TETRA Technologies, Inc. — Q1 2024 Form 10-Q Summary
Business context and reporting period
TETRA Technologies is an energy services and solutions company operating on six continents through its Completion Fluids & Products and Water & Flowback Services divisions. The company also is developing lower-carbon opportunities involving bromine, lithium, calcium chloride, and carbon capture. This unaudited Form 10-Q covers the three months ended March 31, 2024, compared primarily with the three months ended March 31, 2023.
Key financial metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $151.0 million | $146.2 million | Up 3.3% |
| Gross profit | $31.1 million | $36.3 million | Down 14.4% |
| Gross margin | 20.6% | 24.8% | Down 420 basis points |
| Income before taxes | $1.3 million | $7.5 million | Down 82.8% |
| Net income attributable to TETRA stockholders | $0.9 million | $6.0 million | Down 84.9% |
| Diluted earnings per share | $0.01 | $0.05 | Decreased |
| Adjusted EBITDA | $22.8 million | Not clearly provided for Q1 2023 in the filing comparison table | Down from $24.1 million in Q4 2023 |
| Cash flow from operating activities | $(13.8) million | $9.0 million | Declined |
| Capital expenditures | $15.8 million | $12.8 million | Increased |
Completion Fluids & Products revenue increased 11.9% to $77.3 million, with a 34.2% gross margin. Water & Flowback Services revenue decreased 4.5% to $73.7 million, while gross margin declined to 6.4% from 14.8%.
Cash, debt, liquidity, and balance sheet
- Cash and cash equivalents were $35.9 million at March 31, 2024, down from $52.5 million at December 31, 2023.
- Total assets were $491.3 million, compared with $479.0 million at year-end 2023.
- Long-term debt had a carrying value of $179.4 million; the related principal amount was $190.0 million. The new Term Credit Agreement has a January 2030 maturity and an interest rate of 11.17% at quarter-end.
- The new $265.0 million Term Credit Agreement includes a $190.0 million funded term loan and a $75.0 million delayed-draw term loan, partly intended to fund the Arkansas bromine project.
- The ABL facility had no borrowings, $0.5 million of letters of credit and guarantees, and approximately $79.5 million of availability. The company reported total liquidity of $195.1 million, including cash and available borrowing capacity.
- The Term Credit Agreement requires a leverage ratio of no more than 4.0 to 1.0 and liquidity of at least $50.0 million. Management reported compliance with all credit agreement covenants at March 31, 2024.
Material changes versus the prior comparable period
- Revenue grew modestly, but gross profit and profitability declined because of weaker Water & Flowback performance, higher operating costs, and unfavorable product mix.
- Water & Flowback revenue declined due to lower North American onshore completion activity and the sale of an early production facility in Latin America in October 2023.
- Completion Fluids & Products benefited from higher European and North American industrial chemical volumes, improved pricing, and stronger activity, particularly in deepwater completion projects.
- Interest expense increased 16.9% to $6.0 million due to higher borrowings and interest rates.
- The company recorded a $5.5 million loss on debt extinguishment, primarily from expensing unamortized financing costs when the prior credit facility was refinanced in January 2024.
- Other income increased to $4.0 million, primarily because of unrealized gains on investments, including CSI Compressco.
- Operating cash flow shifted from $9.0 million of inflow to $13.8 million of outflow, driven largely by a $19.6 million increase in accounts receivable and other working-capital movements.
- Approximately $4.0 million of Arkansas development costs were capitalized in Q1 2024, whereas $0.7 million of comparable exploration and pre-development costs were expensed in Q1 2023.
Guidance, outlook, risks, and unusual items
- The filing does not provide clear full-year revenue, earnings, or Adjusted EBITDA guidance.
- Management expects an initial economic assessment for a lithium extraction plant in the first half of 2024, subject to early-engineering progress. The company is also advancing a definitive feasibility study for an Arkansas bromine processing facility and negotiating a lithium joint venture with ExxonMobil’s Saltwerx subsidiary.
- Management stated that Water & Flowback maintained staffing and equipment during the temporary slowdown and expected to respond to opportunities from the second quarter onward; the filing does not quantify the expected financial impact.
- The Arkansas lithium and bromine projects may require significant time and capital. The company cautions that mineral resources may not become economically or legally commercializable and that lithium extraction technology and project economics remain uncertain.
- Key operating risks include oil and gas activity levels, commodity prices, customer concentration and payment risk, raw-material and labor costs, foreign-currency volatility, regulatory and environmental requirements, cybersecurity, geopolitical events, and debt covenant restrictions.
- The company has approximately $69.0 million of fixed and determinable product purchase obligations, including $20.9 million due during the remainder of 2024.
- On April 1, 2024, Kodiak completed its acquisition of CSI Compressco. TETRA exchanged approximately 5.2 million CSI Compressco common units for approximately 450,000 Kodiak common shares.
- On April 25, 2024, a purported stockholder filed a Delaware class action challenging the company’s Tax Benefits Preservation Plan. TETRA believes the claims lack merit; management does not expect existing litigation to have a material adverse impact, although litigation outcomes are uncertain.
Most important facts for investors to verify
- Whether Water & Flowback margins recover as North American completion activity improves.
- The timing, cost, financing structure, and economic results of the Arkansas bromine and lithium projects.
- Compliance with the Term Credit Agreement’s leverage and minimum-liquidity covenants as project spending continues.
- Whether negative operating cash flow and higher accounts receivable reverse in subsequent quarters.
- The value and monetization terms of the Kodiak shares received for the CSI Compressco investment.
- The potential impact of the Tax Benefits Preservation Plan litigation and other ordinary-course legal proceedings.
- The company’s reconciliation and comparability of Adjusted EBITDA, a non-GAAP measure, against GAAP cash flow and earnings.