What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-01 compared with 2021-08-02 · 148 added, 120 removed, 265 unchanged (50% of the section changed)

5 unchanged sentences

We are a geographically diversified oil and gas services company, focused on completion fluids and associated products and services, comprehensive water management, frac flowback and production well testing.

We operate through two reporting segments organized into two Divisions - Completion Fluids & Products and Water & Flowback Services.

We operate through two reporting segments organized into two segments - Completion Fluids & Products Division and Water & Flowback Services Division.

In January, we announced our commitment to pursue low carbon energy initiatives that would leverage our fluids and aqueous chemistry core competencies, our significant bromine and lithium assets (including our approximately 31,100 net acres of brine leases in Arkansas) and technologies, and our leading calcium chloride production capabilities.

After declining to historic lows due to depressed oil prices resulting from Russia and Saudi Arabia’s price war and the COVID-19 pandemic last year, toward the end of 2020 and into the first quarter of 2021, customer activity levels in the North America onshore business began to recover as oil prices returned to over $60 per barrel.

Customer activity levels continued to improve during the second quarter as oil prices remained constructive, increasing into the $70 per barrel range by the end of the quarter.

Although activity during the second quarter of 2021 for offshore and international customers remained below prior year levels, our Completion Fluids and Products business delivered higher revenues sequentially compared to the first quarter as activity began to ramp back up in the Gulf of Mexico and internationally.

The continued rollout of COVID-19 vaccines and fiscal stimulus policies are expected to support an ongoing global economic recovery and further improve the oil demand outlook which, together with continued discipline from United States operators, should provide support for oil and gas prices and further increases in offshore activity both in the Gulf of Mexico and internationally during the second half of the year.

However, the current market conditions resulting from the COVID-19 pandemic could rapidly change and there could be a new outbreak of a COVID-19 variant or the vaccines may not be as effective as anticipated, which could negatively impact the demand for our services and products and our future revenues, results of operations and cash flows.

With activity levels expected to further increase during the second half of the year, we are continuing to tightly manage our cost structure.

Many of the cost reduction initiatives executed in response to unprecedented industry conditions last year remained in effect as of the end of the second quarter.

On August 2, 2021, we announced completion of a preliminary technical assessment by an independent geological consulting firm to assess lithium and bromine exploration targets in our Southwest Arkansas brine leases.

After declining to historic lows due to depressed oil prices resulting from Russia and Saudi Arabia’s price war and the COVID-19 pandemic last year, customer activity levels in the North America onshore business began to recover during the first half of 2021.

Customer activity levels continued to improve through the third quarter as oil prices remained constructive, averaging around $70 per barrel for the third quarter, while natural gas prices increased to over $4 per million Btu.

Our Water & Flowback Services revenues increased significantly, both sequentially and compared to the prior year quarter, due to a combination of higher overall customer activity levels and some price recovery, particularly in the United States land business.

We also deployed our TETRA SandStorm TM technology for two major long-term projects in Latin America.

Completions Fluids & Products Division revenues were slightly below the prior year quarter with the impact of lower international sales and international shipping delays, mostly offset by stronger fluids and industrial chemicals sales in North America.

In July, we also completed our first International TETRA CS Neptune ® fluids job, reflecting acceptance of this proprietary technology into new markets.

Total domestic revenues were higher compared to the prior-year quarter despite some offshore fluids sales being delayed due to Hurricane Ida in the Gulf of Mexico and loop currents.

Ongoing improvement in the oil demand outlook should support further increases in offshore activity both in the Gulf of Mexico and internationally through the end of the year.

On January 29, 2021 as previously announced in our 2020 Annual Report, we closed the sale of the general partner of CSI Compressco, including 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.

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During the first quarter of 2021, we used proceeds from the GP sale and available cash on hand to pay down $29.3 million on our term loan, which matures in September 2025.

We repaid an additional $8.2 million of our term loan in July 2021.

Results of Operations

The following information should be read in conjunction with the Consolidated Financial Statements and the associated Notes contained elsewhere in this report.

Three months ended June 30, 2021 compared with three months ended June 30, 2020.

Three months ended September 30, 2021 compared with three months ended September 30, 2020.

Consolidated Comparisons

Three Months Ended

June 30, Period to Period Change

September 30, Period to Period Change

2021 2020 2021 vs 2020 % Change

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Warrants fair value adjustment expense (3,164) — (3,164) NM (1)

Other income, net (2,232) (541) (1,691) (312.6) %

Loss before taxes and discontinued operations (5,270) (12,125) 6,855 (56.5) %

Loss before taxes and discontinued operations as a percentage of revenue

(5.2) % (12.6) %

Other income, net (6,968) (788) (6,180) NM

Income (loss) before taxes and discontinued operations 3,082 (9,458) 12,540 (132.6) %

Income (loss) before taxes and discontinued operations as a percentage of revenue 3.2 % (12.9) %

Provision for income taxes 587 101 486 481.2 %

Loss before discontinued operations (6,654) (13,179) 6,525 (49.5) %

Income (loss) before discontinued operations 2,495 (9,559) 12,054 (126.1) %

Discontinued operations:

Loss from discontinued operations, net of taxes (126) (23,788) 23,662 (99.5) %

Net loss (6,780) (36,967) 30,187 (81.7) %

Income (loss) from discontinued operations, net of taxes 18 (12,039) 12,057 (100.1) %

Net income (loss) 2,513 (21,598) 24,111 (111.6) %

Loss attributable to noncontrolling interest — 8,296 (8,296) (100.0) %

Net loss attributable to TETRA stockholders $ (6,753) $ (21,255) $ 14,502 (68.2) %

Net income (loss) attributable to TETRA stockholders $ 2,513 $ (13,302) $ 15,815 (118.9) %

(1) Percent change is not meaningful

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See Divisional Comparisons section below for a more detailed discussion of the change in our revenue.

Consolidated gross profit increased in the current year quarter primarily due to the increase in revenue, partially offset by an increase in costs associated with the higher activity levels described above, resulting in relatively stable margins .

Consolidated general and administrative expenses decreased for the current quarter compared to the prior year quarter, primarily due to cost reduction actions taken during the last twelve months, including reduced compensation of $2.6 million.

In addition, prior year bad debt expense was $3.8 million, which included a significant reserve related to a customer bankruptcy.

Consolidated general and administrative expenses increased for the current quarter compared to the prior year quarter, primarily due to a $0.9 million increase in legal, settlement and other expenses, and $0.9 million of increased wage and benefit related expenses because of higher activity levels compared to the prior year quarter.

Increases (or decreases) in the fair value of the Warrants are generally associated with increases (or decreases) in the trading price of our common stock, resulting in adjustments to earnings for the associated valuation losses (gains), and resulting in future volatility of our earnings during the period the Warrants are outstanding.

The increase in TETRA’s stock price over the last three months resulted in the fair-value adjustment expense in the current period of $2.7 million.

A combination of the decrease in TETRA’s stock price over the last three months, together with less time remaining until expiration of the Warrants, resulted in the fair-value adjustment income in the current period of $3.2 million.

The outstanding Warrants expire by December 31, 2021.

Consolidated other income, net, increased in the current quarter, compared to the prior year quarter primarily due to a $5.4 million increase in income related to unit and stock price appreciation of our investments in CSI Compressco and Standard Lithium.

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Consolidated provision for income taxes was $0.6 million during the current quarter, compared to $0.1 million during the prior year quarter.

Our consolidated effective tax rate for the current quarter of negative 26.3% was primarily the result of losses generated in entities for which no related tax benefit has been recorded.

The losses generated by these entities do not result in tax benefits due to offsetting valuation allowances being recorded against the related net deferred tax assets.

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.

Our consolidated effective tax rate for the current quarter of 19.0% was primarily due to taxes on income in certain non-U.S.

jurisdictions.

We establish a valuation allowance to reduce 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.

Income from discontinued operations, net of taxes, was nominal compared to a loss of $23.8 million for the prior year quarter.

The current period includes a $(0.1) million adjustment to the gain recognized from the GP Sale completed in January 2021, while the prior year reflects CSI Compressco‘s full quarter results, including $9.0 million of asset impairments.

Loss from discontinued operations, net of taxes, was $12.0 million for the prior year quarter which reflects CSI Compressco‘s full quarter results.

Income (loss) attributable to noncontrolling interest improved $8.3 million from the prior year quarter as CSI Compressco’s results were included in the prior year, while the continuing noncontrolling interest is immaterial for TETRA.

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Three Months Ended

June 30, Period to Period Change

September 30, Period to Period Change

2021 2020 2021 vs 2020 % Change

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Interest income, net (165) (291) 126 (43.3) %

Other income, net (2,320) (682) (1,638) 240.2 %

Other (income) expense, net (6,883) 112 (6,995) NM

Income before taxes $ 14,675 $ 11,756 $ 2,919 24.8 %

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30.1 % 22.6 %

Revenues for our Completion Fluids & Products Division decreased compared to the prior year quarter primarily due to lower offshore activity in the Gulf of Mexico and internationally.

The timing of the reduction in offshore activity during 2020 due to the effects of the COVID-19 pandemic lagged onshore and did not significantly impact the prior year quarter for this division.

Completion Fluids & Products Division gross profit for the current year quarter decreased in relation to decreased revenues mentioned above although margins remained relatively stable.

Pretax income for our Completion Fluids & Products Division increased compared to the prior year period driven by a decrease in general and administrative expense and an increase in other income.

The decrease in general and administrative expense was a result of decreased bad debt expense of $3.0 million associated with a customer bankruptcy in the prior year, and decreased wage and benefit related expenses of $0.8 million.

Revenues for our Completion Fluids & Products Division decreased compared to the prior year quarter with lower international activity and international shipping delays, partially offset by stronger domestic sales.

The timing of the reduction in international activity during 2020 due to the effects of the COVID-19 pandemic lagged North America and did not significantly impact the prior year quarter for this division.

Completion Fluids & Products Division gross profit for the current year quarter decreased in relation to decreased revenues mentioned above as well as inflationary pressures in certain raw materials and logistics costs, resulting in slightly lower margins.

Pretax income for our Completion Fluids & Products Division increased compared to the prior year period driven by an increase in other income, partially offset by an increase in general and administrative expense.

The increase in other income, net, was primarily due to a $6.4 million increase in income from our investment in Standard Lithium, including an increase in the Standard Lithium stock price as well as income associated with additional shares received in May 2021.

The increase in general and administrative expense was a result of increased wage and benefit related expenses of $0.5 million.

Foreign currency fluctuations were favorable compared with the prior year quarter by $0.6 million.

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Three Months Ended

June 30, Period to Period Change

September 30, Period to Period Change

2021 2020 2021 vs 2020 % Change

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Revenues $ 46,783 $ 21,534 $ 25,249 117.3 %

Gross loss (1,865) (4,836) 2,971 (61.4) %

Gross loss as a percentage of revenue (4.9) % (19.6) %

Gross profit (loss) 2,996 (5,714) 8,710 (152.4) %

Gross profit (loss) as a percentage of revenue 6.4 % (26.5) %

General and administrative expense 4,957 2,545 2,412 94.8 %

General and administrative expense as a percentage of revenue

Interest income, net 4 (2) 6 (300.0) %

10.6 % 11.8 %

Interest expense (income), net 2 (77) 79 (102.6) %

Other income, net (156) (436) 280 (64.2) %

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Revenues for the prior year quarter had been significantly impacted by industry-wide reductions in rig and frac count resulting from historically low oil prices due to the price war between Russia and Saudi Arabia, as well as the global pandemic.

Gross loss for our Water & Flowback Services Division improved in the current quarter compared to the prior year quarter, primarily due to higher revenues resulting from the increased activity levels described above.

Additionally, the decrease in capital expenditures over the past twelve months has resulted in a decrease in depreciation expense as assets become fully depreciated.

The Water & Flowback Services Division reported a lower pretax loss in the current quarter primarily due to an improvement in the gross loss described above, as well as a decrease in general and administrative expense.

General and administrative expense for our Water & Flowback Services Division decreased primarily due a decrease in bad debt expense of $0.7 million.

Gross profit for our Water & Flowback Services Division improved in the current quarter compared to the prior year quarter, primarily due to higher revenues resulting from the increased activity levels described above and some pricing improvements helping offset ongoing inflationary pressures.

The Water & Flowback Services Division reported a lower pretax loss in the current quarter primarily due to an improvement in the gross profit described above, offset by an increase in general and administrative expense primarily due a $1.4 million increase in salary and employee expense.

Corporate Overhead

Three Months Ended

June 30, Period to Period Change

September 30, Period to Period Change

2021 2020 2021 vs 2020 % Change

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Interest expense, net 4,246 4,706 (460) (9.8) %

Warrants fair value adjustment expense 2,698 11 2,687 NM

Warrants fair value adjustment income (3,164) — (3,164) NM

Depreciation and amortization 230 270 (40) (14.8) %

Other expense, net 189 365 (176) (48.2) %

Other (income) expense, net 69 (463) 532 (114.9) %

(Loss) before taxes $ (9,789) $ (13,472) $ 3,683 27.3 %

Corporate Overhead pretax loss decreased due to lower general and administrative expense and interest expense, offset by a $2.7 million fair value adjustment for the outstanding Warrants liability in the current quarter resulting primarily from the increase in TETRA’s stock price.

General and administrative expense decreased primarily due to lower salary and employee expenses of $1.7 million and reduced professional expenses of $0.7 million.

Salary and employee expenses were lower due to staffing reductions, despite continued appreciation in our stock price, which resulted in $1.3 million of additional expense related to certain long-term incentive compensation awards.

The increase in TETRA’s stock price over the last twelve months resulted in the Warrants fair-value adjustment expense in the current period of $2.7 million.

Six months ended June 30, 2021 compared with six months ended June 30, 2020.

Corporate Overhead pretax loss decreased due to lower general and administrative expense, interest expense, and a $3.2 million favorable fair value adjustment for the outstanding Warrants liability in the current quarter resulting primarily from the decrease in TETRA’s stock price in the current quarter.

General and administrative expense decreased primarily due to lower salary and employee expenses of $1.0 million.

Salary and employee expenses were lower due to lower headcount and lower expense related to long-term incentive awards.

Nine months ended September 30, 2021 compared with nine months ended September 30, 2020.

Consolidated Comparisons

Six Months Ended June 30, Period to Period Change

Nine Months Ended September 30, Period to Period Change

2021 2020 2021 vs 2020 % Change

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Interest expense, net 12,373 14,234 (1,861) (13.1) %

Warrants fair value adjustment expense (income) 3,021 (327) 3,348 NM

Warrants fair value adjustment expense (income) (143) (327) 184 (56.3) %

Other income, net (14,295) (1,308) (12,987) NM

Loss before taxes and discontinued operations (17,045) (8,411) (8,634) 102.7 %

Loss before taxes and discontinued operations as a percentage of revenue

(9.5) % (3.7) %

Income (loss) before taxes and discontinued operations (13,963) (17,869) 3,906 (21.9) %

Income (loss) before taxes and discontinued operations as a percentage of revenue (5.1) % (5.9) %

Provision for income taxes 2,139 1,877 262 14.0 %

Loss before discontinued operations (18,597) (10,187) (8,410) 82.6 %

Income (loss) before discontinued operations (16,102) (19,746) 3,644 (18.5) %

Discontinued operations:

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Net income (loss) attributable to TETRA stockholders $ 104,474 $ (36,108) $ 140,582 (389.3) %

Consolidated revenues decreased in the current year period compared to the prior year period primarily due to the effects of the COVID-19 pandemic and the impact of the associated decline in oil prices on customer activity levels.

Consolidated revenues decreased in the current year period primarily due to the effects of the COVID-19 pandemic and the impact of the associated decline in oil prices on customer activity levels.

The first quarter of the prior year period was not affected by the decline in oil prices or the pandemic.

United States onshore activity was significantly impacted in the second quarter of 2020, but the significant ramp down in offshore and international activity did not occur until the second half of 2020.

Gross profit as a percentage of revenue declined primarily due to the impact of fixed costs including rent, depreciation and amortization, which do not vary with revenue, as well as product mix.

In addition, our revenues were negatively impacted by historic cold weather during February of 2021, which temporarily shut down operations in several southern states within the United States.

Although activity levels for the Completion Fluids & Products division have increased throughout 2021, year to date revenue remained below prior year.

This was partially offset by Water Management & Flowback division results, where significantly improved United States onshore market conditions resulted in higher revenue than in the prior year period.

Gross profit as a percentage of revenue declined primarily due to a change in revenue mix, with a higher portion of revenues generated from our Water Management & Flowback division.

See Divisional Comparisons section below for additional discussion.

Consolidated general and administrative expenses decreased primarily due to decreased bad debt expense of $4.7 million and decreased salary and employee expenses of $3.1 million, partially offset by increased professional services fees of $1.2 million related to the GP Sale.

Consolidated general and administrative expenses decreased primarily due to decreased bad debt expense of $4.7 million and decreased salary and employee expenses of $2.2 million, partially offset by increased professional services fees of $2.2 million related to the GP Sale and higher other legal expenses.

Salary and employee expenses were lower despite appreciation in our stock price since the start of the year, which resulted in $4.9 million of additional expense related to certain long-term incentive compensation awards.

The decrease in our salary and employee expenses stemmed from our restructuring efforts and headcount reductions in response to the decline in activity levels.

Consolidated interest expense, net, decreased in the current year period primarily due to $29.3 million of repayments of our term credit facility during the first quarter of 2021.

The increase in TETRA’s stock price over the last six months resulted in the Warrants fair-value adjustment expense in the current year period of $3.0 million.

Consolidated interest expense, net, decreased in the current year period primarily due to $37.5 million of repayments of our term credit facility during the first and third quarters of 2021.

Consolidated other income, net, increased primarily due to a $10.8 million increase in unit and stock price appreciation of our investments in CSI Compressco and Standard Lithium.

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jurisdictions and Texas gross margin taxes.

Our consolidated effective tax rate for the six-month period ended June 30, 2021 of negative 9.1% was primarily the result of losses generated in entities for which no related tax benefit has been recorded.

Our consolidated effective tax rate for the nine-month period ended September 30, 2021 of negative 15.3% was primarily the result of losses generated in entities for which no related tax benefit has been recorded.

The losses generated by these entities do not result in tax benefits due to offsetting valuation allowances being recorded against the related net deferred tax assets.

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Completion Fluids & Products Division

Six Months Ended June 30, Period to Period Change

Nine Months Ended September 30, Period to Period Change

2021 2020 2021 vs 2020 % Change

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25.1 % 22.3 %

Revenues for our Completion Fluids & Products Division decreased primarily due to lower activity in the North Sea and some deferral of activity in the Gulf of Mexico as several projects were delayed into future quarters.

In addition, the prior year period benefited from a large international order.

The COVID-19 pandemic and associated reduction in oil prices did not have a significant impact on offshore activity until the second half of 2020.

In addition, the first quarter of 2020 reflected increased division product sales revenues in the Gulf of Mexico, including product sales associated with a TETRA CS Neptune completion fluid sale, and increased international product sales as well as domestic manufactured products sales.

Revenues for our Completion Fluids & Products Division decreased primarily due to lower Gulf of Mexico and international oil and gas activity.

In addition, the prior year period benefited from two large international orders.

The COVID-19 pandemic and associated reduction in oil prices did not have a significant impact on offshore Gulf of Mexico activity and international activity until the third and fourth quarters of 2020 respectively.

Gross profit for our Completion Fluids & Products Division decreased compared to the prior year period due to lower revenue and product mix.

Completion Fluids & Products Division 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 and commodity prices.

Pretax income for our Completion Fluids & Products Division decreased due to the reduction in gross profit described above.

Pretax income for our Completion Fluids & Products Division decreased primarily due to the reduction in gross profit described above, partially offset by lower General and administrative expense and improved Other (income) expense.

General and administrative expense decreased primarily due to a lower bad debt expense of $3.1 million and decreased salary and employee-related expenses of $1.7 million.

Other (income) expense, net, improved primarily due to a $2.4 million increase in income from our investment in Standard Lithium, most of which was represented by an increase in the Standard Lithium stock price.

Other (income) expense, net, improved primarily due to a $8.9 million increase in income from our investment in Standard Lithium, due to an increase in the Standard Lithium stock price and additional shares received in May 2021.

In addition, foreign currency fluctuations were favorable compared with the prior year period by $2.0 million.

Water & Flowback Services Division

Six Months Ended June 30, Period to Period Change

Nine Months Ended September 30, Period to Period Change

2021 2020 2021 vs 2020 % Change

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(10.6) % (17.7) %

Revenues for our Water & Flowback Services Division decreased in the current year period compared to the prior year period.

Although customer activity levels continued to increase from recent lows in response to an improving commodity price environment, they remained well below the level of the first quarter of 2020.

Additionally, the current year was negatively impacted by severe weather that caused extended shut downs in certain locations during the first quarter.

The Water & Flowback Services Division reported a deterioration in gross profit (loss) during the current year period compared to the prior year period primarily due to lower revenues resulting from the decreased activity levels described above.

In addition, we have incurred some start-up costs associated with a ramp up in activity levels.

The Water & Flowback Services Division reported a lower pretax loss with the increase in gross loss described above, more than offset by a decrease in general and administrative expense.

General and administrative expenses decreased primarily due to decreased salary and benefit related expenses of $2.4 million and a decrease in bad debt expense of $1.7 million.

Revenues for our Water & Flowback Services Division increased in the current year period compared to the prior year period.

Customer activity levels have continued to increase from recent lows in response to an improving commodity price environment.

However, the current year was negatively impacted by severe weather that caused extended shut downs in certain locations during the first quarter.

The Water & Flowback Services Division reported a lower gross loss during the current year period compared to the prior year period primarily due to higher activity as described above.

The Water & Flowback Services Division reported a lower pretax loss due to the decrease in gross loss described above, as well as a decrease in General and administrative expense.

General and administrative expenses decreased primarily due to a decrease in bad debt expense of $1.7 million and decreased salary and benefit related expenses of $1.0 million.

Corporate Overhead

Six Months Ended June 30, Period to Period Change

Nine Months Ended September 30, Period to Period Change

2021 2020 2021 vs 2020 % Change

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Interest expense, net 13,354 14,909 (1,555) (10.4) %

Warrants fair value adjustment income 3,021 (327) 3,348 NM

Warrants fair value adjustment income (143) (327) 184 (56.3) %

Depreciation and amortization 646 643 3 0.5 %

Other (income) expense, net (3,079) 413 (3,492) NM

Other income, net (3,010) (50) (2,960) NM

(Loss) before taxes $ (41,820) $ (43,825) $ 2,005 4.6 %

Corporate Overhead pretax loss increased due to an increase in general and administrative expense and the $3.0 million current period Warrants fair value expense from the increase in TETRA’s stock price, offset by an improvement in other (income) expense, net.

General and administrative expense for our Corporate Overhead for the current year period includes $4.7 million of expense related to certain long-term incentive compensation awards resulting from the significant appreciation in our stock price since the beginning of the year and $1.2 million of transaction expenses related to the GP Sale.

Corporate Overhead pretax loss decreased due to an increase in Other income and a decrease in Interest expense, net, offset by an increase in General and administrative expense.

General and administrative expense for our Corporate Overhead for the current year period includes $4.9 million of expense related to certain long-term incentive compensation awards resulting from the significant appreciation in our stock price during the first half of the year and $1.3 million of transaction expenses related to the GP Sale.

Excluding these items, general and administrative expense would have been $24.7 million, or $3.9 million lower than prior year.

Corporate other (income) expense, net changed from $0.4 million expense in the prior year period to $3.1 million income in the current year period.

This change was primarily due to a $3.0 million increase in the market value of the CSI Compressco units we continue to own following the closing of the GP Sale.

Corporate other income, net increased $3.0 million in the current year period compared to the prior year period.

This change was primarily due to a $1.9 million increase in the market value of the CSI Compressco units we continue to own following the closing of the GP Sale, an increase in foreign exchange gains of $0.5 million and a decrease in other expenses of $0.7 million.

How We Evaluate Operations

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Three Months Ended

June 30, 2021

September 30, 2021

Completion Fluids & Products Water & Flowback Services Corporate SG&A Other and Eliminations Total

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Three Months Ended

June 30, 2020

September 30, 2020

Completion Fluids & Products Water & Flowback Services Corporate SG&A Other and Eliminations Total

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Restructuring and severance expenses 665 — — — 665

Stock warrant fair value adjustment — — — 11 11

Allowance for bad debt 2,800 — — — 2,800

Impairments and other charges (113) — 97 — (16)

Adjusted income (loss) before taxes and discontinued operations $ 12,485 $ (7,472) $ (7,928) $ (4,510) $ (7,425)

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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 second quarter was $82.0 million.

Our liquidity at the end of third quarter was $90.1 million.

Liquidity is defined as unrestricted cash plus availability under the revolving credit facility.

Information about the terms and covenants of our debt agreements can be found in our 2020 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 and for the six months ended 2020 are as follows:

Six Months Ended

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 and for the nine months ended 2020 are as follows:

Nine Months Ended

September 30,

(In Thousands)

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Operating Activities

Consolidated cash flows provided by operating activities decreased $52.8 million compared to the first six months of 2020.

Current year cash flows provided by operating activities include $0.9 million generated by CSI Compressco in January prior to closing of the GP Sale, compared to $13.4 million during the six-month period ending June 30, 2020.

Operating cash flows decreased primarily due to including the results of CSI Compressco for one month during the current year compared to six months during the prior year, as well as a decrease in revenue, and the effect of working capital movements at the end of the quarter, particularly related to growth in accounts receivable.

Consolidated cash flows provided by operating activities decreased $54.4 million compared to the first nine months of 2020.

Current year cash flows provided by operating activities include $0.9 million generated by CSI Compressco in January prior to closing of the GP Sale, compared to $13.7 million during the nine-month period ending September 30, 2020.

Operating cash flows decreased primarily due to including the results of CSI Compressco for one month during the current year compared to nine months during the prior year, as well as a decrease in revenue, and the effect of working capital movements.

We continue to monitor customer credit risk in the current environment and focus on serving larger capitalized oil and gas operators and national oil companies.

Investing Activities

Total cash capital expenditures during the first six months of 2021 were $12.5 million.

Total cash capital expenditures during the first nine months of 2021 were $14.6 million.

Our Water & Flowback Services Division spent $9.3 million on capital expenditures, primarily to maintain, automate and upgrade its water management and flowback equipment fleet.

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Our former Compression Division spent $3.0 million in January of 2021 primarily to maintain its compression fleet.

During the first nine months of 2021, we recorded mark-to-market gains of $11.8 million on our equity holdings of CSI Compressco and Standard Lithium.

As of September 30, 2021, the market value of these investments was $22.4 million, with no holding restrictions on our ability to monetize these investments.

Historically, a significant majority of our planned capital expenditures have been related to identified opportunities to grow and expand our existing businesses.

However, such expenditures have recently been, and may continue to be, postponed or canceled as we are reviewing all capital expenditure plans carefully in an effort to conserve cash.

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.

The deferral of capital projects could affect our ability to expand our operations in the future.

If the forecasted demand for our products and services increases or decreases, the amount of planned expenditures on growth and expansion may be adjusted.

Lithium and Bromine Exploration Targets

On August 2, 2021, we announced the completion of a preliminary technical assessment by an independent geological consulting firm, APEX Geoscience Ltd.

to assess lithium and bromine exploration targets in our approximately 31,100 net acres of brine leases in the Smackover Formation in Southwest Arkansas.

We have rights to the brine, including rights to the bromine and lithium contained in the brine underlying this acreage, pursuant to certain brine leases and brine deeds with various landowners.

With respect to approximately 27,500 acres of that total acreage, we had previously entered into an agreement granting Standard Lithium an option to acquire lithium rights.

Bromine has been identified as a key mineral resource in zinc-bromide energy storage systems and our TETRA PureFlow™ high purity zinc bromide has been qualified by several battery technology companies.

This exploration assessment is the first step for us to quantify the significance of the resource potential we have in our Arkansas brine leases.

The lithium battery market is already acknowledged to be a rapidly growing market, affording us the opportunity to participate in a meaningful way.

We will assess the next steps towards determining whether we can develop these key minerals to augment our current global infrastructure and chemistry expertise, allowing us to further expand beyond the oil and gas market.

The exploration targets were estimated for two separate areas within the property based on our brine lease rights.

The scope of the exploration target assessment was for bromine in all the approximately 31,100 net acres and lithium for the acreage where we hold the lithium rights not subject to the Standard Lithium Ltd.

For bromine, the technical assessment identified a brine exploration target estimated to contain between 2.54 and 8.58 million tons of elemental bromine.

For lithium, the technical assessment identified an exploration target estimated to contain between 16,000 and 53,000 tons of elemental lithium.

Using an elemental to Lithium Carbonate Equivalent ("LCE") conversion of 5.323, the lithium amounts to between 85,000 and 286,000 tons of LCE.

The exploration target's potential quantity and grade is conceptual in nature, there has been insufficient exploration to estimate a mineral resource, and it is uncertain if further exploration will result in the estimation of a mineral resource.

The exploration targets expressed should not be misrepresented or misconstrued as an estimate of a mineral resource or mineral reserve.

The basis for the lithium and bromine exploration targets is that hypersaline formation water, or brine, associated with some of the world’s oilfields and/or geothermal fields contain confined reservoirs, or aquifers, that are known to contain anomalous concentrations of lithium, bromine and other elements of interest.

We propose to assess stratigraphically deep (>2,250 meters, or >7,450 feet, below surface) brine from oil and gas aquifers associated with the Late Jurassic Smackover Formation.

The brine is currently pumped from the aquifer to the earth’s surface as a wastewater product associated with hydrocarbon production (e.g., oil, gas, and condensate).

It is conceivable that we will be able to develop or utilize evolving commercial technologies to economically remove the bromine and lithium from the brine underlying our acreage before the brine is reinjected back down into the subsurface aquifer.

The volume of the Upper and Middle Smackover members within each exploration target was calculated by wireframing the Smackover Formation aquifer domain to create a 3-D geological model.

The model utilized oil and gas well data from the AOGC and AGS Information Circular IC-14, which includes an electronic reprint of Vestal (1950) and a stratigraphic horizon pick file with 3,904 records.

Historical information was used to define mean porosity and mean bromine and lithium concentrations.

For the conceptual exploration target estimates, the range of elemental bromine and lithium was derived by multiplying the mean volume, porosity, and bromine/lithium concentration of the exploration targets by +/- 20%.

We have yet to conduct mineral exploration work on the leases.

The exploration targets are based on historical oil and gas well data and historical Smackover Formation brine geochemical analyses.

To advance the exploration targets to the mineral resource estimation and classification stage, we anticipate the implementation of a work program that will comprise some or all of the following activities:

• validating the historical brine geochemistry and attempting to obtain a greater understanding of the distribution of the bromine and lithium concentrations within the Smackover Formation brine underlying our acreage,

• conducting stratigraphic and hydrogeological studies to advance the geological domain boundaries and hydro-parameters of the Upper and Middle Smackover members, and

• conducting mineral processing test work to explore and develop the bromine and lithium extraction processes.

While we continue to evaluate the next steps regarding the potential development of our brine leases, we have yet to conduct exploration work on the leases, and we are not currently able to determine the economic viability of the extraction of the lithium and bromine from the leased acreage.

In addition, the extraction of lithium and bromine from these brine leases will likely require a significant amount of time and capital, which we are not able to estimate at this time.

The timing for progressing the recommended work program will depend on the approach for obtaining Smackover Formation brine samples and conducting mineral processing test work.

We anticipate achieving brine access through agreements with current oil and gas operators to sample current wells, re-open suspended wells, and/or conduct appraisal drilling within the next one to two quarters.

It is anticipated that validation of the geology, mineralization, and mineral processing by us will advance the confidence level of the deposit toward mineral resource estimations and a potential preliminary economic assessment study.

This work is anticipated to commence and be completed in 2022 and it is possible that the exploration target tonnage and grade could change as these proposed exploration activities are completed and evaluated.

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 six months of 2021, we repaid $29.3 million on our term credit agreement.

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 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.

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Asset-Based Credit Agreement .

As of June 30, 2021, our ABL Credit Agreement provides for a senior secured revolving credit facility of up to $100.0 million, 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 and a swingline loan sublimit of $10.0 million.

The amounts we may borrow under the ABL Credit Agreement are derived from our accounts receivable and certain inventory.

Changes in demand for our products and services have an

impact on our eligible accounts receivable 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.

On July 30, 2021, we entered into an amendment of the ABL Credit Agreement that, among other things, extended the term of the credit facility to May 31, 2025 and revised our commitment to $80.0 million with a $20.0 million accordion.

The amendment increased the availability by adding the value of accrued United States receivables, increased the forward rates on accounts receivable for investment grade customers and incorporated a new $15.0 million sub-facility subject to a borrowing base consisting of certain trade receivables and inventory in the United Kingdom.

The amendment resulted in an approximate $9.4 million increase to the borrowing base as of July 30, 2021, compared to the borrowing base prior to the amendment.

As of September 30, 2021, 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.

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) following the conclusion of each calendar year.

Within five business days of filing our Annual Report for the year ending December 31, 2021, the minimum amount we will be required to offer to prepay pursuant to this obligation is $8.2 million.

In connection with the July 30, 2021 ABL Credit Agreement amendment, we elected to repay the $8.2 million under our term credit agreement that would have become due in 2022.

As of July 30, 2021, $176.1 million in aggregate principal amount of our term credit agreement is outstanding.

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.

The minimum amount of $8.2 million that we would have been required to offer to prepay pursuant to this obligation for the year ending December 31, 2021 was paid on July 30, 2021 in connection with amendment of the ABL Credit Agreement.

As of October 29, 2021, $176.1 million in aggregate principal amount of our term credit agreement is outstanding.

Other Sources and Uses

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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 transaction is in the best interest of our business.

We periodically evaluate

engaging in strategic transactions and may consider divesting non-core assets where our evaluation suggests such a transaction is in the best interest of our business.

In challenging economic environments, we may experience increased delays and failures by customers to pay our invoices.

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Off Balance Sheet Arrangements

As of June 30, 2021, 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.

As of September 30, 2021, 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

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Commitments and Contingencies

In May 2021, we signed a MOU with CarbonFree, a carbon capture company with patented technologies that capture CO 2 and mineralize emissions to make commercial, carbon-negative chemicals.

TETRA and CarbonFree have been jointly sharing and leveraging both Companies' technical resources and expertise as CarbonFree continues to advance their carbon capture mineralization pilot plant, processes, and technologies.

During the one-year MOU period, both Companies will work towards a definitive agreement that might include investments by TETRA into CarbonFree, a joint venture, or other commercial arrangements that will leverage each Company's strength to advance this market-leading technology.

On July 23, 2021, we entered into a commitment to invest $5.0 million in a convertible note to be issued by CarbonFree.

Our investment in Carbon Free is contingent on certain conditions and is expected to be completed during the third quarter of 2021.

For information regarding our MOU with and potential investment in CarbonFree, see Note 7 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements.

For information regarding litigation, see - Note 7 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements.

Long-Term Debt

For information on our credit agreements, see Note 6 - “Long-Term Debt and Other Borrowings” and Note 11 - “Subsequent Events” in the Notes to Consolidated Financial Statements.

For information on our credit agreements, see Note 6 - “Long-Term Debt and Other Borrowings” in the Notes to Consolidated Financial Statements.

We have operating leases for some of our transportation equipment, office space, warehouse space, operating locations, and machinery and equipment.

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We recognize a liability for the purchase of such products at the time we receive them.

As of June 30, 2021, the aggregate amount of the fixed and determinable portion of the purchase obligation pursuant to our Completion Fluids & Products Division’s supply agreements was approximately $80.7 million, including $4.8 million for the remainder of 2021, $9.5 million per year from 2022 to 2025 and $37.9 million thereafter, extending through 2029.

As of September 30, 2021, the aggregate amount of the fixed and determinable portion of the purchase obligation pursuant to our Completion Fluids & Products Division’s supply agreements was approximately $93.9 million, including $2.4 million for the remainder of 2021, $12.0 million per year from 2022 to 2025 and $43.5 million thereafter, extending through 2029.

Cautionary Statement for Purposes of Forward-Looking Statements

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“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 exploration targets of lithium and bromine, the potential extraction of lithium and bromine from the leased acreage and the economic viability thereof, the timing and cost of such activities, and statements regarding the Company's beliefs, expectations, plans, goals, future events and performance, and other statements that are not purely historical.

Management believes that these forward-looking statements are reasonable as and when made.

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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.

and uncertainties include, but are not limited to, those described in Part II, “Item 1A.

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 Annual Report on Form 10-K for the year ended December 31, 2020, and those described from time to time in our future reports filed with the SEC.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis