TETRA Technologies, Inc. — Form 10-Q Summary
Business context and reporting period
Quarterly report for the three and six months ended June 30, 2020, filed August 7, 2020. TETRA provides completion fluids and products, water and flowback services, and compression services and equipment. Results were materially affected by the COVID-19 pandemic, depressed oil and gas prices, reduced customer activity, and lower industry capital spending. CSI Compressco LP (CCLP) is consolidated but has a separate capital structure.
Key financial metrics
| Metric | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 |
|---|---|---|---|---|
| Total revenue | $192.4 million | $288.8 million | $415.4 million | $532.5 million |
| Gross profit | $20.3 million | $48.4 million | $59.7 million | $84.6 million |
| Gross margin | 10.6% | 16.7% | 14.4% | 15.9% |
| Net loss attributable to TETRA stockholders | $21.3 million | $6.9 million | $22.8 million | $17.8 million |
| Basic loss per share | $0.17 | $0.06 | $0.18 | $0.14 |
| Cash flow from operating activities | Not separately reported for the quarter | $60.4 million | $38.4 million | |
| Adjusted EBITDA | $35.3 million | $50.1 million | Six-month comparable value not clearly provided in the filing text |
Six-month revenue declined 22.0%, while second-quarter revenue declined 33.4%. Six-month gross profit declined 29.4%, and second-quarter gross profit declined 58.0%. Second-quarter loss attributable to TETRA stockholders increased to $21.3 million from $6.9 million.
- Completion Fluids & Products revenue was $71.3 million in the second quarter, down 10.6%, with gross margin improving to 29.2% from 24.8%.
- Water & Flowback Services revenue was $24.7 million, down 66.2%, and produced a $4.8 million gross loss.
- Compression revenue was $96.4 million, down 29.1%, with gross margin declining to 4.7% from 15.6%.
- Cash and cash equivalents were $56.7 million at June 30, 2020, including approximately $6.8 million held by CCLP and not accessible to TETRA.
- Consolidated long-term debt was $843.3 million, consisting of $205.7 million of TETRA debt and $637.6 million of CCLP debt.
- TETRA had $37.1 million of borrowing availability under its ABL facility; CCLP had $12.3 million of availability under its credit facility.
- Total equity declined to $112.7 million from $162.8 million at December 31, 2019; TETRA stockholders’ equity was $8.9 million.
Material changes versus the prior comparable period
- COVID-19 and oil and gas price declines sharply reduced drilling, completion, water management, flowback, compression utilization, and new compressor sales.
- Water & Flowback Services shifted from $7.5 million of second-quarter gross profit in 2019 to a $4.8 million gross loss in 2020.
- Compression gross profit fell from $21.2 million to $4.5 million in the second quarter, reflecting lower activity, standby units, pricing concessions, and impairments.
- Completion Fluids & Products remained profitable and improved gross profit despite lower quarterly revenue; six-month revenue increased 3.7% and pretax income increased 56.7%.
- General and administrative expense declined 8.5% for the first six months, primarily from salary, headcount, and cost reductions, partly offset by higher bad-debt expense.
- Operating cash flow increased to $60.4 million from $38.4 million, primarily due to working-capital monetization, including reductions in receivables and inventories.
- Capital expenditures declined to $19.6 million from $60.6 million in the prior-year period.
Guidance, outlook, risks, contingencies, and unusual items
- Management expects reduced activity, pricing pressure, and lower revenue and profitability to continue through the remainder of 2020. The filing does not provide formal revenue or earnings guidance.
- Approximately 15% of U.S. domestic compression horsepower was on standby during the quarter. Management expected some production activity to resume during the third quarter but could not estimate the duration or full effect of market disruption.
- The Midland manufacturing facility was sold on July 2, 2020 for $17.0 million. TETRA intends to complete the remaining backlog but no longer plans to fabricate new compressor packages for third-party sales or its own fleet.
- The company recorded approximately $14.3 million of impairment and other charges during the first half of 2020, including approximately $9.0 million in the second quarter. Additional impairments remain possible.
- CCLP exchanged $215.2 million of 7.25% senior notes for $50.0 million of new first-lien notes and $155.5 million of second-lien notes. The transaction reduced debt by approximately $9.6 million and extended certain maturities, but introduced higher-cost second-lien debt with possible PIK interest.
- CCLP’s credit agreement was amended to reduce commitments, add a borrowing-base reserve, remove a fixed-charge coverage test, and increase applicable margins and commitment fees.
- After quarter-end, a customer bankruptcy resulted in an additional $2.8 million reserve against trade receivables included in the June 30 balance sheet.
- Outstanding litigation includes claims related to unpaid obligations from the divestiture of the former Offshore Division and disputed decommissioning guarantees. The company cannot assure recovery and could face liabilities if counterparties fail to perform.
- The company was in compliance with debt covenants at June 30, 2020, but borrowing availability is sensitive to accounts receivable, inventory values, customer defaults, and further declines in activity.
Important facts for investors to verify
- Whether oil and gas activity, compression utilization, and customer payments improved after June 30, 2020.
- Actual cash accessibility between TETRA and CCLP, including restrictions on CCLP cash and future distributions.
- Debt maturities, interest costs, PIK elections, covenant compliance, and borrowing-base availability under the amended CCLP facilities.
- Whether additional impairments, inventory write-downs, restructuring charges, or bad-debt reserves were recorded after the quarter.
- Proceeds and final accounting for the Midland facility sale and other planned compressor asset sales.
- Resolution and recoverability of the Orinoco, Clarke, and Epic-related litigation and guarantees.
- The extent to which the disclosed $50.0 million of remaining compression-service performance obligations converts into revenue and cash.