CBF, we may agree to issue credits for the repurchase of reclaimable used fluids from certain customers at an agreed price that is based on the condition of the fluids. For sales of CBF, we adjust the revenue recognized in the period of shipment by the
estimated amount of the credit expected to be issued to the customer, and this estimate is based on historical experience. As of September 30, 2019, the amount of remaining credits expected to be issued for the repurchase of reclaimable used fluids was $2.1 million that were recorded in inventory (right of return asset) and accounts payable. There were no material differences between amounts recognized during the three and nine month periods ended September 30, 2019, compared to estimates made in a prior period from these variable consideration arrangements.
Contract Assets and Liabilities. We consider contract assets to be trade accounts receivable when we have an unconditional right to consideration and only the passage of time is required before payment is due. In certain instances, particularly those requiring customer specific documentation prior to invoicing, our invoicing of the customer is delayed until certain documentation requirements are met. In those cases, we recognize a contract asset rather than a billed trade accounts receivable until we are able to invoice the customer. Our contract asset balances, primarily associated with these documentation requirements, were $33.0 million and $44.2 million as of September 30, 2019 and December 31, 2018, respectively. Contract assets, along with billed trade accounts receivable, are included in trade accounts receivable in our consolidated balance sheets.
We classify contract liabilities as unearned income in our consolidated balance sheets. Such deferred revenue typically results from advance payments received on orders for new compressor equipment prior to the time such equipment is completed and transferred to the customer in accordance with the customer contract. New equipment sales orders generally take less than twelve months to build and deliver.
The following table reflects the changes in our contract liabilities for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
2019
|
|
2018
|
|
|
(In Thousands)
|
|
Unearned Income, beginning of period
|
$
|
25,333
|
|
|
$
|
17,050
|
|
|
Additional unearned income
|
106,744
|
|
|
101,887
|
|
|
Revenue recognized
|
(105,486
|
)
|
|
(82,050
|
)
|
|
Unearned income, end of period
|
$
|
26,591
|
|
|
$
|
36,887
|
|
During the nine month period ended September 30, 2019, we recognized in product sales revenue of $24.6 million from unearned income that was deferred as of December 31, 2018. During the nine months ended September 30, 2018, we recognized in product sales revenue of $16.2 million from unearned income that was deferred as of our adoption of ASC 606 on January 1, 2018.
Contract Costs. As of September 30, 2019, contract costs were immaterial.
Disaggregation of Revenue. We disaggregate revenue from contracts with customers into Product Sales and Services within each segment, as noted in our three reportable segments in Note I. In addition, we disaggregate revenue from contracts with customers by geography based on the following table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(In Thousands)
|
|
Completion Fluids & Products
|
|
|
|
|
|
|
|
|
U.S.
|
31,480
|
|
|
35,426
|
|
|
$
|
100,622
|
|
|
$
|
97,446
|
|
|
International
|
27,860
|
|
|
27,647
|
|
|
100,066
|
|
|
95,287
|
|
|
|
59,340
|
|
|
63,073
|
|
|
200,688
|
|
|
192,733
|
|
|
Water & Flowback Services
|
|
|
|
|
|
|
|
|
U.S.
|
68,052
|
|
|
71,579
|
|
|
209,663
|
|
|
189,457
|
|
|
International
|
4,789
|
|
|
6,989
|
|
|
14,980
|
|
|
33,832
|
|
|
|
72,841
|
|
|
78,568
|
|
|
224,643
|
|
|
223,289
|
|
|
Compression
|
|
|
|
|
|
|
|
|
U.S.
|
105,153
|
|
|
105,655
|
|
|
324,792
|
|
|
273,563
|
|
|
International
|
8,613
|
|
|
9,606
|
|
|
28,348
|
|
|
27,044
|
|
|
|
113,766
|
|
|
115,261
|
|
|
353,140
|
|
|
300,607
|
|
|
Interdivision eliminations
|
|
|
|
|
|
|
|
|
U.S.
|
—
|
|
|
4
|
|
|
—
|
|
|
4
|
|
|
International
|
—
|
|
|
(55
|
)
|
|
—
|
|
|
(329
|
)
|
|
|
—
|
|
|
(51
|
)
|
|
—
|
|
|
(325
|
)
|
|
Total Revenue
|
|
|
|
|
|
|
|
|
U.S.
|
204,685
|
|
|
212,664
|
|
|
635,077
|
|
|
560,470
|
|
|
International
|
41,262
|
|
|
44,187
|
|
|
143,394
|
|
|
155,834
|
|
|
|
245,947
|
|
|
256,851
|
|
|
$
|
778,471
|
|
|
$
|
716,304
|
|
NOTE K – LEASES
We have operating leases for some of our transportation equipment, office space, warehouse space, operating locations, and machinery and equipment. We have finance leases for certain storage tanks and equipment rentals. These finance leases are not material to our financial statements. Our leases have remaining lease terms ranging from 1 to 16 years. Some of our leases have options to extend for various periods, while some have termination options with prior notice of generally 30 days or six months. The office space, warehouse space, operating location leases, and machinery and equipment leases generally require us to pay all maintenance and insurance costs. We do not have leases that have not yet commenced that create significant rights and obligations. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Variable rent expense was not material.
Our corporate headquarters facility located in The Woodlands, Texas, was sold on December 31, 2012, pursuant to a sale and leaseback transaction. As a condition to the consummation of the purchase and sale of the facility, the parties entered into a lease agreement for the facility having an initial lease term of 15 years, which is classified as an operating lease. Under the terms of the lease agreement, we have the ability to extend the lease for five successive five-year periods at base rental rates to be determined at the time of each extension.
Components of lease expense, included in either cost of revenues or general and administrative expense based on the use of the underlying asset, are as follows (inclusive of lease expense for leases not included on our consolidated balance sheet based on our accounting policy election to exclude leases with a term of 12 months or less):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
Nine Months Ended September 30, 2019
|
|
|
(In Thousands)
|
|
Operating lease expense
|
$
|
5,075
|
|
|
$
|
15,106
|
|
|
Short-term lease expense
|
9,556
|
|
|
30,269
|
|
|
Total lease expense
|
$
|
14,631
|
|
|
$
|
45,375
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
|
|
(In Thousands)
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash flows - operating leases
|
|
$
|
14,868
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
Operating leases
|
|
$
|
7,631
|
|
Supplemental balance sheet information:
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
(In Thousands)
|
|
Operating leases:
|
|
|
Operating lease right-of-use assets
|
$
|
57,848
|
|
|
|
|
|
Accrued liabilities and other
|
$
|
14,071
|
|
|
Operating lease liabilities
|
45,993
|
|
|
Total operating lease liabilities
|
$
|
60,064
|
|
Additional operating lease information:
|
|
|
|
|
|
|
|
September 30, 2019
|
|
Weighted average remaining lease term:
|
|
|
Operating leases
|
6.60 Years
|
|
|
|
|
|
Weighted average discount rate:
|
|
|
Operating leases
|
9.39
|
%
|
Future minimum lease payments by year and in the aggregate, under non-cancelable operating leases with terms in excess of one year consist of the following at September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
|
(In Thousands)
|
|
|
|
|
|
Remainder of 2019
|
|
$
|
4,870
|
|
|
2020
|
|
17,721
|
|
|
2021
|
|
12,798
|
|
|
2022
|
|
9,591
|
|
|
2023
|
|
7,871
|
|
|
Thereafter
|
|
29,440
|
|
|
Total lease payments
|
|
82,291
|
|
|
Less imputed interest
|
|
(22,227
|
)
|
|
Total lease liabilities
|
|
$
|
60,064
|
|
At September 30, 2019, future minimum rental receipts under a non-cancelable sublease for office space in one of our locations totaled $5.7 million. For the three and nine months ended September 30, 2019, we recognized sublease income of $0.2 million and $0.7 million, respectively.
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, 2018 filed with the SEC on March 4, 2019 ("2018 Annual Report"). This discussion includes forward-looking statements that involve certain risks and uncertainties.
Business Overview
We are a geographically diversified oil and gas services company, focused on completion fluids and associated products and services, water management, frac flowback, production well testing, and compression services and equipment. We operate through three reporting segments organized into three Divisions - Completion Fluids & Products, Water & Flowback Services, and Compression.
Demand for products and services of our Completion Fluids & Products Division has remained fairly consistent despite continued volatility in pricing for oil and uncertainty in many of the markets where we operate, which affects the plans of many of our oil and gas operations customers. Recent oil price volatility has particularly affected domestic onshore demand for our Water & Flowback Services Division services, resulting in increased customer contract pricing pressure. The construction of infrastructure to alleviate current takeaway capacity constraints that are limiting production and new drilling in the Permian Basin has continued to contribute to increased demand for compressor equipment and services through our Compression Division. This growth in demand continues to drive increases in our compression services revenues, through increased activity and customer contract pricing.
We are aggressively managing our working capital and capital expenditure needs in order to maximize our liquidity in the current environment. In addition, we continue to review our expectations of the demand for the products and services we provide in each of the markets where we operate. We intend to manage our flexible cost structure to proactively respond to changing market conditions and execute on actions necessary to manage through these conditions, some of which could result in impairments or restructuring charges in future periods.
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 2018 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.
Results of Operations
Three months ended September 30, 2019 compared with three months ended September 30, 2018.
Consolidated Comparisons
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Period to Period Change
|
|
|
2019
|
|
2018
|
|
2019 vs 2018
|
|
% Change
|
|
|
(In Thousands, Except Percentages)
|
|
Revenues
|
$
|
245,947
|
|
|
$
|
256,851
|
|
|
$
|
(10,904
|
)
|
|
(4.2
|
)%
|
|
Gross profit
|
44,960
|
|
|
41,330
|
|
|
3,630
|
|
|
8.8
|
%
|
|
Gross profit as a percentage of revenue
|
18.3
|
%
|
|
16.1
|
%
|
|
|
|
|
|
|
|
General and administrative expense
|
34,926
|
|
|
34,446
|
|
|
480
|
|
|
1.4
|
%
|
|
General and administrative expense as a percentage of revenue
|
14.2
|
%
|
|
13.4
|
%
|
|
|
|
|
|
|
|
Interest expense, net
|
18,146
|
|
|
18,894
|
|
|
(748
|
)
|
|
(4.0
|
)%
|
|
Warrants fair value adjustment (income) expense
|
78
|
|
|
(179
|
)
|
|
257
|
|
|
|
|
CCLP Series A Preferred Units fair value adjustment (income) expense
|
—
|
|
|
498
|
|
|
(498
|
)
|
|
|
|
Other (income) expense, net
|
(690
|
)
|
|
619
|
|
|
(1,309
|
)
|
|
|
|
Loss before taxes and discontinued operations
|
(7,500
|
)
|
|
(12,948
|
)
|
|
5,448
|
|
|
42.1
|
%
|
|
Loss before taxes and discontinued operations as a percentage of revenue
|
(3.0
|
)%
|
|
(5.0
|
)%
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
1,579
|
|
|
(96
|
)
|
|
1,675
|
|
|
|
|
Loss before discontinued operations
|
(9,079
|
)
|
|
(12,852
|
)
|
|
3,773
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of taxes
|
(9,130
|
)
|
|
796
|
|
|
(9,926
|
)
|
|
|
|
Net loss
|
(18,209
|
)
|
|
(12,056
|
)
|
|
(6,153
|
)
|
|
|
|
Loss attributable to noncontrolling interest
|
2,378
|
|
|
5,120
|
|
|
(2,742
|
)
|
|
|
|
|
Net income (loss) attributable to TETRA stockholders
|
$
|
(15,831
|
)
|
|
$
|
(6,936
|
)
|
|
$
|
(8,895
|
)
|
|
|
Consolidated revenues during the current year quarter decreased compared to the prior year quarter due to decreases in product sales and activity. See Divisional Comparisons section below for additional discussion.
Consolidated gross profit during the current year quarter increased compared to the prior year quarter primarily due to increased gross profit from our Completion Fluids & Products and Compression Divisions. This increase was partially offset, however, by the lower gross profit of our Water & Flowback Services Division. Despite efforts to reduce operating costs whenever possible, the impact of pricing pressures hampered profitability in certain markets.
Consolidated general and administrative expenses increased during the current year quarter compared to the prior year quarter primarily due to increased provision for bad debt of $1.3 million, offset by decreased salary and employee expenses of $0.6 million, decreased professional services fees of $0.1 million, and decreased insurance and other general expenses of $0.2 million.
Consolidated interest expense, net, decreased during the current year quarter compared to the prior year quarter primarily due to decreased Compression Division interest expense partially offset by increased Corporate interest expense. Compression Division interest expense decreased due to the completion of the redemption of CCLP Preferred Units outstanding on August 8, 2019. Corporate interest expense increased due to additional borrowings under the TETRA Term Credit Agreement and ABL Credit Agreement during the current year period. Interest expense during the current and prior year quarters includes $1.0 million and $1.1 million, respectively, of finance cost amortization.
Consolidated other (income) expense, net, was $0.7 million of other income during the current year quarter compared to $0.6 million of other expense during the prior year quarter primarily due to $0.9 million of decreased loan fees associated with new TETRA credit agreements in the prior year quarter and $1.3 million of decreased foreign currency losses, offset by increased expense of $0.4 million associated with a redemption premium incurred in connection with the redemption of CCLP Preferred Units for cash in the current year quarter.
Our consolidated provision for income taxes during the three month period ended September 30, 2019 is attributable to taxes in certain foreign jurisdictions and Texas gross margin taxes. Our consolidated effective tax rate for the three month period ended September 30, 2019 of negative 21.1% was primarily the result of losses generated in entities for which no related tax benefit has been recorded. The losses generated by these entities do not result in tax benefits due to offsetting valuation allowances being recorded against the related net deferred tax assets. 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 U.S. as well as in certain foreign jurisdictions.
Divisional Comparisons
Completion Fluids & Products Division
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Period to Period Change
|
|
|
2019
|
|
2018
|
|
2019 vs 2018
|
|
% Change
|
|
|
(In Thousands, Except Percentages)
|
|
Revenues
|
$
|
59,340
|
|
|
$
|
63,073
|
|
|
$
|
(3,733
|
)
|
|
(5.9
|
)%
|
|
Gross profit
|
16,181
|
|
|
13,129
|
|
|
3,052
|
|
|
23.2
|
%
|
|
Gross profit as a percentage of revenue
|
27.3
|
%
|
|
20.8
|
%
|
|
|
|
|
|
|
|
General and administrative expense
|
4,865
|
|
|
4,909
|
|
|
(44
|
)
|
|
(0.9
|
)%
|
|
General and administrative expense as a percentage of revenue
|
8.2
|
%
|
|
7.8
|
%
|
|
|
|
|
|
|
|
Interest (income) expense, net
|
(216
|
)
|
|
(70
|
)
|
|
(146
|
)
|
|
|
|
|
Other (income) expense, net
|
214
|
|
|
(423
|
)
|
|
637
|
|
|
|
|
|
Income before taxes
|
$
|
11,318
|
|
|
$
|
8,713
|
|
|
$
|
2,605
|
|
|
29.9
|
%
|
|
Income before taxes as a percentage of revenue
|
19.1
|
%
|
|
13.8
|
%
|
|
|
|
|
|
|
The decrease in Completion Fluids & Products Division revenues during the current year quarter compared to the prior year quarter was primarily due to $2.6 million of decreased product sales revenue due to decreased CBF product and manufactured product sales. Additionally, service revenues decreased $1.1 million due to reduced activity in engineering and filtration services compared to the prior year quarter.
Completion Fluids & Products Division gross profit during the current year quarter increased compared to the prior year quarter despite decreased revenues primarily due to higher margins on sales of manufactured products as well as increased profitability associated with higher margin CBF products during the current year quarter when compared to the prior year quarter. Completion Fluids & Products Division profitability in future periods will continue to be affected by the mix of its products and services, including the timing of TETRA CS Neptune(R) completion fluid projects.
The Completion Fluids & Products Division reported an increase in pretax earnings during the current year quarter compared to the prior year quarter primarily due to increased gross profit discussed above. Completion Fluids & Products Division general and administrative expense levels remained flat compared to prior year quarter. Other expense increased primarily due to increased foreign currency losses.
Water & Flowback Services Division
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Period to Period Change
|
|
|
2019
|
|
2018
|
|
2019 vs 2018
|
|
% Change
|
|
|
(In Thousands, Except Percentages)
|
|
Revenues
|
$
|
72,841
|
|
|
$
|
78,568
|
|
|
$
|
(5,727
|
)
|
|
(7.3
|
)%
|
|
Gross profit
|
8,236
|
|
|
11,522
|
|
|
(3,286
|
)
|
|
(28.5
|
)%
|
|
Gross profit as a percentage of revenue
|
11.3
|
%
|
|
14.7
|
%
|
|
|
|
|
|
|
|
General and administrative expense
|
5,957
|
|
|
5,919
|
|
|
38
|
|
|
0.6
|
%
|
|
General and administrative expense as a percentage of revenue
|
8.2
|
%
|
|
7.5
|
%
|
|
|
|
|
|
|
|
Interest (income) expense, net
|
(2
|
)
|
|
5
|
|
|
(7
|
)
|
|
(140.0
|
)%
|
|
Other (income) expense, net
|
(297
|
)
|
|
(211
|
)
|
|
(86
|
)
|
|
40.8
|
%
|
|
Income before taxes
|
$
|
2,578
|
|
|
$
|
5,809
|
|
|
$
|
(3,231
|
)
|
|
(55.6
|
)%
|
|
Income before taxes as a percentage of revenue
|
3.5
|
%
|
|
7.4
|
%
|
|
|
|
|
|
|
Water & Flowback Services Division revenues decreased during the current year quarter primarily due to a reduction in commodity prices driving our customers' capital spending decisions and resulting in decreased activity and pricing levels when compared to prior year quarter.
The Water & Flowback Services Division reflected decreased gross profit during the current year quarter compared to the prior year quarter primarily due to the decreased revenues resulting from the decreased activity and pricing levels described above. In addition, our cost structure, specifically labor expense, does not always decrease proportionately with revenues due to a tight labor market for the services we provide.
The Water & Flowback Services Division reported decreased pretax income during the current year quarter compared to the prior year quarter primarily due to the reduction in gross profit described above. General and administrative expense levels remained flat compared to the prior year quarter. Other income increased as compared to prior year quarter due to increased foreign currency gains of $0.5 million and increased gains on the disposal of assets of $0.2 million, offset by decreased income of $0.6 million associated with the remeasurement of the contingent purchase price consideration for SwiftWater in the prior year.
Compression Division
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Period to Period Change
|
|
|
2019
|
|
2018
|
|
2019 vs 2018
|
|
% Change
|
|
|
(In Thousands, Except Percentages)
|
|
Revenues
|
$
|
113,766
|
|
|
$
|
115,261
|
|
|
$
|
(1,495
|
)
|
|
(1.3
|
)%
|
|
Gross profit
|
20,710
|
|
|
16,847
|
|
|
3,863
|
|
|
22.9
|
%
|
|
Gross profit as a percentage of revenue
|
18.2
|
%
|
|
14.6
|
%
|
|
|
|
|
|
|
|
General and administrative expense
|
11,530
|
|
|
10,580
|
|
|
950
|
|
|
9.0
|
%
|
|
General and administrative expense as a percentage of revenue
|
10.1
|
%
|
|
9.2
|
%
|
|
|
|
|
|
|
|
Interest expense, net
|
12,869
|
|
|
13,690
|
|
|
(821
|
)
|
|
(6.0
|
)%
|
|
CCLP Series A Preferred fair value adjustment (income) expense
|
—
|
|
|
498
|
|
|
(498
|
)
|
|
(100.0
|
)%
|
|
Other (income) expense, net
|
(225
|
)
|
|
(77
|
)
|
|
(148
|
)
|
|
192.2
|
%
|
|
Loss before taxes
|
$
|
(3,464
|
)
|
|
$
|
(7,844
|
)
|
|
$
|
4,380
|
|
|
55.8
|
%
|
|
Loss before taxes as a percentage of revenue
|
(3.0
|
)%
|
|
(6.8
|
)%
|
|
|
|
|
|
|
Compression Division revenues decreased during the current year quarter compared to the prior year quarter primarily due to a $5.2 million decrease in product sales revenues, due to the timing of when customer projects were completed, partially offset with a $3.8 million increase in service revenues. This increase in service revenues was primarily due to increasing demand for compression services, which is also reflected by increased compression fleet utilization rates.
Compression Division gross profit increased during the current year quarter compared to the prior year quarter due to improved customer contract pricing, labor efficiencies, reduced maintenance costs, and improved inventory management.
The Compression Division recorded a decreased pretax loss during the current year quarter compared to the prior year quarter due to increased gross profit discussed above. Interest expense decreased compared to the prior year quarter, primarily due to the conversion and redemption of CCLP Preferred Units outstanding. General and administrative expense levels increased compared to the prior year quarter, primarily due to increased bad debt expense of $1.5 million mainly associated with the bankruptcy of a single customer, partially offset by decreased employee expenses of $0.9 million. The CCLP Preferred Units fair value adjustment resulted in a $0.5 million charge to earnings in the prior year period with no corresponding impact in the current year quarter, as the last remaining outstanding Preferred Units were redeemed for cash on August 8, 2019. Other (income) expense, net, reflected increased income primarily due to increased foreign currency gains of $0.5 million offset by $0.4 million of redemption premium incurred in connection with the redemption of the CCLP Preferred Units for cash.
Corporate Overhead
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Period to Period Change
|
|
|
2019
|
|
2018
|
|
2019 vs 2018
|
|
% Change
|
|
|
(In Thousands, Except Percentages)
|
|
Depreciation and amortization
|
$
|
167
|
|
|
$
|
172
|
|
|
$
|
(5
|
)
|
|
2.9
|
%
|
|
General and administrative expense
|
12,573
|
|
|
13,037
|
|
|
(464
|
)
|
|
(3.6
|
)%
|
|
Interest (income) expense, net
|
5,495
|
|
|
5,268
|
|
|
227
|
|
|
|
|
|
Warrants fair value adjustment (income) expense
|
78
|
|
|
(179
|
)
|
|
257
|
|
|
|
|
Other (income) expense, net
|
(382
|
)
|
|
1,333
|
|
|
(1,715
|
)
|
|
(128.7
|
)%
|
|
Loss before taxes
|
$
|
(17,931
|
)
|
|
$
|
(19,631
|
)
|
|
$
|
1,700
|
|
|
8.7
|
%
|
Corporate Overhead pretax loss decreased during the current year quarter compared to the prior year quarter, primarily due to decreased other expense and decreased general and administrative expense. Other expense, net, decreased primarily due to a $0.9 million decrease of debt issuance fees related to the ABL Credit Agreement and the new Term Credit Agreement that were entered into during the prior year quarter and decreased foreign currency losses of $0.7 million in the current year quarter compared to the prior year quarter. Corporate general and administrative expense decreased primarily due to decreased professional service fees of $0.6 million in the current year quarter compared to the prior year quarter. The fair value of the outstanding Warrants liability resulted in a $0.1 million charge to earnings during the current year quarter compared to a $0.2 million credit to earnings in the prior year quarter. Interest expense increased resulting from increased borrowings.
Results of Operations
Nine months ended September 30, 2019 compared with nine months ended September 30, 2018.
Consolidated Comparisons
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Period to Period Change
|
|
|
2019
|
|
2018
|
|
2019 vs 2018
|
|
% Change
|
|
|
(In Thousands, Except Percentages)
|
|
Revenues
|
$
|
778,471
|
|
|
$
|
716,304
|
|
|
$
|
62,167
|
|
|
8.7
|
%
|
|
Gross profit
|
129,536
|
|
|
117,114
|
|
|
12,422
|
|
|
10.6
|
%
|
|
Gross profit as a percentage of revenue
|
16.6
|
%
|
|
16.3
|
%
|
|
|
|
|
|
|
|
General and administrative expense
|
105,498
|
|
|
98,866
|
|
|
6,632
|
|
|
6.7
|
%
|
|
General and administrative expense as a percentage of revenue
|
13.6
|
%
|
|
13.8
|
%
|
|
|
|
|
|
|
|
Interest expense, net
|
55,054
|
|
|
52,246
|
|
|
2,808
|
|
|
5.4
|
%
|
|
Warrants fair value adjustment (income) expense
|
(1,035
|
)
|
|
22
|
|
|
(1,057
|
)
|
|
|
|
CCLP Series A Preferred Units fair value adjustment (income) expense
|
1,309
|
|
|
1,344
|
|
|
(35
|
)
|
|
|
|
Other (income) expense, net
|
(1,014
|
)
|
|
7,203
|
|
|
(8,217
|
)
|
|
|
|
Loss before taxes and discontinued operations
|
(30,276
|
)
|
|
(42,567
|
)
|
|
12,291
|
|
|
28.9
|
%
|
|
Loss before taxes and discontinued operations as a percentage of revenue
|
(3.9
|
)%
|
|
(5.9
|
)%
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
5,678
|
|
|
3,474
|
|
|
2,204
|
|
|
|
|
Loss before discontinued operations
|
(35,954
|
)
|
|
(46,041
|
)
|
|
10,087
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations (including 2018 loss on disposal of $33.8 million), net of taxes
|
(9,901
|
)
|
|
(40,931
|
)
|
|
31,030
|
|
|
|
|
Net loss
|
(45,855
|
)
|
|
(86,972
|
)
|
|
41,117
|
|
|
|
|
Loss attributable to noncontrolling interest
|
12,273
|
|
|
20,423
|
|
|
(8,150
|
)
|
|
|
|
|
Net loss attributable to TETRA stockholders
|
$
|
(33,582
|
)
|
|
$
|
(66,549
|
)
|
|
$
|
32,967
|
|
|
|
Consolidated revenues for the current year period increased compared to the prior year period primarily due to increased Compression Division and Completion Fluids & Products Division revenues, which increased by $52.5 million and $8.0 million, respectively. The increased revenues of the Compression Division were primarily due to increased new compressor equipment sales activity. The increase in revenues for the Completion Fluids & Products Division was primarily due to increased international product sales. See Divisional Comparisons section below for additional discussion.
Consolidated gross profit increased during the current year period compared to the prior year period primarily due to the increased profitability of our Compression Division and our Completion Fluids & Products Division. The increased gross profit from these divisions more than offset the lower gross profit of our Water & Flowback Services Division, which experienced increased costs and challenging customer pricing in competitive markets compared to the prior year period. Despite the improvement in activity levels of certain of our businesses, onshore and offshore U.S. Gulf of Mexico activity levels remain flat and the impact of pricing pressures continues to challenge profitability in certain markets. Operating expenses reflect the increase in consolidated revenues, although we remain aggressive in managing operating costs and minimizing increased headcount, despite the increased operations.
Consolidated general and administrative expenses increased during the current year period compared to the prior year period primarily due to increased salary related expenses of $6.0 million, inclusive of executive transition costs of $1.8 million, and increased bad debt expense of $1.9 million, offset by decreased consulting and other expenses of $0.8 million and decreased professional services fees of $0.4 million. Increased general and administrative expenses were driven primarily by our Compression and Corporate Divisions. Due to the increased consolidated revenues discussed above, general and administrative expense as a percentage of revenues decreased compared to the prior year period.
Consolidated interest expense, net, increased in the current year period primarily due to Corporate and Compression Division interest expense. Corporate interest expense increased due to additional borrowings under the TETRA Term Credit Agreement and ABL Credit Agreement in the current period. Compression Division interest expense increased due to higher CCLP outstanding debt balances and higher interest rates compared to the prior year period. Interest expense during the current year period and the prior year period includes $2.9 million and $3.2 million, respectively, of finance cost amortization.
Consolidated other (income) expense, net, was $1.0 million of income during the current year period compared to $7.2 million of expense during the prior year period. The decrease in expense is primarily due to $4.5 million of decreased expense associated with the remeasurement of the contingent purchase price consideration for the SwiftWater acquisition, $3.5 million decreased expense related to the unamortized deferred financing costs charged to earnings during the prior year period as a result of the termination of the CCLP Bank Credit Facility, and $1.0 million of decreased loan fees associated with new TETRA credit agreements that were issued in the prior year. These decreases were offset by increased expense of $1.5 million associated with a redemption premium incurred in connection with the redemption of CCLP Preferred Units for cash and increased foreign currency losses.
Our consolidated provision for income taxes for the current year period is primarily attributable to taxes in certain foreign jurisdictions and Texas gross margin taxes. Our consolidated effective tax rate for the nine month period ended September 30, 2019 of negative 18.8% was primarily the result of losses generated in entities for which no related tax benefit has been recorded. The losses generated by these entities do not result in tax benefits due to offsetting valuation allowances being recorded against the related net deferred tax assets. 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 U.S. as well as in certain foreign jurisdictions.
Divisional Comparisons
Completion Fluids & Products Division
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Period to Period Change
|
|
|
2019
|
|
2018
|
|
2019 vs 2018
|
|
% Change
|
|
|
(In Thousands, Except Percentages)
|
|
Revenues
|
$
|
200,688
|
|
|
$
|
192,733
|
|
|
$
|
7,955
|
|
|
4.1
|
%
|
|
Gross profit
|
46,653
|
|
|
34,211
|
|
|
12,442
|
|
|
36.4
|
%
|
|
Gross profit as a percentage of revenue
|
23.2
|
%
|
|
17.8
|
%
|
|
|
|
|
|
|
|
General and administrative expense
|
14,792
|
|
|
14,011
|
|
|
781
|
|
|
5.6
|
%
|
|
General and administrative expense as a percentage of revenue
|
7.4
|
%
|
|
7.3
|
%
|
|
|
|
|
|
|
|
Interest (income) expense, net
|
(553
|
)
|
|
(434
|
)
|
|
(119
|
)
|
|
|
|
|
Other (income) expense, net
|
296
|
|
|
(509
|
)
|
|
805
|
|
|
|
|
|
Income before taxes
|
$
|
32,118
|
|
|
$
|
21,143
|
|
|
$
|
10,975
|
|
|
51.9
|
%
|
|
Income before taxes as a percentage of revenue
|
16.0
|
%
|
|
11.0
|
%
|
|
|
|
|
|
|
The increase in Completion Fluids & Products Division revenues during the current year period compared to the prior year period was primarily due to $4.2 million of increased product sales revenue primarily due to increased international CBF product sales and domestic manufactured products sales, partially offset by reduced CBF product sales revenues in the U.S. Gulf of Mexico. Additionally, service revenues increased $3.8 million, primarily due to increased international completion services activity. Offshore U.S. Gulf of Mexico activity levels remain challenged, and the impact of pricing pressures continues to hamper profitability.
Completion Fluids & Products Division gross profit during the current year period increased significantly compared to the prior year period primarily due to the profitability associated with the increased manufactured products and international CBF sales revenues. Completion Fluids & Products Division profitability in future periods will be affected by the mix of its products and services, including the timing of TETRA CS Neptune completion fluid projects.
The Completion Fluids & Products Division reported a significant increase in pretax earnings during the current year period compared to the prior year period due to the increase in gross profit discussed above. Completion Fluids & Products Division administrative cost levels increased compared to the prior year period, as increased legal and professional fees of $0.7 million and increased general expenses of $0.5 million were partially offset by decreased bad debt and other sales and marketing expenses of $0.4 million.
Water & Flowback Services Division
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Period to Period Change
|
|
|
2019
|
|
2018
|
|
2019 vs 2018
|
|
% Change
|
|
|
(In Thousands, Except Percentages)
|
|
Revenues
|
$
|
224,643
|
|
|
$
|
223,289
|
|
|
$
|
1,354
|
|
|
0.6
|
%
|
|
Gross profit
|
24,577
|
|
|
41,556
|
|
|
(16,979
|
)
|
|
(40.9
|
)%
|
|
Gross profit as a percentage of revenue
|
10.9
|
%
|
|
18.6
|
%
|
|
|
|
|
|
|
|
General and administrative expense
|
18,528
|
|
|
17,641
|
|
|
887
|
|
|
5.0
|
%
|
|
General and administrative expense as a percentage of revenue
|
8.2
|
%
|
|
7.9
|
%
|
|
|
|
|
|
|
|
Interest (income) expense, net
|
(6
|
)
|
|
(10
|
)
|
|
4
|
|
|
(40.0
|
)%
|
|
Other (income) expense, net
|
(1,214
|
)
|
|
3,257
|
|
|
(4,471
|
)
|
|
(137.3
|
)%
|
|
Income before taxes
|
$
|
7,269
|
|
|
$
|
20,668
|
|
|
$
|
(13,399
|
)
|
|
64.8
|
%
|
|
Income before taxes as a percentage of revenue
|
3.2
|
%
|
|
9.3
|
%
|
|
|
|
|
|
|
Water & Flowback Services Division revenues increased slightly during the current year period compared to the prior year period due to increased water management services activity. Water management and flowback services revenues increased $2.1 million during the current year period compared to the prior year period primarily resulting from the impact of a full nine months of revenues from SwiftWater, which was acquired on February 28, 2018, and the impact of the December 2018 acquisition of JRGO. Product sales revenue decreased by $0.8 million, due to decreased international equipment sales activity.
The Water & Flowback Services Division reflected decreased gross profit during the current year period compared to the prior year period, despite increased revenues, due to a shift in revenue mix away from smaller, capital constrained customers towards larger operators with stronger balance sheets. The costs to demobilize from one customer to mobilize for another within the same period had a meaningful impact on profitability. In addition, we reflected decreased revenues and profit from certain high-margin projects performed during the prior year period. We also experienced high maintenance costs on our flowback service equipment following the significant activity experienced in the fourth quarter of 2018, which was our highest flowback service revenue quarter in over three years.
The Water & Flowback Services Division reported decreased pretax income compared to the prior year period, primarily due to the decrease in gross profit described above. General and administrative expenses increased primarily due to increased bad debt expense of $0.5 million, increased wage and benefit related expenses of $0.4 million, and increased general expenses of $0.2 million, offset by decreased professional fees of $0.3 million. The Water & Flowback Services Division reported other income, net, during the current year period compared to other expense during the prior year period primarily due to $0.8 million of current year period income associated with the remeasurement of the contingent purchase price consideration for SwiftWater compared to a corresponding $3.7 million expense during the prior year period.
Compression Division
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Period to Period Change
|
|
|
2019
|
|
2018
|
|
2019 vs 2018
|
|
% Change
|
|
|
(In Thousands, Except Percentages)
|
|
Revenues
|
$
|
353,140
|
|
|
$
|
300,607
|
|
|
$
|
52,533
|
|
|
17.5
|
%
|
|
Gross profit
|
58,804
|
|
|
41,820
|
|
|
16,984
|
|
|
40.6
|
%
|
|
Gross profit as a percentage of revenue
|
16.7
|
%
|
|
13.9
|
%
|
|
|
|
|
|
|
|
General and administrative expense
|
33,166
|
|
|
29,708
|
|
|
3,458
|
|
|
11.6
|
%
|
|
General and administrative expense as a percentage of revenue
|
9.4
|
%
|
|
9.9
|
%
|
|
|
|
|
|
|
|
Interest expense, net
|
39,079
|
|
|
38,538
|
|
|
541
|
|
|
1.4
|
%
|
|
CCLP Series A Preferred fair value adjustment (income) expense
|
1,309
|
|
|
1,344
|
|
|
(35
|
)
|
|
(2.6
|
)%
|
|
Other (income) expense, net
|
(2
|
)
|
|
2,747
|
|
|
(2,749
|
)
|
|
(100.1
|
)%
|
|
Loss before taxes
|
$
|
(14,748
|
)
|
|
$
|
(30,517
|
)
|
|
$
|
15,769
|
|
|
51.7
|
%
|
|
Loss before taxes as a percentage of revenue
|
(4.2
|
)%
|
|
(10.2
|
)%
|
|
|
|
|
|
|
Compression Division revenues increased during the current year period compared to the prior year period due to a $32.0 million increase in product sales revenues and a $20.6 million increase in service revenues from compression and aftermarket services operations. Demand for new compressor equipment remains strong, although the current equipment sales backlog has decreased compared to the prior year period, due to significant sales orders recorded in the prior year period. Changes in our new equipment sales backlog are a function of additional customer orders less completed orders that result in equipment sales revenues. The increase in service revenues was primarily due to increasing demand for compression services, as reflected by increased compression fleet utilization rates. Overall utilization of the Compression Division's compression fleet has improved sequentially for the past two year period, led by increased utilization of the high- and medium-horsepower fleet.
Compression Division gross profit increased during the current year period compared to the prior year due to increased revenues discussed above. This increase was despite a $3.3 million charge for the impairment and other charges on certain low-horsepower compressor equipment and associated inventory and damage caused by fire to a certain compressor package during the current year period. The increased compression fleet utilization rates have led to increases in customer contract pricing.
The Compression Division recorded less pretax loss in the current year period compared to the prior year period primarily due to the increased gross profit discussed above. Interest expense increased compared to the prior year period due to higher CCLP outstanding debt balances and a higher interest rate on the CCLP Senior Secured Notes, a portion of the proceeds of which were used to repay the balance outstanding under the previous CCLP bank credit facility. General and administrative expense levels increased compared to the prior year period, due to increased bad debt expense of $1.5 million and increased salary and employee-related expenses, including the impact of increased headcount, incentives and equity compensation of $1.3 million, and increased professional services of $0.9 million. These increases were offset by decreased general expenses of $0.2 million. In addition, other expense decreased $2.7 million compared to prior year period. This decrease in expense is primarily due to $3.5 million of unamortized deferred financing costs charged to other expense as a result of the termination of the previous credit agreement in the prior year period and decreased foreign currency losses of $0.6 million. These decreases in expense were offset by increased expense of $1.5 million of redemption premium incurred in connection with the redemption of CCLP Preferred Units for cash. The last remaining outstanding CCLP Preferred Units were redeemed for cash on August 8, 2019.
Corporate Overhead
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Period to Period Change
|
|
|
2019
|
|
2018
|
|
2019 vs 2018
|
|
% Change
|
|
|
(In Thousands, Except Percentages)
|
|
Depreciation and amortization
|
$
|
507
|
|
|
$
|
487
|
|
|
$
|
20
|
|
|
(4.1
|
)%
|
|
General and administrative expense
|
39,012
|
|
|
37,506
|
|
|
1,506
|
|
|
4.0
|
%
|
|
Interest expense, net
|
16,533
|
|
|
14,152
|
|
|
2,381
|
|
|
17.7
|
%
|
|
Warrants fair value adjustment (income) expense
|
(1,035
|
)
|
|
22
|
|
|
(1,057
|
)
|
|
|
|
Other (income) expense, net
|
(96
|
)
|
|
1,703
|
|
|
(1,799
|
)
|
|
|
|
|
Loss before taxes
|
$
|
(54,921
|
)
|
|
$
|
(53,870
|
)
|
|
$
|
(1,051
|
)
|
|
(2.0
|
)%
|
Corporate Overhead pretax loss increased during the current year period compared to the prior year period primarily due to increased interest expense resulting from increased borrowings. Corporate general and administrative expense increased primarily due to increased salary related expense of $4.4 million, which included $1.8 million of executive transition costs. This increase was offset by $1.7 million of decreased professional fees, $0.5 million of decreased general expenses, and $0.6 million of decreased consulting fees. The fair value of the outstanding Warrants liability resulted in a $1.0 million credit to earnings compared to an $22,000 charge to earnings during the prior year period. In addition, other income of $0.1 million was recorded during the current year period, compared to $1.7 million of expense during the prior year period primarily associated with debt issuance fees related to the new ABL Credit Agreement and the new Term Credit Agreement entered into in the prior year period and foreign currency losses.
Liquidity and Capital Resources
We believe that the capital structure steps we have taken during the past three years continue to support our ability to meet our financial obligations and fund future growth as needed, despite current uncertain operating conditions and financial markets. As of September 30, 2019, we and CCLP are in compliance with all covenants of our respective debt agreements. Information about the terms and covenants of debt agreements can be found in our 2018 Annual Report.
Because of the level of consolidated debt, we believe it is important to consider our capital structure and CCLP's capital structure separately, as there are no cross default provisions, cross collateralization provisions, or cross guarantees between CCLP's debt and TETRA's debt. Our consolidated debt outstanding has a carrying value of approximately $858.3 million as of September 30, 2019. However, approximately $645.6 million of this consolidated debt balance is owed by CCLP and is serviced from the existing cash balances and cash flows of CCLP, and $354.5 million of which is secured by certain of CCLP's assets. Through our common unit ownership interest in CCLP, which was approximately 34% as of September 30, 2019, and ownership of an approximate 1.4% general partner interest, we receive our share of the distributable cash flows of CCLP through its quarterly cash distributions. Approximately $15.3 million of the $35.9 million of the cash balance reflected on our consolidated balance sheet is owned by CCLP and is not accessible by us. The following table provides condensed consolidating balance sheet information reflecting TETRA's net assets and CCLP's net assets that service and secure TETRA's and CCLP's respective capital structures.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
Condensed Consolidating Balance Sheet
|
TETRA
|
|
CCLP
|
|
Eliminations
|
|
Consolidated
|
|
|
(In Thousands)
|
|
Cash, excluding restricted cash
|
$
|
20,642
|
|
|
$
|
15,276
|
|
|
$
|
—
|
|
|
$
|
35,918
|
|
|
Affiliate receivables
|
11,659
|
|
|
—
|
|
|
(11,659
|
)
|
|
—
|
|
|
Other current assets
|
197,790
|
|
|
137,424
|
|
|
—
|
|
|
335,214
|
|
|
Property, plant and equipment, net
|
206,600
|
|
|
654,792
|
|
|
—
|
|
|
861,392
|
|
|
Long-term affiliate receivables
|
13,270
|
|
|
—
|
|
|
(13,270
|
)
|
|
—
|
|
|
Other assets, including investment in CCLP
|
62,037
|
|
|
42,437
|
|
|
78,702
|
|
|
183,176
|
|
|
Total assets
|
$
|
511,998
|
|
|
$
|
849,929
|
|
|
$
|
53,773
|
|
|
$
|
1,415,700
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate payables
|
$
|
—
|
|
|
$
|
11,659
|
|
|
$
|
(11,659
|
)
|
|
$
|
—
|
|
|
Other current liabilities
|
91,720
|
|
|
121,352
|
|
|
—
|
|
|
213,072
|
|
|
Long-term debt, net
|
212,697
|
|
|
645,575
|
|
|
—
|
|
|
858,272
|
|
|
CCLP Series A Preferred Units
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Warrants liability
|
1,038
|
|
|
—
|
|
|
—
|
|
|
1,038
|
|
|
Long-term affiliate payable
|
—
|
|
|
13,270
|
|
|
(13,270
|
)
|
|
—
|
|
|
Other non-current liabilities
|
62,741
|
|
|
7,049
|
|
|
—
|
|
|
69,790
|
|
|
Total equity
|
143,802
|
|
|
51,024
|
|
|
78,702
|
|
|
273,528
|
|
|
Total liabilities and equity
|
$
|
511,998
|
|
|
$
|
849,929
|
|
|
$
|
53,773
|
|
|
$
|
1,415,700
|
|
As of September 30, 2019, subject to compliance with the covenants, borrowing base, and other provisions of the agreement that may limit borrowings, we had $41.6 million of availability under the ABL Credit Agreement. As of September 30, 2019, and subject to compliance with the covenants, borrowing base, and other provisions of the agreement that may limit borrowings under the CCLP Credit Agreement, CCLP had availability of $7.8 million.
Our consolidated sources (uses) of cash during the nine months ended September 30, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
2019
|
|
2018
|
|
|
(In Thousands)
|
|
Operating activities
|
$
|
84,982
|
|
|
$
|
1,633
|
|
|
Investing activities
|
(99,954
|
)
|
|
(145,480
|
)
|
|
Financing activities
|
11,455
|
|
|
170,608
|
|
Operating Activities
Consolidated cash flows provided by operating activities increased by $83.3 million. CCLP generated $67.8 million of our consolidated cash flows provided by operating activities during the nine months ended September 30, 2019 compared to $6.5 million during the prior year period. Operating cash flows increased due to improved operating profitability and due to working capital management, particularly related to the management of inventory levels, collections of accounts receivable, and the timing of payments of accounts payable. We continue to monitor customer credit risk in the current environment and focus on serving larger capitalized oil and gas operators and national oil companies.
Investing Activities
Total cash capital expenditures during the first nine months of 2019 were $89.2 million. Our Completion Fluids & Products Division spent $5.2 million on capital expenditures, the majority of which related to plant and facility additions. Our Water & Flowback Services Division spent $22.4 million on capital expenditures, primarily to add to its water management equipment fleet. Our Compression Division spent $61.3 million, primarily for growth capital expenditure projects to increase its compression fleet.
Generally, a majority of our planned capital expenditures has been related to identified opportunities to grow and expand certain of our existing businesses. However, certain of these planned expenditures have been,
and may continue to be, postponed or canceled as we are reviewing all capital expenditure plans carefully in an effort to conserve cash. We currently have no long-term capital expenditure commitments. The deferral of capital projects could affect our ability to expand our operations in the future. Excluding our Compression Division, we expect to spend approximately $25.0 million to $30.0 million during 2019 on capital expenditures, primarily to expand our Water & Flowback Services Division equipment fleet.
Our Compression Division expects to spend approximately $80.0 million to $85.0 million on capital expenditures during 2019 primarily to expand its compression fleet in response to increased demand for compression services. Our Compression Division, through the separate capital structure of CCLP, expects to fund 2019 growth capital expenditures for new compression services equipment through CCLP available cash, operating cash flows, and up to $15.0 million of new compression services equipment that is being purchased by us, and leased to CCLP. Approximately $14.6 million of the $15.0 million has been funded as of September 30, 2019.
If the forecasted demand for our products and services increases or decreases, the amount of planned expenditures on growth and expansion may be adjusted.
Financing Activities
During the first nine months of 2019, the total amount of consolidated cash provided by financing activities was $11.5 million, consisting primarily of borrowings under our ABL Credit Agreement and our Term Credit Agreement. We and CCLP 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. CCLP expects to meet its growth capital expenditure requirements during the remainder of 2019 without having to access additional available borrowings under its credit agreement (the "CCLP Credit Agreement") and without having to access the current debt and equity markets. CCLP may also seek to expand its compression fleet through finance or operating leases with third parties. We and CCLP are aggressively managing our working capital and capital expenditure needs in order to maximize our liquidity in the current environment.
TETRA Long-Term Debt
Asset-Based Credit Agreement. The ABL Credit Agreement provides for a senior secured revolving credit facility of up to $100 million, subject to a borrowing base to be determined by reference to the value of TETRA’s and any other borrowers’ inventory and accounts receivable, and contains within the facility a letter of credit sublimit of $20.0 million and a swingline loan sublimit of $10.0 million. The ABL Credit Agreement is scheduled to mature on September 10, 2023. As of November 6, 2019, we have $27.0 million outstanding under our ABL Credit Agreement and $6.8 million letters of credit, resulting in $30.0 million of availability.
Term Credit Agreement. The Term Credit Agreement provides for an initial loan in the amount of $200 million and the availability of additional loans, subject to the terms of the Term Credit Agreement, up to an aggregate amount of $75 million. The Term Credit Agreement is scheduled to mature on September 10, 2025. As of November 6, 2019, $220.5 million in aggregate principal amount of our Term Credit Agreement is outstanding.
CCLP Financing Activities
CCLP Preferred Units. In January 2019, CCLP began redeeming the remaining CCLP Preferred Units for cash, resulting in 2,660,569 Preferred Units being redeemed during the nine months ended September 30, 2019 for $31.9 million, which includes approximately $1.5 million of redemption premium that was paid. The last redemption of the remaining outstanding CCLP Preferred Units, along with a final cash payment made in lieu of paid-in-kind Preferred Units occurred on August 8, 2019.
CCLP Bank Credit Facilities. The CCLP Credit Agreement, as amended, includes a maximum credit commitment of $50.0 million available for loans, letters of credit (with a sublimit of $25.0 million) and swingline loans (with a sublimit of $5.0 million), subject to a borrowing base to be determined by reference to the value of CCLP’s and any other borrowers’ accounts receivable and the value of certain CCLP inventory. Such maximum credit commitment may be increased by $25.0 million in accordance with the terms and conditions of the CCLP Credit Agreement. As of September 30, 2019, CCLP had $11.5 million outstanding balance and had $3.0 million in letters of credit against the CCLP Credit Agreement. The CCLP Credit Agreement is scheduled to mature on June 29, 2023. As of November 5, 2019, CCLP has $5.5 million balance outstanding under the CCLP Credit Agreement and
$3.1 million in letters of credit, resulting in $14.4 million of availability, reflecting recent increases to the borrowing base.
CCLP Senior Secured Notes. As of November 5, 2019, $350.0 million in aggregate principal was outstanding. The CCLP Senior Secured Notes accrue interest at a rate of 7.50% per annum and are scheduled to mature on April 1, 2025.
CCLP Senior Notes. As of November 5, 2019, $295.9 million in aggregate principal amount was outstanding. The CCLP Senior Notes accrue interest at a rate of 7.25% per annum and are scheduled to mature on August 15, 2022.
Other Sources and Uses
In addition to the various aforementioned credit facilities and senior notes, we and CCLP fund our respective short-term liquidity requirements primarily from cash generated by our respective operations and from short-term vendor financing. 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 also 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 to our common stockholders will occur.
On April 11, 2019, we filed a universal shelf Registration Statement on Form S-3 with the SEC. On May 1, 2019, the Registration Statement on Form S-3 was declared effective by the SEC. Pursuant to this registration statement, we have the ability to sell debt or equity securities in one or more public offerings up to an aggregate public offering price of $464.1 million, inclusive of $64.1 million of our common stock issuable upon conversion of our currently outstanding warrants. This shelf registration statement currently provides us additional flexibility with regard to potential financings that we may undertake when market conditions permit or our financial condition may require.
The Second Amended and Restated Partnership Agreement of CCLP requires that within 45 days after the end of each quarter, CCLP distribute all of its available cash, as defined in the Second Amended and Restated Partnership Agreement, to its common unitholders of record on the applicable record date. During the nine months ended September 30, 2019, CCLP distributed $1.4 million in cash, including $0.9 million to its public unitholders, reflecting the reduction in quarterly distributions announced previously by CCLP in December 2018. There can be no assurance that quarterly distributions from CCLP will increase from this amount per unit going forward.
Off Balance Sheet Arrangements
As of September 30, 2019, 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.
Recently Adopted Accounting Guidance
We adopted the new lease accounting standard on January 1, 2019. The new lease standard had a material impact to our consolidated financial statements, resulting from the inclusion of operating lease right-of-use assets and operating lease liabilities in our consolidated balance sheet. Refer to Part I, Item 1. Financial Statements- Note A - "Organization, Basis of Presentation and Significant Accounting Policies" and Note K - “Leases” for further discussion.
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.
Contingencies of Discontinued Operations
In early 2018, we closed the Maritech Asset Purchase Agreement with Orinoco Natural Resources, LLC ("Orinoco") that provided for the purchase by Orinoco of Maritech's remaining oil and gas properties and related assets. Also in early 2018, we closed the Maritech Membership Interest Purchase Agreement with Orinoco that provided for the purchase by Orinoco of all of the outstanding membership interests in Maritech. As a result of these transactions, we have effectively exited the business of our Maritech segment.
Under the Maritech Asset Purchase Agreement, Orinoco assumed all of Maritech’s decommissioning liabilities related to the leases sold to Orinoco (the “Orinoco Lease Liabilities”) and, under the Maritech Membership Interest Purchase Agreement, Orinoco assumed all other liabilities of Maritech, including the decommissioning liabilities associated with the oil and gas properties previously sold by Maritech (the “Legacy Liabilities”), subject to certain limited exceptions unrelated to the decommissioning liabilities. To the extent that Maritech or Orinoco fails to satisfy decommissioning liabilities associated with any of the Orinoco Lease Liabilities or the Legacy Liabilities, we may be required to satisfy such liabilities under third party indemnity agreements and corporate guarantees that we previously provided to the US Department of the Interior and other parties, respectively.
Pursuant to a Bonding Agreement entered into as part of these transactions (the "Bonding Agreement"), Orinoco provided non-revocable performance bonds in an aggregate amount of $46.8 million to cover the performance by Orinoco and Maritech of the asset retirement obligations of Maritech (the “Initial Bonds”) and agreed to replace, within 90 days following the closing, the Initial Bonds with other non-revocable performance bonds, meeting certain requirements, in the aggregate sum of $47.0 million (collectively, the “Interim Replacement Bonds”). Orinoco further agreed to replace, within 180 days following the closing, the Interim Replacement Bonds with a maximum of three non-revocable performance bonds in the aggregate sum of $47.0 million, meeting certain requirements (the “Final Bonds”). Among the other requirements of the Final Bonds was that they must provide coverage for all of the asset retirement obligations of Maritech instead of only relating to specific properties. In the event Orinoco does not provide the Interim Replacement Bonds or the Final Bonds, Orinoco is required to make certain cash escrow payments to us.
The payment obligations of Orinoco under the Bonding Agreement were guaranteed by Thomas M. Clarke and Ana M. Clarke pursuant to a separate guaranty agreement (the “Clarke Bonding Guaranty Agreement”). Orinoco has not delivered such replacement bonds and it has not made any of the agreed upon cash escrow payments and we filed a lawsuit against Orinoco and the Clarkes to enforce the terms of the Bonding Agreement and the Clarke Bonding Guaranty Agreement. A summary judgment was granted in favor of Orinoco and the Clarkes which dismissed our present claims against Orinoco under the Bonding Agreement and against the Clarkes under the Clarke Bonding Guaranty Agreement. We believe this judgment should not have been granted and have begun the process of appealing it. The Initial Bonds, which are non-revocable, remain in effect.
If we become liable in the future for any decommissioning liability associated with any property covered by either an Initial Bond or an Interim Replacement Bond while such bonds are outstanding and the payment made to us under such bond is not sufficient to satisfy such liability, the Bonding Agreement provides that Orinoco will pay us an amount equal to such deficiency and if Orinoco fails to pay any such amount, such amount must be paid by the Clarkes under the Clarke Bonding Guaranty Agreement. However, if the Final Bonds or the full amount of the escrowed cash have been provided, neither Orinoco nor the Clarkes would be liable to pay us for any such deficiency. Our financial condition and results of operations may be negatively affected if Orinoco is unable to cover any such deficiency or if we become liable for a significant portion of the decommissioning liabilities.
In early 2018, we also closed the sale of our Offshore Division to Epic Companies, LLC (“Epic Companies,” formerly known as Epic Offshore Specialty, LLC). Part of the consideration we received was a promissory note of Epic Companies in the original principal amount of $7.5 million (the “Epic Promissory Note”) payable to us in full, together with interest at a rate of 1.52% per annum, on December 31, 2019, along with a personal guaranty agreement from Thomas M. Clarke and Ana M. Clarke guaranteeing the payment obligations of Epic Companies pursuant to the Epic Promissory Note (the “Clarke Promissory Note Guaranty Agreement”). Additionally, pursuant to the Equity Interest Purchase Agreement (the “Offshore Services Purchase Agreement”) and other agreements with Epic Companies, certain other amounts relating to the Offshore Division totaling approximately $1.5 million were payable to us. At the end of August 2019, Epic Companies filed for bankruptcy. Although the Epic Promissory Note is not currently due and is guaranteed by the Clarke Promissory Note Guaranty Agreement, we recorded a reserve of $7.5 million for the full amount of the promissory note including accrued interest, and certain other receivables in
the amount of $1.5 million at September 30, 2019. We continue to monitor this matter and seek to vigorously pursue our rights to collect all amounts payable to us, including the amounts owed under the Epic Promissory Note when due, including by enforcing our rights under the Clarke Promissory Note Guaranty Agreement.
Contractual Obligations
Our contractual obligations and commitments principally include obligations associated with our outstanding
indebtedness and obligations under operating leases. The table below summarizes our consolidated contractual cash obligations as of September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due
|
|
|
|
Total
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Thereafter
|
|
|
|
(In Thousands)
|
|
Long-term debt - TETRA
|
|
$
|
230,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,000
|
|
|
$
|
220,500
|
|
|
Long-term debt - CCLP
|
|
657,430
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
295,930
|
|
|
11,500
|
|
|
350,000
|
|
|
Interest on debt - TETRA
|
|
107,766
|
|
|
4,522
|
|
|
18,088
|
|
|
18,088
|
|
|
18,088
|
|
|
17,993
|
|
|
30,987
|
|
|
Interest on debt - CCLP
|
|
209,158
|
|
|
12,066
|
|
|
48,264
|
|
|
48,264
|
|
|
41,156
|
|
|
26,595
|
|
|
32,813
|
|
|
Purchase obligations
|
|
96,875
|
|
|
2,375
|
|
|
9,500
|
|
|
9,500
|
|
|
9,500
|
|
|
9,500
|
|
|
56,500
|
|
|
Asset retirement obligations(1)
|
|
12,603
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,603
|
|
|
Operating leases
|
|
82,291
|
|
|
4,870
|
|
|
17,721
|
|
|
12,798
|
|
|
9,591
|
|
|
7,871
|
|
|
29,440
|
|
|
Total contractual cash obligations(2)
|
|
$
|
1,396,623
|
|
|
$
|
23,833
|
|
|
$
|
93,573
|
|
|
$
|
88,650
|
|
|
$
|
374,265
|
|
|
$
|
83,459
|
|
|
$
|
732,843
|
|
|
|
|
|
(1)
|
We have estimated the timing of these payments for asset retirement obligation liabilities based upon our plans. The amounts shown represent the discounted obligation as of September 30, 2019.
|
|
|
|
|
(2)
|
Amounts exclude other long-term liabilities reflected in our Consolidated Balance Sheet that do not have known payment streams. These excluded amounts include approximately $0.8 million of liabilities under FASB Codification Topic 740, “Accounting for Uncertainty in Income Taxes,” as we are unable to reasonably estimate the ultimate amount or timing of settlements.
|
For additional information about our contractual obligations as of December 31, 2018, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2018 Annual Report on Form 10-K.
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".
Such forward-looking statements reflect our current views with respect to future events and financial performance and are based on assumptions that we believe to be reasonable, but such forward-looking statements are subject to numerous risks, and uncertainties, including, but not limited to:
|
|
|
|
•
|
economic and operating conditions that are outside of our control, including the supply, demand, and prices of oil and natural gas;
|
|
|
|
|
•
|
the availability of adequate sources of capital to us;
|
|
|
|
|
•
|
the levels of competition we encounter;
|
|
|
|
|
•
|
the activity levels of our customers;
|
|
|
|
|
•
|
our operational performance;
|
|
|
|
|
•
|
the availability of raw materials and labor at reasonable prices;
|
|
|
|
|
•
|
risks related to acquisitions and our growth strategy;
|
|
|
|
|
•
|
restrictions under our debt agreements and the consequences of any failure to comply with debt covenants;
|
|
|
|
|
•
|
the effect and results of litigation, regulatory matters, settlements, audits, assessments, and contingencies;
|
|
|
|
|
•
|
risks related to our foreign operations;
|
|
|
|
|
•
|
information technology risks including the risk from cyberattack, and
|
|
|
|
|
•
|
other risks and uncertainties under “Item 1A. Risk Factors” in our 2018 Annual Report, and as included in our other filings with the SEC, which are available free of charge on the SEC website at www.sec.gov.
|
The risks and uncertainties referred to above are generally beyond our ability to control and we cannot predict all the risks and uncertainties that could cause our actual results to differ from those indicated by the forward-looking statements. If any of these risks or uncertainties materialize, or if any of the underlying assumptions prove incorrect, actual results may vary from those indicated by the forward-looking statements, and such variances may be material.
All subsequent written and oral forward-looking statements made by or attributable to us or to persons acting on our behalf are expressly qualified in their entirety by reference to these risks and uncertainties. You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to update or revise any forward-looking statements we may make, except as may be required by law.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Market risk is the risk of loss arising from adverse changes in market rates and prices. For a discussion of our indirect exposure to fluctuating commodity prices, please read “Risk Factors — Certain Business Risks” in our 2018 Annual Report. We depend on U.S. and international demand for and production of oil and natural gas, and a reduction in this demand or production could adversely affect the demand or the prices we charge for our services, which could cause our revenues and operating cash flows to decrease in the future. We do not currently hedge, and do not intend to hedge, our indirect exposure to fluctuating commodity prices.
Interest Rate Risk
As of September 30, 2019, we had balances outstanding under the Term Credit Agreement, ABL Credit Agreement, and CCLP Credit Agreement that bear interest at variable rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity Date
|
|
|
|
Fair Market
Value
|
|
($ amounts in thousands)
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Thereafter
|
|
Total
|
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. dollar variable rate - TETRA
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,000
|
|
|
$
|
220,500
|
|
|
$
|
230,500
|
|
|
$
|
230,500
|
|
|
Weighted average interest rate (variable)
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
3.81
|
%
|
|
8.29
|
%
|
|
|
|
|
|
U.S. dollar variable rate - CCLP
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,500
|
|
|
$
|
—
|
|
|
$
|
11,500
|
|
|
$
|
11,500
|
|
|
Weighted average interest rate (variable)
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
6.00
|
%
|
|
—
|
%
|
|
|
|
|
|
U.S. dollar fixed rate - CCLP
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
295,930
|
|
|
$
|
—
|
|
|
$
|
350,000
|
|
|
$
|
645,930
|
|
|
$
|
614,000
|
|
|
Weighted average interest rate (fixed)
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
7.25
|
%
|
|
—
|
%
|
|
7.50
|
%
|
|
|
|
|
|
Exchange Rate Risk
As of September 30, 2019, there have been no material changes pertaining to our exchange rate exposures as disclosed in our 2018 Annual Report.