What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-30 compared with 2023-07-31 · 118 added, 104 removed, 296 unchanged (43% of the section changed)

4 unchanged sentences

Business Overview

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.

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.

Consolidated revenue for the first nine months of 2023 of $473.1 million reflects a 16.6% increase over the prior year, reflecting growth in international markets and the Gulf of Mexico, as well as a strong second quarter for our Northern Europe industrial chemicals business.

Our strong results for the first nine months of 2023 reflect our employees delivering operational and financial excellence in our core businesses while simultaneously advancing our key strategic initiatives.

Third-quarter consolidated revenue of $151.5 million reflects a 13.7% decrease following the strong Northern European industrial chemical business seasonal peak in the second quarter.

Completion Fluids & Products Division revenues for the first nine months of 2023 increased 16.1% compared to 2022 as pricing and market share have continued to improve.

Completion Fluids & Products Division revenues decreased 25% sequentially, following a new segment record high during the second quarter, including the seasonal peak for our Northern Europe industrial chemicals business.

Our offshore results declined compared to the second quarter as projects were completed or shifted into the fourth quarter.

Our Water & Flowback Services revenues remained stable compared to the second quarter of 2023 and improved slightly 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.

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

Water & Flowback Services margins have continued to improve, reflecting ongoing automation and cost-reduction initiatives.

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.

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.

We filed 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”).

On September 26, 2023, the AOGC held a public hearing and unanimously approved our application to establish the Brine Unit.

We completed the evaluation of results from the second exploratory well on our acreage in Arkansas in the third quarter with exceptional results.

These results are being used to update the lithium and bromine resource report which we plan to complete and release in the fourth quarter.

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.

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

Three months ended September 30, 2023 compared with three months ended June 30, 2023.

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)

8 unchanged sentences

Interest expense, net 5,636 5,944 (308) (5.2) %

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

Other income, net (2,041) (6,435) (4,394) (68.3) %

Income before taxes and discontinued operations 6,716 21,080 (14,364) (68.1) %

7 unchanged sentences

Net income attributable to TETRA stockholders $ 5,420 $ 18,215 $ (12,795) (70.2) %

(1) Percent change is not meaningful

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.

Consolidated revenues decreased between the current and previous quarters primarily due to a decrease in overall activity for the Completion Fluids & Products division sales volume from the strong Northern European industrial chemical seasonality impact each year on our results in the second quarter.

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.

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

See Divisional Comparisons section below for additional discussion.

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 exploration and pre-development costs increased primarily due to costs associated with the lithium front-end engineering and design study and appraisal costs for the second exploratory brine well in Arkansas.

Consolidated general and administrative expenses decreased compared to the prior quarter, primarily due to a $1.3 million decrease in provision for credit losses as a provision established in the second quarter was reversed in the third quarter following improved collections, a $0.4 million decrease in general expenses and a $0.3 million decrease in legal expenses.

Consolidated other income, net, decreased in the current quarter, compared to the prior quarter primarily due to the $2.8 million decrease in credits for exploration and pre-development costs reimbursable from Saltwerx following the cumulative credit in the second quarter, and a $2.0 million increase in unrealized losses from our

Standard Lithium shares received in April 2022 and 2023, partially offset by a $0.5 million increase in unrealized gain due to the change in the unit price of the CSI Compressco common units we own.

Consolidated provision for income tax was $1.2 million during the current quarter, compared to a $2.9 million provision during the prior quarter.

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.

Our consolidated effective tax rate for the three months ended September 30, 2023 was 18.6% 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

June 30, March 31, $ Change % Change

September 30, June 30, $ Change % Change

(in thousands, except percentages)

6 unchanged sentences

General and administrative expense as a percentage of revenue

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

Interest (income) expense, net

(309) 104 (413) 397.1 %

Other income, net (900) (5,819) (4,919) (84.5) %

1 unchanged sentence

Income before taxes and discontinued operations as a percentage of revenue 23.1 % 32.5 %

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.

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.

Revenues for our Completion Fluids & Products Division decreased primarily due to decreased volumes for industrial chemical sales following the seasonal uplift in Northern Europe in the prior quarter, as well as timing of customer completion schedules, which resulted in some planned offshore activity pushing from the third to the fourth quarter.

Gross profit for our Completion Fluids & Products Division decreased compared to the prior quarter primarily due to the decline in revenues mentioned above.

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, and drilling and completions activity.

Completion Fluids & Products Division exploration and pre-development costs associated with our potential Southwest Arkansas bromine development project increased $1.4 million due to costs associated with the lithium front-end engineering and design study and well appraisal costs.

General and administrative expense for the division decreased $2.7 million, primarily due to a $1.3 million decrease in provision for credit losses as a provision established in the second quarter was reversed in the third quarter following improved collections, and a $1.3 million decrease in short-term incentive compensation expense.

Other income, net decreased primarily due to the $2.8 million decrease in credits for exploration and pre-development costs from Saltwerx following the cumulative credit in the second quarter, and a $2.0 million increase in unrealized losses from our investment in Standard Lithium shares due to a decline in the share price.

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)

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Income before taxes and discontinued operations as a percentage of revenue 10.8 % 10.4 %

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.

Revenues for our Water & Flowback Services Division in the current quarter increased due to continued higher revenues from our early production facilities in Latin America following completion of the third facility in May 2023.

The North America onshore business revenue was relatively flat compared to the prior quarter.

Gross profit for our Water & Flowback Services Division remained comparable to the previous quarter.

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

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.

The Water & Flowback Services Division income before taxes and discontinued operations increased primarily due to a $0.6 million decrease in general and administrative expense primarily due to cost reduction initiatives, partially offset by a $0.2 million increase in interest expense due to borrowings under the Argentina Credit Agreement.

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)

3 unchanged sentences

Interest expense, net 5,755 5,813 (58) (1.0) %

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

Other income, net (717) (388) 329 84.8 %

Loss before taxes and discontinued operations $ (18,691) $ (18,890) $ 199 (1.1) %

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.

Corporate overhead loss before taxes and discontinued operations remained comparable to the prior quarter as the $1.0 million increase in general and administrative expense primarily due to higher long-term incentive expenses was substantially offset by the $0.8 million impairment associated with our corporate office lease during the prior quarter.

Nine months ended September 30, 2023 compared with nine months ended September 30, 2022.

Consolidated Comparisons

Six Months Ended

June 30, Period to Period Change

Nine Months Ended

September 30, Period to Period Change

2023 2022 $ Change % Change

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Discontinued operations:

Loss from discontinued operations, net of taxes (20) (49) (29) (59.2) %

(Income) loss from discontinued operations, net of taxes

(68) 270 338 NM (1)

Net income 29,650 9,700 19,950 205.7 %

1 unchanged sentence

Net income attributable to TETRA stockholders $ 29,675 $ 9,743 $ 19,932 204.6 %

(1) Percent change is not meaningful

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.

1 unchanged sentence

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.

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, 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.

Profit margins for both divisions also improved due to stronger market conditions, a shift to higher-margin projects as well as price improvements and cost reduction initiatives.

Consolidated exploration and pre-development costs increased $3.3 million compared to the prior year primarily due to costs associated with the lithium front-end engineering and design study and drilling and appraisal costs associated with our second exploratory brine well in Arkansas.

Consolidated general and administrative expenses increased compared to the prior year, primarily due to $5.4 million of increased wage and benefit-related expenses driven by divisional headcount additions and higher operational activity levels, as well as higher short and long-term incentive expense, including the impact of the increase in our stock price on long-term incentive awards.

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

Consolidated other income, net, increased in the current year, compared to the prior year primarily due to $6.7 million credits for exploration and pre-development costs reimbursable from Saltwerx under the MOU entered in in June 2023, offset by a $3.0 million decrease in foreign exchange gains.

Consolidated provision for income taxes was $5.6 million during the current year, compared to $2.9 million during the prior year.

Our consolidated effective tax rate for the current year was 15.9%, compared to 23.5% 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.

The increase in our tax provision compared to the prior year was primarily due to the increase in income, while our effective tax rate decreased because a significant portion of the increase in income was in jurisdictions for which we were able to utilize net operating losses for which we had established valuation allowances.

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.

3 unchanged sentences

Completion Fluids & Products Division

Six Months Ended

June 30, Period to Period Change

Nine Months Ended

September 30, Period to Period Change

2023 2022 $ Change % Change

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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 for our Completion Fluids & Products Division increased compared to the prior year due to an 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.

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, and drilling and completions activity.

Income before taxes and discontinued operations for our Completion Fluids & Products Division increased compared to the prior year driven by higher gross profit, $6.7 million of credits for exploration and pre-development costs reimbursable from Saltwerx as well as a $0.4 million decrease in unrealized losses from our investment in Standard Lithium shares, both included in other income, net.

These increases were partially offset by a $3.3 million increase in costs associated with the exploratory brine project compared to the prior year;

a $3.0 million increase in general and administrative costs due to higher compensation and short-term incentive expense due to increased activity levels and strong results;

and a $0.8 million decrease in unrealized gains from the change in fair value of the CarbonFree convertible note embedded option.

Water & Flowback Services Division

Six Months Ended

June 30, Period to Period Change

Nine Months Ended

September 30, Period to Period Change

2023 2022 $ Change % Change

5 unchanged sentences

General and administrative expense as a percentage of revenue

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

Interest (income) expense, net

243 (3) 246 NM (1)

Other income, net (596) (2,736) (2,140) (78.2) %

4 unchanged sentences

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.

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 continuous efforts to increase margins through streamlining operations and automation.

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 $0.9 million decrease in foreign exchange gains, and a $0.5 million decrease in gains on asset sales.

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, and a shift to higher margin projects as well as continuous efforts to increase margins through streamlining operations and automation.

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 and a $1.2 million decrease in general and administrative expense from cost reduction initiatives, partially offset by a $1.6 million decrease in foreign exchange gains and a $0.7 million decrease in gains on asset sales.

Corporate Overhead

Six Months Ended

June 30, Period to Period Change

Nine Months Ended

September 30, Period to Period Change

2023 2022 $ Change % Change

4 unchanged sentences

Interest expense, net 17,029 11,978 5,051 42.2 %

Other (income) expense, net 272 (1,121) 1,393 124.3 %

Other income, net (446) (964) 518 53.7 %

Loss before taxes and discontinued operations $ (54,869) $ (45,398) $ (9,471) 20.9 %

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) 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.

Corporate overhead loss before taxes and discontinued operations increased due to a $5.1 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 $3.4 million increase in general and administrative expense as well as a $0.5 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 to support higher activity levels and higher equity-based compensation expense, including the impact of the increase in our stock price.

Other (income) expense, net decreased primarily

due to a $1.4 million decrease in foreign exchange gains, partially offset by a $0.4 million increase in unrealized gains related to unit price changes of our investment in CSI Compressco.

Non-GAAP Financial Measures

7 unchanged sentences

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.

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

These costs are excluded from Adjusted EBITDA because they do not relate to the current year and are considered to be outside of normal operations.

5 unchanged sentences

Three Months Ended

June 30, 2023

September 30, 2023

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

3 unchanged sentences

Insurance recoveries 174 — — — 174

Impairments and other charges — — 777 — 777

Exploration and pre-development costs 3,775 — — — 3,775

9 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

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

Former CEO stock appreciation right expense — — 329 — 329

Transaction and other expenses

Income from collaborative arrangement

(4,749) — — — (4,749)

Interest expense, net

104 27 — 5,813 5,944

Depreciation, amortization and accretion 2,193 6,172 — 93 8,458

Equity-based compensation expense — — 1,492 — 1,492

Transaction, restructuring and other expenses — — 82 — 82

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

Adjusted EBITDA $ 31,840 $ 14,213 $ (9,618) $ (389) $ 36,046

7 unchanged sentences

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

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

Our liquidity at the end of the third quarter was $107.0 million.

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

1 unchanged sentence

Our consolidated sources and uses of cash are as follows:

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

3 unchanged sentences

Operating Activities

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.

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

Investing Activities

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.

Total cash capital expenditures during the first nine months of 2023 were $30.2 million, which reflects increased expenditures to accommodate industry-wide activity recoveries.

Our Water & Flowback Services Division spent $22.0 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.

1 unchanged sentence

Our Completion Fluids & Products Division spent $7.8 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.

Investing activities during the first nine 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.

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With respect to approximately 35,000 acres of that total acreage, we granted Standard Lithium an option to acquire the lithium rights.

Standard Lithium delivered a notice to exercise this option to acquire those lithium rights on October 6, 2023.

The agreements governing this option contemplate a 2.5% royalty that Standard Lithium would pay us based on gross lithium revenues.

A copy of the Option Agreement with certain confidential information redacted is filed as Exhibit 10.1 to this Quarterly Report.

Additional information on these inferred resources is described in Part I, “Item 2.

1 unchanged sentence

During early 2023, we completed an initial economic assessment for a bromine extraction plant.

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

We expect an initial economic assessment to follow in early 2024 for a lithium extraction plant, subject to the progress of early engineering.

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.

We filed an amended 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, with the AOGC.

On September 26, 2023, the AOGC held a public hearing and unanimously approved our application to establish the Brine Unit.

On October 17, 2023, the AOGC issued formal orders establishing the Brine Unit and integrating all unleased parties within the Brine Unit, subject to a 60-day statutory election period for each unleased party to elect whether or not to participate and share in costs of development of the Brine Unit.

If no such election is made within the election period, such unleased parties will be deemed integrated within the Brine Unit as described in the formal orders.

The Brine Unit will cover approximately 6,138 acres combining brine acreage leased by each of us and Saltwerx for development.

Under Arkansas law, while bromine can be commercially extracted, the AOGC will need to establish the applicable lithium royalty before we can commercially produce lithium from the Brine Unit.

The MOU includes 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 after the expiration of the 60-day statutory election period, (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 front-end engineering and design 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.

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Financing Activities

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.

Our financing activities for the first nine months of 2023 include $97.4 million of borrowings and $98.4 million of repayments under the ABL Credit Agreement, Argentina Credit Facility and Swedish Credit Facility, as well as $0.8 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.

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The Term Credit Agreement is scheduled to mature on September 10, 2025.

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

Our Term Credit Agreement requires us to offer to prepay a percentage of Excess Cash Flow (as defined in the Term Credit Agreement) within five business days of filing our Annual Report.

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

If our Leverage Ratio at year-end is less than 1.50 to 1.00, then no prepayment is required.

Asset-Based Credit Agreement .

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.

As of September 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.

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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, 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.

As of September 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 $68.5 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 June 30, 2023, we had $1.9 million outstanding and availability of approximately $0.1 million under the Argentina Credit Agreement.

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

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

The Argentina Credit Facility expires on October 19, 2023 and is backed by a letter of credit under our ABL Credit Agreement.

The Argentina Credit Facility was backed by a letter of credit under our ABL Credit Agreement, and expired and was repaid in October 2023.

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

As of September 30, 2023, we had a nominal amount 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.

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

As of September 30, 2023, there were $1.4 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.

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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 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, as of September 30, 2023, the market value of our investments in CSI Compressco and Standard Lithium were $7.2 million and $2.3 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.

Standard Lithium exercised its option with respect to our Arkansas leases on October 6, 2023.

We also hold an investment in a convertible note issued by CarbonFree valued at $6.6 million as of September 30, 2023.

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

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

Instability or volatility in the capital markets at the times we need to

access capital may affect the cost of capital and the ability to raise capital for an indeterminable length of time.

Instability or volatility in the capital markets at the times we need to access capital may affect the cost of capital and the ability to raise capital for an indeterminable length of time.

If it is necessary to issue additional equity to fund our capital needs, additional dilution of our common stockholders will occur.

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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 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.

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

As of September 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

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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.

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.

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, 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.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis