Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 1.70M
2: EX-31.1 Certification -- §302 - SOA'02 HTML 23K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 23K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 20K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 20K
11: R1 Cover Page HTML 70K
12: R2 Consolidated Statements of Operations HTML 153K
13: R3 Consolidated Statements of Operations HTML 23K
(Parenthetical)
14: R4 Consolidated Statements of Comprehensive Income HTML 47K
15: R5 Consolidated Statements of Comprehensive Income HTML 21K
(Parenthetical)
16: R6 Consolidated Balance Sheets HTML 170K
17: R7 Consolidated Balance Sheets (Parenthetical) HTML 32K
18: R8 Consolidated Statement of Equity Statement HTML 111K
19: R9 Consolidated Statements of Cash Flows HTML 116K
20: R10 Consolidated Statement of Equity (Parenthetical) HTML 37K
21: R11 Organization, Basis of Presentation, and HTML 40K
Significant Accounting Policies
22: R12 Discontinued Operations HTML 99K
23: R13 Revenue from Contracts with Customers HTML 49K
24: R14 Inventories HTML 27K
25: R15 Investments HTML 28K
26: R16 Long-Term Debt and Other Borrowings HTML 42K
27: R17 Commitments and Contingencies HTML 26K
28: R18 Fair Value Measurements HTML 48K
29: R19 Net Income (Loss) per Share HTML 30K
30: R20 Industry Segments HTML 81K
31: R21 Organization, Basis of Presentation, and HTML 46K
Significant Accounting Policies (Policies)
32: R22 Organization, Basis of Presentation, and HTML 27K
Significant Accounting Policies (Tables)
33: R23 Discontinued Operations (Tables) HTML 100K
34: R24 Revenue from Contracts with Customers (Tables) HTML 43K
35: R25 Inventories (Tables) HTML 28K
36: R26 Investments (Tables) HTML 26K
37: R27 Long-Term Debt and Other Borrowings (Table) HTML 33K
38: R28 Fair Value Measurements (Tables) HTML 44K
39: R29 Net Income (Loss) per Share (Tables) HTML 29K
40: R30 Industry Segments (Tables) HTML 78K
41: R31 Organization, Basis of Presentation, and HTML 23K
Significant Accounting Policies - Additional
Information (Details)
42: R32 Organization, Basis of Presentation, and HTML 25K
Significant Accounting Policies - Supplemental
Cash Flows (Details)
43: R33 Discontinued Operations - Additional Information HTML 44K
(Details)
44: R34 Discontinued Operations (Details) HTML 88K
45: R35 Revenue from Contracts with Customers - Additional HTML 33K
Information (Details)
46: R36 Revenue from Contracts with Customers - Revenue HTML 32K
Performance Obligation (Details)
47: R37 Revenue from Contracts with Customers - HTML 39K
Disaggregation of Revenue (Details)
48: R38 Inventories (Details) HTML 29K
49: R39 Investments in and Advances to Affiliates HTML 28K
(Details)
50: R40 Long-Term Debt and Other Borrowings - Schedule of HTML 42K
Long Term Debt (Details)
51: R41 Long-Term Debt and Other Borrowings - Additional HTML 56K
Information (Details)
52: R42 Commitment and Contingencies (Details) HTML 33K
53: R43 Fair Value Measurements - Additional Information HTML 48K
(Details)
54: R44 Fair Value Measurements - Market Risks and HTML 43K
Derivative Hedge Contracts (Details)
55: R45 Net Income (Loss) per Share - Reconciliation of HTML 26K
the Weighted Average Number of Common Shares
Outstanding (Details)
56: R46 Net Income (Loss) per Share - Additional HTML 20K
Information (Details)
57: R47 Industry Segments - Additional Details (Details) HTML 20K
58: R48 Industry Segments - Revenue, Income from HTML 49K
Operations, and Assets by Reporting Segment
(Details)
59: R49 Industry Segments - Corporate Expenses (Details) HTML 43K
62: XML IDEA XML File -- Filing Summary XML 111K
60: XML XBRL Instance -- tti-20220930_htm XML 1.66M
61: EXCEL IDEA Workbook of Financial Reports XLSX 103K
7: EX-101.CAL XBRL Calculations -- tti-20220930_cal XML 179K
8: EX-101.DEF XBRL Definitions -- tti-20220930_def XML 363K
9: EX-101.LAB XBRL Labels -- tti-20220930_lab XML 1.05M
10: EX-101.PRE XBRL Presentations -- tti-20220930_pre XML 648K
6: EX-101.SCH XBRL Schema -- tti-20220930 XSD 104K
63: JSON XBRL Instance as JSON Data -- MetaLinks 302± 449K
64: ZIP XBRL Zipped Folder -- 0000844965-22-000054-xbrl Zip 315K
Former Name, Former Address and Former Fiscal
Year, if Changed Since Last Report
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon Stock
iTTI
iNew
York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. iYes☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☒ No ☐
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
iAccelerated
filer
☒
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging growth company
i☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐
No ☒
As ofOctober 28, 2022, there werei128,619,825 shares outstanding of the Company’s Common Stock, $0.01 par value per share.
Income
(loss) before taxes and discontinued operations
i2,115
i3,082
i12,329
(i13,963)
Provision
for income taxes
i2,178
i587
i2,899
i2,139
Income
(loss) before discontinued operations
(i63)
i2,495
i9,430
(i16,102)
Discontinued
operations:
Income from discontinued operations, net of taxes
i319
i18
i270
i120,882
Net
income
i256
i2,513
i9,700
i104,780
Less:
loss (income) attributable to noncontrolling interests(1)
i22
i—
i43
(i306)
Net
income attributable to TETRA stockholders
$
i278
$
i2,513
$
i9,743
$
i104,474
Basic
net income (loss) per common share:
Income (loss) from continuing operations
$
i0.00
$
i0.02
$
i0.08
$
(i0.13)
Income
from discontinued operations
i—
i—
i—
i0.96
Net
income attributable to TETRA stockholders
$
i0.00
$
i0.02
$
i0.08
$
i0.83
Weighted
average basic shares outstanding
i128,407
i126,733
i127,890
i126,489
Diluted
net income (loss) per common share:
Income (loss) from continuing operations
$
i0.00
$
i0.02
$
i0.08
$
(i0.13)
Income
from discontinued operations
i—
i—
i—
i0.96
Net
income attributable to TETRA stockholders
$
i0.00
$
i0.02
$
i0.08
$
i0.83
Weighted
average diluted shares outstanding
i128,407
i128,694
i129,704
i126,489
(1)
Loss (income) attributable to noncontrolling interests includes iizero/
for the three months ended September 30, 2022 and 2021, respectively, and izero and $i333
income for the nine months ended September 30, 2022 and 2021, respectively, related to discontinued operations.
NOTE 1 – iORGANIZATION,
BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES
i
Organization
We are an industrial and oil and gas products and services company operating on six continents, focused on bromine-based completion fluids, calcium chloride, water management solutions, frac flowback and production well testing services. We were incorporated in Delaware in 1981 and are composed of itwo
segments – Completion Fluids & Products Division and Water & Flowback Services Division. Unless the context requires otherwise, when we refer to “we,”“us,” and “our,” we are describing TETRA Technologies, Inc. and its subsidiaries on a consolidated basis.
/
i
Presentation
Our
unaudited consolidated financial statements include the accounts of our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The information furnished reflects all normal recurring adjustments, which are, in the opinion of management, necessary to provide a fair statement of the results for the interim periods. Operating results for the period ended September 30, 2022 are not necessarily indicative of results that may be expected for the twelve months ended December 31, 2022.
We have reflected the operations of our former Compression Division and Offshore Division as discontinued operations for all periods presented. See Note 2 - “Discontinued Operations”
for further information. Unless otherwise noted, amounts and disclosures throughout these Notes to Consolidated Financial Statements relate solely to continuing operations and exclude all discontinued operations.
The accompanying unaudited consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the U.S. Securities and Exchange Commission (“SEC”) and do not include all information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. These financial statements should be read in conjunction with the financial statements for the year ended December 31, 2021 and notes thereto included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on
February 28, 2022 (the “2021 Annual Report”).
Significant Accounting Policies
Our significant accounting policies are described in the notes to our consolidated financial statements for the year ended December 31, 2021 included in our 2021 Annual Report. There have been no significant changes in our accounting policies or the application thereof during the third quarter of 2022.
i
Use
of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclose contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses, and impairments during the reporting period. Actual results could differ from those estimates, and such differences could bematerial.
i
Reclassifications
Certain
previously reported financial information has been reclassified to conform to the current year's presentation. The impact of reclassifications was not significant to the prior year's overall presentation.
We
have designated the Euro, the British pound, the Canadian dollar, theBrazilian real, and theMexican peso as the functional currencies for our operations in Finland and Sweden, the United Kingdom, Canada, Brazil,and certain of our operations in Mexico, respectively. The United States dollar is the designated functional currency for all of our other non-U.S. operations. The cumulative translation effects of translating the applicable accounts from the functional currencies into the United States dollar at current exchange rates are included as a separate component ofequity. Foreign currency exchange (gains) and losses are included in other (income) expense, net and totaled $(i1.1) million
and $(i2.7) million during the three and nine months ended September 30, 2022, respectively, and $(i0.1) million and
$(i1.1) million during the three and nine months ended September 30, 2021, respectively.
/
i
Fair
Value Measurements
We utilize fair value measurements to account for certain items and account balances within our consolidated financial statements. Fair value measurements are utilized on a recurring basis in the determination of the carrying values of certain investments. See Note 8 - “Fair Value Measurements” for further discussion. Fair value measurements are also utilized on a nonrecurring basis in certain circumstances, including the impairment of long-lived assets (a Level 3 fair value measurement).
Supplemental Cash Flow Information
i
Supplemental
cash flow information from continuing and discontinued operations is as follows:
Increase
(decrease) in accrued capital expenditures
$
(i4,101)
$
i463
(1)
Prior-year information includes the activity for CSI Compressco for January only.
/
i
New Accounting Pronouncements
Standards not yet adopted
In June 2016, the FASB issued
ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses on financial instruments not accounted for at fair value through net income. The provisions require credit impairments to be measured over the contractual life of an asset and developed with consideration for past events, current conditions, and forecasts of future economic information. Credit impairment will be accounted for as an allowance for credit losses deducted from the amortized cost basis at each reporting date. We are continuing to work through our implementation plan which includes evaluating the impact on our allowance for doubtful accounts methodology, identifying new reporting requirements, and implementing changes to business processes,
systems, and controls to support adoption of the standard. Upon adoption, the allowance for doubtful accounts is expected to increase with an offsetting adjustment to retained earnings. Updates at each reporting date after initial adoption will be recorded through selling, general, and administrative expense. ASU 2016-13 will become effective for us in the first quarter of fiscal 2023. We continue to assess the potential effects of these changes to our consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)”, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference
rate expected to be discontinued. Entities may elect to apply the amendments for contract modifications made on or before December 31, 2022. During 2021, our asset-based credit agreement and term credit agreement were
amended to allow replacement of LIBOR with another benchmark rate, such as the secured overnight financing rate (“SOFR”) in the event that LIBOR cannot be determined or does not fairly reflect the cost to our lenders of funding our loans. If LIBOR is not available, we cannot predict what alternative
index would be negotiated with our lenders. We will assess the impact of adopting ASU 2020-04 on our consolidated financial statements if or when our contracts are modified to eliminate references to LIBOR.
NOTE 2 – iDISCONTINUED OPERATIONS
On
January 29, 2021, we entered into the Purchase and Sale Agreement with Spartan Energy Partners, LP (“Spartan”) pursuant to which we sold the general partner of CSI Compressco, including the incentive distribution rights (“IDRs”) in CSI Compressco LP, (“CSI Compressco”), and approximately i23.1% of the outstanding limited partner interests in CSI Compressco, in exchange for the
combination of $i13.9 million in cash and $i3.1 million in contingent consideration in the form of cash and/or
CSI Compressco common units if CSI Compressco achieves certain financial targets on or before December 31, 2022. Throughout this Quarterly Report, we refer to this transaction as the “GP Sale.”Following the closing of the transaction, we retained an interest in CSI Compressco representing approximately i3.7% of the outstanding common units as of September 30, 2022. As a result of these transactions, we no longer consolidate CSI
Compressco as of January 29, 2021. We recognized a primarily non-cash accounting gain of $i120.6 million during the three-month period ended March 31, 2021 related to the GP Sale. The gain is included in income (loss) from discontinued operations, net of taxes in our consolidated statement of operations. We provided back-office support to CSI Compressco under a Transition Services Agreement that ended during the three-month period ended March 31, 2022.
During the second quarter of 2022, we sold equipment to CSI Compressco for approximately $i0.3 million. Our interest in CSI Compressco and the general partner represented substantially all of our Compression Division.
In addition, on March 1, 2018, we closed a series of related transactions that resulted in the disposition of our Offshore Division, consisting of our Offshore Services and Maritech segments. Our former Compression and Offshore Divisions
are reported as discontinued operations for all periods presented. Our consolidated balance sheets and consolidated statements of operations report discontinued operations separate from continuing operations. Our consolidated statements of comprehensive income, statements of equity and statements of cash flows combine continuing and discontinued operations. Our prior-year consolidated statement of operations, statement of comprehensive income, statement of equity and statement of cash flows include CSI Compressco activity for January 1 through January 29 in 2021. Our consolidated statements of cash flows for the nine-month period ended September 30, 2021 included $i3.0
million of capital expenditures related to our former Compression division. iA summary of financial information related to our discontinued operations is as follows:
Reconciliation of the Line Items Constituting Pretax Loss from Discontinued Operations to the After-Tax Loss from Discontinued Operations
Major classes of line items constituting income from discontinued operations
Revenue
$
i18,968
$
i—
$
i18,968
Cost
of revenues
i11,474
(i146)
i11,328
General
and administrative expense
i2,796
i6
i2,802
Interest
expense, net
i4,336
i—
i4,336
Other
expense, net
i164
i—
i164
Pretax
income from discontinued operations
i198
i140
i338
Pretax
gain on disposal of discontinued operations
i120,574
Total pretax income from discontinued operations
i120,912
Income
tax provision
i30
Total income from discontinued operations
i120,882
Loss
from discontinued operations attributable to noncontrolling interest
(i333)
Income from discontinued operations attributable to TETRA stockholders
$
i120,549
Reconciliation
of Major Classes of Assets and Liabilities of the Discontinued Operations to Amounts Presented Separately in the Statement of Financial Position
Our contract asset balances, primarily associated with contractual invoicing milestones and/or customer documentation requirements, were $i33.4 million
and $i20.5 million as of September 30, 2022 and December 31, 2021, respectively. Contract assets, along with billed trade accounts receivable, are included in trade accounts receivable in our consolidated balance sheets.
Unearned income includes amounts in which the
Company was contractually allowed to invoice prior to satisfying the associated performance obligations. We are also party to agreements in which Standard Lithium Ltd. (“Standard Lithium”) has the right to explore, and an option to acquire the rights to produce and extract lithium in our Arkansas leases as well as other potential resources in the Mojave region of California. The Company receives cash and stock of Standard Lithium under the terms of the arrangements. The cash and stock component of consideration received is initially recorded as unearned income based on the quoted market price at the time the stock is received, then recognized in income over the contract term. Unearned income balances were $i4.1
million and $i3.2 million as of September 30, 2022 and December 31, 2021, respectively, and vary based on the timing of invoicing and performance obligations being met and the timing of the receipt of stock and cash from Standard Lithium. Unearned income is included in accrued liabilities and other in our consolidated balance sheets. During the three-month and nine-month periods ended September 30, 2022 and September 30,
2021, contract costs were not significant.
During the three-month and nine-month periods ended September 30, 2022, we recognized approximately $i2.6 million and $i1.7
million of revenue, respectively, deferred in unearned income as of the beginning of the period. These amounts are included in products sales and services revenues in our consolidated statements of operations. Other revenue recognized during the three-month and nine-month periods ended September 30, 2021 deferred in unearned income as of the beginning of the period was not significant. We also recognized approximately $i2.4 million and $i1.3
million of income during the nine-month periods ended September 30, 2022 and September 30, 2021, respectively, related to the Standard Lithium arrangements. These amounts are included in other income, net in our consolidated statements of operations.
We disaggregate revenue from contracts with customers into Product Sales and Services within each segment, as noted in our itwo
reportable segments in Note 10 - “Industry Segments.”iIn addition, we disaggregate revenue from contracts with customers by geography based on the following table below.
Finished
goods inventories include newly manufactured clear brine fluids as well as used brines that are repurchased from certain customers for recycling.
Following
the closing of the GP Sale, we continue to own approximately i3.7% of the outstanding CSI Compressco common units as of September 30, 2022. In addition, we are party to agreements in which Standard Lithium has the right to explore, and an option to acquire the rights to produce and extract lithium in our Arkansas leases as well as additional potential resources in the Mojave region of California. The Company receives cash and stock of Standard Lithium
(NYSE:SLI) under the terms of the arrangements. The cash and stock component of consideration received is initially recorded as unearned income based on the quoted market price at the time the stock is received, then recognized in income over the contract term. See Note 8 - “Fair Value Measurements” for further information.
In May 2021, we signed a memorandum of understanding (“MOU”) with CarbonFree, a carbon capture company with patented technologies that capture CO2 and mineralize emissions to make commercial, carbon-negative chemicals. Although the MOU expired in May 2022 at the end of its twelve-month term, we have an intellectual property joint development agreement in place with CarbonFree to evaluate potential new technologies. In December 2021, we invested $i5.0 million
in a convertible note issued by CarbonFree. Our exposure to potential losses by CarbonFree is limited to our investment in the convertible note and associated accrued interest.
(1)
Net of unamortized deferred financing costs of izero and $i1.5 million as of September 30, 2022 and December 31,
2021, respectively. Deferred financing costs of $i1.2 million as of September 30, 2022, were classified as other long-term assets on the accompanying consolidated balance sheet as there was no outstanding balance on our asset-based credit agreement.
In January 2022, the
Company entered into a revolving credit facility for seasonal working capital needs of subsidiaries in Sweden (“Swedish Credit Facility”). As of September 30, 2022, we had less than US$i0.1 million outstanding and availability of approximately US$i4.5 million
under the Swedish Credit Facility. During each year, all outstanding loans under the Swedish Credit Facility must be repaid for at least 30 consecutive days. Borrowings bear interest at a rate of i2.95% per annum. The Swedish Credit Facility expires on December 31, 2022 and the Company intends to renew it annually.
In January 2022, the Company also entered into an agreement guaranteed by certain accounts receivable and inventory in Finland (“Finland Credit Agreement”). As of September 30, 2022, there were US$i1.4 million of letters of credit outstanding against the Finland Credit Agreement. The Finland Credit Agreement
expires on January 31, 2023 and the Company intends to renew it annually.
ABL Credit Agreement
As of September 30, 2022, our asset-based credit agreement (“ABL Credit Agreement”) provides for a senior secured revolving credit facility of up to $i80.0 million,
with a $i20.0 million accordion. The credit facility is subject to a borrowing base determined monthly by reference to the value of inventory and accounts receivable, and includes a sublimit of $i20.0 million
for letters of credit, a swingline loan sublimit of $i11.5 million, and a $i15.0 million sub-facility
subject to a borrowing base consisting of certain trade receivables and inventory in the United Kingdom.
As of September 30, 2022, we had izero outstanding and $i4.7
million in letters of credit and guaranteesunder our ABL Credit Agreement, respectively. Subject to compliance with the covenants, borrowing base, and other provisions of the ABL Credit Agreement that may limit borrowings, we had availability of $i62.6 million under this agreement.
Term Credit Agreement
As of September 30,
2022, we had $i153.9 million outstanding, net of unamortized discounts and unamortized deferred financing costs under our term credit agreement (“Term Credit Agreement”). The Term Credit Agreement requires us to offer to prepay a percentage of Excess Cash Flow (as defined in the Term Credit Agreement) within five business days of filing our Annual Report. As of September 30, 2022, the interest rate per annum on borrowings under the Term Credit Agreement is i8.77%.
For additional information on our Term Credit agreement, see our 2021 Annual Report.
Our credit agreements contain certain affirmative and negative covenants, including covenants that restrict the ability to pay dividends or other restricted payments. As of September 30, 2022, we are in compliance with all covenants under the credit agreements.
NOTE 7 – iCOMMITMENTS
AND CONTINGENCIES
Litigation
We are named defendants in several lawsuits and respondents in certain governmental proceedings arising in the ordinary course of business. While the outcome of lawsuits or other proceedings against us cannot be predicted with certainty, management does not consider it reasonably possible that a loss resulting from such lawsuits or other proceedings in excess of any amounts accrued has been incurred that is expected to have a material adverse impact on our financial condition, results of operations, or liquidity.
We have a Bromine Requirements Sales Agreement (“Sales Agreement”) to purchase a certain volume of elemental bromine from LANXESS Corporation (formerly Chemtura Corporation, “LANXESS”), included
in Product Purchase Obligations below. LANXESS notified us of a proposed non-ordinary course increase to the price of bromine, which we believe is not justified nor appropriate under the Sales Agreement. After lengthy discussions, we and LANXESS were unable to reach an agreement regarding the validity of the proposed price increase; therefore, we filed for arbitration in May 2022 seeking declaratory relief, among other relief, declaring that the proposed price increase is invalid. In September 2022, LANXESS filed a counterclaim with the American Arbitration Association seeking declaratory relief, among other relief, declaring that the proposed price increase was valid and seeking damages in the amount of the price increase from July 1, 2022 forward. In October 2022, we filed a reply to LANXESS’ counterclaim disputing the counterclaim and amending our original demand. The arbitration is currently pending, and no final
hearing date has been set. We are unable to predict the duration, scope or impact of this proceeding on our consolidated financial statements.
There have been no other material developments in our legal proceedings during the quarter ended September 30, 2022. For a discussionofourlegalproceedings, please see our 2021 Annual Report.
In the normal course of our Completion Fluids & Products Division operations, we enter into supply agreements with certain manufacturers of various raw materials and finished products. Some of these agreements have terms and conditions that specify a minimum or maximum level of purchases over the term of the agreement. Other agreements require us to purchase the entire output of the raw material or finished product produced by the manufacturer. Our purchase obligations under these agreements apply only with regard to raw materials and finished products that meet specifications set forth in the agreements. We recognize a liability for the purchase of such products at the time we receive them. As of September 30, 2022, the aggregate
amount of the fixed and determinable portion of the purchase obligation pursuant to our Completion Fluids & Products Division’s supply agreements wasapproximately $i120.2 million, including $i1.0 million
for the remainder of 2022, an average of $iiii17.9/// million
per year from 2023 to 2026 and $i47.5 million thereafter, extending through 2029.
NOTE 8 – iFAIR
VALUE MEASUREMENTS
Financial Instruments
Investments
We retained an interest in CSI Compressco (NASDAQ: CCLP) representing approximately i3.7% of CSI Compressco’s outstanding common units as of September 30, 2022.
In December 2021, we invested
in a $i5.0 million convertible note issued by CarbonFree. Our investment in CarbonFree is recorded in investments on our consolidated balance sheets based on an internal valuation with assistance from a third-party valuation specialist (a Level 3 fair value measurement). The valuation is impacted by key assumptions, including the assumed probability and timing of potential debt or equity offerings. The convertible note includes an option to convert the note into equity interests issued by CarbonFree. The change in the fair value
of the embedded option is included in other (income) expense, net in our consolidated statements of operations. The change in the fair value of the convertible note, excluding the embedded option, is included in other comprehensive income in our consolidated statements of comprehensive income.
We are party to agreements in which Standard Lithium has the right to explore, produce and extract lithium in our Arkansas leases as well as additional potential resources in the Mojave region of California. The Company receives cash and stock of Standard Lithium (NYSE: SLI) under the terms of the arrangements. The cash and stock component of consideration received is initially recorded as unearned income based on the quoted market price at the time the stock is received, then recognized in income over the contract
term.
Our investments in CSI Compressco and Standard Lithium are recorded based on the quoted market stock price in active markets (a Level 1 fair value measurement). Changes in the value of stock are recorded in other income (expense) in our consolidated statements of operations.
During
the second quarter of 2022, our Completion Fluids & Products and Water & Flowback Services Divisions each recorded certain inventory and long-lived tangible asset impairments. Our Water & Flowback Services Division recorded impairments, including $i1.3 million of equipment, $i0.2 million
of inventory, and $i0.5 million for land and buildings. The Completion Fluids & Products Division also recorded a $i0.2 million
impairment related to obsolete inventory. The inventory and equipment were written down to izero or scrap value. The fair value of land and buildings of $i0.4 million was estimated based on
recent sales price per square acre or square foot of comparable properties (a Level 3 fair value measurement) in accordance with the fair value hierarchy.
The fair values of cash, restricted cash, accounts receivable, accounts payable, accrued liabilities, short-term borrowings and long-term debt pursuant to TETRA’s ABL Credit Agreement, Swedish Credit Agreement and Term Credit Agreement approximate their carrying amounts. See Note 6 - “Long-Term Debt and Other Borrowings” for further discussion.
NOTE 9 – iNET
INCOME (LOSS) PER SHARE
i
The following is a reconciliation of the weighted average number of common shares outstanding with the number of shares used in the computations of net income (loss) per common and common equivalent share:
Number of weighted average common shares outstanding
i128,407
i126,733
i127,890
i126,489
Assumed
exercise of equity awards and warrants
i—
i1,961
i1,814
i—
Average
diluted shares outstanding
i128,407
i128,694
i129,704
i126,489
/
The
average diluted shares outstanding excludes the impact of certain outstanding equity awards and warrants of i1.5 million shares for the three-month period ended September 30, 2022 and i1.8
million shares for the nine-month period ended September 30, 2021 as the inclusion of these shares would have been anti-dilutive due to the net loss from continuing operations recorded during these periods.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and accompanying notes included in this Quarterly
Report.In addition, the following discussion and analysis also should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (“SEC”) on February 28, 2022 (“2021 Annual Report”). This discussion includes forward-looking statements that involve certain risks and uncertainties.
Business Overview
We are an industrial and oil and gas products and
services company operating on six continents, focused on bromine-based completion fluids, calcium chloride, water management solutions, frac flowback and production well testing services. Calcium chloride is used in the oil and gas industry, and also has broad industrial applications to the agricultural, road, food and beverage and lithium production markets. We are composed of two segments – Completion Fluids & Products Division and Water & Flowback Services Division.
Commodity prices have remained constructive with oil sustaining an average price of approximately $93 per barrel for the third quarter of 2022, and natural gas prices averaging approximately $8 per million Btu. Third quarter consolidated revenue of $135.0 million was slightly below second-quarter levels and is comparable to the pre-pandemic period, although with significantly fewer operating frac crews in the United States.
Completion Fluids & Products Division revenues were slightly lower sequentially, as the prior quarter benefited from the seasonal uplift for our European industrial chemicals business. However, with much higher oil prices relative to the prior year quarter continuing to drive demand, revenues were significantly higher compared to the prior year quarter, primarily due to increased completions activity in the Gulf of Mexico and international markets. We have continued to successfully leverage opportunities to expand integrated services to completion fluids customers. As the offshore market continues to improve, our pipeline of TETRA CS Neptune® completion fluid opportunities is growing to levels we have not experienced since 2014, with additional projects expected to come on line beginning late in 2023. Our Completion Fluids & Products Division
also continued to ship TETRA's high purity zinc bromine solution, TETRA PureFlow® to Eos Energy Enterprises, Inc. ("Eos") (NASDAQ: EOSE) under our recent strategic partnership.
We have not historically directly purchased any significant volumes of raw materials from Russia nor from Ukraine. Additionally, we have not historically sold any significant volumes of product to Russia or to Ukraine. However, one of our raw material providers sourced one of their raw materials from Russia or Ukraine. Because of the ongoing conflict between Russia and Ukraine, toward the end of the first quarter, our primary European supplier of certain raw materials advised us of supply constraints with one of their suppliers of a key raw material used in their manufacturing process. This raw material is a widely used, global commodity but the disruption to the current
supply chain has caused some impact on their production which in turn has caused a reduction in delivered volumes of certain raw materials to our plant in Finland where we manufacture calcium chloride, which has decreased our calcium chloride production volumes and had some impact on our margins during the first half of 2022. Our supplier has sourced their material from an alternative location and resumed supplying increased volumes to us, greater than the first half of 2022, although not yet at full production levels. We are also continuing to work with secondary and tertiary raw material providers on options to address the situation and mitigate the financial impact and we are told from our primary provider that they continue to pursue a more normalized supply chain as they progress through the second half of the year. The exact financial impact remains difficult to quantify at this time and is dependent on our primary supplier’s capability to restore historical supply
and our ability to find alternative sources of certain raw materials from suppliers not directly or indirectly impacted by the conflict or the ability of our primary supplier to source alternative raw material sources.
Our Water & Flowback Services revenues increased sequentially, and improved significantly compared to the prior year quarter, due to margin expansion efforts driven by investments in technology, integration, digitalization, as well as two early production facilities in Latin America that became operational early in the third quarter. The early production facilities are longer-term, high-margin projects with stable and predictable cash flows and we anticipate commencing operation on a third early production facility in early 2023. Our fleet of TETRA SandStormTM (“SandStorm”) advanced cyclone technology separators remains at
high utilization with continued
market penetration and positive pricing progression. During the quarter, over two thirds of our water transfer volumes in the Permian Basin was produced water and we expect this trend to continue, driven by seismicity concerns and disposal restrictions. During the quarter, we announced exclusive technology agreements with two innovative companies for oil and gas well produced water beneficial reuse. These strategic relationships are expected to allow us to create new, sustainable markets for produced water, reduce the industry’s reliance on disposal and preserve precious freshwater resources. Revenue growth was a result of the continued
increase in the number of integrated projects and customers, high utilization of SandStorm units and market share gains with private oil and gas operators.
We are committed to pursuing low-carbon energy initiatives that leverage our fluids and aqueous chemistry core competencies, our significant bromine and lithium assets and technologies, and our leading calcium chloride production capabilities. During the third quarter of 2022, the maiden inferred bromine and lithium brine resource estimation report for our leased acreage in the Smackover Formation in Southwest Arkansas was completed. The report indicates the brine resource underlying the approximately 40,000 gross acres where we hold bromine mineral rights is estimated to contain an inferred resource of 5.25 million short tons of elemental bromine; and the brine resource underlying the approximately 5,000 gross acres where we hold dedicated lithium
mineral rights is estimated to contain an inferred resource of 44,000 short tons of elemental lithium. Using an elemental to Lithium Carbonate Equivalent ("LCE") conversion ratio of 5.323, which is accepted in the industry, the acreage is estimated to contain 234,000 short tons of LCE. The initial TETRA bromine and lithium brine resource estimations are presented as total resource within the Upper Smackover Member underlying the TETRA property. Resource estimations were completed and reported using cutoffs of 250 mg/liter bromine and 50 mg/liter lithium. We intend to complete an initial economic assessment for the bromine extraction plant this year which will highlight the economics of the potential investment and a corresponding business plan. Starting in 2023, we will begin work on an initial economic assessment for a lithium extraction plant to enable extraction of lithium from our dedicated 5,000 gross acres.
Substantially
all of our former Compression Division’s operations were conducted through our partially-owned CSI Compressco subsidiary. On January 29, 2021, we closed the sale of the general partner of CSI Compressco, which included the sale of the incentive distribution rights (“IDRs”) in CSI Compressco and approximately 23.1% of the outstanding limited partner interests in CSI Compressco, referred to as the “GP Sale.” We recorded a book gain of $120.6 million during 2021 in connection with the GP Sale. This gain, most of which was non-cash, was a function of CSI Compressco having a negative carrying value within our consolidated balance sheet due to our share of cumulative losses and distributions. We have reflected the operations of our former Compression Division as discontinued operations for all periods presented. See Note 2 – “Discontinued Operations” in the Notes to Consolidated Financial Statements for
further information.
The following information should be read in conjunction with the Consolidated Financial Statements and the associated Notes contained elsewhere in this report. In November 2020, the SEC issued a final rule to modernize and simplify Management’s Discussion and Analysis and certain financial disclosure requirements in SEC Regulation S-K. As permitted by this final rule, the analysis herein reflects the optional approach to discuss results of operations on
a sequential-quarter basis, which we believe will provide information that is most useful in assessing our quarterly results of operations going forward.
General
and administrative expense as a percentage of revenue
17.7
%
16.8
%
Interest expense, net
3,999
3,610
389
10.8
%
Other
income, net
(1,410)
(1,037)
(373)
36.0
%
Income before taxes and discontinued operations
2,115
1,280
835
65.2
%
Income
before taxes and discontinued operations as a percentage of revenue
1.6
%
0.9
%
Provision (benefit) for income taxes
2,178
(479)
2,657
NM(1)
Income
(loss) before discontinued operations
(63)
1,759
(1,822)
(103.6)
%
Discontinued operations:
Income (loss) from discontinued operations, net of taxes
319
(34)
353
NM
Net
income
256
1,725
(1,469)
(85.2)
%
Loss attributable to noncontrolling interests
22
20
2
10.0
%
Net
income attributable to TETRA stockholders
$
278
$
1,745
$
(1,467)
(84.1)
%
(1) Percent change is not meaningful
Consolidated revenuesdecreased in thecurrent quarter primarily
due to a decrease in overall activity for the Completion Fluids & Products division, from seasonality of the chemical business in Europe which experiences peak sales during the second quarter, partially offset by an increase in revenues from the Water & Flowback Services division. See Divisional Comparisons section below for a more detailed discussion of the change in our revenues.
Consolidated gross profit as a percentage of revenue increased primarily due to our Water & Flowback Services Division increased overall activity level and margins, including two early production facilities coming on line in Argentina during the current quarter, partially offset by lower activity from the higher-margin Completion Fluids & Products division. See Divisional Comparisons section below for additional discussion.
Consolidated
exploration and appraisal costs increased due to front-end engineering design and initial economic assessment costs of our bromine project in Arkansas.
Consolidated interest expense, net increased compared to the prior quarter primarily due to an increase in interest rates on our Term Credit Agreement.
Consolidated other income, net, increased in the current quarter, compared to the prior quarter primarily due to a $0.9 million decrease in unrealized loss from our investment in Standard
Lithium shares received in April 2022 and a $0.2 million increase in foreign exchange gains compared to the previous quarter. These increases are partially offset by a $0.5 million decrease in unrealized gains from the change in fair value of the CarbonFree convertible note and a $0.3 million increase in unrealized loss due to the change in the unit price of the CSI Compressco common units we own.
Consolidated provision for income tax was $2.2 million, during the current quarter, compared to a $0.5 million benefit during the prior quarter. Our consolidated effective tax rate for the three months ended September 30, 2022 was 103.0% due primarily to the impact that changes in the full-year forecast had on our interim reporting under Accounting Standards Codification 740, Income Taxes. Changes in our forecast resulted in recording most of
our expected full-year provision during the current quarter. We establish a valuation allowance to reduce the deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Included in our deferred tax assets are net operating loss carryforwards and tax credits that are available to offset future income tax liabilities in the United States as well as in certain non-U.S. jurisdictions.
Divisional Comparisons
Completion Fluids & Products Division
Three
Months Ended
Period to Period Change
September 30,
June 30,
$ Change
% Change
2022
2022
(in thousands, except percentages)
Revenues
$
59,163
$
74,798
$
(15,635)
(20.9)
%
Gross
profit
18,517
22,062
(3,545)
(16.1)
%
Gross profit as a percentage of revenue
31.3
%
29.5
%
Exploration
and appraisal costs
935
635
300
47.2
%
General and administrative expense
6,274
6,184
90
1.5
%
General
and administrative expense as a percentage of revenue
10.6
%
8.3
%
Interest income, net
(436)
(283)
(153)
54.1
%
Other
(income) expense, net
(613)
265
(878)
(331.3)
%
Income before taxes
$
12,357
$
15,261
$
(2,904)
(19.0)
%
Income
before taxes as a percentage of revenue
20.9
%
20.4
%
Revenues for our Completion Fluids & Products Division decreased primarily due to the seasonality of the chemical business in Europe which experiences peak sales during the second quarter, partially offset by an increase in international markets and higher shipments of TETRA PureFlow® ultra-pure zinc bromide clear brine fluid.
Gross
profit for our Completion Fluids & Products Division decreased compared to the prior quarter period primarily due to the seasonal impact mentioned above, and the curtailment of certain raw materials impacting production volumes. Gross profit as a percentage of revenue improved slightly compared to the prior quarter due to the mix of products, including higher shipments of TETRA PureFlow®. Profitability in future periods will continue to be affected by the mix of its products and services, market demand for our products and services, drilling and completions activity, supply chain challenges and inflationary pressures.
Pretax income for our Completion Fluids & Products Division decreased primarily due to the $3.5 million lower gross profit described above, a $0.3 million increase in exploration and appraisal costs associated with front-end
engineering design and initial economic assessment of our bromine project and a $0.5 million decrease in unrealized gains from the change in fair value of the CarbonFree convertible note. These changes were partially offset by a $0.4 million decrease in foreign exchange losses and a $0.9 million decrease in unrealized loss from our investment in Standard Lithium shares received in April 2022.
General and administrative expense as a percentage of revenue
7.4
%
8.9
%
Interest
income, net
(2)
(2)
—
—
%
Other income, net
(955)
(1,322)
367
(27.8)
%
Income
before taxes
$
6,482
$
1,644
$
4,838
294.3
%
Income before taxes as a percentage of revenue
8.5
%
2.5
%
Revenues
for our Water & Flowback Services Division increased for both water management and production testing in the current quarter compared to the prior quarter, primarily due to the continued higher overall customer activity in the North America onshore business and in Latin America due to two early production facilities coming on line beginning in the third quarter. The higher customer activity can be attributed to sustained high commodity prices.
Gross profit for our Water & Flowback Services Division increased compared to the prior quarter reflecting the margin expansion efforts driven by investments in technology, integration, digitalization and the benefit of our early production facilities being on line for the full quarter in Argentina. Our SandStorm fleet remains at high utilization with continued market penetration and positive pricing progression.
The
Water & Flowback Services Division pretax income increased due to an increase in gross profit which was partially offset by a $0.2 million decrease in gains on sales of assets and $0.2 million decrease in foreign exchange gains. General and administrative expense decreased due to a $0.5 million decrease in professional services from contract labor, partially offset by higher compensation and benefits from higher salaries and additional headcount.
Corporate Overhead
Three
Months Ended
Period to Period Change
September 30,
June 30,
$ Change
% Change
2022
2022
(in thousands, except percentages)
Depreciation
and amortization
$
165
$
171
$
(6)
(3.5)
%
General and administrative expense
11,967
11,542
425
3.7
%
Interest
expense, net
4,437
3,895
542
13.9
%
Other expense, net
158
20
138
690.0
%
Loss
before taxes
$
(16,727)
$
(15,628)
$
(1,099)
7.0
%
Corporate overhead pretax loss increased primarily due to a $0.5 million increase in interest expense due to an increase in the interest rate on our Term Credit Agreement and a $0.4 million increase in general and administrative expense due to higher long-term incentive compensation expense.
General
and administrative expense as a percentage of revenue
16.8
%
20.4
%
Interest expense, net
10,933
12,373
(1,440)
(11.6)
%
Other
income, net
(4,858)
(14,438)
9,580
(66.4)
%
Income (loss) before taxes and discontinued operations
12,329
(13,963)
26,292
188.3
%
Income
(loss) before taxes and discontinued operations as a percentage of revenue
3.0
%
(5.1)
%
Provision for income taxes
2,899
2,139
760
35.5
%
Income
(loss) before discontinued operations
9,430
(16,102)
25,532
158.6
%
Discontinued operations:
Income (loss) from discontinued operations, net of taxes
270
120,882
(120,612)
(99.8)
%
Net
income
9,700
104,780
(95,080)
(90.7)
%
Loss (income) attributable to noncontrolling interests
43
(306)
349
(114.1)
%
Net
income attributable to TETRA stockholders
$
9,743
$
104,474
$
(94,731)
(90.7)
%
Consolidated revenues increased in the current year primarily due to improving industry conditions compared to the prior year for both the Completion Fluids & Products division and the
Water Management & Flowback division. See Divisional Comparisons section below for a more detailed discussion of the change in our revenues.
Consolidated gross profit increased in the current year primarily due to the increase in revenue, partially offset by an increase in costs associated with the higher activity levels described above. Gross profit as a percentage of revenue also increased, primarily due to the significant improvement in profitability for our Water and Flowback Services Division, as well as a $3.8 million insurance settlement received in March 2022 associated with damage to our Lake Charles facility in 2020.
Consolidated exploration and appraisal costs were $3.5 million during the current year due to the exploration drilling and sample analysis costs associated with our exploratory
brine well in Arkansas, as well as front-end engineering design and initial economic assessment costs for the bromine project.
Consolidated general and administrative expenses increased compared to the prior year, primarily due to $13.9 million of increased wage and benefit related expenses driven by reinstatement of full salaries and 401K match as well as higher short and long-term incentive expenses, and divisional headcount additions as operational activity levels increased. Higher wage and benefit related expenses were partially offset by a $2.1 million decrease in professional fees primarily related to the GP Sale in the first quarter of the prior year.
Consolidated interest expense, net, decreased in the current year primarily due to $50.5 million of
repayments of our term credit facility during 2021.
Consolidated other income, net, decreased in the current year, compared to the prior year primarily due to a $12.0 million net decrease in unrealized gains on investments in CSI Compressco, Standard Lithium and CarbonFree, partially offset by a $1.6 million increase in foreign exchange gains, and a $0.4 million increase in gains on sales of assets.
Consolidated provision for income taxes was $2.9 million during the current
year, compared to $2.1 million during the prior year. Our consolidated effective tax rate for the current year was 23.5%. Our tax provision during the current year was primarily due to income generated in certain non-U.S. jurisdictions for which a net operating loss carryforward is not available for offset. We establish a valuation allowance to reduce the deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Included in our deferred tax assets are net operating loss carryforwards and tax credits that are available to offset future income tax liabilities in the United States as well as in certain non-U.S. jurisdictions.
Consolidated income (loss) from discontinued operations, net of taxes, for the prior year includes a $120.6 million primarily non-cash accounting gain from the deconsolidation of CSI Compressco. This gain is net
of a $0.01 million tax provision after taking into consideration utilization of net operating loss and credit carryforwards. Consolidated income (loss) from discontinued operations for the current year consists of $0.3 million of income from adjustments to reserves related to ongoing legal matters.
Consolidated loss (income) attributable to noncontrolling interests included $0.3 million income from the prior year associated with CSI Compressco’s results for the month of January, prior to the GP Sale.
Divisional Comparisons
Completion Fluids & Products Division
Nine
Months Ended
September 30,
Period to Period Change
2022
2021
$ Change
% Change
(in thousands, except percentages)
Revenues
$
207,155
$
159,819
$
47,336
29.6
%
Gross
profit
66,726
43,170
23,556
54.6
%
Gross profit as a percentage of revenue
32.2
%
27.0
%
Exploration
and appraisal costs
3,500
—
3,500
100.0
%
General and administrative expense
18,517
14,253
4,264
29.9
%
General
and administrative expense as a percentage of revenue
8.9
%
8.9
%
Interest income, net
(1,042)
(465)
(577)
124.1
%
Other
income, net
(1,159)
(10,731)
9,572
(89.2)
%
Income before taxes
$
46,910
$
40,113
$
6,797
16.9
%
Income
before taxes as a percentage of revenue
22.6
%
25.1
%
Revenues for our Completion Fluids & Products Division increased compared to the prior year primarily due to increased International and Gulf of Mexico completion fluids product sales as a result of increased activity following the significant improvement in commodity prices and through leveraging opportunities to expand services to completion fluids customers.
Gross
profit for our Completion Fluids & Products Division increased compared to the prior year due to more revenues from higher-margin completion fluids services and products, as well as a $3.8 million insurance settlement received in March 2022 from damage to our Lake Charles facility in 2020.
Pretax income for our Completion Fluids & Products Division increased compared to the prior year driven by higher gross profit, partially offset by $3.5 million of costs associated with the exploratory brine project during the current year and a $4.3 million increase in general and administrative costs due to reinstatement of full salaries and 401K match as well as higher short and long-term incentive expenses, and divisional headcount additions to support higher activity levels. Interest income, net increased primarily due to an increase in interest rates on funds held in escrow pending resolution
of tax court cases in certain foreign jurisdictions. In addition, other income, net decreased due to the $9.9 million decrease in income from our Standard Lithium shares, most of which were sold during the fourth quarter of 2021, and a $1.1 million increase in foreign exchange losses. These changes are partially offset by a $0.8 million unrealized gain on our investment in the CarbonFree convertible note purchased in December 2021.
General and administrative expense as a percentage of revenue
7.9
%
9.4
%
Interest
income, net
(3)
(515)
512
(99.4)
%
Other income, net
(2,736)
(554)
(2,182)
393.9
%
Income
(loss) before taxes
$
10,808
$
(12,265)
$
23,073
NM
Income (loss) before taxes as a percentage of revenue
5.4
%
(10.6)
%
Revenues
for our Water & Flowback Services Division increased for both water management and production testing due to much overall higher customer drilling and completion activity. Customer activity levels have continued to improve, primarily in our North America land business as commodity prices have not only recovered but remained high for both crude oil and natural gas compared to the prior year period. Revenues have also increased in Latin America due to two early production facilities coming on line beginning in the third quarter of the current year.
Gross profit for our Water & Flowback Services Division improved substantially from a loss in the prior year to double-digit profit in the current year, primarily due to higher revenues resulting from the increased activity levels described above and pricing improvements as activity levels improved and new projects commenced.
Pretax
income for our Water & Flowback Services Division increased in the current year primarily due to an improvement in the gross profit described above and a $1.6 million increase in foreign exchange gains as well as a $0.7 million increase in gains on sales of assets, offset by an increase in general and administrative expense primarily due to a $4.5 million increase in salary and employee expense from reinstatement of full salaries and 401K match as well as higher short and long-term incentive expenses, and divisional headcount additions to support higher activity levels.
Corporate Overhead
Nine
Months Ended
September 30,
Period to Period Change
2022
2021
$ Change
% Change
(in thousands, except percentages)
Depreciation and amortization
528
646
(118)
(18.3)
%
General
and administrative expense
$
33,856
$
30,973
$
2,883
9.3
%
Interest expense, net
11,978
13,354
(1,376)
(10.3)
%
Other
income, net
(964)
(3,153)
2,189
(69.4)
%
Loss before taxes
$
(45,398)
$
(41,820)
$
(3,578)
8.6
%
Corporate overhead pretax loss increased due to a $2.9 million increase in general and administrative expense, as well as a $2.2 million decrease in other income, net, partially offset by a $1.4 million decrease in interest expense, net due to lower debt levels. Corporate general and administrative expenses increased compared to the prior year, primarily due increased wage and benefit related expenses driven by reinstatement of full salaries and 401K match as well as higher short and long-term incentive expenses, partially offset by a $2.2 million decrease in professional fees primarily related to the GP Sale in the first quarter of the prior year. Other income, net decreased primarily due to a $2.9 million decrease in income related to unit price changes of our investment in CSI Compressco, partially offset by a $1.1 million increase in foreign exchange gains.
We use U.S. GAAP financial measures such as revenues, gross profit, income (loss) before taxes, and net cash provided by operating activities, as well as certain non-GAAP financial measures, including Adjusted EBITDA, as performance measures for our business.
Adjusted EBITDA.We view Adjusted EBITDA as one of our primary management tools, and we trackiton a monthly basis, both in dollars and as a percentage of revenues(typically compared to the prior month,prior yearperiod,and to budget). We define Adjusted EBITDA as earnings before interest, taxes, depreciation, amortization, impairments, exploration and appraisal costs and certain other non-cash charges and non-recurring adjustments. The most directly comparable GAAP financial measure is net income (loss) before taxes and discontinued operations.
Adjusted EBITDA is used as a supplemental financial measure by our management to:
•evaluate the financial performance of our assets without regard to financing methods, capital structure, or historical cost basis; and
•determine our ability to incur and service debt and fund capital expenditures.
The following tablereconciles net income
(loss) to Adjusted EBITDA for the periods indicated:
Adjusted EBITDA is a financial measure that is not in accordance with U.S. GAAP and should not be considered an alternative to net income, operating income, cash provided by operating activities,or any other measure of financial performance presented in accordance with U.S. GAAP. This measure may not be comparable to similarly titled financial metrics of other companies, as other companies may not calculate Adjusted EBITDA in the same manner aswe do. Management compensates for the limitations of Adjusted EBITDA as an analytical tool by reviewing the comparable U.S. GAAP measures, understanding the differences between the measures,and incorporating this knowledge into management’s decision-making processes.
Liquidity
and Capital Resources
We believe that our capital structure allows us to meet our financial obligations despite current uncertain operating conditions and financial markets. Our liquidity at the end of the third quarter was $92.3 million. Liquidity is defined as unrestricted cash plus availability under the ABL Credit Agreement, Swedish Credit Facility and Finland Credit Agreement. Information about the terms and covenants of our debt agreements can be found in our 2021 Annual Report and in Note 6 - Long Term Debt and Other Borrowings.
Our consolidated sources and uses of cash, which include cash activity from our former Compression
Division for January 2021 prior to the closing of the GP sale, are as follows:
Consolidated cash flows provided by operating activities increased compared to the first nine months of 2021 primarily due to an increase in cash profit, partially offset by the
effect of working capital movements and $0.9 million of prior-year cash flows provided by operating activities generated by CSI Compressco in January prior to closing of the GP Sale.
Investing Activities
Total cash capital expenditures during the first nine months of 2022 were $32.7 million, which reflects increased expenditures to accommodate industry-wide activity recoveries. Our Water & Flowback Services Division spent $26.1 million on capital expenditures, primarily to deploy additional SandStorm units to meet increased demands and maintain, automate and upgrade its water management and flowback equipment fleet. Water and Flowback Services Division capital expenditures also included expenditures related to construction of three early production facilities in Argentina, including approximately $2.0 million of costs that were
reimbursed by customers. Our Completion Fluids & Products Division spent $6.5 million on capital expenditures, primarily supporting higher activity levels in the United States and Europe.
Investing activities during the first nine months of 2022 included a $3.8 million insurance settlement received in March 2022 from damage to our Lake Charles facility in 2020.
Historically, a significant majority of our planned capital expenditures have been related to identified opportunities to grow and expand our existing businesses. We are also focused on enhancing shareholder value by capitalizing on our key mineral assets, brine mineral extraction expertise, and deep chemistry competency to expand our offerings into the low carbon energy markets. However, we continue to review all capital expenditure plans carefully
in an effort to conserve cash. We currently have no long-term capital expenditure commitments. If the forecasted demand for our products and services increases or decreases, the amount of planned expenditures on growth and expansion may be adjusted.
We have rights to the brine underlying our approximately 40,000 gross acres of brine leases in the Smackover Formation in Southwest Arkansas, including rights to the bromine and lithium contained in the brine. With respect to approximately 35,000 acres of that total
acreage, we had previously entered into an agreement granting Standard Lithium an option to acquire lithium rights. The agreements governing this option contemplate a 2.5% royalty that Standard Lithium would pay us based on gross lithium revenues. Additional information on these exploration targets is described in Part I, “Item 2. Properties” in our 2021 Annual Report.
In August 2021, we announced the completion of a preliminary technical assessment by an independent geological consulting firm to assess lithium and bromine exploration targets in our approximately 31,100 net acres. During the first nine months 2022, we spent $3.5 million to complete the drilling of our Arkansas exploration well, obtain and
analyze fluid samples for multiple Smackover formation brine zones, and begin a bromine front-end engineering design study and bromine PEA. During the third quarter of 2022, the maiden inferred bromine and lithium brine resource estimation report for our leased acreage in the Smackover Formation in Southwest Arkansas was completed. The report indicates the brine resource underlying the approximately 40,000 gross acres where we hold bromine mineral rights is estimated to contain an inferred resource of 5.25 million short tons of elemental bromine; and the brine resource underlying the approximately 5,000 gross acres where we hold dedicated lithium mineral rights is estimated to contain an inferred resource of 44,000 short tons of elemental lithium. Using an elemental to LCE conversion ratio of 5.323, which is accepted in the industry, the acreage is estimated to contain 234,000 short tons of LCE.
We
intend to complete an initial economic assessment for the bromine extraction plant this year. We expect the lithium front-end engineering design study and initial economic assessment for a lithium extraction plant to follow in the fall of 2023. The extraction of lithium from our dedicated 5,000 gross acres should greatly benefit the financial returns for the overall project.
Financing Activities
As a result of TETRA’s strong cash flow from operations in 2020 and the proceeds from the GP Sale, during the first nine months of 2021, we repaid $37.5 million on our term credit agreement. We repaid an additional $21.0 million on our term credit agreement during 2021 using proceeds from the sale of Standard Lithium shares and cash flows from operations. Our financing activities for the first nine months of 2022
include $1.2 million of capital lease payments associated with equipment leased for the early production facilities in Argentina. We may supplement our existing cash balances and cash flow from operating activities with short-term borrowings, long-term borrowings, issuances of equity and debt securities, and other sources of capital. We are aggressively managing our working capital and capital expenditure needs in order to maximize our liquidity in the current environment.
Long-Term Debt
Asset-Based Credit Agreement. As of September 30, 2022, our ABL Credit Agreement provides for a senior secured revolving credit facility of up to $80.0 million, with a $20.0 million accordion. The credit facility is subject to a borrowing
base to be determined by reference to the value of inventory and accounts receivable, and includes a sublimit of $20.0 million for letters of credit, a swingline loan sublimit of $11.5 million, and a $15.0 million sub-facility subject to a borrowing base consisting of certain trade receivables and inventory in the United Kingdom. The amounts we may borrow under the ABL Credit Agreement are derived from our accounts receivable, certain accrued receivables and certain inventory. Changes in demand for our products and services have an impact on our eligible accounts receivable, accrued receivables and the value of our inventory, which could result in significant changes to our borrowing base and therefore our availability under our ABL Credit Agreement. As of September 30, 2022, we had zero outstanding and$4.7 million in letters of credit and guaranteesagainst our ABL Credit Agreement and availability of $62.6 million, subject to compliance with the covenants, borrowing base, and other provisions of the ABL Credit Agreement.
Swedish Credit Facility. In January 2022, the Company entered into a revolving credit facility for seasonal working capital needs of subsidiaries in Sweden. As of September 30, 2022, we had less than $0.1 million outstanding and availability of approximately $4.5 million United States dollars under this agreement. During each year, all outstanding loans under the Swedish Credit Facility must be repaid for at least 30 consecutive days.
Borrowings bear interest at a rate of 2.95% per annum. The Swedish Credit Facility expires on December 31, 2022 and the Company intends to renew it annually.
Finland Credit Agreement. In January 2022, the Company also entered into a credit agreement guaranteed by certain accounts receivable and inventory in Finland (“Finland Credit Agreement”). As of September 30, 2022, there were US$1.4 million of letters of credit outstanding against the Finland Credit Agreement. The Finland Credit Agreement expires on January
31, 2023 and the Company intends to renew it annually.
Term Credit Agreement. The Term Credit Agreement is scheduled to mature on September 10, 2025. Our Term Credit Agreement requires us to offer to prepay a percentage of Excess Cash Flow (as defined in the Term Credit Agreement) within five business days of filing our Annual Report. As of October 28, 2022, $163.1 million in aggregate principal amount of our Term Credit Agreement is outstanding.
Other Sources and Uses of Cash
In addition to the aforementioned credit
facilities and senior notes, we fund our short-term liquidity requirements from cash generated by our operations and from short-term vendor financing. In addition, as of September 30, 2022, the market value of our investments in CSI Compressco and Standard Lithium were $6.1 million and $1.7 million, respectively, with no holding restrictions on our ability to monetize our interests. We also hold an investment in a convertible note issued by CarbonFree valued at $5.5 million as of September 30, 2022, excluding accrued interest. In addition, we are party to agreements in which Standard Lithium has the right to explore, and an option to acquire the right to produce and extract Lithium in our Arkansas leases as well as additional potential resources in the Mojave region of California. We received 400,000 shares of Standard Lithium stock during the second quarter of 2022 under
the terms of this agreement.
On May 5, 2022, we filed a universal shelf Registration Statement on Form S-3 with the SEC. On May 17, 2022, the Registration Statement on Form S-3 was declared effective by the SEC. Pursuant to this registration statement, we have the ability to sell debt or equity securities in one or more public offerings up to an aggregate public offering price of $400 million. This shelf registration statement currently provides us additional flexibility with regards to potential financing that we may undertake when market conditions permit or our financial condition may require.
Should additional capital be required, the ability to raise such capital through the issuance of additional debt or equity securities
may currently be limited. Instability or volatility in the capital markets at the times we need to access capital may affect the cost of capital and the ability to raise capital for an indeterminable length of time. If it is necessary to issue additional equity to fund our capital needs, additional dilution of our common stockholders will occur. We periodically evaluate engaging in strategic transactions and may consider divesting non-core assets where our evaluation suggests such transactions are in the best interest of our business. In challenging economic environments, we may experience increased delays and failures by customers to pay our invoices. If our customers delay paying or fail to pay us a significant amount of our outstanding receivables, it could have an adverse effect on our liquidity.An increase of unpaid receivables would also negatively affect our borrowing availability under the ABL Credit Agreement.
As
of September 30, 2022, we had no “off balance sheet arrangements” that may have a current or future material effect on our consolidated financial condition or results of operations.
Critical Accounting Policies and Estimates
There have been no material changes or developments in the evaluation of the accounting estimates and
the underlying assumptions or methodologies pertaining to our Critical Accounting Policies and Estimates disclosed
in our 2021 Annual
Report. In preparing our consolidated financial statements, we make assumptions, estimates, and judgments that affect the amounts reported. These judgments and estimates may change as new events occur, as new information is acquired, and as changes in our operating environments are encountered. Actual results are likely to differ from our current estimates, and those differences may be material.
For
information regarding litigation, see - Note 7 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements and Part II, “Item 1. Legal Proceedings” in this report.
Long-Term Debt
For information on our credit agreements, see our 2021 Annual Report and Note 6 - “Long-Term Debt and Other Borrowings” in the Notes to Consolidated Financial Statements.
Leases
We have operating leases for some of our transportation equipment, office space, warehouse space,
operating locations, and machinery and equipment. Information ab-out the terms and covenants of our lease agreements can be found in our 2021 Annual Report.
Product Purchase Obligations
For information on product purchase obligations, see - Note 7 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements.
Cautionary Statement for Purposes of Forward-Looking Statements
This Quarterly
Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements in this Quarterly Report are identifiable by the use of the following words, the negative of such words, and other similar words: “anticipates”, “assumes”, “believes”, “budgets”, “could”, “estimates”, “expects”, “forecasts”, “goal”, “intends”, “may”, “might”, “plans”, “predicts”, “projects”, “schedules”, “seeks”, “should”, “targets”, “will”, and “would”.
These forward-looking statements include statements concerning the inferred mineral resources of lithium and bromine, the potential extraction of lithium and bromine from
the leased acreage, the economic viability thereof, the demand for such resources, and the timing and cost of such activities; the ability to obtain an initial economic assessment regarding our lithium and bromine acreage; statements regarding the Company's beliefs, expectations, plans, goals, future events and performance; and other statements that are not purely historical. With respect to the Company's disclosures of inferred mineral resources, including bromine and lithium carbonate equivalent concentrations, it is uncertain if further exploration will ever result in the estimation of a higher category of mineral resource or a mineral reserve. Inferred mineral resources are considered to have the lowest level of geological confidence of all mineral resources. Investors are cautioned that mineral
resources do not have demonstrated economic value. Inferred mineral resources have a high degree of uncertainty as to their existence and as to whether they can be economically or legally commercialized. A significant amount of exploration must be completed in order to determine whether an inferred mineral resource may be upgraded to a higher category. Therefore, investors are cautioned not to assume that all or any part of an inferred mineral resource exists, that it can be economically or legally commercialized, or that it will ever be upgraded to a higher category.
Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date on which they are made. We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Part II, “Item 1A. Risk Factors” and elsewhere in this report and in our 2021 Annual Report, and those described from time to time in our future reports filed with the SEC.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Interest Rate Risk
The interest on our borrowings is subject to market risk exposure related to changes in applicable interest rates. Borrowings under our Swedish Credit Facility bear interest at a fixed rate of 2.95%. Borrowings under our ABL Credit Agreement bear interest at an agreed-upon percentage rate spread above LIBOR. Borrowings under the Term Credit Agreement bear interest at a rate per annum equal to, at the option of TETRA, either (i) LIBOR (subject to a 1% floor) plus a margin of 6.25% per annum or (ii) a base rate plus a margin of 5.25% per annum. The following table sets forth as of September 30, 2022, the principal amount due under our long-term debt obligations
and their respective weighted average interest rates. We are not a party to an interest rate swap contract or other derivative instrument designed to hedge our exposure to interest rate fluctuation risk.
We have currency exchange rate risk exposure related to revenues, expenses, operating receivables, and payables denominated in foreign currencies. We may enter into short-term foreign-currency forward derivative contracts as part of a program designed to mitigate the currency exchange rate risk exposure on selected transactions of certain foreign subsidiaries. Although contracts pursuant to this program will serve as an economic hedge of the cash flow of our currency exchange risk exposure, they are not expected to be formally designated as hedge contracts
or qualify for hedge accounting treatment. Accordingly, any change in the fair value of these derivative instruments during a period will be included in the determination of earnings for that period. As of September 30, 2022, we did not have any foreign currency exchange contracts outstanding.
Item 4. Controls and Procedures.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated
under the Securities Exchange Act of 1934, as amended. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2022, the end of the period covered by this quarterly report.
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
On May 31, 2022, TETRA filed a demand for arbitration with the American Arbitration Association (“AAA”) under a certain Bromine Requirements Sales Agreement between TETRA and LANXESS Corporation (formerly Chemtura Corporation, “LANXESS”) (the “Sales Agreement”).
Under the Sales
Agreement, TETRA agreed to purchase a certain volume of elemental bromine. LANXESS notified TETRA of a proposed non-ordinary course increase to the price of bromine, which TETRA believes is not justified nor appropriate under the Sales Agreement. After lengthy discussions, TETRA and LANXESS were unable to reach an agreement regarding the validity of the proposed price increase; therefore, TETRA filed for arbitration seeking declaratory relief, among other relief, declaring that the proposed price increase is invalid.
On September 19, 2022, LANXESS filed a counterclaim with the AAA seeking declaratory relief, among other relief, declaring that the proposed price increase was valid and seeking damages in the amount of the price increase from July 1, 2022 forward.
On
October 4, 2022, TETRA filed a reply to LANXESS’ counterclaim disputing the counterclaim and amending its original demand.
The arbitration is currently pending, and no final hearing date has been set. TETRA is presently unable to predict the duration, scope or result of this proceeding.
For more information regarding litigation, see “Item 1. Legal Proceedings” in our 2021 Annual Report and Note 7 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements.
Item
1A. Risk Factors.
As of the date of this filing, TETRA and its operations continue to be subject to the risk factors previously disclosed in the “Risk Factors” sections contained in our 2021 Annual Report. In addition, we are subject to the following supplemental risk factor.
The Inflation Reduction Act of 2021 could accelerate the transition to a low carbon economy and could impose new costs on our customers’ operations.
In August 2022, President Biden signed the Inflation Reduction Act of 2021 (“IRA 2022”) into law. The IRA 2022 contains hundreds of billions in
incentives for the development of renewable energy, clean hydrogen, clean fuels, electric vehicles and supporting infrastructure and carbon capture and sequestration, amongst other provisions. In addition, the IRA 2022 imposes the first ever federal fee on the emission of greenhouse gases through a methane emissions charge. The IRA 2022 amends the federal Clean Air Act to impose a fee on the emission of methane from sources required to report their GHG emissions to the U.S. Environmental Protection Agency (“EPA”), including those sources in the onshore petroleum and natural gas production and gathering and boosting source categories. The methane emissions charge would start in calendar year 2024 at $900 per ton of methane, increase to $1,200 in 2025, and be set at $1,500 for 2026 and each year after. Calculation of the fee is based on certain thresholds established in the IRA 2022. While the tax incentives created by the IRA for carbon capture and sequestration
may increase demand for some of the services we provide as part of our low carbon solutions business, the methane charge imposed on our oil and natural gas customers could further accelerate the transition of the economy away from the use of fossil fuels towards lower- or zero-carbon emissions alternatives. This could decrease demand for oil and gas and consequently adversely affect the business of our customers, thereby reducing demand for our other services.
(1)In
January 2004, our Board of Directors authorized the repurchase of up to $20 million of our common stock.On October 28, 2021, our Board of Directors terminated the repurchase program.
Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL documents
* Filed with this report.
** Furnished with this report.
++ Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Operations for the three and nine-month periods ended September 30, 2022 and 2021; (ii) Consolidated Statements of Comprehensive Income for the three and nine-month periods
ended September 30, 2022 and 2021; (iii) Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021; (iv) Consolidated Statements of Equity for the nine-month periods ended September 30, 2022 and 2021 ; (v) Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2022 and 2021; and (vi) Notes to Consolidated Financial Statements for the nine months ended September 30, 2022.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
