TETRA Technologies, Inc. — Form 10-Q Summary
Business Context and Reporting Period
TETRA Technologies is an oil and gas services company focused on completion fluids and products, water management, frac flowback, and production well testing. The filing covers the quarter ended March 31, 2021, with comparisons to March 31, 2020. Continuing operations comprise Completion Fluids & Products and Water & Flowback Services.
On January 29, 2021, TETRA sold the general partner of CSI Compressco, its incentive distribution rights, and approximately 23.1% of CSI Compressco’s limited partner interests. CSI Compressco is reported as discontinued operations, and TETRA retained approximately 10.9% of its common units.
Key Financial Metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $77.3 million | $132.7 million | Down 41.7% |
| Gross profit | $7.9 million | $29.0 million | Down 72.9% |
| Gross margin | 10.2% | 21.9% | Down 11.7 percentage points |
| Loss before taxes from continuing operations | $11.8 million | Income of $3.7 million | Favorable comparison not applicable |
| Loss from continuing operations | $11.9 million | Income of $3.0 million | Favorable comparison not applicable |
| Income from discontinued operations | $121.0 million | Loss of $13.4 million | Primarily includes $120.6 million gain on CSI Compressco sale |
| Net income attributable to TETRA stockholders | $108.7 million | Loss of $1.6 million | Reported EPS: $0.86 vs. $(0.01) |
| Cash flow from operating activities | $5.8 million | $22.2 million | Down $16.4 million |
| Capital expenditures | $6.8 million | $12.4 million | Down $5.6 million |
| Adjusted EBITDA, continuing operations | $9.0 million | $21.8 million | Down 58.8% |
Completion Fluids & Products generated $46.5 million of revenue, $11.7 million of gross profit, and $9.0 million of pretax income. Water & Flowback Services generated $30.8 million of revenue, a $3.6 million gross loss, and a $5.5 million pretax loss.
At March 31, 2021, cash and cash equivalents were $54.2 million. Total debt was $171.2 million on the consolidated balance sheet, including $8.2 million classified as current. The company reported $26.9 million of ABL availability and total liquidity of $81.1 million. It had no ABL borrowings and $6.9 million of letters of credit outstanding.
Material Changes Versus the Prior Comparable Period
- Revenue declined substantially in both operating divisions because oilfield activity remained below pre-pandemic levels and February 2021 severe weather temporarily shut down operations in several southern states.
- Completion Fluids & Products revenue fell 38.2%, while pretax income declined 53.5% to $9.0 million.
- Water & Flowback Services revenue fell 46.4% and shifted from a $3.3 million gross profit to a $3.6 million gross loss, partly because of lower activity and start-up costs associated with ramping operations.
- Gross margin contracted because of lower revenue, product mix, and fixed costs that do not vary with activity levels.
- General and administrative expense was broadly stable overall, but included $3.4 million of additional stock-based incentive compensation expense and $1.7 million of higher professional fees, primarily related to the CSI Compressco transaction.
- Other income increased to $5.1 million, primarily from approximately $4.0 million of appreciation in retained CSI Compressco units and Standard Lithium shares.
- TETRA used GP Sale proceeds and cash on hand to repay approximately $29.3 million of term debt during the quarter.
- The balance sheet changed materially because assets and liabilities associated with CSI Compressco were removed upon deconsolidation. The reported net income and equity improvement are therefore not representative of recurring operating performance.
Outlook, Commentary, Risks, and Unusual Items
- Management reported improving North American activity as oil prices rose above $50 per barrel in January and reached approximately $60 per barrel in February. It expects improving oil demand, vaccine deployment, fiscal stimulus, and operator discipline to support oil prices and increased offshore activity in the second and third quarters.
- No specific quantitative revenue or earnings guidance was provided.
- Cost-reduction initiatives implemented during 2020 remained in effect, and management continued to tightly manage working capital and capital expenditures.
- Capital spending may be postponed or canceled to preserve cash; the company stated that it had no long-term capital expenditure commitments.
- Key risks include COVID-19 effects, oil and gas price volatility, customer activity levels, severe weather, delayed customer payments or bankruptcies, reduced ABL borrowing availability, and potential difficulty accessing capital markets.
- The company has approximately $83.0 million of fixed and determinable purchase obligations under product supply agreements, including $7.1 million for the remainder of 2021 and obligations extending through 2029.
- TETRA remains exposed to discontinued-operation contingencies, including potential decommissioning liabilities related to former Maritech assets if Orinoco or related guarantors fail to perform. Litigation is ongoing concerning required replacement bonds and escrow payments.
- The company also holds a $7.9 million judgment against the Clarkes related to the Epic Companies promissory note; an appeal is pending, and collection is uncertain.
- Management stated that it was in compliance with all debt covenants as of March 31, 2021. A minimum estimated term-loan prepayment of $8.2 million is expected after filing the 2021 Form 10-K.
Investor Verification Checklist
- Separate recurring operating results from the $120.6 million primarily non-cash CSI Compressco deconsolidation gain.
- Reconcile continuing-operations cash generation with debt maturities, required term-loan prepayments, and ABL availability.
- Monitor recovery in Water & Flowback Services, offshore activity, product mix, and gross margins.
- Review the retained CSI Compressco and Standard Lithium investments and their effect on reported other income.
- Assess customer credit quality, receivables aging, borrowing-base availability, and the $83.0 million of purchase obligations.
- Track developments in the Maritech decommissioning litigation and the Epic Companies judgment.
- Confirm the effect of discontinued-operations presentation on future comparisons and reported leverage metrics.