Results of Operations
The following information should be read in conjunction with the Consolidated Financial Statements and the associated Notes contained elsewhere in this report.
Three months ended September 30, 2021 compared with three months ended September 30, 2020.
Consolidated Comparisons
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Period to Period Change
|
|
2021
|
|
2020
|
|
2021 vs 2020
|
|
% Change
|
|
(In Thousands, Except Percentages)
|
Revenues
|
$
|
95,474
|
|
|
$
|
73,484
|
|
|
$
|
21,990
|
|
|
29.9
|
%
|
Gross profit
|
15,747
|
|
|
10,215
|
|
|
5,532
|
|
|
54.2
|
%
|
Gross profit as a percentage of revenue
|
16.5
|
%
|
|
13.9
|
%
|
|
|
|
|
General and administrative expense
|
18,714
|
|
|
16,123
|
|
|
2,591
|
|
|
16.1
|
%
|
General and administrative expense as a percentage of revenue
|
19.6
|
%
|
|
21.9
|
%
|
|
|
|
|
Interest expense, net
|
4,083
|
|
|
4,338
|
|
|
(255)
|
|
|
(5.9)
|
%
|
Warrants fair value adjustment expense
|
(3,164)
|
|
|
—
|
|
|
(3,164)
|
|
|
NM(1)
|
Other income, net
|
(6,968)
|
|
|
(788)
|
|
|
(6,180)
|
|
|
NM
|
Income (loss) before taxes and discontinued operations
|
3,082
|
|
|
(9,458)
|
|
|
12,540
|
|
|
(132.6)
|
%
|
Income (loss) before taxes and discontinued operations as a percentage of revenue
|
3.2
|
%
|
|
(12.9)
|
%
|
|
|
|
|
Provision for income taxes
|
587
|
|
|
101
|
|
|
486
|
|
|
481.2
|
%
|
Income (loss) before discontinued operations
|
2,495
|
|
|
(9,559)
|
|
|
12,054
|
|
|
(126.1)
|
%
|
Discontinued operations:
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of taxes
|
18
|
|
|
(12,039)
|
|
|
12,057
|
|
|
(100.1)
|
%
|
Net income (loss)
|
2,513
|
|
|
(21,598)
|
|
|
24,111
|
|
|
(111.6)
|
%
|
Loss attributable to noncontrolling interest
|
—
|
|
|
8,296
|
|
|
(8,296)
|
|
|
(100.0)
|
%
|
Net income (loss) attributable to TETRA stockholders
|
$
|
2,513
|
|
|
$
|
(13,302)
|
|
|
$
|
15,815
|
|
|
(118.9)
|
%
|
(1) Percent change is not meaningful
Consolidated revenues increased in the current year quarter primarily due to improving industry conditions compared to the prior year quarter which had been significantly affected by the impact of the COVID-19 pandemic and reduced demand for oil and gas. See Divisional Comparisons section below for a more detailed discussion of the change in our revenue.
Consolidated gross profit increased in the current year quarter primarily due to the increase in revenue, partially offset by an increase in costs associated with the higher activity levels described above, reflecting improved margins.
Consolidated general and administrative expenses increased for the current quarter compared to the prior year quarter, primarily due to a $0.9 million increase in legal, settlement and other expenses, and $0.9 million of increased wage and benefit related expenses because of higher activity levels compared to the prior year quarter.
Increases (or decreases) in the fair value of the Warrants are generally associated with increases (or decreases) in the trading price of our common stock, resulting in adjustments to earnings for the associated valuation losses (gains), and resulting in future volatility of our earnings during the period the Warrants are outstanding. A combination of the decrease in TETRA’s stock price over the last three months, together with less time remaining until expiration of the Warrants, resulted in the fair-value adjustment income in the current period of $3.2 million. The outstanding Warrants expire by December 31, 2021.
Consolidated other income, net, increased in the current quarter, compared to the prior year quarter primarily due to a $5.4 million increase in income related to unit and stock price appreciation of our investments in CSI Compressco and Standard Lithium. In addition, other income, net, includes foreign currency gains of
$0.1 million in the current year quarter compared to foreign currency losses of $1.2 million in the prior year quarter. These increases in other income were partially offset by a $0.8 million decrease in gains associated with the sale of assets.
Consolidated provision for income taxes was $0.6 million during the current quarter, compared to $0.1 million during the prior year quarter. Our consolidated effective tax rate for the current quarter of 19.0% was primarily due to taxes on income in certain non-U.S. jurisdictions. We establish a valuation allowance to reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Included in our deferred tax assets are net operating loss carryforwards and tax credits that are available to offset future income tax liabilities in the United States as well as in certain non-U.S. jurisdictions.
Loss from discontinued operations, net of taxes, was $12.0 million for the prior year quarter which reflects CSI Compressco‘s full quarter results.
Income (loss) attributable to noncontrolling interest improved $8.3 million from the prior year quarter as CSI Compressco’s results were included in the prior year, while the continuing noncontrolling interest is immaterial for TETRA.
Divisional Comparisons
Completion Fluids & Products Division
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|
|
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|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Period to Period Change
|
|
2021
|
|
2020
|
|
2021 vs 2020
|
|
% Change
|
|
(In Thousands, Except Percentages)
|
Revenues
|
$
|
48,691
|
|
|
$
|
51,950
|
|
|
$
|
(3,259)
|
|
|
(6.3)
|
%
|
Gross profit
|
12,976
|
|
|
16,196
|
|
|
(3,220)
|
|
|
(19.9)
|
%
|
Gross profit as a percentage of revenue
|
26.6
|
%
|
|
31.2
|
%
|
|
|
|
|
General and administrative expense
|
5,349
|
|
|
4,619
|
|
|
730
|
|
|
15.8
|
%
|
General and administrative expense as a percentage of revenue
|
11.0
|
%
|
|
8.9
|
%
|
|
|
|
|
Interest income, net
|
(165)
|
|
|
(291)
|
|
|
126
|
|
|
(43.3)
|
%
|
Other (income) expense, net
|
(6,883)
|
|
|
112
|
|
|
(6,995)
|
|
|
NM
|
Income before taxes
|
$
|
14,675
|
|
|
$
|
11,756
|
|
|
$
|
2,919
|
|
|
24.8
|
%
|
Income before taxes as a percentage of revenue
|
30.1
|
%
|
|
22.6
|
%
|
|
|
|
|
Revenues for our Completion Fluids & Products Division decreased compared to the prior year quarter with lower international activity and international shipping delays, partially offset by stronger domestic sales. The timing of the reduction in international activity during 2020 due to the effects of the COVID-19 pandemic lagged North America and did not significantly impact the prior year quarter for this division.
Completion Fluids & Products Division gross profit for the current year quarter decreased in relation to decreased revenues mentioned above as well as inflationary pressures in certain raw materials and logistics costs, resulting in slightly lower margins.
Pretax income for our Completion Fluids & Products Division increased compared to the prior year period driven by an increase in other income, partially offset by an increase in general and administrative expense. The increase in other income, net, was primarily due to a $6.4 million increase in income from our investment in Standard Lithium, including an increase in the Standard Lithium stock price as well as income associated with additional shares received in May 2021. The increase in general and administrative expense was a result of increased wage and benefit related expenses of $0.5 million. Foreign currency fluctuations were favorable compared with the prior year quarter by $0.6 million.
Water & Flowback Services Division
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Period to Period Change
|
|
2021
|
|
2020
|
|
2021 vs 2020
|
|
% Change
|
|
(In Thousands, Except Percentages)
|
Revenues
|
$
|
46,783
|
|
|
$
|
21,534
|
|
|
$
|
25,249
|
|
|
117.3
|
%
|
Gross profit (loss)
|
2,996
|
|
|
(5,714)
|
|
|
8,710
|
|
|
(152.4)
|
%
|
Gross profit (loss) as a percentage of revenue
|
6.4
|
%
|
|
(26.5)
|
%
|
|
|
|
|
General and administrative expense
|
4,957
|
|
|
2,545
|
|
|
2,412
|
|
|
94.8
|
%
|
General and administrative expense as a percentage of revenue
|
10.6
|
%
|
|
11.8
|
%
|
|
|
|
|
Interest expense (income), net
|
2
|
|
|
(77)
|
|
|
79
|
|
|
(102.6)
|
%
|
Other income, net
|
(156)
|
|
|
(436)
|
|
|
280
|
|
|
(64.2)
|
%
|
Loss before taxes
|
$
|
(1,807)
|
|
|
$
|
(7,746)
|
|
|
$
|
5,939
|
|
|
(76.7)
|
%
|
Income (loss) before taxes as a percentage of revenue
|
(3.9)
|
%
|
|
(36.0)
|
%
|
|
|
|
|
Revenues for our Water & Flowback Services Division increased due to higher customer drilling and completion activity compared to the prior year quarter. Revenues for the prior year quarter had been significantly impacted by industry-wide reductions in rig and frac count resulting from historically low oil prices due to the price war between Russia and Saudi Arabia, as well as the global pandemic.
Gross profit for our Water & Flowback Services Division improved in the current quarter compared to the prior year quarter, primarily due to higher revenues resulting from the increased activity levels described above and some pricing improvements helping offset ongoing inflationary pressures.
The Water & Flowback Services Division reported a lower pretax loss in the current quarter primarily due to an improvement in the gross profit described above, offset by an increase in general and administrative expense primarily due a $1.4 million increase in salary and employee expense.
Corporate Overhead
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Period to Period Change
|
|
2021
|
|
2020
|
|
2021 vs 2020
|
|
% Change
|
|
(In Thousands, Except Percentages)
|
General and administrative expense
|
$
|
8,408
|
|
|
$
|
8,959
|
|
|
$
|
(551)
|
|
|
(6.2)
|
%
|
Interest expense, net
|
4,246
|
|
|
4,706
|
|
|
(460)
|
|
|
(9.8)
|
%
|
Warrants fair value adjustment income
|
(3,164)
|
|
|
—
|
|
|
(3,164)
|
|
|
NM
|
Depreciation and amortization
|
230
|
|
|
270
|
|
|
(40)
|
|
|
(14.8)
|
%
|
Other (income) expense, net
|
69
|
|
|
(463)
|
|
|
532
|
|
|
(114.9)
|
%
|
(Loss) before taxes
|
$
|
(9,789)
|
|
|
$
|
(13,472)
|
|
|
$
|
3,683
|
|
|
27.3
|
%
|
Corporate Overhead pretax loss decreased due to lower general and administrative expense, interest expense, and a $3.2 million favorable fair value adjustment for the outstanding Warrants liability in the current quarter resulting primarily from the decrease in TETRA’s stock price in the current quarter. General and administrative expense decreased primarily due to lower salary and employee expenses of $1.0 million. Salary and employee expenses were lower due to lower headcount and lower expense related to long-term incentive awards.
Nine months ended September 30, 2021 compared with nine months ended September 30, 2020.
Consolidated Comparisons
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Period to Period Change
|
|
2021
|
|
2020
|
|
2021 vs 2020
|
|
% Change
|
|
(In Thousands, Except Percentages)
|
Revenues
|
$
|
275,124
|
|
|
$
|
302,257
|
|
|
$
|
(27,133)
|
|
|
(9.0)
|
%
|
Gross profit
|
40,049
|
|
|
55,063
|
|
|
(15,014)
|
|
|
(27.3)
|
%
|
Gross profit as a percentage of revenue
|
14.6
|
%
|
|
18.2
|
%
|
|
|
|
|
General and administrative expense
|
56,077
|
|
|
60,333
|
|
|
(4,256)
|
|
|
(7.1)
|
%
|
General and administrative expense as a percentage of revenue
|
20.4
|
%
|
|
20.0
|
%
|
|
|
|
|
Interest expense, net
|
12,373
|
|
|
14,234
|
|
|
(1,861)
|
|
|
(13.1)
|
%
|
Warrants fair value adjustment expense (income)
|
(143)
|
|
|
(327)
|
|
|
184
|
|
|
(56.3)
|
%
|
Other income, net
|
(14,295)
|
|
|
(1,308)
|
|
|
(12,987)
|
|
|
NM
|
Income (loss) before taxes and discontinued operations
|
(13,963)
|
|
|
(17,869)
|
|
|
3,906
|
|
|
(21.9)
|
%
|
Income (loss) before taxes and discontinued operations as a percentage of revenue
|
(5.1)
|
%
|
|
(5.9)
|
%
|
|
|
|
|
Provision for income taxes
|
2,139
|
|
|
1,877
|
|
|
262
|
|
|
14.0
|
%
|
Income (loss) before discontinued operations
|
(16,102)
|
|
|
(19,746)
|
|
|
3,644
|
|
|
(18.5)
|
%
|
Discontinued operations:
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of taxes
|
120,882
|
|
|
(49,195)
|
|
|
170,077
|
|
|
(345.7)
|
%
|
Net income (loss)
|
104,780
|
|
|
(68,941)
|
|
|
173,721
|
|
|
(252.0)
|
%
|
(Income) loss attributable to noncontrolling interest
|
(306)
|
|
|
32,833
|
|
|
(33,139)
|
|
|
(100.9)
|
%
|
Net income (loss) attributable to TETRA stockholders
|
$
|
104,474
|
|
|
$
|
(36,108)
|
|
|
$
|
140,582
|
|
|
(389.3)
|
%
|
Consolidated revenues decreased in the current year period primarily due to the effects of the COVID-19 pandemic and the impact of the associated decline in oil prices on customer activity levels. The first quarter of the prior year period was not affected by the decline in oil prices or the pandemic. United States onshore activity was significantly impacted in the second quarter of 2020, but the significant ramp down in offshore and international activity did not occur until the second half of 2020. Although activity levels for the Completion Fluids & Products division have increased throughout 2021, year to date revenue remained below prior year. This was partially offset by Water Management & Flowback division results, where significantly improved United States onshore market conditions resulted in higher revenue than in the prior year period.
Gross profit as a percentage of revenue declined primarily due to a change in revenue mix, with a higher portion of revenues generated from our Water Management & Flowback division. See Divisional Comparisons section below for additional discussion.
Consolidated general and administrative expenses decreased primarily due to decreased bad debt expense of $4.7 million and decreased salary and employee expenses of $2.2 million, partially offset by increased professional services fees of $2.2 million related to the GP Sale and higher other legal expenses. Salary and employee expenses were lower despite appreciation in our stock price since the start of the year, which resulted in $4.9 million of additional expense related to certain long-term incentive compensation awards. The decrease in our salary and employee expenses stemmed from our restructuring efforts and headcount reductions in response to the decline in activity levels.
Consolidated interest expense, net, decreased in the current year period primarily due to $37.5 million of repayments of our term credit facility during the first and third quarters of 2021.
Consolidated other income, net, increased primarily due to a $10.8 million increase in unit and stock price appreciation of our investments in CSI Compressco and Standard Lithium. Additionally, the current year period includes foreign currency gains of $1.1 million, compared with foreign currency losses of $2.2 million in the prior year period.
Our consolidated provision for income taxes for the current year period is primarily attributable to taxes in certain non-U.S. jurisdictions and Texas gross margin taxes. Our consolidated effective tax rate for the nine-month period ended September 30, 2021 of negative 15.3% 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 United States as well as in certain non-U.S. jurisdictions.
Income from discontinued operations, net of taxes, was $120.9 million compared to a loss of $49.2 million for the prior year, including $14.3 million of asset impairments. The current year income includes a $120.6 million primarily non-cash accounting gain from the deconsolidation of CSI Compressco. This gain is offset by a $0.01 million tax provision after taking into consideration utilization of net operating loss and credit carryforwards.
Income (loss) attributable to noncontrolling interest improved from a $32.8 million loss in the prior year to $0.3 million of income for the first 29 days of January primarily due to the GP Sale in January 2021, and no depreciation or amortization recognized by TETRA for CSI Compressco in the current year.
Divisional Comparisons
Completion Fluids & Products Division
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Period to Period Change
|
|
2021
|
|
2020
|
|
2021 vs 2020
|
|
% Change
|
|
(In Thousands, Except Percentages)
|
Revenues
|
$
|
159,819
|
|
|
$
|
198,533
|
|
|
$
|
(38,714)
|
|
|
(19.5)
|
%
|
Gross profit
|
43,170
|
|
|
62,979
|
|
|
(19,809)
|
|
|
(31.5)
|
%
|
Gross profit as a percentage of revenue
|
27.0
|
%
|
|
31.7
|
%
|
|
|
|
|
General and administrative expense
|
14,253
|
|
|
18,995
|
|
|
(4,742)
|
|
|
(25.0)
|
%
|
General and administrative expense as a percentage of revenue
|
8.9
|
%
|
|
9.6
|
%
|
|
|
|
|
Interest income, net
|
(465)
|
|
|
(588)
|
|
|
123
|
|
|
(20.9)
|
%
|
Other (income) expense, net
|
(10,731)
|
|
|
218
|
|
|
(10,949)
|
|
|
NM
|
Income before taxes
|
$
|
40,113
|
|
|
$
|
44,354
|
|
|
$
|
(4,241)
|
|
|
(9.6)
|
%
|
Income before taxes as a percentage of revenue
|
25.1
|
%
|
|
22.3
|
%
|
|
|
|
|
Revenues for our Completion Fluids & Products Division decreased primarily due to lower Gulf of Mexico and international oil and gas activity. In addition, the prior year period benefited from two large international orders. The COVID-19 pandemic and associated reduction in oil prices did not have a significant impact on offshore Gulf of Mexico activity and international activity until the third and fourth quarters of 2020 respectively.
Gross profit for our Completion Fluids & Products Division decreased compared to the prior year period due to lower revenue and product mix. Completion Fluids & Products Division profitability in future periods will continue to be affected by the mix of its products and services, market demand for our products and services, drilling and completions activity and commodity prices.
Pretax income for our Completion Fluids & Products Division decreased primarily due to the reduction in gross profit described above, partially offset by lower General and administrative expense and improved Other (income) expense. General and administrative expense decreased primarily due to a lower bad debt expense of $3.1 million and decreased salary and employee-related expenses of $1.7 million. Other (income) expense, net, improved primarily due to a $8.9 million increase in income from our investment in Standard Lithium, due to an increase in the Standard Lithium stock price and additional shares received in May 2021. In addition, foreign currency fluctuations were favorable compared with the prior year period by $2.0 million.
Water & Flowback Services Division
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Period to Period Change
|
|
2021
|
|
2020
|
|
2021 vs 2020
|
|
% Change
|
|
(In Thousands, Except Percentages)
|
Revenues
|
$
|
115,305
|
|
|
$
|
103,724
|
|
|
$
|
11,581
|
|
|
11.2
|
%
|
Gross profit (loss)
|
(2,483)
|
|
|
(7,283)
|
|
|
4,800
|
|
|
(65.9)
|
%
|
Gross profit as a percentage of revenue
|
(2.2)
|
%
|
|
(7.0)
|
%
|
|
|
|
|
General and administrative expense
|
10,851
|
|
|
12,688
|
|
|
(1,837)
|
|
|
(14.5)
|
%
|
General and administrative expense as a percentage of revenue
|
9.4
|
%
|
|
12.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, net
|
(515)
|
|
|
(88)
|
|
|
(427)
|
|
|
NM
|
Other income, net
|
(554)
|
|
|
(1,475)
|
|
|
921
|
|
|
(62.4)
|
%
|
Income (loss) before taxes
|
$
|
(12,265)
|
|
|
$
|
(18,408)
|
|
|
$
|
6,143
|
|
|
33.4
|
%
|
Income (loss) before taxes as a percentage of revenue
|
(10.6)
|
%
|
|
(17.7)
|
%
|
|
|
|
|
Revenues for our Water & Flowback Services Division increased in the current year period compared to the prior year period. Customer activity levels have continued to increase from recent lows in response to an improving commodity price environment. However, the current year was negatively impacted by severe weather that caused extended shut downs in certain locations during the first quarter.
The Water & Flowback Services Division reported a lower gross loss during the current year period compared to the prior year period primarily due to higher activity as described above.
The Water & Flowback Services Division reported a lower pretax loss due to the decrease in gross loss described above, as well as a decrease in General and administrative expense. General and administrative expenses decreased primarily due to a decrease in bad debt expense of $1.7 million and decreased salary and benefit related expenses of $1.0 million.
Corporate Overhead
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Period to Period Change
|
|
2021
|
|
2020
|
|
2021 vs 2020
|
|
% Change
|
|
(In Thousands, Except Percentages)
|
General and administrative expense
|
$
|
30,973
|
|
|
$
|
28,650
|
|
|
$
|
2,323
|
|
|
8.1
|
%
|
Interest expense, net
|
13,354
|
|
|
14,909
|
|
|
(1,555)
|
|
|
(10.4)
|
%
|
Warrants fair value adjustment income
|
(143)
|
|
|
(327)
|
|
|
184
|
|
|
(56.3)
|
%
|
Depreciation and amortization
|
646
|
|
|
643
|
|
|
3
|
|
|
0.5
|
%
|
Other income, net
|
(3,010)
|
|
|
(50)
|
|
|
(2,960)
|
|
|
NM
|
(Loss) before taxes
|
$
|
(41,820)
|
|
|
$
|
(43,825)
|
|
|
$
|
2,005
|
|
|
4.6
|
%
|
Corporate Overhead pretax loss decreased due to an increase in Other income and a decrease in Interest expense, net, offset by an increase in General and administrative expense.
General and administrative expense for our Corporate Overhead for the current year period includes $4.9 million of expense related to certain long-term incentive compensation awards resulting from the significant appreciation in our stock price during the first half of the year and $1.3 million of transaction expenses related to the GP Sale. Excluding these items, general and administrative expense would have been $24.7 million, or $3.9 million lower than prior year.
Corporate other income, net increased $3.0 million in the current year period compared to the prior year period. This change was primarily due to a $1.9 million increase in the market value of the CSI Compressco units we continue to own following the closing of the GP Sale, an increase in foreign exchange gains of $0.5 million and a decrease in other expenses of $0.7 million.
How We Evaluate Operations
We use U.S. GAAP financial measures such as revenues, gross profit, income (loss) before taxes, and net cash provided by operating activities, as well as certain non-GAAP financial measures, including Adjusted EBITDA, as performance measures for our business.
Adjusted EBITDA. We view Adjusted EBITDA as one of our primary management tools, and we track it on a monthly basis, both in dollars and as a percentage of revenues (typically compared to the prior month, prior year period, and to budget). We define Adjusted EBITDA as earnings before interest, taxes, depreciation, amortization, impairments and certain other non-cash charges and non-recurring adjustments.
Adjusted EBITDA is used as a supplemental financial measure by our management to:
•evaluate the financial performance of our assets without regard to financing methods, capital structure, or historical cost basis; and
•determine our ability to incur and service debt and fund capital expenditures.
The following table reconciles net income (loss) to Adjusted EBITDA for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
September 30, 2021
|
|
Completion Fluids & Products
|
|
Water & Flowback Services
|
|
Corporate SG&A
|
|
Other and Eliminations
|
|
|
Total
|
|
(In Thousands, Except Percents)
|
Revenue
|
$
|
48,691
|
|
|
$
|
46,783
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
$
|
95,474
|
|
Net income (loss) before taxes and discontinued operations
|
14,675
|
|
|
(1,807)
|
|
|
(8,408)
|
|
|
(1,378)
|
|
|
|
3,082
|
|
Adjustment to long-term incentives
|
—
|
|
|
—
|
|
|
656
|
|
|
—
|
|
|
|
656
|
|
Transactions and other expenses
|
630
|
|
|
693
|
|
|
27
|
|
|
—
|
|
|
|
1,350
|
|
Former CEO stock appreciation right expense
|
—
|
|
|
—
|
|
|
(466)
|
|
|
—
|
|
|
|
(466)
|
|
Restructuring expenses
|
254
|
|
|
41
|
|
|
—
|
|
|
—
|
|
|
|
295
|
|
Stock warrant fair value adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,164)
|
|
|
|
(3,164)
|
|
Adjusted income (loss) before taxes and discontinued operations
|
$
|
15,559
|
|
|
$
|
(1,073)
|
|
|
$
|
(8,191)
|
|
|
$
|
(4,542)
|
|
|
|
$
|
1,753
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted interest expense, net
|
(165)
|
|
|
2
|
|
|
—
|
|
|
4,246
|
|
|
|
4,083
|
|
Adjusted depreciation and amortization
|
1,712
|
|
|
6,192
|
|
|
—
|
|
|
225
|
|
|
|
8,129
|
|
Equity compensation expense
|
—
|
|
|
—
|
|
|
1,057
|
|
|
—
|
|
|
|
1,057
|
|
Adjusted EBITDA
|
$
|
17,106
|
|
|
$
|
5,121
|
|
|
$
|
(7,134)
|
|
|
$
|
(71)
|
|
|
|
$
|
15,022
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA as % of revenue
|
35.1
|
%
|
|
10.9
|
%
|
|
|
|
|
|
|
15.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
September 30, 2020
|
|
Completion Fluids & Products
|
|
Water & Flowback Services
|
|
Corporate SG&A
|
|
Other and Eliminations
|
|
|
Total
|
|
(In Thousands, Except Percents)
|
Revenue
|
$
|
51,950
|
|
|
$
|
21,534
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
$
|
73,484
|
|
Net income (loss) before taxes and discontinued operations
|
11,756
|
|
|
(7,746)
|
|
|
(8,958)
|
|
|
(4,510)
|
|
|
|
(9,458)
|
|
Severance
|
177
|
|
|
150
|
|
|
933
|
|
|
—
|
|
|
|
1,260
|
|
Transaction and other expenses
|
—
|
|
|
124
|
|
|
—
|
|
|
—
|
|
|
|
124
|
|
Restructuring and severance expenses
|
665
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
665
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairments and other charges
|
(113)
|
|
|
—
|
|
|
97
|
|
|
—
|
|
|
|
(16)
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted income (loss) before taxes and discontinued operations
|
$
|
12,485
|
|
|
$
|
(7,472)
|
|
|
$
|
(7,928)
|
|
|
$
|
(4,510)
|
|
|
|
$
|
(7,425)
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted interest expense, net
|
(291)
|
|
|
(77)
|
|
|
—
|
|
|
4,706
|
|
|
|
4,338
|
|
Adjusted depreciation and amortization
|
1,710
|
|
|
7,584
|
|
|
—
|
|
|
170
|
|
|
|
9,464
|
|
Equity compensation expense
|
—
|
|
|
—
|
|
|
983
|
|
|
—
|
|
|
|
983
|
|
Adjusted EBITDA
|
$
|
13,904
|
|
|
$
|
35
|
|
|
$
|
(6,945)
|
|
|
$
|
366
|
|
|
|
$
|
7,360
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA as % of revenue
|
26.8
|
%
|
|
0.2
|
%
|
|
|
|
|
|
|
10.0
|
%
|
Adjusted EBITDA is a financial measure that is not in accordance with U.S. GAAP and should not be considered an alternative to net income, operating income, cash provided by operating activities, or any other measure of financial performance presented in accordance with U.S. GAAP. This measure may not be comparable to similarly titled financial metrics of other companies, as other companies may not calculate Adjusted EBITDA in the same manner as we do. Management compensates for the limitations of Adjusted EBITDA as an analytical tool by reviewing the comparable U.S. GAAP measures, understanding the differences between the measures, and incorporating this knowledge into management’s decision-making processes.
Liquidity and Capital Resources
We believe that our capital structure allows us to meet our financial obligations despite current uncertain operating conditions and financial markets. Our liquidity at the end of third quarter was $90.1 million. Liquidity is defined as unrestricted cash plus availability under the revolving credit facility. Information about the terms and covenants of our debt agreements can be found in our 2020 Annual Report and in Note 6 - Long Term Debt and Other Borrowings.
Our consolidated sources and uses of cash, which include cash activity from our former Compression Division for January 2021 prior to the closing of the GP sale and for the nine months ended 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
2021
|
|
2020
|
|
(In Thousands)
|
Operating activities
|
$
|
10,424
|
|
|
$
|
64,827
|
|
Investing activities
|
(12,164)
|
|
|
2,760
|
|
Financing activities
|
(38,656)
|
|
|
(9,776)
|
|
Operating Activities
Consolidated cash flows provided by operating activities decreased $54.4 million compared to the first nine months of 2020. Current year cash flows provided by operating activities include $0.9 million generated by CSI Compressco in January prior to closing of the GP Sale, compared to $13.7 million during the nine-month period ending September 30, 2020. Operating cash flows decreased primarily due to including the results of CSI Compressco for one month during the current year compared to nine months during the prior year, as well as a decrease in revenue, and the effect of working capital movements. 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 2021 were $14.6 million. Our Water & Flowback Services Division spent $9.3 million on capital expenditures, primarily to maintain, automate and upgrade its water management and flowback equipment fleet. Our Completion Fluids & Products Division spent $2.2 million on capital expenditures. Our former Compression Division spent $3.0 million in January of 2021 primarily to maintain its compression fleet.
During the first nine months of 2021, we recorded mark-to-market gains of $11.8 million on our equity holdings of CSI Compressco and Standard Lithium. As of September 30, 2021, the market value of these investments was $22.4 million, with no holding restrictions on our ability to monetize these investments.
Historically, a significant majority of our planned capital expenditures have been related to identified opportunities to grow and expand our existing businesses. We are also focused on enhancing shareholder value by capitalizing on our key mineral assets, brine mineral extraction expertise, and deep chemistry competency to expand our offerings into the low carbon energy markets. However, we continue to review all capital expenditure plans carefully in an effort to conserve cash. We currently have no long-term capital expenditure commitments. If the forecasted demand for our products and services increases or decreases, the amount of planned expenditures on growth and expansion may be adjusted.
Lithium and Bromine Exploration Targets
On August 2, 2021, we announced the completion of a preliminary technical assessment by an independent geological consulting firm, APEX Geoscience Ltd. to assess lithium and bromine exploration targets in our approximately 31,100 net acres of brine leases in the Smackover Formation in Southwest Arkansas. We have rights to the brine, including rights to the bromine and lithium contained in the brine underlying this acreage, pursuant to certain brine leases and brine deeds with various landowners. With respect to approximately 27,500 acres of that total acreage, we had previously entered into an agreement granting Standard Lithium an option to acquire lithium rights.
Bromine has been identified as a key mineral resource in zinc-bromide energy storage systems and our TETRA PureFlow™ high purity zinc bromide has been qualified by several battery technology companies. This exploration assessment is the first step for us to quantify the significance of the resource potential we have in our Arkansas brine leases. The lithium battery market is already acknowledged to be a rapidly growing market, affording us the opportunity to participate in a meaningful way. We will assess the next steps towards determining whether we can develop these key minerals to augment our current global infrastructure and chemistry expertise, allowing us to further expand beyond the oil and gas market.
The exploration targets were estimated for two separate areas within the property based on our brine lease rights. The scope of the exploration target assessment was for bromine in all the approximately 31,100 net acres and lithium for the acreage where we hold the lithium rights not subject to the Standard Lithium Ltd. option. For bromine, the technical assessment identified a brine exploration target estimated to contain between 2.54 and 8.58 million tons of elemental bromine. For lithium, the technical assessment identified an exploration target estimated to contain between 16,000 and 53,000 tons of elemental lithium. Using an elemental to Lithium Carbonate Equivalent ("LCE") conversion of 5.323, the lithium amounts to between 85,000 and 286,000 tons of LCE. The exploration target's potential quantity and grade is conceptual in nature, there has been insufficient exploration to estimate a mineral resource, and it is uncertain if further exploration will result in the estimation of a mineral resource. The exploration targets expressed should not be misrepresented or misconstrued as an estimate of a mineral resource or mineral reserve.
The basis for the lithium and bromine exploration targets is that hypersaline formation water, or brine, associated with some of the world’s oilfields and/or geothermal fields contain confined reservoirs, or aquifers, that are known to contain anomalous concentrations of lithium, bromine and other elements of interest. We propose to assess stratigraphically deep (>2,250 meters, or >7,450 feet, below surface) brine from oil and gas aquifers associated with the Late Jurassic Smackover Formation. The brine is currently pumped from the aquifer to the earth’s surface as a wastewater product associated with hydrocarbon production (e.g., oil, gas, and condensate). It is conceivable that we will be able to develop or utilize evolving commercial technologies to economically remove the bromine and lithium from the brine underlying our acreage before the brine is reinjected back down into the subsurface aquifer.
The volume of the Upper and Middle Smackover members within each exploration target was calculated by wireframing the Smackover Formation aquifer domain to create a 3-D geological model. The model utilized oil and gas well data from the AOGC and AGS Information Circular IC-14, which includes an electronic reprint of Vestal (1950) and a stratigraphic horizon pick file with 3,904 records. Historical information was used to define mean porosity and mean bromine and lithium concentrations. For the conceptual exploration target estimates, the range of elemental bromine and lithium was derived by multiplying the mean volume, porosity, and bromine/lithium concentration of the exploration targets by +/- 20%.
We have yet to conduct mineral exploration work on the leases. The exploration targets are based on historical oil and gas well data and historical Smackover Formation brine geochemical analyses. To advance the exploration targets to the mineral resource estimation and classification stage, we anticipate the implementation of a work program that will comprise some or all of the following activities:
•validating the historical brine geochemistry and attempting to obtain a greater understanding of the distribution of the bromine and lithium concentrations within the Smackover Formation brine underlying our acreage,
•conducting stratigraphic and hydrogeological studies to advance the geological domain boundaries and hydro-parameters of the Upper and Middle Smackover members, and
•conducting mineral processing test work to explore and develop the bromine and lithium extraction processes.
While we continue to evaluate the next steps regarding the potential development of our brine leases, we have yet to conduct exploration work on the leases, and we are not currently able to determine the economic viability of the extraction of the lithium and bromine from the leased acreage. In addition, the extraction of lithium and bromine from these brine leases will likely require a significant amount of time and capital, which we are not able to estimate at this time.
The timing for progressing the recommended work program will depend on the approach for obtaining Smackover Formation brine samples and conducting mineral processing test work. We anticipate achieving brine access through agreements with current oil and gas operators to sample current wells, re-open suspended wells, and/or conduct appraisal drilling within the next one to two quarters.
It is anticipated that validation of the geology, mineralization, and mineral processing by us will advance the confidence level of the deposit toward mineral resource estimations and a potential preliminary economic assessment study. This work is anticipated to commence and be completed in 2022 and it is possible that the exploration target tonnage and grade could change as these proposed exploration activities are completed and evaluated.
Financing Activities
As a result of TETRA’s strong cash flow from operations in 2020 and the proceeds from the GP Sale, during the first nine months of 2021, we repaid $37.5 million on our term credit agreement. We may supplement our existing cash balances and cash flow from operating activities with short-term borrowings, long-term borrowings, issuances of equity and debt securities, and other sources of capital. We are aggressively managing our working capital and capital expenditure needs in order to maximize our liquidity in the current environment.
Long-Term Debt
Asset-Based Credit Agreement. As of September 30, 2021, our ABL Credit Agreement provides for a senior secured revolving credit facility of up to $80.0 million, with a $20.0 million accordion. The credit facility is subject to a borrowing base to be determined by reference to the value of inventory and accounts receivable, and includes a sublimit of $20.0 million for letters of credit, a swingline loan sublimit of $11.5 million, and a $15.0 million sub-facility subject to a borrowing base consisting of certain trade receivables and inventory in the United Kingdom. The amounts we may borrow under the ABL Credit Agreement are derived from our accounts receivable, certain accrued receivables and certain inventory. Changes in demand for our products and services have an impact on our eligible accounts receivable, accrued receivables and the value of our inventory, which could result in significant changes to our borrowing base and therefore our availability under our ABL Credit Agreement.
Term Credit Agreement. The term credit agreement is scheduled to mature on September 10, 2025. Our term credit agreement requires us to offer to prepay a percentage of Excess Cash Flow (as defined in the term credit agreement) within five business days of filing our Annual Report. The minimum amount of $8.2 million that we would have been required to offer to prepay pursuant to this obligation for the year ending December 31, 2021 was paid on July 30, 2021 in connection with amendment of the ABL Credit Agreement. As of October 29, 2021, $176.1 million in aggregate principal amount of our term credit agreement is outstanding.
Other Sources and Uses
In addition to the aforementioned credit facilities, we fund our respective short-term liquidity requirements 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 affect the cost of capital and the ability to raise capital for an indeterminable length of time. If it is necessary to issue additional equity to fund our capital needs, additional dilution of our common stockholders will occur. We periodically evaluate
engaging in strategic transactions and may consider divesting non-core assets where our evaluation suggests such a transaction is in the best interest of our business. In challenging economic environments, we may experience increased delays and failures by customers to pay our invoices. Given the nature and significance of the pandemic and disruption in the oil and gas industry, we could experience delayed customer payments and payment defaults associated with customer liquidity issues and bankruptcies. If our customers delay paying or fail to pay us a significant amount of our outstanding receivables, it could have an adverse effect on our liquidity. An increase of aged unpaid receivable would also negatively affect our borrowing availability under the ABL Credit Agreement.
Off Balance Sheet Arrangements
As of September 30, 2021, we had no “off balance sheet arrangements” that may have a current or future material effect on our consolidated financial condition or results of operations.
Critical Accounting Policies and Estimates
There have been no material changes or developments in the evaluation of the accounting estimates and
the underlying assumptions or methodologies pertaining to our Critical Accounting Policies and Estimates disclosed
in our 2020 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.
Commitments and Contingencies
Investment
For information regarding our MOU with and potential investment in CarbonFree, see Note 7 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements.
Litigation
For information regarding litigation, see - Note 7 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements.
Long-Term Debt
For information on our credit agreements, see Note 6 - “Long-Term Debt and Other Borrowings” in the Notes to Consolidated Financial Statements.
Leases
We have operating leases for some of our transportation equipment, office space, warehouse space, operating locations, and machinery and equipment. Our leases have remaining lease terms ranging from 1 to 16 years. Information about the terms and covenants of our lease agreements can be found in our 2020 Annual Report.
Product Purchase Obligations
In the normal course of our Completion Fluids & Products Division operations, we enter into supply agreements with certain manufacturers of various raw materials and finished products. Some of these agreements have terms and conditions that specify a minimum or maximum level of purchases over the term of the agreement. Other agreements require us to purchase the entire output of the raw material or finished product produced by the manufacturer. Our purchase obligations under these agreements apply only with regard to raw materials and finished products that meet specifications set forth in the agreements. We recognize a liability for the purchase of such products at the time we receive them. As of September 30, 2021, the aggregate amount of the fixed and determinable portion of the purchase obligation pursuant to our Completion Fluids & Products Division’s supply agreements was approximately $93.9 million, including $2.4 million for the remainder of 2021, $12.0 million per year from 2022 to 2025 and $43.5 million thereafter, extending through 2029.
Cautionary Statement for Purposes of Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements in this Quarterly Report are identifiable by the use of the following words, the negative of such words, and other similar words: “anticipates”, “assumes”, “believes”, “budgets”, “could”, “estimates”, “expects”, “forecasts”, “goal”, “intends”, “may”, “might”, “plans”, “predicts”, “projects”, “schedules”, “seeks”, “should”, “targets”, “will”, and “would”.
These forward-looking statements include statements concerning the exploration targets of lithium and bromine, the potential extraction of lithium and bromine from the leased acreage and the economic viability thereof, the timing and cost of such activities, and statements regarding the Company's beliefs, expectations, plans, goals, future events and performance, and other statements that are not purely historical.
Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Part II, “Item 1A. Risk Factors” and elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2020, and those described from time to time in our future reports filed with the SEC.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not Applicable.
Item 4. Controls and Procedures.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2021, the end of the period covered by this quarterly report.
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.