TETRA Technologies, Inc. — Form 10-Q Summary
Business context and reporting period
Unaudited results for the three and nine months ended September 30, 2021, compared with the same periods in 2020. TETRA operates through Completion Fluids & Products and Water & Flowback Services, serving oil and gas markets globally and pursuing low-carbon opportunities involving lithium, bromine and carbon capture.
The former Compression Division, including CSI Compressco, is presented as discontinued operations following the January 29, 2021 GP Sale.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Revenue | $95.5 million | $73.5 million | $275.1 million | $302.3 million |
| Gross profit | $15.7 million | $10.2 million | $40.0 million | $55.1 million |
| Gross margin | 16.5% | 13.9% | 14.6% | 18.2% |
| Income before taxes and discontinued operations | $3.1 million | $(9.5) million | $(14.0) million | $(17.9) million |
| Net income attributable to TETRA stockholders | $2.5 million | $(13.3) million | $104.5 million | $(36.1) million |
| Diluted earnings per share | $0.02 | $(0.10) | $0.83 | $(0.29) |
| Operating cash flow | Not separately provided | Not separately provided | $10.4 million | $64.8 million |
| Adjusted EBITDA | $15.0 million | $7.4 million | Not clearly provided | Not clearly provided |
Q3 Water & Flowback Services revenue increased 117.3% to $46.8 million and produced $3.0 million of gross profit versus a $5.7 million gross loss in the prior-year quarter. Completion Fluids & Products revenue declined 6.3% to $48.7 million, while gross margin decreased to 26.6% from 31.2%.
At September 30, 2021, cash and cash equivalents were $41.9 million, long-term debt was $164.2 million, and total equity was $100.1 million. Reported liquidity was $90.1 million, consisting of unrestricted cash and available revolving credit. The ABL facility had no outstanding balance, $6.2 million of letters of credit and $48.2 million of borrowing availability.
Material changes versus the prior comparable period
- Q3 revenue increased 29.9%, gross profit increased 54.2%, and the company moved from a continuing-operations pretax loss of $9.5 million to pretax income of $3.1 million.
- Improvement reflected recovering North American oil and gas activity, higher Water & Flowback volumes and pricing, and improved operating leverage.
- Nine-month revenue declined 9.0% and gross margin fell to 14.6%, primarily because the prior-year comparison included different timing and severity of COVID-19 and oil-price-related market impacts.
- Operating cash flow declined $54.4 million year over year, partly because 2021 included only 29 days of CSI Compressco activity versus nine months in 2020, as well as lower revenue and working-capital effects.
- The company repaid $37.5 million of term debt during the first nine months, including $29.3 million in the first quarter and $8.2 million in July.
Outlook, commentary, risks and unusual items
- Management reported continued improvement in customer activity during the third quarter, supported by oil prices averaging approximately $70 per barrel and natural gas prices above $4 per million Btu. No formal numerical earnings or revenue guidance was provided.
- Management expects improving oil demand to support increased offshore activity, but cited international shipping delays, Hurricane Ida, inflation in raw-material and logistics costs, and commodity-price sensitivity.
- The nine-month results include a primarily non-cash $120.6 million gain from the GP Sale, which drove most of the $104.5 million net income attributable to TETRA stockholders.
- Other income benefited from mark-to-market appreciation in the CSI Compressco and Standard Lithium investments. The investments totaled $22.4 million at September 30, 2021.
- Outstanding warrants expire by December 31, 2021 and generated a $3.2 million fair-value gain in Q3; future earnings may remain volatile until expiration.
- TETRA is evaluating lithium and bromine resources in approximately 31,100 net acres of Arkansas brine leases. The reported exploration targets are conceptual, are not mineral resources or reserves, and require further exploration and potentially significant time and capital.
- The company committed to invest $5.0 million in a CarbonFree convertible note, subject to conditions. Fixed and determinable purchase obligations under supply agreements totaled approximately $93.9 million through 2029.
- Management reported compliance with debt covenants and no material litigation developments. Key risks include commodity prices, customer credit and payment defaults, borrowing-base availability, inflation, capital-market access, foreign exchange and execution of new-energy initiatives.
Important facts for investors to verify
- Separate sustainable operating performance from the $120.6 million non-cash discontinued-operations gain.
- Monitor whether Water & Flowback Services can sustain positive gross profit and improve its nine-month gross margin.
- Reconcile reported liquidity of $90.1 million to cash, ABL availability, letters of credit and borrowing-base requirements.
- Assess debt-repayment capacity against $164.2 million of reported long-term debt and the September 2025 term-loan maturity.
- Review the valuation volatility and monetization prospects of the CSI Compressco and Standard Lithium investments.
- Validate the technical and economic feasibility of the Arkansas lithium and bromine exploration targets; the filing states that economic viability has not yet been established.
- Consider the effect of the $93.9 million supply commitment and the potential $5.0 million CarbonFree investment on future liquidity.