TETRA Technologies, Inc. — Form 10-Q Summary
Business context and reporting period
TETRA Technologies is a geographically diversified oilfield-services company providing completion fluids, frac-water management, production testing, compression-based production enhancement, offshore plugging and abandonment, decommissioning, diving, and related services. The filing covers the quarter and nine months ended September 30, 2013, with unaudited consolidated results compared with the corresponding 2012 periods.
Key financial metrics
| Metric | Q3 2013 | Q3 2012 | 9M 2013 | 9M 2012 |
|---|---|---|---|---|
| Total revenue | $254.3 million | $234.0 million | $684.0 million | $649.7 million |
| Gross profit | $47.4 million | $50.4 million | $116.9 million | $135.2 million |
| Gross margin | 18.7% | 21.6% | 17.1% | 20.8% |
| Income before taxes | $18.7 million | $13.1 million | $17.5 million | $33.3 million |
| Net income attributable to TETRA stockholders | $12.1 million | $7.7 million | $10.5 million | $20.0 million |
| Diluted EPS | $0.15 | $0.10 | $0.13 | $0.25 |
| Operating cash flow | Not separately provided | Not separately provided | $43.9 million | $(17.4) million |
Quarterly revenue increased 8.7%, while income attributable to TETRA stockholders increased 57.0%. Nine-month revenue increased 5.3%, but gross profit declined 13.5% and net income attributable to TETRA stockholders declined 47.5%. General and administrative expense was $31.8 million in the quarter and $99.0 million year to date. Net interest expense was $4.2 million in the quarter and $12.6 million year to date.
At September 30, 2013, cash and cash equivalents were $28.7 million, restricted cash was $9.1 million, total assets were $1.20 billion, and total equity was $606.1 million. Total debt was $352.9 million, consisting primarily of senior notes and revolving-credit borrowings. No current portion of long-term debt was reported at September 30, 2013. The company reported approximately $224.8 million of net availability under its $278 million revolving credit facility as of November 7, 2013.
Material changes versus the prior comparable period
- Fluids: Quarterly revenue increased 32.4% to $99.6 million and pretax income increased 146.5% to $20.9 million. Growth reflected manufactured calcium-chloride products, clear-brine fluids, and onshore frac-water management.
- Offshore Services: Quarterly revenue increased 9.7% to $86.4 million and pretax income increased 70.0% to $20.6 million. Improved activity, cost reductions, and lower administrative expense expanded gross margin to 27.6% from 22.2%.
- Production Testing: Quarterly revenue declined 15.4% to $47.4 million and pretax income declined 74.7% to $2.8 million, primarily because of lower activity and pricing in the United States and Canada and reduced Mexican activity.
- Compressco: Quarterly revenue increased 2.9% to $29.8 million, but pretax income declined 14.3% to $5.4 million because of lower Mexican activity and higher labor and maintenance costs.
- Maritech: Quarterly pretax loss increased to $15.4 million from $9.2 million. The segment recorded approximately $21.5 million of excess decommissioning costs, including approximately $10.0 million related to future work, partly offset by a $5.4 million gain on the sale of an offshore property.
- Cash flow: Nine-month operating cash flow improved by approximately $61.4 million year over year, despite $99.4 million of decommissioning expenditures, primarily because of improved receivables collections and cost-reduction initiatives.
Guidance, outlook, commentary, risks, and unusual items
- Management expected most remaining Maritech decommissioning expenditures to occur in the fourth quarter of 2013 and anticipated that lower decommissioning requirements would improve operating cash flow beginning in 2014. Actual costs may materially exceed estimates because of remediation requirements, weather, and regulatory approvals.
- Management planned up to approximately $100 million of total 2013 capital expenditures, excluding acquisitions. The company spent $73.6 million through September 30, 2013.
- Production Testing implemented additional cost reductions and equipment relocations expected to reduce operating expenses beginning in the fourth quarter of 2013.
- Compressco and Production Testing remained exposed to uncertainty involving a primary customer in Mexico. Management believed the decline in Mexican activity was temporary but noted only a slow recovery.
- In April 2013, the company issued $35.0 million of 4.0% Senior Notes due 2020 and used the proceeds to repay its 6.3% Senior Notes due in 2013.
- In October 2013, Compressco Partners replaced its prior facility with a new asset-based revolving facility having a $100.0 million maximum commitment and a $30.0 million uncommitted expansion feature. As of November 7, 2013, Compressco had $24.5 million outstanding and $40.9 million of borrowing-base availability.
- In October 2013, TETRA agreed to acquire the remaining 50% interest in Ahmad Albinali & TETRA Arabia Company Ltd.; closing was subject to governmental approvals and other conditions.
- The filing identifies operational, environmental, offshore, currency, interest-rate, customer-concentration, litigation, and decommissioning risks. Management stated that it was in compliance with applicable debt covenants at September 30, 2013.
Most important facts for investors to verify
- Whether Maritech’s remaining approximately $37.3 million of decommissioning liabilities were settled as expected and whether actual costs exceeded recorded estimates.
- Whether the expected 2014 cash-flow improvement materialized after the major decommissioning program ended.
- Recovery of Production Testing and Compressco activity in Mexico and improvement in Production Testing margins.
- Sustainability of Fluids and Offshore Services revenue growth and cost-reduction benefits.
- Compliance with revolving-credit and senior-note financial covenants, particularly as debt maturities approach.
- Closing terms, purchase price, and financial impact of the proposed Saudi Arabian joint-venture acquisition.
- Whether capital expenditures remained within the stated 2013 plan and generated the expected operating returns.