TETRA Technologies, Inc. — Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three and six months ended June 30, 2012, compared with the corresponding 2011 periods. TETRA is an oil and gas services company operating through Fluids, Production Testing, Compressco, Offshore Services, and Maritech. Its services include completion fluids, production testing, after-frac flowback, wellhead compression, offshore decommissioning, plugging and abandonment, and related services.
Key financial metrics
| Metric | Three months ended June 30, 2012 | Year-over-year change | Six months ended June 30, 2012 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $234.9 million | Down 0.1% | $415.7 million | Down 9.2% |
| Gross profit | $53.1 million | Up 48.3% | $85.5 million | Up 37.5% |
| Gross margin | 22.6% | Up from 15.2% | 20.6% | Up from 13.6% |
| General and administrative expense | $31.5 million | Up 8.5% | $62.4 million | Up 9.8% |
| Income before taxes | $18.4 million | Down 61.2% | $20.2 million | Down 53.6% |
| Net income attributable to TETRA stockholders | $11.6 million | Down 61.9% | $12.3 million | Down 56.4% |
| Diluted earnings per share | $0.15 | Down from $0.39 | $0.16 | Down from $0.36 |
| Operating cash flow | Not separately provided | — | $(8.0) million | Down from $59.9 million provided |
At June 30, 2012, cash and cash equivalents were $49.2 million, compared with $204.4 million at December 31, 2011. Current assets were $390.7 million and current liabilities were $250.4 million. Total debt was $305.0 million, including $35.0 million classified as current debt, compared with $305.0 million at year-end 2011. Total equity was $582.1 million.
Six-month investing cash outflows were $147.4 million, including $107.5 million for the Optima and ERS acquisitions and $55.9 million of capital expenditures. Six-month financing cash outflows were $1.5 million. Accounts receivable increased to $183.8 million from $141.5 million at year-end, contributing to the operating cash outflow.
Material changes versus the prior comparable period
- Production Testing revenue increased 58.6% in the second quarter and 36.4% for the first six months, driven by the Optima and ERS acquisitions and stronger domestic onshore activity.
- Compressco revenue increased 13.1% in the second quarter and 8.4% year to date, primarily due to higher Latin American and domestic shale activity. Its gross margin increased to 36.6% in the quarter from 31.0%.
- Fluids revenue increased 1.1% in the quarter and 1.8% year to date, led by clear brine fluids sales. Fluids’ quarterly gross margin improved to 23.7% from 21.1%.
- Offshore Services revenue declined 7.5% in the quarter and 9.5% year to date because of weather disruptions, permitting delays, competition, pricing pressure, vessel repairs, and lower abandonment and diving activity.
- Maritech revenue fell 96.5% in the quarter and 95.1% year to date following the sale of substantially all producing properties. Maritech reported a second-quarter pretax loss of $8.6 million versus pretax income of $38.5 million in 2011.
- Reported earnings were reduced by the absence of the prior-year gain on Maritech property sales, which was approximately $58.2 million in the second quarter of 2011 and approximately $59.3 million for the first six months of 2011. The prior-year period also included hedge ineffectiveness losses of approximately $14.2 million in the second quarter.
- General and administrative expense increased due to acquisition-related costs, personnel and professional fees, and additional public-company costs associated with Compressco Partners.
Guidance, outlook, risks, contingencies, and unusual items
- In July 2012, TETRA acquired Greywolf Production Systems and GPS for approximately $55.5 million. The company expects the acquisition to further expand Production Testing, but the purchase-price allocation and pro forma impact had not been finalized as of the filing.
- TETRA had spent approximately $163 million on the Optima, ERS, and Greywolf acquisitions during 2012. Management expects to fund remaining 2012 capital expenditures from cash and operating cash flow and planned up to $140 million of capital expenditures for the full year, excluding acquisitions.
- Following July borrowings, TETRA had approximately $50.1 million outstanding under its revolving facility, $8.5 million of letters of credit and guarantees, and approximately $219.4 million of net availability. Compressco Partners separately borrowed $5.8 million in July.
- The $35.0 million of 6.30% Senior Notes matures in April 2013. Management expects to fund repayment with cash, revolving borrowings, or additional debt.
- Management stated that it was in compliance with the covenants governing its credit facilities and senior notes as of June 30, 2012. Continued compliance depends substantially on generating adequate cash flow.
- Maritech’s remaining decommissioning liability was estimated at approximately $106.0 million on a discounted fair-value basis, with approximately $75.5 million of related cash outflows expected during the twelve months ending June 30, 2013. Actual costs for two hurricane-damaged platforms could materially exceed estimates.
- Lower oil and natural gas prices and reduced natural-gas drilling activity could adversely affect demand, revenue, profitability, and operating cash flow, particularly in Production Testing, Compressco, and Fluids.
- A European calcium chloride plant was expected to operate at reduced production levels because of unplanned equipment repairs, with repairs expected to be completed in the third quarter of 2012.
- Litigation and governmental proceedings arise in the ordinary course of business; management did not expect them to have a material adverse effect. TETRA Micronutrients remains responsible for remediation and monitoring obligations at a former Nebraska facility.
- The company reported no material off-balance-sheet arrangements and no material changes to the risk factors disclosed in its 2011 Form 10-K.
Important facts for investors to verify
- Whether the Production Testing acquisitions, including Greywolf, deliver expected revenue, earnings, and cash-flow growth after integration.
- The pace of accounts-receivable collection and the ability to convert improved gross profit into positive operating cash flow.
- Funding sources and terms for the April 2013 senior-note maturity and any additional acquisition or capital-expenditure spending.
- Compliance with debt covenants as leverage increases and operating cash flow remains dependent on oilfield activity.
- Actual costs and timing of Maritech’s remaining decommissioning obligations, particularly the two hurricane-damaged platforms.
- The effect of commodity prices, natural-gas drilling activity, offshore pricing pressure, weather, customer permitting, and competition on future results.