TETRA Technologies, Inc. — 2020 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2020, and was filed March 5, 2021. TETRA provides completion fluids and products, water management, frac flowback, production well testing, and related oilfield services through its Completion Fluids & Products and Water & Flowback Services divisions. The former Compression Division, operated primarily through CSI Compressco LP (CCLP), is presented as discontinued operations for all periods because of the subsequent sale of CCLP’s general partner and related interests.
Operations were materially affected by the COVID-19 pandemic, the collapse and volatility of oil prices, and reduced customer capital spending. TETRA had approximately 1,800 employees worldwide at year-end, including approximately 730 CCLP employees.
Key financial metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $377.7 million | $561.2 million | Down 32.7% |
| Gross profit | $67.5 million | $11.8 million | Up $55.7 million |
| Gross margin | 17.9% | 2.1% | Up 15.8 points |
| Loss from continuing operations | $26.8 million | $130.9 million | Improved $104.1 million |
| Net loss | $98.9 million | $160.5 million | Improved $61.6 million |
| Net loss attributable to TETRA stockholders | $51.1 million | $147.4 million | Improved $96.3 million |
| Loss per share | $0.41 | $1.17 | Improved $0.76 |
| Adjusted EBITDA, continuing operations | $49.1 million | $64.6 million | Down $15.5 million |
| Cash flow from operations | $76.9 million | $90.2 million | Down $13.3 million |
Completion Fluids & Products revenue was $242.7 million, down 13.1%, while gross profit was $77.2 million versus a $15.0 million gross loss in 2019. Water & Flowback Services revenue declined 52.1% to $135.1 million and produced a gross loss of $8.9 million versus gross profit of $27.5 million in 2019.
Year-end cash and cash equivalents were $67.3 million, excluding cash associated with discontinued operations. Total assets were $1.13 billion and total equity was $71.1 million, including TETRA stockholders’ deficit of $9.6 million and noncontrolling interests of $80.7 million. Trade receivables were $64.1 million, net of a $6.8 million allowance, and inventories were $76.7 million.
Liquidity at the end of the fourth quarter was reported as $91.9 million, defined as unrestricted cash plus revolving credit availability. The ABL facility had no borrowings and $24.6 million of availability at December 31, 2020, subject to borrowing-base and covenant limitations. Long-term debt, net of discounts and financing costs, was $199.9 million, primarily under the Term Credit Agreement maturing September 10, 2025. The company reported compliance with all debt covenants at year-end.
Capital expenditures were $29.4 million, including $4.0 million for Completion Fluids & Products, $9.7 million for Water & Flowback Services, $1.0 million for corporate purposes, and $14.7 million for discontinued operations, net of compressor equipment sold.
Material changes versus the prior comparable period
- Consolidated revenue fell primarily because Water & Flowback Services activity and pricing declined sharply in response to lower oil prices and customer spending reductions.
- Completion Fluids & Products margins improved substantially, mainly because 2019 included a $91.6 million impairment of the El Dorado, Arkansas calcium chloride facility. The plant was shut down during 2020 and was not operational at year-end.
- Water & Flowback Services moved from a $27.5 million gross profit in 2019 to an $8.9 million gross loss in 2020. Management reduced wages, benefits, general expenses, and capital spending to offset weaker activity.
- General and administrative expense declined 20.5% to $76.7 million, primarily due to restructuring, headcount reductions, lower salary costs, and reduced professional fees. Bad debt expense increased by $3.3 million.
- Interest expense declined 11.0% to $18.9 million because of lower ABL borrowings.
- Discontinued operations generated a $72.1 million after-tax loss in 2020, compared with a $29.6 million loss in 2019, reflecting weaker CCLP results and additional impairments.
- Operating cash flow declined despite significant working-capital monetization. Capital expenditures were reduced materially from $108.3 million in 2019.
Guidance, outlook, risks, contingencies, and unusual items
Management did not provide specific quantitative revenue or earnings guidance. It stated that oil prices had recovered toward pre-pandemic levels and that activity began stabilizing late in the third quarter and improving in the fourth quarter. Customers nevertheless maintained reduced capital expenditure plans for 2021, and the duration and full financial effect of COVID-19 remained uncertain.
On January 29, 2021, TETRA sold CCLP’s general partner, incentive distribution rights, and approximately 23.1% of CCLP’s limited partner interests to Spartan for $13.4 million in cash at closing, $0.5 million payable after six months, and up to $3.1 million of contingent consideration. TETRA retained approximately 11.1% of CCLP’s common units. Proceeds were required to repay Term Credit Agreement borrowings. Management expected an accounting gain of approximately $125 million in the first quarter of 2021 and will no longer consolidate CCLP.
Important risks include oil and gas price volatility, customer spending reductions, COVID-19 effects, customer credit losses and bankruptcies, competition, raw-material and equipment supply constraints, floating-rate debt, covenant compliance, refinancing risk, foreign currency exposure, cybersecurity, environmental and hydraulic-fracturing regulation, and potential asset impairments.
TETRA remains exposed to possible Maritech decommissioning obligations under historical guarantees and indemnities if current owners or operators fail to perform. Orinoco did not provide required replacement bonds or escrow payments; litigation was pending after the prior summary judgment was vacated. TETRA also obtained a $7.9 million judgment against guarantors of an Epic promissory note, but collection remained uncertain because of an appeal and potential bankruptcy.
The company had $85.3 million of fixed and determinable product-purchase obligations under supply agreements through 2029, including approximately $9.5 million annually from 2021 through 2025. The filing identifies long-lived asset impairment as a critical audit matter. No goodwill remained at December 31, 2020 following the full impairment recorded in 2019.
Grant Thornton LLP issued unqualified opinions on the 2020 financial statements and internal control over financial reporting. Management concluded that disclosure controls and internal controls were effective as of December 31, 2020.
Facts investors should verify
- Whether the anticipated approximately $125 million gain from the CCLP transaction was recognized as expected in the first quarter of 2021.
- Post-transaction debt, liquidity, covenant compliance, and the effect of using sale proceeds to repay the Term Credit Agreement.
- Whether the recovery in oil prices and customer activity continued, particularly in Water & Flowback Services.
- The collectability and ultimate resolution of the Maritech decommissioning exposures, Orinoco bonding litigation, and Epic-related judgment.
- Future impairment risk for operating assets, especially given the company’s dependence on oil and gas activity and its history of significant impairments.
- The execution and cash requirements of the $85.3 million product-purchase commitments and the company’s ability to fund maintenance and growth capital expenditures.
- The impact of discontinued-operations presentation on comparisons of 2021 revenue, earnings, cash flow, leverage, and segment performance.