TETRA TECHNOLOGIES INC 10-Q

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. We are composed of two segments – Completion Fluids & Products Division and Water & Flowback Services Division. Following a steady ramp up throughout 2021, customer activity levels continued to trend upward in the first quarter of 2022 as oil prices increased to an average of over $95 per barrel, and natural gas prices averaged $4.67 per million Btu. Consolidated revenue of $130.0 million is very comparable to the pre-pandemic first quarter 2020 period, but with significantly fewer operating frac crews in the United States. Completions Fluids & Products Division revenues improved over the fourth quarter due to higher completions activity in the Gulf of Mexico and international markets, and an increase in industrial chemicals product sales. While drilling and completion activity has not returned to pre-pandemic levels, we have successfully leveraged opportunities to expand integrated services to completion fluids customers, resulting in Completion Fluids & Products revenues reaching near pre-pandemic results. 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. The size of the shipments are expected to increase as Eos expands its production capacity to meet its growing backlog and to service its increasing number of identified opportunities. Margins also improved as we have been able to negotiate higher pricing to offset inflationary pressures in certain raw materials and logistics costs. 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 into Russia or to Ukraine. However, one of our raw material providers sources one of their raw materials from Russia or Ukraine. Because of the conflict between Russia and Ukraine, our primary European supplier of hydrochloric acid 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 hydrochloric acid to our plant in Finland where we manufacture calcium chloride, which has decreased our calcium chloride production volumes. The financial impact on first quarter results for our European industrial chemicals business was not significant but could become more significant to our Northern European calcium chloride production operations as the year progresses if these supply chain challenges continue. We are working 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 expect improved deliveries and a more normalized supply chain as they progress through the second half of the year. The exact financial impact is difficult to quantify at this time and is dependent on our ability to find alternative sources of acid 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 slightly over the fourth quarter and significantly compared to the first quarter of 2021, due to a combination of higher overall customer activity levels and significant price recovery, particularly in the United States onshore land business. We deployed our TETRA SandStorm TM technology for two major long-term projects in Latin America during 2021 and continue to add SandStorm units to United States onshore markets at rates approaching pre-pandemic pricing. Despite significant recent capital investments in our Sandstorm technology, we continue to experience capacity constraints, with pricing in several regions approaching pre-pandemic levels. Our focus on produced water treatment and recycling continues to generate results with several new recycling awards in the first quarter, including our first recycling project for a mid-stream company. 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. 16 Table of Contents 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 first quarter of 2022, we completed the drilling of our Arkansas exploration well and commenced gathering of fluid samples for multiple Smackover formation brine zones. We expect the ongoing bromine and lithium fluid analysis will allow us to complete an inferred resources report for both the bromine and lithium in our approximately 31,100 net acre brine leases in Arkansas. We are in the process of bidding and awarding the work for a preliminary economic assessment (“PEA”) to determine the economics of developing 3,600 net acres under which we hold exclusive brine rights to meet the demand for bromine-based fluids for both a growing oil and gas market as well as a rapidly growing energy storage market. In addition to the bromine, we plan to extract lithium from the same brine feed which we expect will greatly benefit the financial returns for the project. 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. 17 Table of Contents 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. 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. Also as required by the final rule, we have included the comparison of the current quarter to the prior-year quarter for this filing only, and will cease to provide this comparison in future filings. We will continue to provide a comparison of year-to-date results to the prior year-to-date period. Three Months Ended March 31, 2022 compared with three months ended December 31, 2021. Consolidated Comparisons Three Months Ended Period to Period Change March 31, 2022 December 31, 2021 $ Change % Change (in thousands, except percentages) Revenues $ 130,037 $ 113,148 $ 16,889 14.9 % Gross profit 32,420 19,188 13,232 69.0 % Gross profit as a percentage of revenue 24.9 % 17.0 % Exploration and appraisal costs 1,930 — 1,930 100.0 % General and administrative expense 20,643 18,972 1,671 8.8 % General and administrative expense as a percentage of revenue 15.9 % 16.8 % Interest expense, net 3,324 4,004 (680) (17.0) % Other income, net (2,411) (3,030) 619 (20.4) % Income (loss) before taxes and discontinued operations 8,934 (758) 9,692 NM (1) Income (loss) before taxes and discontinued operations as a percentage of revenue 6.9 % (0.7) % Provision for income taxes 1,200 (55) 1,255 NM Income (loss) before discontinued operations 7,734 (703) 8,437 NM Discontinued operations: Loss from discontinued operations, net of taxes (15) (475) 460 (96.8) % Net income (loss) 7,719 (1,178) 8,897 NM Income attributable to noncontrolling interest 1 37 (36) (97.3) % Net income (loss) attributable to TETRA stockholders $ 7,720 $ (1,141) $ 8,861 NM (1) Percent change is not meaningful Consolidated revenues increased in the current quarter primarily due to an increase in overall activity for both the Completion Fluids & Products division and Water Management & Flowback division, as commodity prices continued to move upward for both crude oil and natural gas. See Divisional Comparisons section below for a more detailed discussion of the change in our revenues. Consolidated gross profit as a percentage of revenue improved primarily due to a change in revenue mix, with a higher portion of revenues generated from our Completion Fluids & Products division, as well as a $3.8 million insurance settlement received in March 2022 from damage to our Lake Charles facility during Hurricane Laura in 2020. See Divisional Comparisons section below for additional discussion. Consolidated exploration and appraisal costs were $1.9 million during the current quarter due to costs associated with our exploratory brine well in Arkansas. Consolidated general and administrative expenses increased primarily due to $0.6 million in bad debt expense recoveries recorded in the prior quarter and a slight increase in salary and employee expenses. 18 Table of Contents Consolidated interest expense, net, decreased in the current year period primarily due to $13.0 million of repayments of our term credit facility during the fourth quarter of 2021. Our consolidated provision for income taxes for the current year period is primarily attributable to taxes in certain non-U.S. jurisdictions and Texas gross margin taxes. Our consolidated effective tax rate for the three-months ended March 31, 2022 was 13.4% due to income generated during the quarter, partially offset by the utilization of net operating loss carryforwards in the United States as well as in certain non-U.S. jurisdictions for which a valuation allowance had been established. 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. Income from discontinued operations, net of taxes, for the prior quarter included a loss of $0.5 million for adjustments to the gain from the GP Sale. Divisional Comparisons Completion Fluids & Products Division Three Months Ended Period to Period Change March 31, 2022 December 31, 2021 $ Change % Change (in thousands, except percentages) Revenues $ 73,194 $ 59,829 $ 13,365 22.3 % Gross profit 26,147 15,288 10,859 71.0 % Gross profit as a percentage of revenue 35.7 % 25.6 % Exploration and appraisal costs 1,930 — 1,930 100.0 % General and administrative expense 6,059 6,194 (135) (2.2) % General and administrative expense as a percentage of revenue 8.3 % 10.4 % Interest income, net (323) (131) (192) 146.6 % Other income, net (811) (5,643) 4,832 (85.6) % Income before taxes $ 19,292 $ 14,868 $ 4,424 29.8 % Income before taxes as a percentage of revenue 26.4 % 24.9 % Revenues for our Completion Fluids & Products Division increased primarily due to increased Gulf of Mexico and Middle East completion fluid sales and associated services as a result of higher drilling and completions activity following the continued improvement in commodity prices. Our Northern European industrial business was negatively impacted from lower production volumes due to inflationary pressures for certain raw materials because of global shipping constraints and geopolitical events. Gross profit for our Completion Fluids & Products Division increased compared to the prior year period due to a $3.8 million insurance settlement received in March 2022 from damage to our Lake Charles facility, as well as more revenues from higher-margin products and associated completion services, particularly in the Gulf of Mexico. 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, supply chain challenges and inflationary pressures. Pretax income for our Completion Fluids & Products Division increased primarily due to the $10.9 million higher gross profit described above, partially offset by a $4.6 million decrease in other income, net due to prior quarter gains from our investment in Standard Lithium Ltd. (NYSE: SLI) (“Standard Lithium”), which we sold during the fourth quarter of 2021. Income before taxes also decreased due to $1.9 million of costs associated with the exploratory brine well drilled during the current year period. 19 Table of Contents Water & Flowback Services Division Three Months Ended Period to Period Change March 31, 2022 December 31, 2021 $ Change % Change (in thousands, except percentages) Revenues $ 56,843 $ 53,319 $ 3,524 6.6 % Gross profit 6,462 4,283 2,179 50.9 % Gross profit as a percentage of revenue 11.4 % 8.0 % General and administrative expense 4,238 3,762 476 12.7 % General and administrative expense as a percentage of revenue 7.5 % 7.1 % Interest income, net — 4 (4) (100.0) % Other income, net (458) (632) 174 (27.5) % Income before taxes $ 2,682 $ 1,149 $ 1,533 133.4 % Income before taxes as a percentage of revenue 4.7 % 2.2 % Revenues for our Water & Flowback Services Division increased in the current year period compared to the prior quarter, primarily in our water management services due to higher overall customer activity in the North America onshore business, combined with some pricing improvements. Customer activity levels have continued to improve, especially in the North America onshore business as crude oil and natural gas prices have increased. The Water & Flowback Services Division reported improved gross profit compared to the prior quarter. While certain costs increased, our prices for services have improved as activity recovered, resulting in improved margins. The Water & Flowback Services Division pretax income also increased due to the improved gross profit, slightly offset by an increase in general and administrative expense, primarily due to $0.6 million in bad debt expense recoveries recorded in the prior quarter. Corporate Overhead Three Months Ended Period to Period Change March 31, 2022 December 31, 2021 $ Change % Change (in thousands, except percentages) Depreciation and amortization $ 191 $ 386 $ (195) (50.5) % General and administrative expense 10,346 9,017 1,329 14.7 % Interest expense, net 3,647 4,130 (483) (11.7) % Other (income) expense, net (1,141) 3,245 (4,386) (135.2) % Loss before taxes $ (13,043) $ (16,778) $ 3,735 (22.3) % Corporate Overhead pretax loss decreased due to an increase in other (income) expense, net and a decrease in interest expense, net, offset by an increase in general and administrative expense. General and administrative expense for our Corporate Overhead increased compared to the prior quarter primarily due to higher salary costs associated with the impact of higher stock price on certain long-term incentive awards. Interest expense, net decreased in the current year primarily due to $13.0 million of repayments of our term credit facility during the fourth quarter of 2021. Corporate other (income) expense, net improved compared to the prior quarter primarily due to the change in the unit price of the CSI Compressco common units we retained, improving from a $3.2 million loss in the prior quarter to a $1.1 million gain in the current period. 20 Table of Contents Three months ended March 31, 2022 compared with three months ended March 31, 2021. Consolidated Comparisons Three Months Ended March 31, Period to Period Change 2022 2021 $ Change % Change (in thousands, except percentages) Revenues $ 130,037 $ 77,324 $ 52,713 68.2 % Gross profit 32,420 7,869 24,551 312.0 % Gross profit as a percentage of revenue 24.9 % 10.2 % Exploration and appraisal costs 1,930 — 1,930 100.0 % General and administrative expense 20,643 20,012 631 3.2 % General and administrative expense as a percentage of revenue 15.9 % 25.9 % Interest expense, net 3,324 4,404 (1,080) (24.5) % Other income, net (2,411) (4,772) 2,361 (49.5) % Income (loss) before taxes and discontinued operations 8,934 (11,775) 20,709 175.9 % Income (loss) before taxes and discontinued operations as a percentage of revenue 6.9 % (15.2) % Provision for income taxes 1,200 168 1,032 614.3 % Income (loss) before discontinued operations 7,734 (11,943) 19,677 164.8 % Discontinued operations: Income (loss) from discontinued operations, net of taxes (15) 120,990 (121,005) (100.0) % Net income 7,719 109,047 (101,328) (92.9) % Income (loss) attributable to noncontrolling interest 1 (333) 334 (100.3) % Net income attributable to TETRA stockholders $ 7,720 $ 108,714 $ (100,994) (92.9) % Consolidated revenues increased in the current quarter 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 quarter 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 improved, primarily due to a higher portion of revenues generated from our Completion Fluids & Products 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 $1.9 million during the current quarter due to the costs associated with our exploratory brine well. Consolidated general and administrative expenses increased for the current quarter compared to the prior year, primarily due to $2.8 million of increased wage and benefit related expenses because of reinstatement of full salaries and 401K match, partially offset by a $2.2 million decrease in professional fees primarily due to the GP Sale in the first quarter of the prior year. Consolidated interest expense, net, decreased in the current quarter primarily due to $50.5 million of repayments of our term credit facility during 2021. Consolidated other income, net, decreased in the current quarter, compared to the prior year quarter primarily due to a $1.8 million decrease in income related to unit price changes of our investment in CSI Compressco and a $1.1 million decrease in income from our shares in Standard Lithium, which were sold during the fourth quarter of 2021. Consolidated provision for income taxes was $1.2 million during the current quarter, compared to $0.2 million during the prior year quarter. Our consolidated effective tax rate for the current quarter of 13.4% was 21 Table of Contents primarily due to income generated during the quarter, partially offset by the utilization of net operating loss carryforwards in the United States as well as in certain non-U.S. jurisdictions for which a valuation allowance had been established. Loss from discontinued operations, net of taxes, for the prior year quarter 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. Income (loss) attributable to noncontrolling interest included $(0.3) million from the prior year quarter associated with CSI Compressco’s results for the month of January, prior to the GP Sale. Divisional Comparisons Completion Fluids & Products Division Three Months Ended March 31, Period to Period Change 2022 2021 $ Change % Change (in thousands, except percentages) Revenues $ 73,194 $ 46,522 $ 26,672 57.3 % Gross profit 26,147 11,650 14,497 124.4 % Gross profit as a percentage of revenue 35.7 % 25.0 % Exploration and appraisal costs 1,930 — 1,930 100.0 % General and administrative expense 6,059 4,306 1,753 40.7 % General and administrative expense as a percentage of revenue 8.3 % 9.3 % Interest income, net (323) (138) (185) 134.1 % Other income, net (811) (1,528) 717 (46.9) % Income before taxes $ 19,292 $ 9,010 $ 10,282 114.1 % Income before taxes as a percentage of revenue 26.4 % 19.4 % Revenues for our Completion Fluids & Products Division increased compared to the prior year primarily due to increased International and Gulf of Mexico completion services as a result of increased activity following the significant improvement in commodity prices and leveraging opportunities to expand services to completion fluids customers. Completion Fluids & Products Division gross profit for the current quarter increased compared to the prior year due to a $3.8 million insurance settlement received in March 2022 from damage to our Lake Charles facility in 2020, as well as more revenues from higher-margin completion fluids services and products. Pretax income for our Completion Fluids & Products Division increased compared to the prior year driven by higher gross profit, partially offset by $1.9 million of costs associated with the exploratory brine well drilled during the current quarter and a $1.8 million increase in general and administrative costs due to higher activity levels. In addition, other income, net decreased due to the $1.1 million decrease in income from our Standard Lithium shares sold during the fourth quarter of 2021, partially offset by $0.3 million of higher income recognized from additional Standard Lithium shares received in May 2021 and recognized over a twelve-month term. 22 Table of Contents Water & Flowback Services Division Three Months Ended March 31, Period to Period Change 2022 2021 $ Change % Change (in thousands, except percentages) Revenues $ 56,843 $ 30,802 $ 26,041 84.5 % Gross profit (loss) 6,462 (3,615) 10,077 278.8 % Gross profit (loss) as a percentage of revenue 11.4 % (11.7) % General and administrative expense 4,238 2,686 1,552 57.8 % General and administrative expense as a percentage of revenue 7.5 % 8.7 % Interest income, net — (522) 522 (100.0) % Other income, net (458) (299) (159) 53.2 % Income (loss) before taxes $ 2,682 $ (5,480) $ 8,162 148.9 % Income (loss) before taxes as a percentage of revenue 4.7 % (17.8) % Revenues for our Water & Flowback Services Division increased for both water management and production testing due to higher customer drilling and completion activity compared to the prior year quarter. Customer activity levels have continued to improve, especially in the North America onshore business as crude oil and natural gas prices have recovered. Gross profit for our Water & Flowback Services Division improved substantially from a loss in the prior year to double-digit profit in the current quarter, primarily due to higher revenues resulting from the increased activity levels described above and pricing improvements as activity levels improved. The Water & Flowback Services Division reported higher pretax income in the current quarter primarily due to an improvement in the gross profit described above, slightly offset by an increase in general and administrative expense primarily due a $1.4 million increase in salary and employee expense from higher activity levels and salary reinstatement as well as a $0.5 million decrease in interest income. Corporate Overhead Three Months Ended March 31, Period to Period Change 2022 2021 $ Change % Change (in thousands, except percentages) General and administrative expense $ 10,346 $ 13,020 $ (2,674) (20.5) % Interest expense, net 3,647 5,064 (1,417) (28.0) % Depreciation and amortization 191 170 21 12.4 % Other income, net (1,141) (2,946) 1,805 (61.3) % Loss before taxes $ (13,043) $ (15,308) $ 2,265 (14.8) % Corporate Overhead pretax loss decreased due to lower general and administrative expense and lower interest expense, partially offset by lower other income, net. General and administrative expense decreased primarily due to $2.3 million lower professional services expenses due to the GP Sale and certain legal expenses during the prior year. Interest expense, net decreased primarily due to $50.5 million of repayments of our term credit facility during 2021. Corporate Overhead other income, net, decreased compared to the prior year primarily due to a $1.8 million decrease in income related to unit price changes of our investment in CSI Compressco. Non-GAAP Financial Measures 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. 23 Table of Contents Adjusted EBITDA . We view Adjusted EBITDA as one of our primary management tools, and we track it on a monthly basis, both in dollars and as a percentage of revenues (typically compared to the prior month, prior year period, and to budget). We define Adjusted EBITDA as earnings before interest, taxes, depreciation, amortization, impairments and certain other non-cash charges and non-recurring adjustments. 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 table reconciles net income (loss) to Adjusted EBITDA for the periods indicated: Three Months Ended March 31, 2022 Completion Fluids & Products Water & Flowback Services Corporate SG&A Other and Eliminations Total (in thousands, except percentages) Revenue $ 73,194 $ 56,843 $ — $ — $ 130,037 Net income (loss) before taxes and discontinued operations 19,292 2,682 (10,346) (2,694) 8,934 Insurance settlement (3,750) — — — (3,750) Exploration and appraisal costs 1,930 — — — 1,930 Adjustment to long-term incentives — — 784 — 784 Former CEO stock appreciation right expense — — 472 — 472 Adjusted income (loss) before taxes and discontinued operations $ 17,472 $ 2,682 $ (9,090) $ (2,694) $ 8,370 Interest expense, net (323) — — 3,647 3,324 Depreciation and amortization 1,948 5,543 — 188 7,679 Equity compensation expense — — 1,104 — 1,104 Adjusted EBITDA $ 19,097 $ 8,225 $ (7,986) $ 1,141 $ 20,477 Adjusted EBITDA as % of revenue 26.1 % 14.5 % 15.7 % Three Months Ended December 31, 2021 Completion Fluids & Products Water & Flowback Services Corporate SG&A Other and Eliminations Total (in thousands, except percentages) Revenue $ 59,828 $ 53,320 $ — $ — $ 113,148 Net income (loss) before taxes and discontinued operations 14,868 1,148 (9,017) (7,757) (758) Adjustment to long-term incentives — — 495 — 495 Transaction and other expenses (39) 39 62 — 62 Former CEO stock appreciation right expense — — 107 — 107 Restructuring and severance expenses 324 57 — — 381 Stock warrant fair value adjustment — — — (56) (56) Impairments and other charges — — — 132 132 Allowance for bad debt — (230) — — (230) Adjusted income (loss) before taxes and discontinued operations $ 15,153 $ 1,014 $ (8,353) $ (7,681) $ 133 Interest expense, net (131) 4 — 4,130 4,003 Depreciation and amortization 1,767 5,868 — 251 7,886 Equity compensation expense — — 1,052 — 1,052 Adjusted EBITDA $ 16,789 $ 6,886 $ (7,301) $ (3,300) $ 13,074 Adjusted EBITDA as % of revenue 28.1 % 12.9 % 11.6 % 24 Table of Contents Three Months Ended March 31, 2021 Completion Fluids & Products Water & Flowback Services Corporate SG&A Other and Eliminations Total (in thousands, except percentages) Revenue $ 46,522 $ 30,802 $ — $ — $ 77,324 Net income (loss) before taxes and discontinued operations 9,010 (5,480) (13,020) (2,285) (11,775) Adjustment to long-term incentives 281 — 2,616 — 2,897 Transaction and other expenses — — 2,550 — 2,550 Former CEO stock appreciation right expense — — 509 — 509 Restructuring and severance expenses 181 — 160 — 341 Stock warrant fair value adjustment — — — 323 323 Adjusted income (loss) before taxes and discontinued operations $ 9,472 $ (5,480) $ (7,185) $ (1,962) $ (5,155) Interest expense, net (138) (522) — 5,064 4,404 Adjusted depreciation and amortization 1,705 6,899 — 166 8,770 Equity compensation expense — — 962 — 962 Adjusted EBITDA $ 11,039 $ 897 $ (6,223) $ 3,268 $ 8,981 Adjusted EBITDA as % of revenue 23.7 % 2.9 % 11.6 % 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 as we 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 first quarter was $95.3 million. Liquidity is defined as unrestricted cash plus availability under the ABL Credit Agreement and Swedish Credit Facility. Information about the terms and covenants of our debt agreements can be found in our 202 1 Annual Report and in Note 5 - 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: Three Months Ended March 31, 2022 2021 (in thousands) Operating activities $ 5,934 $ 5,825 Investing activities (5,592) (4,301) Financing activities 722 (29,887) Operating Activities Consolidated cash flows provided by operating activities increased slightly compared to the first three 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. 25 Table of Contents Investing Activities Total cash capital expenditures during the first three months of 2022 were $9.3 million, which reflects front-loading our expected full year expenditures to accommodate industry-wide activity recoveries. Our Water & Flowback Services Division spent $7.4 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. Our Completion Fluids & Products Division spent $1.9 million on capital expenditures. Investing activities during the first three 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. Lithium and Bromine Exploration Targets We have rights to the brine underlying our approximately 31,100 net 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 27,500 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 quarter of 2022, we incurred $1.9 million to complete the drilling of our Arkansas exploration well and obtain fluid samples for multiple Smackover formation brine zones. We expect the ongoing bromine and lithium fluid analysis will allow us to complete an inferred resources report for both the bromine and lithium in our approximately 31,100 net acre brine leases in Arkansas. We are in the process of bidding and awarding the work for a PEA to determine the economics of developing 3,600 net acres under which we hold exclusive brine rights to meet the demand for bromine-based fluids for both a growing oil and gas market as well as a rapidly growing energy storage market. In addition to the bromine, we plan to extract lithium from the same brine feed which we expect will greatly benefit the financial returns for the 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 three months of 2021, we repaid $29.5 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. 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 March 31, 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 26 Table of Contents our borrowing base and therefore our availability under our ABL Credit Agreement. As of March 31, 2022, we had $0.8 million outstanding and $6.0 million in letters of credit and guarantees against our ABL Credit Agreement and availability of $58.6 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 March 31, 2022, we had $1.5 million outstanding and availability of approximately $3.8 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. The Company also entered into a new credit agreement guaranteed by certain accounts receivable and inventory in Finland (“Finland Credit Agreement”). As of March 31, 2022, there were US$1.8 million of letters of credit outstanding against the Finland 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) within five business days of filing our Annual Report. As of April 29, 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 March 31, 2022, the market value of our investment in CSI Compressco was $7.3 million, with no holding restrictions on our ability to monetize our interest. We also hold a $5.0 million investment in convertible notes issued by CarbonFree as of March 31, 2022. In addition, 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. We expect to receive 400,000 shares of Standard Lithium stock during the second quarter of 2022 under the terms of this agreement. 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 March 31, 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 202 1 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. 27 Table of Contents Commitments and Contingencies Litigation For information regarding litigation, see - Note 6 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements. Long-Term Debt For information on our credit agreements, see our 2021 Annual Report and Note 5 - “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 about the terms and covenants of our lease agreements can be found in our 202 1 Annual Report . Product Purchase Obligations 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. Information about our product purchase obligations can be found in our 2021 Annual Report . 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 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. 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 when 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. 28 Table of Contents