TETRA Technologies, Inc. — Form 10-Q Summary
Business context and reporting period
TETRA Technologies is an energy services and solutions company operating on six continents through its Completion Fluids & Products and Water & Flowback Services divisions. The filing covers the quarter and six months ended June 30, 2023; results exclude the former Offshore and Compression divisions, which are reported as discontinued operations.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $175.5 million | $140.7 million | $321.7 million | $270.8 million |
| Gross profit | $49.2 million | $28.1 million | $85.5 million | $60.5 million |
| Gross margin | 28.0% | 20.0% | 26.6% | 22.4% |
| Net income attributable to TETRA stockholders | $18.2 million | $1.7 million | $24.3 million | $9.5 million |
| Diluted EPS | $0.14 | $0.01 | $0.19 | $0.07 |
| Cash flow from operations | Not separately provided | Not separately provided | $37.4 million | $23.8 million |
- Q2 adjusted EBITDA was $36.0 million, or 20.5% of revenue, compared with $20.6 million, or 14.1% of revenue, in Q1 2023. Adjusted EBITDA is a non-GAAP measure.
- Cash and cash equivalents were $27.7 million at June 30, 2023, versus $13.6 million at December 31, 2022.
- Liquidity was $99.0 million, consisting of unrestricted cash and availability under credit facilities.
- Total debt carried on the balance sheet was $157.9 million, including $156.0 million of term debt and $1.9 million under the Argentina facility. Aggregate principal debt was $165.0 million.
- The term loan carried an 11.40% interest rate at quarter-end and matures September 10, 2025. The company had no ABL balance outstanding and reported $66.6 million of ABL availability, subject to borrowing-base and covenant conditions.
- Capital expenditures were $23.3 million during the first six months, including $16.6 million for Water & Flowback Services and $6.5 million for Completion Fluids & Products.
Material changes versus comparable periods
- Second-quarter revenue increased 24.7% year over year and was described by management as a record quarterly level excluding discontinued operations. Six-month revenue increased 18.8%.
- Completion Fluids & Products revenue rose 31.3% year over year in Q2 and 13.0% for the six months, supported by international and Gulf of Mexico activity, European seasonal demand, pricing, volume, and expanded capacity.
- Water & Flowback Services revenue rose 17.2% year over year in Q2 and 25.8% for the six months. Growth reflected higher activity, early production facilities in Latin America, and technology deployment, partly offset by softer North American onshore activity in Q2.
- Six-month gross margin expanded to 26.6% from 22.4%, reflecting stronger pricing, improved market conditions, higher-margin projects, and operating efficiencies.
- Interest expense increased 59.2% for the six months to $11.0 million, primarily because of higher borrowing costs and the increased rate on the term loan.
- General and administrative expense increased 11.6% for the six months, primarily from higher wages, benefits, incentives, headcount, and credit-loss provisions.
- Other income included a $4.7 million cumulative reimbursement credit from Saltwerx for exploration and pre-development costs.
Outlook, commentary, risks, and unusual items
- Management cited continued demand, high utilization of TETRA SandStorm separators, stable pricing for differentiated offerings, and longer-term high-margin early production facilities in Latin America.
- The company is evaluating lithium and bromine opportunities in Arkansas. A second exploratory well’s results were expected in the third quarter of 2023, but additional resource studies, engineering, feasibility work, regulatory approvals, and capital commitments are required before a development decision.
- A June 2023 memorandum of understanding with Saltwerx contemplates a 6,138-acre brine unit, potential bromine and lithium production, reimbursement of certain historical costs, and shared future development costs. The arrangement remains subject to regulatory approval and definitive arrangements.
- The company recorded a $0.8 million impairment of its corporate office lease in Q2 and recognized $2.9 million of insurance recoveries during the first six months for damaged equipment.
- The company adopted a Tax Benefits Preservation Plan to protect approximately $105.1 million of disclosed U.S. federal, state, and foreign NOL-related deferred tax assets. Utilization may nevertheless be limited by future ownership changes, taxable income, expiration dates, or Section 382 restrictions.
- The LANXESS bromine-price arbitration was settled and dismissed with prejudice in June 2023. The related agreement includes revised volume requirements and other terms.
- Fixed and determinable product purchase obligations totaled approximately $63.6 million at June 30, 2023, including $5.2 million for the remainder of 2023.
- Key risks include commodity and energy-sector activity levels, customer credit and collections, interest-rate exposure, borrowing-base availability, foreign exchange, supply-chain and inflationary pressures, regulatory approval of brine development, and the uncertain economic viability of inferred lithium and bromine resources.
Investor verification points
- Verify whether revenue growth and margin expansion persist after the seasonal European chemicals uplift and without the $4.7 million Saltwerx reimbursement credit.
- Reconcile reported balance-sheet debt of $157.9 million with aggregate principal debt of $165.0 million and assess the 11.40% term-loan cost and 2025 maturity.
- Monitor operating cash flow conversion, inventory growth, capital expenditures, and the sustainability of the $99.0 million liquidity position.
- Track results from the Arkansas exploratory well, AOGC approval of the proposed brine unit, definitive Saltwerx agreements, and progress toward feasibility studies and financing.
- Assess exposure to customer receivable losses, borrowing-base reductions, floating interest rates, foreign currencies, and the $63.6 million of purchase obligations.
- Review the company’s non-GAAP Adjusted EBITDA reconciliation and the effect of excluding exploration costs, collaborative-arrangement income, equity compensation, impairments, and other unusual items.