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. Operations are managed through Completion Fluids & Products and Water & Flowback Services. This unaudited filing covers the three and six months ended June 30, 2021, compared with the corresponding 2020 periods.
The former Compression Division, including CSI Compressco, is presented as discontinued operations following the January 29, 2021 sale of CSI Compressco’s general partner, incentive distribution rights, and approximately 23.1% of its limited partner interests.
Key Financial Metrics
| Metric | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 |
|---|---|---|---|---|
| Total revenue | $102.3 million | $96.1 million | $179.7 million | $228.8 million |
| Gross profit | $16.4 million | $15.8 million | $24.3 million | $44.8 million |
| Gross margin | 16.1% | 16.5% | 13.5% | 19.6% |
| Loss before discontinued operations | $6.7 million | $13.2 million | $18.6 million | $10.2 million |
| Net income (loss) | $(6.8) million | $(37.0) million | $102.3 million | $(47.3) million |
| Net income (loss attributable to TETRA stockholders) | $(6.8) million | $(21.3) million | $102.0 million | $(22.8) million |
| Diluted earnings (loss) per share | $(0.05) | $(0.17) | $0.81 | $(0.18) |
| Adjusted EBITDA | $13.0 million | $8.9 million | Not clearly provided in the filing text | Not clearly provided in the filing text |
Q2 revenue increased 6.5% year over year, while gross profit increased 3.9%. General and administrative expense declined 27.3% to $17.4 million, and net interest expense declined 15.6% to $3.9 million. Q2 results included a $2.7 million warrant fair-value adjustment expense. The six-month net income was dominated by the primarily non-cash $120.6 million gain from the CSI Compressco transaction.
Cash Flow, Debt, and Liquidity
- Cash provided by operating activities was $7.6 million for the six months ended June 30, 2021, compared with $60.4 million in the prior-year period.
- Capital expenditures were $12.5 million, resulting in $10.5 million of net cash used in investing activities.
- Financing activities used $29.8 million, including $29.3 million of term-loan repayments.
- Cash and cash equivalents were $50.3 million at June 30, 2021, compared with $67.3 million at December 31, 2020.
- Total debt was $171.8 million, consisting primarily of a term credit agreement; $8.2 million was classified as current and $163.6 million as long-term debt.
- The ABL facility had no outstanding borrowings, $6.2 million of letters of credit, and approximately $31.7 million of availability at June 30, 2021. Management reported total liquidity of approximately $82.0 million.
- On July 30, 2021, the ABL facility was amended and extended to May 31, 2025. The company also elected to repay the $8.2 million term-loan amount that otherwise would have become due in 2022.
Material Changes Versus the Prior Comparable Period
- Completion Fluids & Products revenue declined 9.4% in Q2 and 24.2% for the six-month period, primarily due to lower offshore and international activity. Q2 pretax income nevertheless increased 24.4% because of lower general and administrative costs and higher investment-related income.
- Water & Flowback Services revenue increased 52.6% in Q2 as North American activity recovered, and its pretax loss narrowed to $5.0 million from $8.4 million. For the six-month period, revenue declined 16.6% and gross loss worsened because of lower activity, severe winter weather, and start-up costs.
- Six-month consolidated revenue and gross margin declined because the prior-year comparison included stronger pre-pandemic activity and the current year was affected by COVID-19-related market weakness, severe February weather, fixed costs, and product mix.
- Corporate cost reductions lowered Q2 general and administrative expense, while six-month corporate expense included $4.7 million of long-term incentive compensation expense and $1.2 million of GP Sale transaction expenses.
- The company retained approximately 10.9% of CSI Compressco and held investments of $16.2 million at June 30, 2021, including $9.6 million in CSI Compressco and $6.6 million in Standard Lithium.
Guidance, Outlook, Risks, and Unusual Items
Management did not provide quantitative revenue or earnings guidance in the filing. Management expects improving oil prices, customer activity, COVID-19 vaccine rollout, and economic stimulus to support further recovery in onshore, Gulf of Mexico, and international activity during the second half of 2021. The company continues to manage costs tightly and may defer or cancel capital projects.
- Renewed COVID-19 outbreaks, ineffective vaccines, changing oil prices, customer activity levels, and delayed offshore or international projects could reduce demand, revenue, cash flow, and borrowing availability.
- Customer credit deterioration, delayed payments, and bankruptcies could adversely affect liquidity and the ABL borrowing base.
- The warrant liability is remeasured through earnings and may create volatility; the warrants covering approximately 11.2 million shares expire by December 31, 2021.
- The company committed to invest $5.0 million in a CarbonFree convertible note, subject to conditions and expected to close in the third quarter of 2021.
- Fixed and determinable purchase obligations under product supply agreements totaled approximately $80.7 million through 2029, including $4.8 million for the remainder of 2021.
- Management reported compliance with debt covenants and stated that pending litigation was not expected to have a material adverse effect. No material changes to internal controls were reported.
Important Facts for Investors to Verify
- Separate recurring operating performance from the $120.6 million primarily non-cash CSI Compressco disposal gain and other discontinued-operation effects.
- Assess whether Water & Flowback Services can achieve sustained positive gross margins as activity recovers.
- Reconcile reported liquidity after the July 30, 2021 ABL amendment and the $8.2 million term-loan repayment.
- Monitor operating cash flow, accounts receivable growth, customer credit quality, and compliance with borrowing-base requirements.
- Evaluate the market-value volatility of the CSI Compressco and Standard Lithium investments and the warrant liability.
- Review the CarbonFree investment, supply obligations, and the company’s ability to fund capital expenditures while reducing debt.