TETRA Technologies, Inc. — Q2 2022 Form 10-Q Summary
Business context and reporting period
TETRA Technologies is an industrial and oil and gas products and services company operating on six continents. Its continuing operations comprise the Completion Fluids & Products Division and the Water & Flowback Services Division. The filing covers the three and six months ended June 30, 2022; results are unaudited. Former Compression and Offshore operations are presented as discontinued operations.
Financial performance and liquidity
| Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 |
|---|---|---|---|---|
| Total revenue | $140.7 million | $102.3 million | $270.8 million | $179.7 million |
| Gross profit | $28.1 million | $16.4 million | $60.5 million | $24.3 million |
| Gross margin | 20.0% | 16.1% | 22.4% | 13.5% |
| Income before taxes and discontinued operations | $1.3 million | $(5.3) million | $10.2 million | $(17.0) million |
| Net income attributable to TETRA stockholders | $1.7 million | $(6.8) million | $9.5 million | $102.0 million |
| Diluted EPS attributable to TETRA stockholders | $0.01 | $(0.05) | $0.07 | $0.81 |
| Operating cash flow | Not separately provided | Not separately provided | $23.8 million | $7.6 million |
Six-month revenue increased 50.7% year over year, driven by higher customer activity, commodity prices and pricing recovery. Completion Fluids & Products revenue rose 33.2% to $148.0 million, while Water & Flowback Services revenue rose 79.2% to $122.8 million. Water & Flowback Services moved from a $5.5 million gross loss to $12.7 million of gross profit.
Second-quarter adjusted EBITDA was $18.7 million, or 13.3% of revenue, compared with $20.5 million, or 15.7%, in the first quarter. Adjusted EBITDA is a non-GAAP measure and may not be comparable with similarly titled measures used by other companies.
Cash and cash equivalents were $36.3 million at June 30, 2022, compared with $31.6 million at December 31, 2021. Reported liquidity was $103.0 million, including unrestricted cash and availability under credit facilities. Six-month capital expenditures were $20.4 million, and net cash used in investing activities was $15.9 million.
Total debt was $153.2 million at June 30, 2022, including $153.2 million outstanding under the term credit agreement. The term facility carried a 7.92% interest rate and matures in September 2025. The ABL facility had no borrowings, $6.0 million of letters of credit and guarantees, and $61.8 million of availability. Management stated that the company was in compliance with all debt covenants.
Material changes versus comparable periods
- Second-quarter revenue increased 37.6% year over year, while six-month revenue increased 50.7%.
- Second-quarter net income attributable to stockholders improved from a $6.8 million loss to $1.7 million of income.
- Six-month continuing operations became profitable, with $9.5 million of income attributable to stockholders versus an $18.6 million loss in the prior-year period.
- The prior-year six-month results included a primarily non-cash $120.6 million gain from the 2021 GP Sale and deconsolidation of CSI Compressco. Accordingly, total net income declined year over year despite significantly improved continuing operations.
- Second-quarter gross margin declined sequentially from 24.9% to 20.0%, primarily because the first quarter included a $3.8 million insurance recovery and the second quarter included $2.3 million of impairments.
- General and administrative expense increased 18.5% in the first six months, primarily due to higher wages, benefits, incentive compensation and staffing. Interest expense declined 16.4% due largely to prior debt repayments.
Outlook, commentary, risks and unusual items
- Management cited sustained high oil and natural gas prices, improved customer activity, stronger pricing and increased utilization of SandStorm water-management units as key business drivers.
- Management expected third-quarter Water & Flowback Services adjusted EBITDA margins to improve, supported by better U.S. onshore pricing, stronger activity and the start of two early production facilities in Argentina.
- Supply-chain disruptions related indirectly to the Russia-Ukraine conflict reduced deliveries of certain raw materials to the Finland plant and affected calcium chloride production and second-quarter margins. The timing and magnitude of the financial impact remain uncertain.
- TETRA continued evaluating bromine and lithium resources in approximately 31,100 net acres in Arkansas. A resource report was expected in the third quarter of 2022, and an engineering firm was being engaged for a preliminary economic assessment of a 3,600-acre development area. Commercial viability, timing and required investment remain uncertain.
- The company recorded $2.3 million of second-quarter impairments, including equipment, inventory, and land and building impairments.
- TETRA filed for arbitration against LANXESS concerning a proposed price increase under a bromine supply agreement. The proceeding was pending, and the company could not predict its duration, scope or outcome.
- Product purchase obligations totaled approximately $104.6 million as of June 30, 2022, extending through 2029.
- The company had a $400 million universal shelf registration available for potential debt or equity offerings, which could increase leverage or dilute existing shareholders if utilized.
- There was no stated quantitative full-year revenue or earnings guidance in the filing.
Important facts for investors to verify
- Reconcile reported revenue references: $140.7 million is second-quarter revenue, while $270.8 million is six-month revenue.
- Assess the sustainability of improved Water & Flowback profitability and the impact of pricing, utilization, labor costs and capital spending.
- Monitor raw-material availability, Finland production and margin effects from supply-chain disruptions.
- Review term-debt maturities, the 7.92% borrowing rate, excess-cash-flow prepayment requirements and covenant compliance.
- Evaluate the cash returns and risks of SandStorm expansion, Argentina facilities, and Arkansas bromine and lithium development.
- Consider the nonrecurring insurance recovery, impairments, investment fair-value changes and discontinued-operation effects when assessing underlying earnings.
- Follow the LANXESS arbitration and the company’s approximately $104.6 million of product purchase obligations.