What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-10-31 compared with 2022-08-02 · 136 added, 119 removed, 275 unchanged (48% of the section changed)

7 unchanged sentences

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

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.

Commodity prices have remained constructive with oil sustaining an average price of approximately $93 per barrel for the third quarter of 2022, and natural gas prices averaging approximately $8 per million Btu.

Third quarter consolidated revenue of $135.0 million was slightly below second-quarter levels and is comparable to the pre-pandemic period, although with significantly fewer operating frac crews in the United States.

Completion Fluids & Products Division revenues were slightly lower sequentially, as the prior quarter benefited from the seasonal uplift for our European industrial chemicals business.

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

We have continued to successfully leverage opportunities to expand integrated services to completion fluids customers.

As the offshore market continues to improve, our pipeline of TETRA CS Neptune ® completion fluid opportunities is growing to levels we have not experienced since 2014, with additional projects expected to come on line beginning late in 2023.

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

1 unchanged sentence

EOSE) under our recent strategic partnership.

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.

2 unchanged sentences

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.

Our supplier has sourced their material from an alternative location and resumed supplying increased volumes to us, greater than the first half of 2022, although not yet at full production levels.

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

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

Our Water & Flowback Services revenues increased sequentially, and improved significantly compared to the prior year quarter, due to margin expansion efforts driven by investments in technology, integration, digitalization, as well as two early production facilities in Latin America that became operational early in the third quarter.

The early production facilities are longer-term, high-margin projects with stable and predictable cash flows and we anticipate commencing operation on a third early production facility in early 2023.

Our fleet of TETRA SandStorm TM (“SandStorm”) advanced cyclone technology separators remains at high utilization with continued

market penetration and positive pricing progression.

During the quarter, over two thirds of our water transfer volumes in the Permian Basin was produced water and we expect this trend to continue, driven by seismicity concerns and disposal restrictions.

During the quarter, we announced exclusive technology agreements with two innovative companies for oil and gas well produced water beneficial reuse.

These strategic relationships are expected to allow us to create new, sustainable markets for produced water, reduce the industry’s reliance on disposal and preserve precious freshwater resources.

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

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

During the 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.

During the third quarter of 2022, the maiden inferred bromine and lithium brine resource estimation report for our leased acreage in the Smackover Formation in Southwest Arkansas was completed.

The report indicates the brine resource underlying the approximately 40,000 gross acres where we hold bromine mineral rights is estimated to contain an inferred resource of 5.25 million short tons of elemental bromine;

and the brine resource underlying the approximately 5,000 gross acres where we hold dedicated lithium mineral rights is estimated to contain an inferred resource of 44,000 short tons of elemental lithium.

Using an elemental to Lithium Carbonate Equivalent ("LCE") conversion ratio of 5.323, which is accepted in the industry, the acreage is estimated to contain 234,000 short tons of LCE.

The initial TETRA bromine and lithium brine resource estimations are presented as total resource within the Upper Smackover Member underlying the TETRA property.

Resource estimations were completed and reported using cutoffs of 250 mg/liter bromine and 50 mg/liter lithium.

We intend to complete an initial economic assessment for the bromine extraction plant this year which will highlight the economics of the potential investment and a corresponding business plan.

Starting in 2023, we will begin work on an initial economic assessment for a lithium extraction plant to enable extraction of lithium from our dedicated 5,000 gross acres.

Substantially all of our former Compression Division’s operations were conducted through our partially-owned CSI Compressco subsidiary.

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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.

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

Three months ended September 30, 2022 compared with three months ended June 30, 2022.

Consolidated Comparisons

Three Months Ended Period to Period Change

June 30, March 31, $ Change % Change

September 30, June 30, $ Change % Change

(in thousands, except percentages)

11 unchanged sentences

Income before taxes and discontinued operations as a percentage of revenue 1.6 % 0.9 %

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

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

Provision (benefit) for income taxes 2,178 (479) 2,657 NM (1)

Income (loss) before discontinued operations (63) 1,759 (1,822) (103.6) %

Discontinued operations:

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

Income (loss) from discontinued operations, net of taxes 319 (34) 353 NM

Net income 256 1,725 (1,469) (85.2) %

Loss attributable to noncontrolling interests 20 1 19 NM

Loss attributable to noncontrolling interests 22 20 2 10.0 %

Net income attributable to TETRA stockholders $ 278 $ 1,745 $ (1,467) (84.1) %

(1) Percent change is not meaningful

Consolidated 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.

Consolidated revenues decreased in the current quarter primarily due to a decrease in overall activity for the Completion Fluids & Products division, from seasonality of the chemical business in Europe which experiences peak sales during the second quarter, partially offset by an increase in revenues from the Water & Flowback Services division.

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

Consolidated gross profit as a percentage of revenue 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.

Consolidated gross profit as a percentage of revenue increased primarily due to our Water & Flowback Services Division increased overall activity level and margins, including two early production facilities coming on line in Argentina during the current quarter, partially offset by lower activity from the higher-margin Completion Fluids & Products division.

See Divisional Comparisons section below for additional discussion.

Consolidated exploration and appraisal costs 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.

Consolidated exploration and appraisal costs increased due to front-end engineering design and initial economic assessment costs of our bromine project in Arkansas.

Consolidated interest expense, net increased compared to the prior quarter primarily due to an increase in interest rates on our Term Credit Agreement.

Consolidated other income, net, increased in the current quarter, compared to the prior quarter primarily due to a $0.9 million decrease in unrealized loss from our investment in Standard Lithium shares received in April 2022 and a $0.2 million increase in foreign exchange gains compared to the previous quarter.

These increases are partially offset by a $0.5 million decrease in unrealized gains from the change in fair value of the CarbonFree convertible note and a $0.3 million increase in unrealized loss due to the change in the unit price of the CSI Compressco common units we own.

Consolidated provision for income tax was $2.2 million, during the current quarter, compared to a $0.5 million benefit during the prior quarter.

Our consolidated effective tax rate for the three months ended September 30, 2022 was 103.0% due primarily to the impact that changes in the full-year forecast had on our interim reporting under Accounting Standards Codification 740, Income Taxes.

Changes in our forecast resulted in recording most of our expected full-year provision during the current quarter.

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

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Three Months Ended Period to Period Change

June 30, March 31, $ Change % Change

September 30, June 30, $ Change % Change

(in thousands, except percentages)

11 unchanged sentences

20.9 % 20.4 %

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 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.

Revenues for our Completion Fluids & Products Division decreased primarily due to the seasonality of the chemical business in Europe which experiences peak sales during the second quarter, partially offset by an increase in international markets and higher shipments of TETRA PureFlow ® ultra-pure zinc bromide clear brine fluid.

Gross profit for our Completion Fluids & Products Division decreased compared to the prior quarter period primarily due to the seasonal impact mentioned above, and the curtailment of certain raw materials impacting production volumes.

Gross profit as a percentage of revenue improved slightly compared to the prior quarter due to the mix of products, including higher shipments of TETRA PureFlow ® .

Profitability in future periods will continue to be affected by the mix of its products and services, market demand for our products and services, drilling and completions activity, supply chain challenges and inflationary pressures.

Pretax income for our Completion Fluids & Products Division decreased primarily due to the $3.5 million lower gross profit described above, a $0.3 million increase in exploration and appraisal costs associated with front-end engineering design and initial economic assessment of our bromine project and a $0.5 million decrease in unrealized gains from the change in fair value of the CarbonFree convertible note.

These changes were partially offset by a $0.4 million decrease in foreign exchange losses and a $0.9 million decrease in unrealized loss from our investment in Standard Lithium shares received in April 2022.

Water & Flowback Services Division

Three Months Ended Period to Period Change

June 30, March 31, $ Change % Change

September 30, June 30, $ Change % Change

(in thousands, except percentages)

4 unchanged sentences

General and administrative expense as a percentage of revenue

Interest income, net (2) — (2) NM

Interest income, net (2) (2) — — %

Other income, net (955) (1,322) 367 (27.8) %

1 unchanged sentence

Income before taxes as a percentage of revenue 8.5 % 2.5 %

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

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.

Gross profit for our Water & Flowback Services Division increased compared to the prior quarter reflecting the margin expansion efforts driven by investments in technology, integration, digitalization and the benefit of our early production facilities being on line for the full quarter in Argentina.

Our SandStorm fleet remains at high utilization with continued market penetration and positive pricing progression.

The Water & Flowback Services Division pretax income increased due to an increase in gross profit which was partially offset by a $0.2 million decrease in gains on sales of assets and $0.2 million decrease in foreign exchange gains.

General and administrative expense decreased due to a $0.5 million decrease in professional services from contract labor, partially offset by higher compensation and benefits from higher salaries and additional headcount.

Corporate Overhead

Three Months Ended Period to Period Change

June 30, March 31, $ Change % Change

September 30, June 30, $ Change % Change

(in thousands, except percentages)

2 unchanged sentences

Interest expense, net 4,437 3,895 542 13.9 %

Other (income) expense, net 20 (1,141) 1,161 (101.8) %

Other expense, net 158 20 138 690.0 %

Loss before taxes $ (16,727) $ (15,628) $ (1,099) 7.0 %

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.

Corporate overhead pretax loss increased primarily due to a $0.5 million increase in interest expense due to an increase in the interest rate on our Term Credit Agreement and a $0.4 million increase in general and administrative expense due to higher long-term incentive compensation expense.

Nine months ended September 30, 2022 compared with nine months ended September 30, 2021.

Consolidated Comparisons

Six months ended

June 30, Period to Period Change

Nine Months Ended

September 30, Period to Period Change

2022 2021 $ Change % Change

12 unchanged sentences

Income (loss) before taxes and discontinued operations as a percentage of revenue 3.0 % (5.1) %

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

Provision for income taxes 2,899 2,139 760 35.5 %

Income (loss) before discontinued operations 9,430 (16,102) 25,532 158.6 %

8 unchanged sentences

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 exploration and appraisal costs were $3.5 million during the current year due to the exploration drilling and sample analysis costs associated with our exploratory brine well in Arkansas, as well as front-end engineering design and initial economic assessment costs for the bromine project.

Consolidated general and administrative expenses increased compared to the prior year, primarily due to $13.9 million of increased wage and benefit related expenses driven by reinstatement of full salaries and 401K match as well as higher short and long-term incentive expenses, and divisional headcount additions as operational activity levels increased.

Higher wage and benefit related expenses were partially offset by a $1.5 million decrease in professional fees primarily due to the GP Sale in the first quarter of the prior year.

Higher wage and benefit related expenses were partially offset by a $2.1 million decrease in professional fees primarily related to the GP Sale in the first quarter of the prior year.

Consolidated interest expense, net, decreased in the current year primarily due to $50.5 million of repayments of our term credit facility during 2021.

Consolidated other income, net, decreased in the current year, compared to the prior year primarily due to a $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 other income, net, decreased in the current year, compared to the prior year primarily due to a $12.0 million net decrease in unrealized gains on investments in CSI Compressco, Standard Lithium and CarbonFree, partially offset by a $1.6 million increase in foreign exchange gains, and a $0.4 million increase in gains on sales of assets.

Consolidated provision for income taxes was $2.9 million during the current year, compared to $2.1 million during the prior year.

Our consolidated effective tax rate for the current year 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.

Our consolidated effective tax rate for the current year was 23.5%.

Our tax provision during the current year was primarily due to income generated in certain non-U.S.

jurisdictions for which a net operating loss carryforward is not available for offset.

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

1 unchanged sentence

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.

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

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

Consolidated income (loss) from discontinued operations for the current year consists of $0.3 million of income from adjustments to reserves related to ongoing legal matters.

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

1 unchanged sentence

Completion Fluids & Products Division

Six months ended

June 30, Period to Period Change

Nine Months Ended

September 30, Period to Period Change

2022 2021 $ Change % Change

12 unchanged sentences

22.6 % 25.1 %

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

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

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

Pretax income for our Completion Fluids & Products Division increased compared to the prior year driven by higher gross profit, partially offset by $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.

Pretax income for our Completion Fluids & Products Division increased compared to the prior year driven by higher gross profit, partially offset by $3.5 million of costs associated with the exploratory brine project during the current year and a $4.3 million increase in general and administrative costs due to reinstatement of full salaries and 401K match as well as higher short and long-term incentive expenses, and divisional headcount additions to support higher activity levels.

Interest income, net increased primarily due to an increase in interest rates on funds held in escrow pending resolution of tax court cases in certain foreign jurisdictions.

In addition, other income, net decreased due to the $9.9 million decrease in income from our Standard Lithium shares, most of which were sold during the fourth quarter of 2021, and a $1.1 million increase in foreign exchange losses.

These changes are partially offset by a $0.8 million unrealized gain on our investment in the CarbonFree convertible note purchased in December 2021.

Water & Flowback Services Division

Six months ended

June 30, Period to Period Change

Nine Months Ended

September 30, Period to Period Change

2022 2021 $ Change % Change

12 unchanged sentences

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.

Revenues have also increased in Latin America due to two early production facilities coming on line beginning in the third quarter of the current year.

Pretax income for our Water & Flowback Services Division increased in the current year primarily due to an improvement in the gross profit described above and a $1.6 million increase in foreign exchange gains as well as a $0.7 million increase in gains on sales of assets, offset by an increase in general and administrative expense primarily due to a $4.5 million increase in salary and employee expense from reinstatement of full salaries and 401K match as well as higher short and long-term incentive expenses, and divisional headcount additions to support higher activity levels.

Corporate Overhead

Six months ended

June 30, Period to Period Change

Nine Months Ended

September 30, Period to Period Change

2022 2021 $ Change % Change

3 unchanged sentences

Interest expense, net 11,978 13,354 (1,376) (10.3) %

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

Other income, net (964) (3,153) 2,189 (69.4) %

Loss before taxes $ (45,398) $ (41,820) $ (3,578) 8.6 %

Corporate overhead pretax loss 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.

Corporate overhead pretax loss increased due to a $2.9 million increase in general and administrative expense, as well as a $2.2 million decrease in other income, net, partially offset by a $1.4 million decrease in interest expense, net due to lower debt levels.

Corporate general and administrative expenses increased compared to the prior year, primarily due increased wage and benefit related expenses driven by reinstatement of full salaries and 401K match as well as higher short and long-term incentive expenses, partially offset by a $2.2 million decrease in professional fees primarily related to the GP Sale in the first quarter of the prior year.

Other income, net decreased primarily due to a $2.9 million decrease in income related to unit price changes of our investment in CSI Compressco, partially offset by a $1.1 million increase in foreign exchange gains.

Non-GAAP Financial Measures

3 unchanged sentences

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

The most directly comparable GAAP financial measure is net income (loss) before taxes and discontinued operations.

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

3 unchanged sentences

Three Months Ended

June 30, 2022

September 30, 2022

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

2 unchanged sentences

Net income (loss) before taxes and discontinued operations 12,357 6,482 (11,968) (4,756) 2,115

Impairments 220 2,042 — — 2,262

Exploration and appraisal costs 936 — — — 936

8 unchanged sentences

Three Months Ended

March 31, 2022

June 30, 2022

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

2 unchanged sentences

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

Transactions and other expenses — 556 — — 556

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

11 unchanged sentences

We believe that our capital structure allows us to meet our financial obligations despite current uncertain operating conditions and financial markets.

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

Our liquidity at the end of the third quarter was $92.3 million.

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

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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:

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

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Operating Activities

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.

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

Investing Activities

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

Total cash capital expenditures during the first nine months of 2022 were $32.7 million, which reflects increased expenditures to accommodate industry-wide activity recoveries.

Our Water & Flowback Services Division spent $26.1 million on capital expenditures, primarily to deploy additional SandStorm units to meet increased demands and maintain, automate and upgrade its water management and flowback equipment fleet.

Water and Flowback Services Division capital expenditures also included expenditures related to construction of 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 six months of 2022 included a $3.8 million insurance settlement received in March 2022 from damage to our Lake Charles facility in 2020.

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

Our Completion Fluids & Products Division spent $6.5 million on capital expenditures, primarily supporting higher activity levels in the United States and Europe.

Investing activities during the first nine months of 2022 included a $3.8 million insurance settlement received in March 2022 from damage to our Lake Charles facility in 2020.

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

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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.

Lithium and Bromine Inferred Resources

We have rights to the brine underlying our approximately 40,000 gross acres of brine leases in the Smackover Formation in Southwest Arkansas, including rights to the bromine and lithium contained in the brine.

With respect to approximately 35,000 acres of that total acreage, we had previously entered into an agreement granting Standard Lithium an option to acquire lithium rights.

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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 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.

During the first nine months 2022, we spent $3.5 million to complete the drilling of our Arkansas exploration well, obtain and analyze fluid samples for multiple Smackover formation brine zones, and begin a bromine front-end engineering design study and bromine PEA.

During the third quarter of 2022, the maiden inferred bromine and lithium brine resource estimation report for our leased acreage in the Smackover Formation in Southwest Arkansas was completed.

Using an elemental to LCE conversion ratio of 5.323, which is accepted in the industry, the acreage is estimated to contain 234,000 short tons of LCE.

We intend to complete an initial economic assessment for the bromine extraction plant this year.

We expect the lithium front-end engineering design study and initial economic assessment for a lithium extraction plant to follow in the fall of 2023.

The extraction of lithium from our dedicated 5,000 gross acres should greatly benefit the financial returns for the overall project.

Financing Activities

As a result of TETRA’s strong cash flow from operations in 2020 and the proceeds from the GP Sale, during the first six months of 2021, we repaid $29.3 million on our term credit agreement.

As a result of TETRA’s strong cash flow from operations in 2020 and the proceeds from the GP Sale, during the first nine months of 2021, we repaid $37.5 million on our term credit agreement.

We 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.

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

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

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Asset-Based Credit Agreement .

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.

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

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

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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.

As of September 30, 2022, we had zero outstanding and $4.7 million in letters of credit and guarantees against our ABL Credit Agreement and availability of $62.6 million, subject to compliance with the covenants, borrowing base, and other provisions of the ABL Credit Agreement.

Swedish Credit Facility .

In January 2022, the Company entered into a revolving credit facility for seasonal working capital needs of subsidiaries in Sweden.

As of June 30, 2022, we had less than $0.1 million outstanding and availability of approximately $4.9 million United States dollars under this agreement.

As of September 30, 2022, we had less than $0.1 million outstanding and availability of approximately $4.5 million United States dollars under this agreement.

During each year, all outstanding loans under the Swedish Credit Facility must be repaid for at least 30 consecutive days.

bear interest at a rate of 2.95% per annum.

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

In January 2022, the Company also entered into a credit agreement guaranteed by certain accounts receivable and inventory in Finland (“Finland Credit Agreement”).

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

The Finland Credit Agreement expires on January 31, 2023 and the Company intends to renew it annually.

Term Credit Agreement .

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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 July 29, 2022, $163.1 million in aggregate principal amount of our Term Credit Agreement is outstanding.

As of October 28, 2022, $163.1 million in aggregate principal amount of our Term Credit Agreement is outstanding.

Other Sources and Uses of Cash

In addition to the aforementioned credit facilities and senior notes, we fund our short-term liquidity requirements from cash generated by our operations and from short-term vendor financing.

In addition, as of 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, as of September 30, 2022, the market value of our investments in CSI Compressco and Standard Lithium were $6.1 million and $1.7 million, respectively, with no holding restrictions on our ability to monetize our interests.

We also hold an investment in a convertible note issued by CarbonFree valued at $5.5 million as of September 30, 2022, excluding accrued interest.

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

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An increase of unpaid receivables would also negatively affect our borrowing availability under the ABL Credit Agreement.

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.

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

Critical Accounting Policies and Estimates

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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 2021 Annual Report .

Information ab-out the terms and covenants of our lease agreements can be found in our 2021 Annual Report .

Product Purchase Obligations

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“anticipates”, “assumes”, “believes”, “budgets”, “could”, “estimates”, “expects”, “forecasts”, “goal”, “intends”, “may”, “might”, “plans”, “predicts”, “projects”, “schedules”, “seeks”, “should”, “targets”, “will”, and “would”.

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

These forward-looking statements include statements concerning the inferred mineral resources of lithium and bromine, the potential extraction of lithium and bromine from the leased acreage, the economic viability thereof, the demand for such resources, and the timing and cost of such activities;

the ability to obtain an initial economic assessment regarding our lithium and bromine acreage;

statements regarding the Company's beliefs, expectations, plans, goals, future events and performance;

and other statements that are not purely historical.

With respect to the Company's disclosures of inferred mineral resources, including bromine and lithium carbonate equivalent concentrations, it is uncertain if further exploration will ever result in the estimation of a higher category of mineral resource or a mineral reserve.

Inferred mineral resources are considered to have the lowest level of geological confidence of all mineral resources.

Investors are cautioned that mineral resources do not have demonstrated economic value.

Inferred mineral resources have a high degree of uncertainty as to their existence and as to whether they can be economically or legally commercialized.

A significant amount of exploration must be completed in order to determine whether an inferred mineral resource may be upgraded to a higher category.

Therefore, investors are cautioned not to assume that all or any part of an inferred mineral resource exists, that it can be economically or legally commercialized, or that it will ever be upgraded to a higher category.

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

However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made.

However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date on which they are made.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis