TETRA Technologies, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Unaudited results cover the three months ended March 31, 2020, compared with the three months ended March 31, 2019. TETRA is an oil and gas services company operating through Completion Fluids & Products, Water & Flowback Services, and Compression. Results were materially affected by the COVID-19 pandemic, the collapse and volatility in oil prices, customer spending reductions, and oil-market oversupply.
Key Financial Metrics
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $222.9 million | $243.7 million | Down 8.5% |
| Gross profit | $39.4 million | $36.2 million | Up 8.9% |
| Gross margin | 17.7% | 14.9% | Up 2.8 percentage points |
| General and administrative expense | $30.5 million | $34.3 million | Down 10.9% |
| Loss before taxes and discontinued operations | $9.1 million | $17.1 million | Improved $8.0 million |
| Net loss | $10.4 million | $19.1 million | Improved $8.7 million |
| Net loss attributable to TETRA stockholders | $1.6 million | $10.8 million | Improved $9.3 million |
| Basic and diluted loss per share | $0.01 | $0.09 | Improved |
| Adjusted EBITDA | $47.8 million | $36.3 million | Up $11.5 million |
| Cash flow from operating activities | $22.2 million | $7.4 million | Up $14.8 million |
| Capital expenditures, net | $12.4 million | $32.4 million | Down $20.0 million |
Cash and cash equivalents were $29.5 million at March 31, 2020, up from $17.7 million at December 31, 2019. Consolidated long-term debt was $845.8 million, including $207.4 million owed by TETRA and $638.4 million owed by CCLP. Approximately $7.4 million of consolidated cash was held by CCLP and was not accessible to TETRA. TETRA reported $40.8 million of ABL availability, while CCLP reported $20.4 million, subject to borrowing bases, covenants, and other restrictions. Both entities were in compliance with their debt covenants at March 31, 2020.
Material Changes Versus the Prior Comparable Period
- Completion Fluids & Products revenue increased 22.2% to $75.2 million, primarily from higher clear brine fluid and manufactured product sales, including a TETRA CS Neptune project. Pretax income increased to $19.4 million from $6.2 million.
- Water & Flowback Services revenue declined 27.0% to $57.5 million as water management activity and international equipment sales decreased. The division reported a $2.2 million pretax loss versus $2.2 million of pretax income in the prior year.
- Compression revenue declined 12.8% to $90.2 million, primarily because of fewer new compressor package deliveries. Service revenue increased, but the division’s pretax loss widened to $12.8 million from $7.8 million.
- Gross margin improved despite lower revenue, reflecting the stronger Completion Fluids & Products mix, cost controls, and lower expenses. The improvement was partly offset by a $5.4 million impairment in the Compression Division.
- Interest expense declined modestly to $17.9 million. The prior-year period included a $1.2 million fair value expense related to CCLP Series A Preferred Units; all remaining preferred units were redeemed by August 2019.
- Operating cash flow improved primarily from better Completion Fluids & Products profitability, working-capital changes, and lower capital spending.
Guidance, Outlook, Risks, and Unusual Items
- Management did not provide formal earnings guidance. It stated that results are expected to remain negatively affected absent a meaningful recovery in oil and natural gas prices and a material improvement in the COVID-19 pandemic.
- TETRA reduced capital spending plans, implemented workforce and salary reductions, suspended 401(k) matching contributions, targeted lower SG&A, and negotiated supplier cost reductions. Planned 2020 capital expenditures were approximately $10 million to $15 million excluding Compression and approximately $28 million to $35 million for Compression.
- In April 2020, TETRA announced plans to shut down its Midland manufacturing facility, stop fabricating new compressor packages for third-party sales, and outsource future fabrication for its own fleet. The company is pursuing a sale of the facility and evaluating other non-core asset sales, but there is no assurance these transactions will close.
- TETRA began discontinuing chemical production at its El Dorado, Arkansas facility, with production expected to wind down after early June 2020. Customer demand is expected to be supplied through other plants and terminals.
- The company recorded approximately $5.4 million of impairment charges on the Midland facility and related inventory. Management stated that additional impairment or restructuring charges may occur because the duration and full impact of market disruption cannot be estimated.
- CCLP launched an exchange offer for its $295.9 million of 7.25% Senior Notes due 2022, offering new secured notes due 2025 and 2027. Completion was not assured, and the transaction could alter CCLP’s collateral structure, covenants, and liquidity.
- Material liquidity risks include approximately $1.4 billion of consolidated contractual cash obligations, including debt principal, interest, purchase obligations, asset retirement obligations, and operating leases. TETRA and CCLP have separate capital structures without cross-defaults, cross-collateralization, or cross-guarantees.
- Discontinued-operations contingencies remain. TETRA may be required to satisfy certain Maritech decommissioning liabilities if Orinoco or related parties fail to perform. TETRA is litigating claims relating to missing replacement bonds and escrow payments. TETRA also sued guarantors after Epic Companies defaulted on a $7.5 million promissory note; the guarantors asserted counterclaims seeking more than $1 million plus punitive damages and fees.
- TETRA received an NYSE notice because its average closing share price was below $1.00. The extended cure period was stated to end December 5, 2020; failure to regain compliance could lead to suspension or delisting, potentially impairing share liquidity and access to capital.
Investor Verification Items
- Verify the pace and duration of COVID-19 and oil-market impacts on customer activity, pricing, utilization, and backlog.
- Monitor TETRA and CCLP borrowing-base availability, covenant compliance, debt maturities, interest requirements, and the outcome of the CCLP exchange offer.
- Assess whether the Midland and El Dorado closures produce additional impairments, restructuring costs, cash savings, or asset-sale proceeds.
- Reconcile consolidated cash with cash legally available to TETRA, particularly the CCLP-held cash and restrictions on distributions.
- Review future impairment indicators for compression assets, inventories, and other long-lived assets.
- Track the NYSE minimum-price compliance process and any potential reverse stock split or delisting consequences.
- Follow the Orinoco decommissioning-liability litigation and the Epic promissory-note guaranty litigation for potential cash recoveries or obligations.
- Consider that Adjusted EBITDA is a non-GAAP measure and may not be comparable with similarly titled measures used by other companies.