What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-07-31 compared with 2023-05-01 · 130 added, 126 removed, 270 unchanged (49% of the section changed)

4 unchanged sentences

Business Overview

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

We are an energy services and solutions company operating on six continents, focused on calcium chloride, completion fluids and associated products and services, comprehensive water management solutions, frac flowback, production well testing and offshore rig cooling.

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.

First-quarter consolidated revenue of $146.2 million was comparable to fourth-quarter levels and greater than pre-pandemic levels, although with significantly fewer operating frac crews in the United States.

Completion Fluids & Products Division revenues increased 4% sequentially despite significant projects that had previously moved up from the first quarter of 2023 into the fourth quarter of 2022.

The stronger performance was also driven by improved pricing and volumes in the industrial chemicals business where capacity is almost back to levels experienced prior to the Russia/Ukraine conflict.

Results for the first quarter of 2023 also reflect a full-quarter contribution from the fluids acquisition late last year in the North Sea, which performed above expectations.

The outlook for international and offshore markets activity growth remains strong.

With the planned expansion of our Brazil completion fluids blending and storage facility in the second quarter of 2023, we have now completed or committed to three strategic investments to grow our market position and add capacity in key offshore markets.

Our Water & Flowback Services revenues increased significantly compared to the first quarter of the prior year, driven primarily by growth in our domestic TETRA SandStorm TM business, as well as from the first two early production facilities in Latin America that became operational in the third quarter of 2022.

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 the second quarter of 2023.

Our fleet of TETRA SandStorm TM advanced cyclone technology separators remains at high utilization with continued market penetration and positive pricing progression.

Water & Flowback Services revenues decreased slightly compared to the fourth quarter due to the timing of certain customer completion schedules.

Second-quarter consolidated revenue of $175.5 million reflects the highest quarterly revenue in the Company’s history, excluding discontinued operations.

Our strong second-quarter results reflect our employees delivering operational and financial excellence in our core businesses while simultaneously advancing our key strategic initiatives.

Completion Fluids & Products Division revenues increased 42% sequentially, resulting in a new segment record high driven by growth in international markets and the Gulf of Mexico, as well as the seasonal peak for our Northern Europe industrial chemicals business.

Our strong offshore results have benefited from our recent investments to expand fluids capacity in the North Sea, Brazil and the Gulf of Mexico.

Our Water & Flowback Services revenues remained stable compared to the first quarter of 2023 and improved compared to the prior year, driven primarily by the first two early production facilities in Latin America that became operational in the third quarter of 2022 and the third early production facility which became operational in May 2023.

The early production facilities are longer-term, high-margin projects with stable and predictable cash flows.

Our growing fleet of TETRA SandStorm TM advanced cyclone technology separators also remains at high utilization with continued market penetration and positive pricing progression.

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 2022, we completed the maiden inferred bromine and lithium brine resource estimation report for our leased acreage in the Smackover Formation in Southwest Arkansas, as well as a front-end engineering and design study for the design of a brine-to-bromine processing plant, pipeline and related assets.

Additional steps are required before making a decision to develop the bromine assets, including further studies to analyze the resource and completion of a pre-feasibility and/or feasibility study.

A second exploratory well on our acreage in Arkansas is in progress as of April 28, 2023 with the intent to improve the accuracy of our lithium and bromine resource estimates.

In June 2023, we entered into a memorandum of understanding (“MOU”) with Saltwerx LLC (“Saltwerx”), an indirect wholly owned subsidiary of a Fortune 500 company, relating to a newly-proposed brine unit in the Smackover Formation in Southwest Arkansas and potential bromine and lithium production from brine produced from the unit.

The binding provisions of the MOU provide, among other things, that:

(i) we will file an amended brine unit application (the “Application”) covering approximately 6,138 acres, which expands the size of the unit area and also combines brine acreage that was previously leased by each of TETRA and Saltwerx (the “Brine Unit”), with the Arkansas Oil & Gas Commission (“AOGC”) and (ii) Saltwerx will provide a letter to us in support of the Application.

We are evaluating results from the second exploratory well on our acreage in Arkansas.

We expect to receive the well results during the third quarter with the intent to improve the accuracy of our lithium and bromine resource estimates.

Additional steps are required before making a decision to develop the bromine assets, and include further studies to analyze the resource as well as completion of a pre-feasibility and/or feasibility study.

Results of Operations

1 unchanged sentence

The analysis herein reflects the optional approach to discuss results of operations on a sequential-quarter basis, which we believe provides information that is most useful in assessing our quarterly results of operations.

Three months ended March 31, 2023 compared with three months ended December 31, 2022.

Three months ended June 30, 2023 compared with three months ended March 31, 2023.

Consolidated Comparisons

Three Months Ended Period to Period Change

March 31, December 31, $ Change % Change

June 30, March 31, $ Change % Change

(in thousands, except percentages)

8 unchanged sentences

Interest expense, net 5,944 5,092 852 16.7 %

Other (income) expense, net (214) 393 (607) (154.5) %

Income (loss) before taxes and discontinued operations 7,534 (1,163) 8,697 NM (1)

Income (loss) before taxes and discontinued operations as a percentage of revenue 5.2 % (0.8) %

Other income, net (6,435) (214) 6,221 NM (1)

Income before taxes and discontinued operations 21,080 7,534 13,546 179.8 %

Income before taxes and discontinued operations as a percentage of revenue 12.0 % 5.2 %

Provision for income taxes 2,875 1,489 1,386 93.1 %

Income (loss) before discontinued operations 6,045 (1,829) 7,874 (430.5) %

Income before discontinued operations 18,205 6,045 12,160 201.2 %

Discontinued operations:

Loss from discontinued operations, net of taxes (8) (12) (4) (33.3) %

Net income (loss) 6,033 (1,904) 7,937 (416.9) %

Net income 18,197 6,033 12,164 201.6 %

Loss attributable to noncontrolling interests 18 7 11 157.1 %

Net income (loss) attributable to TETRA stockholders $ 6,040 $ (1,904) $ 7,944 (417.2) %

Net income attributable to TETRA stockholders $ 18,215 $ 6,040 $ 12,175 201.6 %

(1) Percent change is not meaningful

Consolidated revenues are comparable between the current and previous quarters, with the decrease in revenues from the Water & Flowback Services division mostly offset by an increase in overall activity for the Completion Fluids & Products division.

Consolidated revenues increased between the current and previous quarters primarily due to an increase in overall activity for the Completion Fluids & Products division lead by increased pricing and volume sales in the Northern European industrial chemicals market.

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

Consolidated gross profit as a percentage of revenue increased primarily due to our Completion Fluids & Products division benefiting from increased overall activity levels and margins, as well as a $2.9 million insurance settlement received in March 2023, which was related to damage to our Lake Charles facility during Hurricane Laura in 2020.

Consolidated gross profit as a percentage of revenue increased primarily due to our Completion Fluids & Products division benefiting from increased overall activity levels and margins.

See Divisional Comparisons section below for additional discussion.

Consolidated exploration and pre-development costs decreased primarily due to completion of the front-end engineering and design study for our potential brine to bromine processing plant in Southwest Arkansas during the prior quarter.

Consolidated other (income) expense, net, increased in the current quarter, compared to the prior quarter primarily due to a $0.9 million increase in unrealized gain from our Standard Lithium shares received in April 2022 and a $1.5 million decrease in foreign exchange losses compared to the previous quarter.

These changes are partially offset by a $1.4 million increase in unrealized loss due to the change in the unit price of the CSI Compressco common units we own and a $0.4 million increase in unrealized loss from the change in fair value of the CarbonFree convertible note embedded option.

Consolidated exploration and pre-development costs increased primarily due to drilling costs associated with our second exploratory brine well in Arkansas.

Consolidated general and administrative expenses increased compared to the prior year, primarily due to a $2.7 million increase in wage and benefit-related expenses driven by divisional headcount additions as operational activity levels increased, as well as higher short and long-term incentive expense.

General and administrative expenses also increased $0.8 million due to a higher provision for credit losses, partially offset by a $0.6 million decrease in legal expenses.

Consolidated other income, net, increased in the current quarter, compared to the prior quarter primarily due to the $4.7 million cumulative credit for exploration and pre-development costs reimbursable from Saltwerx, a $0.7 million increase in unrealized gain due to the change in the unit price of the CSI Compressco common units we own, a $0.3 million increase in unrealized gain from our Standard Lithium shares received in April 2022 and 2023

and a $0.4 million increase in unrealized gain from the change in fair value of the CarbonFree convertible note embedded option.

Consolidated provision for income tax was $2.9 million during the current quarter, compared to a $1.5 million provision during the prior quarter.

Our consolidated effective tax rate for the three months ended March 31, 2023 was 19.8% due to income generated during the quarter, partially offset by the utilization of net operating loss carryforwards in the United States and certain other non-U.S.

Our consolidated effective tax rate for the three months ended June 30, 2023 was 13.6% due to income generated during the quarter, partially offset by the utilization of net operating loss carryforwards in the United States and certain other non-U.S.

jurisdictions for which a valuation allowance had been established.

5 unchanged sentences

Three Months Ended Period to Period Change

March 31, December 31, $ Change % Change

June 30, March 31, $ Change % Change

(in thousands, except percentages)

6 unchanged sentences

General and administrative expense as a percentage of revenue

10.4 % 10.2 %

Interest income, net (395) (304) (91) 29.9 %

Other income, net (930) (24) (906) NM (1)

Interest expense (income), net 104 (395) 499 126.3 %

Other income, net (5,819) (930) 4,889 525.7 %

Income before taxes and discontinued operations $ 31,956 $ 18,442 $ 13,514 73.3 %

Income before taxes and discontinued operations as a percentage of revenue 32.5 % 26.7 %

(1) Percent change is not meaningful

Revenues for our Completion Fluids & Products Division increased primarily due to increased pricing for industrial chemical sales, as well as higher sales volume in Europe.

Gross profit for our Completion Fluids & Products Division increased compared to the prior quarter period primarily due to the pricing and sales volume impact mentioned above, as well as a $2.9 million insurance settlement received in March 2023 related to damage to our Lake Charles facility during Hurricane Laura in 2020.

Gross profit as a percentage of revenue improved compared to the prior quarter due to the insurance settlement related to our Lake Charles facility and the shift to a higher margin mix of products.

Revenues for our Completion Fluids & Products Division increased primarily due to increased pricing and volumes for industrial chemical sales, including higher sales volume from the seasonal uplift in Northern Europe, as well as an increase in offshore activity levels.

Gross profit for our Completion Fluids & Products Division increased compared to the prior quarter period primarily due to the pricing and sales volume impact mentioned above.

Our industrial calcium chloride business reflects the seasonal peak in Europe, high production volumes, and supply chain benefits that yielded higher margins.

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

Income before taxes and discontinued operations for our Completion Fluids & Products Division increased primarily due to the $5.0 million higher gross profit described above, a $2.4 million decrease in exploration and pre-development costs associated with front-end engineering design for our potential Southwest Arkansas bromine development, a $0.4 million decrease in foreign exchange losses and a $0.9 million increase in unrealized gain from our investment in Standard Lithium shares received in April 2022.

These changes were partially offset by the $0.4 million unrealized loss from the change in fair value of the CarbonFree convertible note embedded option.

Completion Fluids & Products Division exploration and pre-development costs associated with our potential Southwest Arkansas bromine development project increased $1.6 million due to a second exploratory well drilled during the current quarter, as well as ongoing engineering and design work.

General and administrative expense for the division increased $1.4 million to support higher activity levels.

Interest expense (income), net increased $0.5 million due to lower interest income on deposit accounts in Brazil and Europe.

Other income, net increased primarily due to the $4.7 million cumulative credit for exploration and pre-development costs from Saltwerx, a $0.4 million unrealized gain from the change in fair value of the CarbonFree convertible note embedded option and a $0.3 million increase in unrealized gain from our investment in Standard Lithium shares, partially offset by a $0.5 million increase in foreign exchange losses.

Water & Flowback Services Division

Three Months Ended Period to Period Change

March 31, December 31, $ Change % Change

June 30, March 31, $ Change % Change

(in thousands, except percentages)

5 unchanged sentences

General and administrative expense as a percentage of revenue

Interest income, net 27 140 (113) (80.7) %

Other income, net 58 322 (264) (82.0) %

Interest expense, net 27 27 — — %

Other (income) expense, net (228) 58 286 493.1 %

Income before taxes and discontinued operations $ 8,014 $ 6,378 $ 1,636 25.7 %

Income before taxes and discontinued operations as a percentage of revenue 10.4 % 8.3 %

Revenues for our Water & Flowback Services Division decreased in the current quarter compared to the prior quarter, primarily in our Production Testing business due to the lower overall customer activity in the North America onshore business impacted by the timing of customer completion schedules.

Gross profit for our Water & Flowback Services Division remained flat compared to the prior quarter as the effect of lower revenue was offset by a more profitable sales mix.

Revenues for our Water & Flowback Services Division in the current quarter remained comparable to the prior quarter as higher revenues from our early production facilities in Latin America were offset by lower customer activity in the North America onshore business.

Gross profit for our Water & Flowback Services Division increased compared to the prior quarter due to a revenue shift toward higher margin service offerings, including the early production facilities in Latin America.

Gross profit as a percentage of revenue increased reflecting the continued margin expansion efforts driven by investments in technology, integration, digitalization and the benefit of our early production facilities in Argentina.

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

The Water & Flowback Services Division income before taxes and discontinued operations increased due to a decrease in general and administrative expenses, including a $0.4 million decrease in wages and benefits, a $0.3 million decrease in general expenses and a $0.3 million decrease in professional fees, as well as a $0.3 million decrease in foreign exchange losses.

While we have seen some signs of softness in certain land segments in the United States, pricing has remained relatively stable for our differentiated products and service offerings.

The Water & Flowback Services Division income before taxes and discontinued operations increased primarily due to an improvement in the gross profit described above, as well as a $0.3 million increase in foreign exchange gains.

Corporate Overhead

Three Months Ended Period to Period Change

March 31, December 31, $ Change % Change

June 30, March 31, $ Change % Change

(in thousands, except percentages)

Depreciation and amortization $ 93 $ 109 $ (16) (14.7) %

Impairments and other charges 777 — 777 100.0 %

General and administrative expense 12,595 11,059 1,536 13.9 %

Interest expense, net 5,813 5,460 353 6.5 %

Other expense, net 658 95 563 592.6 %

Other (income) expense, net (388) 658 1,046 159.0 %

Loss before taxes and discontinued operations $ (18,890) $ (17,286) $ (1,604) 9.3 %

Corporate overhead loss before taxes and discontinued operations increased primarily due to a $0.4 million increase in interest expense due to an increase in the interest rate on our Term Credit Agreement and higher borrowings under our ABL Credit Agreement.

Other expense, net increased primarily due to a $1.4 million decrease in unrealized gains related to unit price changes of our investment in CSI Compressco, partially offset by a $0.8 million decrease in foreign exchange losses.

Three months ended March 31, 2023 compared with three months ended March 31, 2022.

Corporate overhead loss before taxes and discontinued operations increased primarily due to a $1.6 million increase in wages and benefits related expenses driven by higher short and long-term incentive expenses, a $0.8 million impairment associated with our corporate office lease, and a $0.4 million increase in interest expense due to an increase in the interest rate on our Term Credit Agreement.

These expenses are partially offset by an increase in other (income) expense, net primarily due to a $0.7 million increase in unrealized gains related to unit price changes of our investment in CSI Compressco, and a $0.3 million increase in foreign exchange gains.

Six months ended June 30, 2023 compared with six months ended June 30, 2022.

Consolidated Comparisons

Three Months Ended

March 31, Period to Period Change

Six Months Ended

June 30, Period to Period Change

2023 2022 $ Change % Change

19 unchanged sentences

Net income attributable to TETRA stockholders $ 24,255 $ 9,465 $ 14,790 156.3 %

Consolidated revenues increased in the current year primarily due to improving industry conditions compared to the prior year for our Water & Flowback Services division, as well as the first two early production facilities in Argentina that commenced operations in the third quarter of 2022, partially offset by lower revenues from our Completion Fluids & Products division.

Consolidated revenues increased in the current year primarily due to improving industry conditions compared to the prior year for both our Completion Fluids & Products and Water & Flowback Services divisions, as well as the first two early production facilities in Argentina that commenced operations in the third quarter of 2022 and a third early production facility that became operational in the second quarter of 2023.

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

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

Gross profit as a percentage of revenue decreased slightly due to a $2.9 million insurance settlement received in March 2023 associated with damage to our Lake Charles facility in 2020, compared to the $3.8 million insurance settlement received in March 2022.

Consolidated exploration and pre-development costs decreased $1.2 million compared to the prior year following completion of the front-end engineering and design study during the fourth quarter of 2022 associated with our exploratory brine well in Arkansas.

Consolidated general and administrative expenses increased compared to the prior year, primarily due to $2.1 million of increased wage and benefit-related expenses driven by divisional headcount additions as operational activity levels increased, as well as higher short and long-term incentive expense and higher travel expenses, partially offset by lower stock-based compensation expense.

In addition, professional fees increased $0.5 million compared to the prior year.

Profit margins for both divisions also improved due to stronger market conditions and a shift to higher-margin projects.

Consolidated exploration and pre-development costs increased $0.5 million compared to the prior year primarily due to drilling costs associated with our second exploratory brine well in Arkansas

Consolidated general and administrative expenses increased compared to the prior year, primarily due to $4.6 million of increased wage and benefit-related expenses driven by divisional headcount additions as operational activity levels increased, as well as higher short and long-term incentive expense.

General and administrative expenses also increased $0.5 million due to a higher provision for credit loss allowances on trade accounts receivable.

Consolidated interest expense, net, increased in the current year primarily due to an increase in the interest rate on our Term Credit Agreement and higher borrowings under our ABL Credit Agreement.

Consolidated other income, net, decreased in the current year, compared to the prior year primarily due to a $1.6 million net decrease in unrealized gains on investments in CSI Compressco, Standard Lithium and CarbonFree, and a $1.0 million decrease in foreign exchange gains.

Consolidated other income, net, increased in the current year, compared to the prior year primarily due to a $4.7 million cumulative credit for exploration and pre-development costs reimbursable from Saltwerx, offset by a $1.9 million increase in foreign exchange losses.

Consolidated provision for income taxes was $4.4 million during the current year, compared to $0.7 million during the prior year.

Our consolidated effective tax rate for the current year was 19.8% during the current year, compared to 13.4% during the prior year.

The increase in our tax provision and effective tax rate compared to the prior year was primarily due to income generated in certain non-U.S.

Our consolidated effective tax rate for the current year was 15.3%, compared to 7.1% during the prior year.

The increase in our tax provision and effective tax rate compared to the prior year was primarily due

to increased income generated in certain non-U.S.

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

4 unchanged sentences

Completion Fluids & Products Division

Three Months Ended

March 31, Period to Period Change

Six Months Ended

June 30, Period to Period Change

2023 2022 $ Change % Change

8 unchanged sentences

Interest income, net (291) (606) (315) (52.0) %

Other income, net (930) (811) (119) 14.7 %

Other income, net (6,749) (545) 6,204 NM (1)

Income before taxes and discontinued operations $ 50,398 $ 34,553 $ 15,845 45.9 %

Income before taxes and discontinued operations as a percentage of revenue 30.1 % 23.3 %

Revenues for our Completion Fluids & Products Division decreased compared to the prior year primarily due to lower activity in the Gulf of Mexico due to the timing of projects, partially offset by higher sales volumes in Latin America and onshore in the United States.

Gross profit for our Completion Fluids & Products Division decreased compared to the prior year due to decrease in revenues, as well as a $0.9 million decrease in insurance settlements received in 2023 compared to 2022 from damage to our Lake Charles facility in 2020.

Income before taxes and discontinued operations for our Completion Fluids & Products Division decreased compared to the prior year driven by lower gross profit, a $1.1 million increase in general and administrative costs due to higher short-term incentive expenses, and divisional headcount additions during 2022 to support higher activity levels, partially offset by a $1.2 million decrease in costs associated with the exploratory brine project compared to the prior period.

(1) Percent change is not meaningful

Revenues for our Completion Fluids & Products Division increased compared to the prior year primarily due to higher European industrial chemical sales volumes, as well as favorable pricing and customer mix.

The division also benefited from recent capacity expansions following investments in Brazil, the Gulf of Mexico and the United Kingdom.

Gross profit for our Completion Fluids & Products Division increased compared to the prior year due to increase in revenues.

Gross profit as a percentage of revenue for our Completion Fluids & Products division increased primarily due to favorable pricing improvements.

Income before taxes and discontinued operations for our Completion Fluids & Products Division increased compared to the prior year driven by higher gross profit and the $4.7 million cumulative credit for exploration and pre-development costs reimbursable from Saltwerx, partially offset by a $3.5 million increase in general and administrative costs due to higher compensation and short-term incentive expense due to increased activity levels, increased provision for credit loss allowances on trade accounts receivable and higher research and development expenses, as well as a $0.5 million increase in costs associated with the exploratory brine project compared to the prior period.

Water & Flowback Services Division

Three Months Ended

March 31, Period to Period Change

Six Months Ended

June 30, Period to Period Change

2023 2022 $ Change % Change

5 unchanged sentences

General and administrative expense as a percentage of revenue

Interest expense, net 27 — 27 100.0 %

Other (income) expense, net 58 (458) 516 (112.7) %

Interest expense (income), net 54 (1) 55 NM (1)

Other income, net (172) (1,781) (1,609) (90.3) %

Income before taxes and discontinued operations $ 14,394 $ 4,326 $ 10,068 232.7 %

Income before taxes and discontinued operations as a percentage of revenue 9.3 % 3.5 %

(1) Percent change is not meaningful

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

Customer activity levels have continued to improve, primarily in our North America land business, as commodity prices recovered during 2022 and remained strong.

Revenues have also increased in Latin America due to two early production facilities that began operations in the third quarter of 2022.

Gross profit for our Water & Flowback Services Division improved substantially from the prior year primarily due to higher revenues resulting from the increased activity levels described above and pricing improvements as activity levels improved and new higher-margin projects commenced.

Income before taxes and discontinued operations for our Water & Flowback Services Division increased in the current year primarily due to an improvement in the gross profit described above, partially offset by a $0.7 million increase in salary and employee expense from higher short and long-term incentive expenses, and divisional headcount additions to support higher activity levels, partially offset by a $0.3 million decrease in foreign exchange gains.

Customer activity levels have continued to improve, primarily in our North America land business.

Revenues have also increased in Latin America due to two early production facilities that began operations in the third quarter of 2022 and a third early production facility that came on line in the second quarter of 2023.

Corporate Overhead

Three Months Ended

March 31, Period to Period Change

Six Months Ended

June 30, Period to Period Change

2023 2022 $ Change % Change

1 unchanged sentence

Depreciation and amortization $ 202 $ 363 $ (161) (44.4) %

Impairments and other charges 777 — 777 100.0 %

General and administrative expense 23,654 21,888 1,766 8.1 %

2 unchanged sentences

Loss before taxes and discontinued operations $ (36,178) $ (28,671) $ (7,507) 26.2 %

Corporate overhead loss before taxes and discontinued operations increased due to a $0.7 million increase in general and administrative expense, as well as a $1.8 million increase in interest expense, net due to an increase in the interest rate on our Term Credit Agreement and higher borrowings under our ABL Credit Agreement, and a $1.8 million decrease in other income, net.

Corporate overhead loss before taxes and discontinued operations increased due to a $1.8 million increase in general and administrative expense, and a $3.7 million increase in interest expense, net due to an increase in the interest rate on our Term Credit Agreement and higher borrowings under our ABL Credit Agreement, as well as a $1.4 million decrease in other (income) expense, net and a $0.8 million impairment of our corporate office lease.

Corporate general and administrative expenses increased compared to the prior year, primarily due to increased wage and benefit-related expenses driven by higher short and long-term incentive expenses.

Other income, net decreased primarily due to a $1.6 million decrease in unrealized gains related to unit price changes of our investment in CSI Compressco, and a $0.4 million decrease in foreign exchange gains.

Other (income) expense, net decreased primarily due to a $1.0 million decrease in unrealized gains related to unit price changes of our investment in CSI Compressco, and a $1.0 million decrease in foreign exchange gains, partially offset by a $0.6 million increase in income from investments.

Non-GAAP Financial Measures

1 unchanged sentence

Adjusted EBITDA .

We define Adjusted EBITDA as net income (loss) before taxes and discontinued operations, excluding impairments, exploration and pre-development costs, certain special, non-recurring or other charges (or credits), interest, depreciation and amortization and certain non-cash items such as equity-based compensation expense.

We define Adjusted EBITDA as net income (loss) before taxes and discontinued operations, excluding impairments, exploration and pre-development costs, certain special, non-recurring or other charges (or credits), interest, depreciation and amortization, income from collaborative arrangement and certain non-cash items such as equity-based compensation expense.

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

Exploration and pre-development costs represent expenditures incurred to evaluate potential future development of TETRA’s lithium and bromine properties in Arkansas.

Such costs include exploratory drilling and associated engineering studies and are excluded from Adjusted EBITDA because they do not relate to the Company’s current business operations.

Such costs include exploratory drilling and associated engineering studies.

Income from collaborative arrangement represents the portion of exploration and pre-development costs that are reimbursable by our strategic partner.

Exploration and pre-development costs and the associated income from collaborative arrangement are excluded from Adjusted EBITDA because they do not relate to the Company’s current business operations.

Adjustments to long-term incentives represent cumulative adjustments to valuation of long-term cash incentive compensation awards that are related to prior years.

6 unchanged sentences

Three Months Ended

March 31, 2023

June 30, 2023

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

3 unchanged sentences

Insurance recoveries (5) — — — (5)

Impairments and other charges — — 777 — 777

Exploration and pre-development costs 2,341 — — — 2,341

Adjustment to long-term incentives — — 322 — 322

Former CEO stock appreciation right expense (credit) — — (307) — (307)

Former CEO stock appreciation right expense — — 329 — 329

Transactions and other expenses — — 57 — 57

Income from collaborative arrangement (4,749) — — — (4,749)

Interest (income) expense, net 104 27 — 5,813 5,944

4 unchanged sentences

Three Months Ended

December 31, 2022

March 31, 2023

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

2 unchanged sentences

Net income (loss) before taxes and discontinued operations 18,442 6,378 (11,059) (6,227) 7,534

Impairments 342 200 — — 542

Insurance recoveries (2,850) — — — (2,850)

Exploration and pre-development costs 720 — — — 720

Adjustment to long-term incentives — — 353 — 353

Transactions and other expenses 576 — — — 576

Former CEO stock appreciation right expense (credit) — — (57) — (57)

Interest (income) expense, net (395) 27 — 5,460 5,092

1 unchanged sentence

Equity-based compensation expense 17 — 1,276 — 1,293

Adjusted EBITDA $ 15,992 $ 12,072 $ (7,628) $ (95) $ 20,341

Adjusted EBITDA as % of revenue 24.2 % 14.9 % 13.8 %

Three Months Ended March 31, 2022

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

(in thousands, except percents)

Revenues $ 73,194 $ 56,843 $ — $ — $ 130,037

Net income (loss) before taxes and discontinued operations 19,292 2,682 (10,346) (2,694) 8,934

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

Exploration and pre-development costs 1,930 — — — 1,930

Adjustment to long-term incentives — — 784 — 784

Transaction, restructuring and other expenses — — 82 — 82

Former CEO stock appreciation right expense — — (307) — (307)

Interest (income) expense, net (323) — — 3,647 3,324

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

Equity-based compensation expense — — 1,104 — 1,104

Adjusted EBITDA $ 17,986 $ 12,914 $ (9,655) $ (658) $ 20,587

Adjusted EBITDA as a % of revenue 26.1 % 14.5 % 15.7 %

Adjusted EBITDA as % of revenue 26.1 % 16.7 % 14.1 %

Adjusted EBITDA is a financial measure that is not in accordance with U.S.

5 unchanged sentences

We believe that our capital structure allows us to meet our financial obligations.

Our liquidity at the end of the first quarter was $86.7 million.

Our liquidity at the end of the second quarter was $99.0 million.

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

Information about the terms and covenants of our debt agreements can be found in our 2022 Annual Report and in Note 6 - Long Term Debt and Other Borrowings.

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

Our consolidated sources and uses of cash are as follows:

Three Months Ended

Six Months Ended

(in thousands)

3 unchanged sentences

Operating Activities

Consolidated cash flows provided by operating activities increased compared to the first three months of 2022 primarily due to an increase in cash profit and working capital changes.

Consolidated cash flows provided by operating activities increased compared to the first six months of 2022 primarily due to an increase in cash profit and working capital changes.

Investing Activities

Total cash capital expenditures during the first three months of 2023 were $12.8 million, which reflects increased expenditures to accommodate industry-wide activity recoveries as well as traditional front-loading of expected annual expenditures.

Our Water & Flowback Services Division spent $10.3 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.

Total cash capital expenditures during the first six months of 2023 were $23.3 million, which reflects increased expenditures to accommodate industry-wide activity recoveries as well as traditional front-loading of expected annual expenditures.

Our Water & Flowback Services Division spent $16.6 million on capital expenditures, primarily to deploy additional SandStorm units to meet increased demands and to 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 the third early production facility in Argentina.

Our Completion Fluids & Products Division spent $2.4 million on capital expenditures, primarily supporting higher activity levels in the United States and Europe.

Investing activities during the first three months of 2023 and 2022 included $2.9 million and $3.8 million, respectively, for insurance settlements from damage to our Lake Charles facility in 2020.

Our Completion Fluids & Products Division spent $6.5 million on capital expenditures, primarily investing in additional capacity to support higher projected activity levels in the United States, Latin America and Europe.

Investing activities during the first six months of 2023 and 2022 included $2.9 million and $3.8 million, respectively, of proceeds for insurance settlements 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.

1 unchanged sentence

However, we continue to review all capital expenditure plans carefully in an effort to conserve cash.

We currently have no long-term capital expenditure commitments, other than the asset purchase obligation described in Note 7 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements.

We currently have no long-term capital expenditure commitments.

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

7 unchanged sentences

We expect an initial economic assessment to follow in late 2023 for a lithium extraction plant, subject to the progress of early engineering.

Only upon completion of an indicated resources study, pre-feasibility and/or feasibility study and attainment of capital commitment from either a joint venture partner, governments grants or loans, or other cost-effective sources of capital that will not over-lever TETRA, in addition to confirmation of a successful recapitalization of the long-duration zinc-bromide battery storage manufacturers, would we proceed to a final investment decision.

In June 2023, we entered into the MOU with Saltwerx, an indirect wholly owned subsidiary of a Fortune 500 company, relating to a newly-proposed brine unit in the Smackover Formation in Southwest Arkansas and potential bromine and lithium production from brine produced from the unit.

The binding provisions of the MOU provide, among other things, that (i) the Company will file the Application covering the Brine Unit with the AOGC and (ii) Saltwerx will provide a letter to the Company in support of the Application.

The MOU also contains provisions effective after, and contingent on, the approval of the Brine Unit by the AOGC, including provisions relating to:

(i) initial brine ownership percentages within the Brine Unit, including the bromine and lithium contained in the brine, (ii) the transfer of certain leased acres outside the proposed Brine Unit from us to Saltwerx, (iii) Saltwerx reimbursing us for certain expenses incurred by us to date regarding the development of leased acreage to be included in the Brine Unit, and (vi) an allocation of certain future costs for the drilling of a brine production test well and other development operations, including FEED studies for bromine and lithium production facilities.

During the second quarter of 2023, we also contracted a third-party firm to execute a front-end engineering and design study for a lithium production facility.

Only upon completion of an indicated resources study, pre-feasibility and/or feasibility study and attainment of capital commitment from either a joint venture partner, governments grants or loans, or other cost-effective sources of capital that will not over-lever the Company, in addition to confirmation of a successful recapitalization of the long-duration zinc-bromide battery storage manufacturers, would we proceed to a final investment decision.

Financing Activities

Our financing activities for the first three months of 2023 include $52.8 million of borrowings and $47.4 million of repayments under the ABL Credit Agreement, Argentina Credit Facility and Swedish Credit Facility, as well as $0.3 million of capital lease payments associated with equipment leased primarily for the early production facilities in Argentina.

Our financing activities for the first six months of 2023 include $97.2 million of borrowings and $98.2 million of repayments under the ABL Credit Agreement, Argentina Credit Facility and Swedish Credit Facility, as well as $0.7 million of capital lease payments associated with equipment leased primarily 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.

4 unchanged sentences

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 March 31, 2023, $163.1 million in aggregate principal amount of our Term Credit Agreement is outstanding.

As of June 30, 2023, $163.1 million in aggregate principal amount of our Term Credit Agreement is outstanding.

Asset-Based Credit Agreement .

As of March 31, 2023, 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, 2023, 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.

1 unchanged sentence

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, 2023, we had $6.2 million outstanding and $8.3 million in letters of credit and guarantees against our ABL Credit Agreement and availability of $65.4 million, subject to compliance with the covenants, borrowing base, and other provisions of the ABL Credit Agreement.

As of June 30, 2023, we had no balance outstanding and $11.5 million in letters of credit and guarantees against our ABL Credit Agreement and availability of $66.6 million, subject to compliance with the covenants, borrowing base, and other provisions of the ABL Credit Agreement.

Argentina Credit Facility .

In January 2023, the Company entered into a revolving credit facility for certain working capital and capital expenditure needs for its subsidiary in Argentina (“Argentina Credit Facility”).

As of March 31, 2023, we had $1.7 million outstanding and availability of approximately $0.3 million under the Argentina Credit Agreement.

As of June 30, 2023, we had $1.9 million outstanding and availability of approximately $0.1 million under the Argentina Credit Agreement.

Borrowings bear interest at a rate of 2.50% per annum.

2 unchanged sentences

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

As of March 31, 2023, we had $0.5 million outstanding and availability of approximately $4.4 million under this agreement.

As of June 30, 2023, we had no balance outstanding and availability of approximately $4.6 million under this agreement.

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

3 unchanged sentences

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 March 31, 2023, there were $1.5 million of letters of credit outstanding against the Finland Credit Agreement.

As of June 30, 2023, there were $1.5 million of letters of credit outstanding against the Finland Credit Agreement.

The Finland Credit Agreement expires on January 31, 2024 and the Company intends to renew it annually.

1 unchanged sentence

In addition to the aforementioned credit facilities, 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, 2023, the market value of our investments in CSI Compressco and Standard Lithium were $6.4 million and $1.5 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 $5.9 million as of March 31, 2023.

In addition, as of June 30, 2023, the market value of our investments in CSI Compressco and Standard Lithium were $6.6 million and $3.6 million, respectively, with no holding restrictions on our ability to monetize our interests.

In addition, we are party to agreements in which Standard Lithium has the right to explore for, 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 an additional 400,000 shares of Standard Lithium stock in April 2023 under the terms of this agreement.

We also hold an investment in a convertible note issued by CarbonFree valued at $6.3 million as of June 30, 2023.

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

9 unchanged sentences

If our customers delay paying or fail to pay us a significant amount of our outstanding receivables, it could have an adverse effect on our liquidity.

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

As of March 31, 2023, 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.

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

As of June 30, 2023, 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

9 unchanged sentences

Long-Term Debt

For information on our credit agreements, see our 2022 Annual Report and Note 6 - “Long-Term Debt and Other Borrowings” in the Notes to Consolidated Financial Statements.

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

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

17 unchanged sentences

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.

Investors should not place undue reliance on forward-looking statements.

Each forward-looking statement speaks only as of the date of the particular statement, and the Company undertakes no obligation to update or revise any forward-looking statements, except as may be required by law.

With respect to the Company’s disclosures of the MOU with Saltwerx, it is uncertain about the ability of the parties to successfully negotiate one or more definitive agreements, the future relationship between the parties, the approval of the application and Brine Unit by the AOGC, and the ability to successfully and economically produce lithium and bromine from the Brine Unit.

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

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

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

However, investors are cautioned not to place undue reliance on any such forward-looking statements.

Such statements speak only as of the date on which they are made, and the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations, forecasts or projections.

2 unchanged sentences

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