What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-02 compared with 2022-05-02 · 148 added, 160 removed, 246 unchanged (56% of the section changed)

5 unchanged sentences

We are an industrial and oil and gas products and services company operating on six continents, focused on bromine-based completion fluids, calcium chloride, water management solutions, frac flowback and production well testing services.

Calcium chloride is used in the oil and gas industry, and also has broad industrial applications to the agricultural, road, food and beverage and lithium production markets.

We are composed of two segments – Completion Fluids & Products Division and Water & Flowback Services Division.

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.

Customer activity levels continued to trend upward as sustained high oil prices increased to an average of approximately $109 per barrel for the second quarter of 2022, and natural gas prices averaged $7.50 per million Btu.

As a result, second quarter consolidated revenue of $270.8 million is very comparable to the pre-pandemic period, but with significantly fewer operating frac crews in the United States.

Completion Fluids & Products Division revenues were slightly higher sequentially, with the seasonal increase for our Northern Europe industrial chemicals business partially offset by lower Gulf of Mexico and international fluid sales as the first quarter benefited from sales pulling forward from the second quarter.

However with much higher oil prices continuing to drive demand, revenues were significantly higher compared to the prior year quarter, primarily due to higher completions activity in the Gulf of Mexico and international markets.

While drilling and completion activity has not returned to pre-pandemic levels, we have continued to successfully leverage opportunities to expand integrated services to completion fluids customers, resulting in Completion Fluids & Products revenues reaching near pre-pandemic levels.

Our Completion Fluids & Products Division also continued to ship TETRA's high purity zinc bromine solution, TETRA PureFlow ® to Eos Energy Enterprises, Inc.

1 unchanged sentence

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.

Our sales to Eos increased materially during the second quarter compared to the first quarter of 2022 as Eos expands its production capacity to meet its growing backlog and to service its increasing number of identified opportunities

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.

Additionally, we have not historically sold any significant volumes of product to Russia or to Ukraine.

However, one of our raw material providers sourced one of their raw materials from Russia or Ukraine.

Because of the ongoing conflict between Russia and Ukraine, toward the end of the first quarter, our primary European supplier of certain raw materials advised us of supply constraints with one of their suppliers of a key raw material used in their manufacturing process.

This raw material is a widely used, global commodity but the disruption to the current supply chain has caused some impact on their production which in turn has caused a reduction in delivered volumes of certain raw materials to our plant in Finland where we manufacture calcium chloride, which has decreased our calcium chloride production volumes and had some impact on second quarter margins.

Our supplier has sourced their material from an alternative location and resumed supplying reduced volumes to us.

We are also continuing to work with secondary and tertiary raw material providers on options to address the situation and mitigate the financial impact and we are told from our primary provider that they expect improved deliveries and a more normalized supply chain as they progress through the second half of the year.

The exact financial impact remains difficult to quantify at this time and is dependent on our ability to find alternative sources of certain raw materials from suppliers not directly or indirectly impacted by the conflict or the ability of our primary supplier to source alternative raw material sources.

Our Water & Flowback Services revenues improved over the first quarter and significantly compared to the second quarter of 2021 due to a combination of continued increases in customer activity levels and continued price recovery, particularly in the United States onshore land business.

The second quarter revenue for our United States land business was the highest since the third quarter of 2019, despite significantly lower drilling and fracking activity compared to prior years.

We continue to add TETRA SandStorm TM (“SandStorm”) units to United States onshore markets at rates approaching pre-pandemic pricing.

We continue to see strong utilization for our SandStorm technology and continue to invest additional capital for new units as activity remains strong.

During the quarter, we secured a patent on this unique sand filtration technology.

Our focus on produced water treatment and recycling continues to generate results with four new recycling projects added during the second quarter.

Revenue growth

was a result of the continued increase in the number of integrated projects and customers, high utilization of SandStorm units and market share gains with private oil and gas operators.

We are committed to pursuing low-carbon energy initiatives that leverage our fluids and aqueous chemistry core competencies, our significant bromine and lithium assets and technologies, and our leading calcium chloride production capabilities.

During the 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.

During the first quarter of 2022, we completed the drilling of our Arkansas exploration well and, during the second quarter of 2022, we secured samples for multiple Smackover formation brine zones.

Ongoing bromine and lithium fluid analysis from these samples is being used to progress a resource report for both the bromine and lithium in our approximately 31,100 net acre brine leases in Arkansas.

The resource report is expected to be completed in the third quarter of 2022.

We are also in the process of completing an engagement agreement with an engineering firm to begin work on 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 ultimately 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.

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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.

Three months ended June 30, 2022 compared with three months ended March 31, 2022.

Consolidated Comparisons

Three Months Ended Period to Period Change

March 31, 2022 December 31, 2021 $ Change % Change

June 30, March 31, $ Change % Change

(in thousands, except percentages)

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Other income, net (1,037) (2,411) 1,374 (57.0) %

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

Income before taxes and discontinued operations 1,280 8,934 (7,654) (85.7) %

Income before taxes and discontinued operations as a percentage of revenue 0.9 % 6.9 %

(Benefit) provision for income taxes (479) 1,200 (1,679) NM (1)

Income before discontinued operations 1,759 7,734 (5,975) (77.3) %

Discontinued operations:

Loss from discontinued operations, net of taxes (34) (15) (19) 126.7 %

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

Net income 1,725 7,719 (5,994) (77.7) %

Loss attributable to noncontrolling interests 20 1 19 NM

Net income attributable to TETRA stockholders $ 1,745 $ 7,720 $ (5,975) (77.4) %

(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.

Consolidated revenues increased in the current quarter primarily due to an increase in overall activity for both the Completion Fluids & Products division and Water & Flowback Services division, as sustained high commodity prices continued 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.

Consolidated gross profit as a percentage of revenue decreased primarily due to the $3.8 million insurance settlement received in March 2022 from prior damage to our Lake Charles facility, and $2.3 million of impairments recognized in the current quarter.

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.

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.

Consolidated exploration and appraisal costs decreased as the drilling of our exploratory brine well in Arkansas was completed during the first quarter of 2022 and sample analysis continued during the second quarter.

Consolidated general and administrative expenses increased primarily due to $2.3 million of increased salary and employee expenses.

Higher salary expenses were mainly due to increased short and long-term variable incentive costs driven by strong year-to-date financial and stock price performance, as well as divisional headcount additions to support increased activity levels.

Consolidated other income, net, decreased in the current quarter, compared to the prior quarter primarily due to the change in the unit price of the CSI Compressco common units we retained, from a $1.1 million gain in the prior quarter to a $0.5 million loss in the current period, and a $0.8 million unrealized loss from our investment in Standard Lithium shares received in April 2022.

These decreases are partially offset by a $0.6 million unrealized gain on our investment in CarbonFree recognized during the second quarter, as well as a $0.3 million increase in gains on asset sales.

Consolidated benefit for income tax was $0.5 million, during the current quarter, compared to a $1.2 million expense during the prior quarter.

Our consolidated effective tax rate for the three months ended June 30, 2022 was negative 37.4% due primarily to the impact that changes in the full-year forecast had on our interim reporting under Accounting Standards Codification 740, Income Taxes.

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.

1 unchanged sentence

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

1 unchanged sentence

Three Months Ended Period to Period Change

March 31, 2022 December 31, 2021 $ Change % Change

June 30, March 31, $ Change % Change

(in thousands, except percentages)

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Interest income, net (283) (323) 40 (12.4) %

Other income, net (811) (5,643) 4,832 (85.6) %

Other (income) expense, net 265 (811) 1,076 (132.7) %

Income before taxes $ 15,261 $ 19,292 $ (4,031) (20.9) %

1 unchanged sentence

20.4 % 26.4 %

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.

Revenues for our Completion Fluids & Products Division increased slightly as the seasonal uplift from our Northern European chemicals business was partially offset by lower Gulf of Mexico and international fluid sales as the first quarter benefited from sales pulled forward from the second quarter.

Gross profit for our Completion Fluids & Products Division decreased compared to the prior quarter period due to a $3.8 million insurance settlement received in March 2022 from damage to our Lake Charles facility.

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.

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.

Pretax income for our Completion Fluids & Products Division decreased primarily due to the $4.1 million lower gross profit described above, a $1.1 million increase in foreign exchange losses and a $0.8 million unrealized loss from our investment in Standard Lithium shares received in April 2022.

These decreases were partially offset by a $1.3 million decrease in costs associated with the conclusion of our exploratory brine well drilled during the first quarter of 2022 as well as $0.6 million unrealized gain on our investment in CarbonFree recognized during the second quarter.

Water & Flowback Services Division

Three Months Ended Period to Period Change

March 31, 2022 December 31, 2021 $ Change % Change

June 30, March 31, $ Change % Change

(in thousands, except percentages)

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General and administrative expense as a percentage of revenue

Interest income, net — 4 (4) (100.0) %

Interest income, net (2) — (2) NM

Other income, net (1,322) (458) (864) 188.6 %

1 unchanged sentence

Income before taxes as a percentage of revenue 2.5 % 4.7 %

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.

Revenues for our Water & Flowback Services Division increased for both water management and production testing in the current quarter compared to the prior quarter, primarily due to the continued higher overall customer activity in the North America onshore business.

The higher customer activity can be attributed to sustained high commodity prices.

Gross profit for our Water & Flowback Services Division decreased compared to the prior quarter due to impairment expenses for obsolete assets and inventory.

Excluding the impairment, gross profit is consistent with increased activity level with similar pricing fall through.

We expect the third-quarter Adjusted EBITDA margins to further improve reflecting continued better pricing for our United States onshore land business, stronger activity levels and the commencement of operations of two early production facilities in Argentina.

The Water & Flowback Services Division pretax income decreased due to a decrease in gross profit and an increase in general and administrative expense.

General and administrative expense increased due to higher compensation and benefits from higher salaries, additional headcount as well as a $0.5 million increase professional services from contract labor.

Income for our Water & Flowback Services Division also increased due to a $0.2 million increase in gains on sales of assets and $0.7 million increase in foreign exchange gains.

Corporate Overhead

Three Months Ended Period to Period Change

March 31, 2022 December 31, 2021 $ Change % Change

June 30, March 31, $ Change % Change

(in thousands, except percentages)

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Loss before taxes $ (15,628) $ (13,043) $ (2,585) 19.8 %

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.

Three months ended March 31, 2022 compared with three months ended March 31, 2021.

Corporate overhead pretax loss increased due to a $1.2 million increase in general and administrative expense and a $1.2 million decrease in other (income) expense, net.

General and administrative expense 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 and the impact of current year financial performance on accrued short-term incentives.

Other (income) expense, net decreased compared to the prior quarter, from a $1.1 million gain in the prior quarter to a $0.5 million loss in the current period, due to the change in the unit price of the CSI Compressco common units we retained.

These changes were partially offset by a $0.5 million increase in foreign exchange gains.

Six months ended June 30, 2022 compared with six months ended June 30, 2021.

Consolidated Comparisons

Three Months Ended

March 31, Period to Period Change

Six months ended

June 30, Period to Period Change

2022 2021 $ Change % Change

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Income (loss) before taxes and discontinued operations as a percentage of revenue 3.8 % (9.5) %

Provision for income taxes 1,200 168 1,032 614.3 %

(Benefit) provision for income taxes 721 1,552 (831) (53.5) %

Income (loss) before discontinued operations 9,493 (18,597) 28,090 151.0 %

2 unchanged sentences

Net income 9,444 102,267 (92,823) (90.8) %

Income (loss) attributable to noncontrolling interest 1 (333) 334 (100.3) %

Loss (income) attributable to noncontrolling interests 21 (306) 327 (106.9) %

Net income attributable to TETRA stockholders $ 9,465 $ 101,961 $ (92,496) (90.7) %

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.

Consolidated revenues increased in the current year primarily due to improving industry conditions compared to the prior year for both the Completion Fluids & Products division and the Water Management & Flowback division.

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

Consolidated gross profit increased in the current 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

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.

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

Gross profit as a percentage of revenue also increased, primarily due to the significant improvement in profitability for our Water and Flowback Services Division, as well as a $3.8 million insurance settlement received in March 2022 associated with damage to our Lake Charles facility in 2020.

Consolidated exploration and appraisal costs were $2.6 million during the current year due to the exploration and sample analysis costs associated with our exploratory brine well in Arkansas.

Consolidated general and administrative expenses increased compared to the prior year, primarily due to $7.6 million of increased wage and benefit related expenses driven by reinstatement of full salaries and 401K match as well as higher short and long-term incentive expenses, and divisional headcount additions as operational activity levels increased.

Higher wage and benefit related expenses were partially offset by a $1.5 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 year primarily due to $50.5 million of repayments of our term credit facility during 2021.

Consolidated other income, net, decreased in the current year, compared to the prior year primarily due to a $5.2 million net decrease in unrealized gains on investments in CSI Compressco, Standard Lithium and CarbonFree, partially offset by a $3.0 million warrants fair value adjustment recognized in the prior year, a $0.6 million increase in foreign exchange gains, and a $0.3 million increase in gains on sales of assets.

Consolidated provision for income taxes was $0.7 million during the current year, compared to $1.6 million during the prior year.

Our consolidated effective tax rate for the current year of 7.1% was primarily due to income generated during the current year, 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.

We establish a valuation allowance to reduce the deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Included in our deferred tax assets are net operating loss carryforwards and tax credits that are available to offset future income tax liabilities in the United States as well as in certain non-U.S.

jurisdictions.

Consolidated loss from discontinued operations, net of taxes, for the prior year includes a $120.6 million primarily non-cash accounting gain from the deconsolidation of CSI Compressco.

This gain is net of a $0.01 million tax provision after taking into consideration utilization of net operating loss and credit carryforwards.

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.

Consolidated loss (income) attributable to noncontrolling interests included $0.3 million income from the prior year associated with CSI Compressco’s results for the month of January, prior to the GP Sale.

Divisional Comparisons

Completion Fluids & Products Division

Three Months Ended

March 31, Period to Period Change

Six months ended

June 30, Period to Period Change

2022 2021 $ Change % Change

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23.3 % 22.9 %

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.

Revenues for our Completion Fluids & Products Division increased compared to the prior year primarily due to increased International and Gulf of Mexico completion fluids product sales as a result of increased activity following the significant improvement in commodity prices and leveraging opportunities to expand services to completion fluids customers.

Gross profit for our Completion Fluids & Products Division increased compared to the prior year due to more revenues from higher-margin completion fluids services and products, as well as a $3.8 million insurance settlement received in March 2022 from damage to our Lake Charles facility in 2020.

Pretax income for our Completion Fluids & Products Division increased compared to the prior year driven by higher gross profit, partially offset by $2.6 million of costs associated with the exploratory brine well drilled during the current year and a $3.3 million increase in general and administrative costs due to reinstatement of full salaries and 401K match as well as higher short and long-term incentive expenses, and divisional headcount additions to support higher activity levels.

In addition, other income, net decreased due to the $3.5 million decrease in income from our Standard Lithium shares, most of which were sold during the fourth quarter of 2021, Other income, net also includes a $0.6 million unrealized gain on our investment in CarbonFree recognized during the second quarter.

Water & Flowback Services Division

Three Months Ended

March 31, Period to Period Change

Six months ended

June 30, Period to Period Change

2022 2021 $ Change % Change

1 unchanged sentence

Revenues $ 122,761 $ 68,522 $ 54,239 79.2 %

Gross profit (loss) 6,462 (3,615) 10,077 278.8 %

Gross profit (loss) 12,676 (5,479) 18,155 NM

Gross profit (loss) as a percentage of revenue 10.3 % (8.0) %

3 unchanged sentences

Other income, net (1,781) (398) (1,383) 347.5 %

Income (loss) before taxes $ 2,682 $ (5,480) $ 8,162 148.9 %

Income (loss) before taxes $ 4,326 $ (10,458) $ 14,784 NM

Income (loss) before taxes as a percentage of revenue

3.5 % (15.3) %

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.

Revenues for our Water & Flowback Services Division increased for both water management and production testing due to much overall higher customer drilling and completion activity.

Customer activity levels have continued to improve, primarily in our North America land business as commodity prices have not only recovered but remained high for both crude oil and natural gas compared to the prior year period.

Gross profit for our Water & Flowback Services Division improved substantially from a loss in the prior year to double-digit profit in the current year, primarily due to higher revenues resulting from the increased activity levels described above and pricing improvements as activity levels improved.

Pretax income for our Water & Flowback Services Division increased in the current year primarily due to an improvement in the gross profit described above and a $0.9 million increase in foreign exchange gains, offset by an increase in general and administrative expense primarily due a $3.2 million increase in salary and employee expense due to reinstatement of full salaries and 401K match as well as higher short and long-term incentive expenses, and divisional headcount additions to support higher activity levels;

a $0.6 million increase in general expenses primarily due to increased rent to support higher activity;

and a $0.4 million increase in professional services also supporting higher activity.

Corporate Overhead

Three Months Ended

March 31, Period to Period Change

Six months ended

June 30, Period to Period Change

2022 2021 $ Change % Change

(in thousands, except percentages)

Depreciation and amortization 363 418 (55) (13.2) %

General and administrative expense $ 21,888 $ 22,564 $ (676) (3.0) %

Interest expense, net 7,541 9,107 (1,566) (17.2) %

Depreciation and amortization 191 170 21 12.4 %

Other income, net (1,141) (2,946) 1,805 (61.3) %

Other income, net (1,121) (58) (1,063) NM

Loss before taxes $ (28,671) $ (32,031) $ 3,360 (10.5) %

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.

Corporate overhead pretax loss decreased due to a $1.6 million decrease in interest expense, net due to lower debt levels, as well as a $1.1 million increase in other income, net.

Other income, net increased primarily due to a $3.0 million warrants fair value adjustment recognized in the prior year and a $0.6 million increase in foreign exchange gains, partially offset by a $2.4 million decrease in income related to unit price changes of our investment in CSI Compressco.

Non-GAAP Financial Measures

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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.

We define Adjusted EBITDA as earnings before interest, taxes, depreciation, amortization, impairments, exploration and appraisal costs and certain other non-cash charges and non-recurring adjustments.

Adjusted EBITDA is used as a supplemental financial measure by our management to:

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Three Months Ended

March 31, 2022

June 30, 2022

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

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Net income (loss) before taxes and discontinued operations 15,261 1,644 (11,542) (4,083) 1,280

Insurance settlement (3,750) — — — (3,750)

Impairments 220 2,042 — — 2,262

Exploration and appraisal costs 634 — — — 634

Adjustment to long-term incentives — — 1,450 — 1,450

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)

Transactions and other expenses — 556 — — 556

Adjusted income (loss) before taxes and discontinued operations $ 16,115 $ 4,242 $ (10,092) $ (4,083) $ 6,182

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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

Transaction and other expenses — — 2,550 — 2,550

Former CEO stock appreciation right expense — — 472 — 472

Restructuring and severance expenses 181 — 160 — 341

Stock warrant fair value adjustment — — — 323 323

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

Adjusted depreciation and amortization 1,705 6,899 — 166 8,770

Depreciation and amortization 1,948 5,543 — 188 7,679

Equity compensation expense — — 1,104 — 1,104

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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 first quarter was $95.3 million.

Liquidity is defined as unrestricted cash plus availability under the ABL Credit Agreement and Swedish Credit Facility.

Our liquidity at the end of the second quarter was $103.0 million.

Liquidity is defined as unrestricted cash plus availability under the ABL Credit Agreement, Swedish Credit Facility and Finland Credit Agreement.

Information about the terms and covenants of our debt agreements can be found in our 2021 Annual Report and in Note 6 - Long Term Debt and Other Borrowings.

Our consolidated sources and uses of cash, which include cash activity from our former Compression Division for January 2021 prior to the closing of the GP sale, are as follows:

Three Months Ended

Six Months Ended

(in thousands)

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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.

Consolidated cash flows provided by operating activities increased compared to the first six months of 2021 primarily due to an increase in cash profit, partially offset by the effect of working capital movements and $0.9 million of prior-year cash flows provided by operating activities generated by CSI Compressco in January prior to closing of the GP Sale.

Investing Activities

Total cash capital expenditures during the first three months of 2022 were $9.3 million, which reflects front-loading our expected full year expenditures to accommodate industry-wide activity recoveries.

Total cash capital expenditures during the first six months of 2022 were $20.4 million, which reflects front-loading our expected full year expenditures to accommodate industry-wide activity recoveries.

Our Water & Flowback Services Division spent $15.9 million on capital expenditures, primarily to deploy additional SandStorm units to meet increased demands and maintain, automate and upgrade its water management and flowback equipment fleet.

Water and Flowback Services Division capital expenditures also included expenditures related to construction of early production facilities in Argentina, including approximately $2.0 million of costs that were reimbursed by customers.

Our Completion Fluids & Products Division spent $4.4 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.

Investing activities during the first six 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.

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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 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.

During the first six months 2022, we incurred $2.6 million to complete the drilling of our Arkansas exploration well and obtain and analyze fluid samples for multiple Smackover formation brine zones.

The resource report is expected to be completed in the third quarter of 2022.

We have engaged an engineering firm to begin work on 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 ultimately 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.

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.

We repaid an additional $21.0 million on our term credit agreement during 2021 using proceeds from the sale of Standard Lithium shares and cash flows from operations.

Our financing activities for the fist six months of 2022 include $1.2 million of capital lease payments associated with equipment leased for the early production facilities in Argentina.

We may supplement our existing cash balances and cash flow from operating activities with short-term borrowings, long-term borrowings, issuances of equity and debt securities, and other sources of capital.

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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.

As of June 30, 2022, our ABL Credit Agreement provides for a senior secured revolving credit facility of up to $80.0 million, with a $20.0 million accordion.

The credit facility is subject to a borrowing base to be determined by reference to the value of inventory and accounts receivable, and includes a sublimit of $20.0 million for letters of credit, a swingline loan sublimit of $11.5 million, and a $15.0 million sub-facility subject to a borrowing base consisting of certain trade receivables and inventory in the United Kingdom.

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

Changes in demand for our products and services have an impact on our eligible accounts receivable, accrued receivables and the value of our inventory, which could result in significant changes to

our borrowing base and therefore our availability under our ABL Credit Agreement.

As of 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.

Changes in demand for our products and services have an impact on our eligible accounts receivable, accrued receivables and the value of our inventory, which could result in significant changes to our borrowing base and therefore our availability under our ABL Credit Agreement.

As of June 30, 2022, we had zero outstanding and $6.0 million in letters of credit and guarantees against our ABL Credit Agreement and availability of $61.8 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.

As of June 30, 2022, we had less than $0.1 million outstanding and availability of approximately $4.9 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.

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.

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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.

As of June 30, 2022, there were US$1.4 million of letters of credit outstanding against the Finland Credit Agreement.

Term Credit Agreement .

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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.

As of July 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.

In addition, as of June 30, 2022, the market value of our investments in CSI Compressco and Standard Lithium were $6.9 million and $1.7 million, respectively, with no holding restrictions on our ability to monetize our interest.

We also hold an investment in convertible notes issued by CarbonFree valued at $5.6 million as of June 30, 2022, excluding accrued interest.

In addition, we are party to agreements in which Standard Lithium has the right to explore, and an option to acquire the right to produce and extract Lithium in our Arkansas leases as well as additional potential resources in the Mojave region of California.

We received 400,000 shares of Standard Lithium stock during the second quarter of 2022 under the terms of this agreement.

On May 5, 2022, we filed a universal shelf Registration Statement on Form S-3 with the SEC.

On May 17, 2022, the Registration Statement on Form S-3 was declared effective by the SEC.

Pursuant to this registration statement, we have the ability to sell debt or equity securities in one or more public offerings up to an aggregate public offering price of $400 million.

This shelf registration statement currently provides us additional flexibility with regards to potential financing that we may undertake when market conditions permit or our financial condition may require.

Should additional capital be required, the ability to raise such capital through the issuance of additional debt or equity securities may currently be limited.

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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.

As of June 30, 2022, we had no “off balance sheet arrangements” that may have a current or future material effect on our consolidated financial condition or results of operations.

Critical Accounting Policies and Estimates

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Commitments and Contingencies

For information regarding litigation, see - Note 6 - “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 and Part II, “Item 1.

Legal Proceedings” in this report.

Long-Term Debt

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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 .

For information on product purchase obligations, see - Note 7 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements.

Cautionary Statement for Purposes of Forward-Looking Statements

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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