TETRA TECHNOLOGIES INC 10-Q

Item 1. Financial Statements. TETRA Technologies, Inc. and Subsidiaries Consolidated Statements of Operations (In Thousands, Except Per Share Amounts) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenues: Product sales $ 68,967 $ 55,494 $ 230,719 $ 195,850 Services 82,497 79,518 242,417 209,915 Total revenues 151,464 135,012 473,136 405,765 Cost of revenues: Cost of product sales 41,410 36,571 139,678 130,916 Cost of services 63,552 60,334 186,424 162,276 Depreciation, amortization, and accretion 8,578 8,634 25,705 24,061 Impairments and other charges — — 777 2,262 Insurance recoveries — — ( 2,850 ) ( 3,750 ) Total cost of revenues 113,540 105,539 349,734 315,765 Gross profit 37,924 29,473 123,402 90,000 Exploration and pre-development costs 3,775 936 6,836 3,500 General and administrative expense 23,838 23,833 73,254 68,096 Interest expense, net 5,636 3,999 16,672 10,933 Other income, net ( 2,041 ) ( 1,410 ) ( 8,690 ) ( 4,858 ) Income before taxes and discontinued operations 6,716 2,115 35,330 12,329 Provision for income taxes 1,248 2,178 5,612 2,899 Income (loss) before discontinued operations 5,468 ( 63 ) 29,718 9,430 Income (loss) from discontinued operations, net of taxes ( 48 ) 319 ( 68 ) 270 Net income 5,420 256 29,650 9,700 Loss attributable to noncontrolling interests — 22 25 43 Net income attributable to TETRA stockholders $ 5,420 $ 278 $ 29,675 $ 9,743 Basic net income per common share: Income from continuing operations $ 0.04 $ 0.00 $ 0.23 $ 0.08 Net income attributable to TETRA stockholders $ 0.04 $ 0.00 $ 0.23 $ 0.08 Weighted average basic shares outstanding 129,777 128,407 129,395 127,890 Diluted net income per common share: Income from continuing operations $ 0.04 $ 0.00 $ 0.23 $ 0.08 Net income attributable to TETRA stockholders $ 0.04 $ 0.00 $ 0.23 $ 0.08 Weighted average diluted shares outstanding 132,089 128,407 130,835 129,704 See Notes to Consolidated Financial Statements 1 Table of Contents TETRA Technologies, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (In Thousands) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net income $ 5,420 $ 256 $ 29,650 $ 9,700 Foreign currency translation adjustment from continuing operations, net of taxes of $ 0 in 2023 and 2022 ( 2,750 ) ( 3,873 ) ( 284 ) ( 7,095 ) Unrealized gain (loss) on investment in CarbonFree 146 ( 306 ) 474 ( 306 ) Comprehensive income (loss) 2,816 ( 3,923 ) 29,840 2,299 Less: Comprehensive loss attributable to noncontrolling interests — 22 25 43 Comprehensive income (loss) attributable to TETRA stockholders $ 2,816 $ ( 3,901 ) $ 29,865 $ 2,342 See Notes to Consolidated Financial Statements 2 Table of Contents TETRA Technologies, Inc. and Subsidiaries Consolidated Balance Sheets (In Thousands) September 30, 2023 December 31, 2022 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 33,826 $ 13,592 Trade accounts receivable, net of allowances of $ 508 in 2023 and $ 538 in 2022 122,900 129,631 Inventories 92,128 72,113 Prepaid expenses and other current assets 21,575 23,112 Total current assets 270,429 238,448 Property, plant, and equipment: Land and building 23,308 25,723 Machinery and equipment 309,082 318,693 Automobiles and trucks 10,379 11,832 Chemical plants 63,912 63,528 Construction in progress 4,461 7,660 Total property, plant, and equipment 411,142 427,436 Less accumulated depreciation ( 305,063 ) ( 325,856 ) Net property, plant, and equipment 106,079 101,580 Other assets: Patents, trademarks and other intangible assets, net of accumulated amortization of $ 49,904 in 2023 and $ 46,996 in 2022 30,132 32,955 Operating lease right-of-use assets 34,227 33,818 Investments 16,405 14,286 Other assets 15,147 13,279 Total other assets 95,911 94,338 Total assets $ 472,419 $ 434,366 See Notes to Consolidated Financial Statements 3 Table of Contents TETRA Technologies, Inc. and Subsidiaries Consolidated Balance Sheets (In Thousands, Except Share Amounts) September 30, 2023 December 31, 2022 (Unaudited) LIABILITIES AND EQUITY Current liabilities: Trade accounts payable $ 50,322 $ 49,121 Current portion of long-term debt 1,911 3 Compensation and employee benefits 31,090 30,958 Operating lease liabilities, current portion 8,745 7,795 Accrued taxes 10,777 9,913 Accrued liabilities and other 23,281 25,557 Current liabilities associated with discontinued operations 414 920 Total current liabilities 126,540 124,267 Long-term debt, net 156,748 156,455 Operating lease liabilities 28,013 28,108 Asset retirement obligations 14,132 13,671 Deferred income taxes 1,890 2,038 Other liabilities 3,959 3,430 Total long-term liabilities 204,742 203,702 Commitments and contingencies (Note 7) Equity: TETRA stockholders’ equity: Common stock, par value 0.01 per share; 250,000,000 shares authorized at September 30, 2023 and December 31, 2022; 133,217,848 shares issued at September 30, 2023 and 131,800,975 shares issued at December 31, 2022 1,332 1,318 Additional paid-in capital 482,709 477,820 Treasury stock, at cost; 3,138,675 shares held at September 30, 2023 and December 31, 2022 ( 19,957 ) ( 19,957 ) Accumulated other comprehensive loss ( 48,873 ) ( 49,063 ) Retained deficit ( 272,818 ) ( 302,493 ) Total TETRA stockholders’ equity 142,393 107,625 Noncontrolling interests ( 1,256 ) ( 1,228 ) Total equity 141,137 106,397 Total liabilities and equity $ 472,419 $ 434,366 See Notes to Consolidated Financial Statements 4 Table of Contents TETRA Technologies, Inc. and Subsidiaries Consolidated Statements of Equity (In Thousands) (Unaudited) Common Stock Par Value Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Deficit Noncontrolling Interest Total Equity Currency Translation Unrealized Gain (Loss) on Investment Balance at December 31, 2022 $ 1,318 $ 477,820 $ ( 19,957 ) $ ( 48,991 ) $ ( 72 ) $ ( 302,493 ) $ ( 1,228 ) $ 106,397 Net income (loss) for first quarter 2023 — — — — — 6,040 ( 7 ) 6,033 Translation adjustment, net of taxes of $ 0 — — — 1,421 — — — 1,421 Other comprehensive income — — — — 121 — — 121 Comprehensive income 7,575 Equity-based compensation (1) — 3,514 — — — — — 3,514 Other 7 ( 1,341 ) — — — — 1 ( 1,333 ) Balance at March 31, 2023 $ 1,325 $ 479,993 $ ( 19,957 ) $ ( 47,570 ) $ 49 $ ( 296,453 ) $ ( 1,234 ) $ 116,153 Net income (loss) for second quarter 2023 — — — — — 18,215 ( 18 ) 18,197 Translation adjustment, net of taxes of $ 0 — — — 1,045 — — — 1,045 Other comprehensive income — — — — 207 — — 207 Comprehensive income 19,449 Equity-based compensation — 1,507 — — — — — 1,507 Other 2 ( 52 ) — — — — ( 2 ) ( 52 ) Balance at June 30, 2023 $ 1,327 $ 481,448 $ ( 19,957 ) $ ( 46,525 ) $ 256 $ ( 278,238 ) $ ( 1,254 ) $ 137,057 Net income for third quarter 2023 — — — — — 5,420 — 5,420 Translation adjustment, net of taxes of $ 0 — — — ( 2,750 ) — — — ( 2,750 ) Other comprehensive income — — — — 146 — — 146 Comprehensive income 2,816 Equity-based compensation — 1,396 — — — — — 1,396 Other 5 ( 135 ) — — — — ( 2 ) ( 132 ) Balance at September 30, 2023 $ 1,332 $ 482,709 $ ( 19,957 ) $ ( 49,275 ) $ 402 $ ( 272,818 ) $ ( 1,256 ) $ 141,137 (1) Equity-based compensation for the three months ended March 31, 2023 includes $ 2.3 million for a portion of short-term incentive compensation that was settled through grants of restricted stock units rather than cash. 5 Table of Contents Common Stock Par Value Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Loss Retained Deficit Noncontrolling Interest Total Equity Currency Translation Unrealized Gain (Loss) on Investment Balance at December 31, 2021 $ 1,301 $ 475,624 $ ( 19,957 ) $ ( 46,932 ) $ — $ ( 310,332 ) $ ( 1,141 ) $ 98,563 Net income (loss) for first quarter 2022 — — — — — 7,720 ( 1 ) 7,719 Translation adjustment, net of taxes of $ 0 — — — 192 — — — 192 Comprehensive income 7,911 Equity compensation expense — 1,104 — — — — — 1,104 Other 7 ( 673 ) — — — — ( 10 ) ( 676 ) Balance at March 31, 2022 $ 1,308 $ 476,055 $ ( 19,957 ) $ ( 46,740 ) $ — $ ( 302,612 ) $ ( 1,152 ) $ 106,902 Net income (loss) for second quarter 2022 — — — — — 1,745 ( 20 ) 1,725 Translation adjustment, net of taxes of $ 0 — — — ( 3,414 ) — — — ( 3,414 ) Comprehensive loss ( 1,689 ) Equity compensation expense — 1,159 — — — — — 1,159 Other 6 ( 833 ) — — — — ( 9 ) ( 836 ) Balance at June 30, 2022 $ 1,314 $ 476,381 $ ( 19,957 ) $ ( 50,154 ) $ — $ ( 300,867 ) $ ( 1,181 ) $ 105,536 Net income (loss) for third quarter 2022 — — — — — 278 ( 22 ) 256 Translation adjustment, net of taxes of $ 0 — — — ( 3,873 ) — — — ( 3,873 ) Other comprehensive loss — — — — ( 306 ) — — ( 306 ) Comprehensive loss ( 3,923 ) Equity compensation expense — 1,098 — — — — — 1,098 Other 4 ( 949 ) — — — — ( 10 ) ( 955 ) Balance at September 30, 2022 $ 1,318 $ 476,530 $ ( 19,957 ) $ ( 54,027 ) $ ( 306 ) $ ( 300,589 ) $ ( 1,213 ) $ 101,756 See Notes to Consolidated Financial Statements 6 Table of Contents TETRA Technologies, Inc. and Subsidiaries Consolidated Statements of Cash Flows (In Thousands, Unaudited) Nine Months Ended September 30, 2023 2022 Operating activities: Net income $ 29,650 $ 9,700 Reconciliation of net income to net cash provided by operating activities: Depreciation, amortization, and accretion 25,705 24,061 Impairment and other charges 777 2,262 Loss on investments 157 159 Equity-based compensation expense 4,199 3,361 Provision for credit losses 190 31 Amortization and expense of financing costs 2,707 2,378 Insurance recoveries associated with damaged equipment ( 2,850 ) ( 3,750 ) Gain on sale of assets ( 432 ) ( 980 ) Provision (benefit) for deferred taxes ( 805 ) ( 66 ) Other non-cash credits ( 916 ) ( 359 ) Changes in operating assets and liabilities: Accounts receivable 7,600 ( 16,661 ) Inventories ( 19,990 ) ( 5,707 ) Prepaid expenses and other current assets 1,313 ( 3,782 ) Trade accounts payable and accrued expenses 2,893 17,069 Other 1,133 ( 1,768 ) Net cash provided by operating activities 51,331 25,948 Investing activities: Purchases of property, plant, and equipment, net ( 30,240 ) ( 32,678 ) Proceeds from sale of property, plant, and equipment 658 1,489 Proceeds from insurance recoveries associated with damaged equipment 2,850 3,750 Purchase of investments ( 350 ) — Other investing activities ( 1,836 ) ( 841 ) Net cash used in investing activities ( 28,918 ) ( 28,280 ) Financing activities: Proceeds from credit agreements and long-term debt 97,384 1,695 Principal payments on credit agreements and long-term debt ( 98,441 ) ( 3,292 ) Payments on financing lease obligations ( 837 ) ( 1,174 ) Net cash used in financing activities ( 1,894 ) ( 2,771 ) Effect of exchange rate changes on cash ( 285 ) ( 1,201 ) Increase (decrease) in cash and cash equivalents 20,234 ( 6,304 ) Cash and cash equivalents at beginning of period 13,592 31,551 Cash and cash equivalents at end of period $ 33,826 $ 25,247 See Notes to Consolidated Financial Statements 7 Table of Contents TETRA Technologies, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) NOTE 1 – ORGANIZATION, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES Organization 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, and production well testing. We were incorporated in Delaware in 1981 and are composed of two segments – Completion Fluids & Products Division and Water & Flowback Services Division. Unless the context requires otherwise, when we refer to “we,” “us,” and “our,” we are describing TETRA Technologies, Inc. and its subsidiaries on a consolidated basis. Presentation Our unaudited consolidated financial statements include the accounts of our wholly owned or controlled subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The information furnished reflects all normal recurring adjustments, which are, in the opinion of management, necessary to provide a fair statement of the results for the interim periods. Operating results for the period ended September 30, 2023 are not necessarily indicative of results that may be expected for the twelve months ended December 31, 2023. We have reflected the operations of our former Compression Division and Offshore Division as discontinued operations for all periods presented. See Note 2 - “Discontinued Operations” for further information. Unless otherwise noted, amounts and disclosures throughout these Notes to Consolidated Financial Statements relate solely to continuing operations and exclude all discontinued operations. The accompanying unaudited consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the U.S. Securities and Exchange Commission (“SEC”) and do not include all information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. These financial statements should be read in conjunction with the financial statements for the year ended December 31, 2022 and notes thereto included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2023 (the “ 2022 Annual Report ”). Tax Benefits Preservation Plan On February 28, 2023, the Board of Directors adopted a Tax Benefits Preservation Plan (the “Tax Plan”) designed to protect the availability of the Company’s net operating loss carryforwards (“NOLs”) and other tax attributes (collectively, the “Tax Attributes”), which may be utilized in certain circumstances to reduce the Company’s future income tax obligations. The Tax Plan is intended to reduce the likelihood that any changes in the Company’s investor base would limit the Company’s future use of its Tax Attributes as a result of the Company experiencing an “ownership change” under Section 382 (“Section 382”) of the Internal Revenue Code of 1986, as amended (the “Code”). If a corporation experiences an “ownership change,” any NOLs, losses or deductions attributable to a “net unrealized built-in loss” and other Tax Attributes could be substantially limited, and timing of the usage of such Tax Attributes could be substantially delayed. A corporation generally will experience an ownership change if one or more stockholders (or group of stockholders) who are each deemed to own at least 5% of the corporation’s stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a testing period (generally, a rolling three-year period). In adopting the Tax Plan, the Board of Directors declared a dividend of one Series A Junior Participating Preferred Stock purchase right (the “Rights”) for each outstanding share of Common Stock pursuant to the terms of the Tax Plan. Initially, each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $ 0.01 per share, of the Company (the “Preferred Stock”) at a price of $ 20.00 per one one-thousandth of a share of Preferred Stock (the “Purchase Price”), subject to adjustment. The Rights will cause substantial dilution to a person or group that acquires 4.99 % or more of the Common Stock (or to a person or group that already owns 4.99 % or more of the Company’s Common Stock if 8 Table of Contents such person or group acquires additional shares representing 2 % of the Company’s then outstanding shares of Common Stock) without prior approval from the Board of Directors. The Rights will expire at the earliest of: (i) the close of business on February 28, 2026 (the “Final Expiration Date”); (ii) the time at which the Rights are redeemed pursuant to the Tax Plan, (iii) the time at which the Rights are exchanged pursuant to the Tax Plan; (iv) the closing of any merger or other acquisition transaction involving the Company pursuant to an agreement as described in the penultimate paragraph of Section 1.3 of the Tax Plan; (v) the close of business on the effective date of the repeal of Section 382 of the Code if the Board determines that the Tax Plan is no longer necessary or desirable for the preservation of the Tax Attributes; or (vi) the close of business on the first day of a taxable year of the Company following a Board determination that no Tax Attributes may be carried forward or otherwise utilized. The Tax Plan adopted by the Board of Directors is similar to plans adopted by other publicly held companies with significant NOLs or other substantial tax benefits and is not designed to prevent any action that the Board of Directors determines to be in the best interest of the Company and its stockholders. At the Company’s 2023 annual meeting of stockholders held on May 24, 2023, the Company’s stockholders ratified the adoption of the Tax Plan. The Rights are in all respects subject to and governed by the provisions of the Tax Plan. The foregoing summary provides only a general description of the Tax Plan and does not purport to be complete. The Tax Plan, which specifies the terms of the Rights and includes as Exhibit A the Form of Certificate of Designation of Series A Junior Participating Preferred Stock of the Company and as Exhibit B the Form of Right Certificate, is attached to the Company’s Current Report on Form 8-K, which was filed with the SEC on March 1, 2023, as Exhibit 4.1 and is incorporated herein by reference. The foregoing summary should be read together with the entire Tax Plan and is qualified in its entirety by reference to the Tax Plan. Mineral Resources Arrangement We have rights to the brine underlying our approximately 40,000 gross acres of brine leases in the Smackover Formation in Southwest Arkansas, including rights to the bromine and lithium contained in the brine. We recognized approximately $ 3.8 million and $ 6.8 million of expense during the three-month and nine-month periods ended September 30, 2023, respectively, and $ 0.9 million and $ 3.5 million of expense during the three-month and nine-month periods ended September 30, 2022, respectively, for exploration and pre-development costs representing expenditures incurred to evaluate potential future development of our lithium and bromine properties in Arkansas. We are also party to agreements whereby Standard Lithium Ltd. (NYSE: SLI) (“Standard Lithium”) has the right to explore for, and an option to acquire the rights to produce and extract, lithium in our Arkansas leases and other potential resources in the Mojave region of California. Standard Lithium delivered a notice to exercise this option to acquire those lithium rights in our Arkansas leases on October 6, 2023. 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. 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. 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 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 the Company to Saltwerx after the expiration of the 60-day election period, (iii) Saltwerx reimbursing the Company for certain expenses incurred by the Company to date regarding the development of leased acreage to be included in the Brine Unit, and (iv) 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. 9 Table of Contents Significant Accounting Policies Our significant accounting policies are described in the notes to our consolidated financial statements for the year ended December 31, 2022 included in our 2022 Annual Report . There have been no significant changes in our accounting policies or the application thereof during the third quarter of 2023. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclose contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses, and impairments during the reporting period. Actual results could differ from those estimates, and such differences could be material. Reclassifications Certain previously reported financial information has been reclassified to conform to the current year's presentation. The impact of reclassifications was not significant to the prior year's overall presentation. Foreign Currency Translation We have designated the Euro, the British pound, the Canadian dollar, the Brazilian real, and the Mexican peso as the functional currencies for our operations in Finland and Sweden, the United Kingdom, Canada, Brazil, and certain of our operations in Mexico, respectively. The United States dollar is the designated functional currency for all of our other non-U.S. operations. The cumulative translation effects of translating the applicable accounts from the functional currencies into the United States dollar at current exchange rates are included as a separate component of equity. Foreign currency exchange (gains) losses are included in other (income) expense, net and totaled less than $ 0.1 million and $ 0.3 million during the three and nine months ended September 30, 2023, respectively, and $( 1.1 ) million and $( 2.7 ) million during the three and nine months ended September 30, 2022, respectively. Fair Value Measurements We utilize fair value measurements to account for certain items and account balances within our consolidated financial statements. Fair value measurements are utilized on a recurring basis in the determination of the carrying values of certain investments. See Note 8 - “Fair Value Measurements” for further discussion. Fair value measurements are also utilized on a nonrecurring basis in certain circumstances, including the impairment of long-lived assets (a Level 3 fair value measurement). 10 Table of Contents Supplemental Cash Flow Information Supplemental cash flow information is as follows: Nine Months Ended September 30, 2023 2022 (in thousands) Interest paid $ 14,282 $ 11,578 Income taxes paid $ 3,918 $ 2,525 September 30, 2023 December 31, 2022 (in thousands) Accrued capital expenditures $ 1,271 $ 4,901 New Accounting Pronouncements Standards adopted during 2023 In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the previously-used incurred loss methodology, which will result in the more timely recognition of losses on financial instruments not accounted for at fair value through net income. The provisions require credit impairments to be measured over the contractual life of an asset and developed with consideration for past events, current conditions, and forecasts of future economic information. Credit impairment will be accounted for as an allowance for credit losses deducted from the amortized cost basis at each reporting date. Updates at each reporting date after initial adoption will be recorded through selling, general, and administrative expense. On January 1, 2023, we adopted ASU 2016-13. The adoption of this standard did not have a material impact on our consolidated financial statements. In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)”, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848.” During the three months ended June 30, 2023, our asset-based credit agreement and term credit agreement were amended to replace LIBOR and Eurodollar rates with the secured overnight financing rate (“SOFR”). There were no significant costs associated with the amendments and the amendments did not have a significant impact on our consolidated financial statements. NOTE 2 – DISCONTINUED OPERATIONS On March 1, 2018, we closed a series of related transactions that resulted in the disposition of our Offshore Division, consisting of our Offshore Services and Maritech segments. Our former Offshore Division is reported as discontinued operations for all periods presented. Our consolidated balance sheets and consolidated statements of operations report discontinued operations separate from continuing operations. Our consolidated statements of comprehensive income, statements of equity and statements of cash flows combine continuing and discontinued operations. Our loss from discontinued operations for the three and nine months ended September 30, 2023 consists primarily of general and administrative expense associated with our former Offshore Division. A summary of additional financial information related to our discontinued operations is as follows: 11 Table of Contents Reconciliation of the Line Items Constituting Pretax Loss from Discontinued Operations to the After-Tax Loss from Discontinued Operations (in thousands, unaudited) Three Months Ended September 30, 2022 Offshore Services Major classes of line items constituting income from discontinued operations General and administrative expense $ 510 Pretax loss from discontinued operations ( 510 ) Pretax gain on disposal of discontinued operations 829 Total pretax income from discontinued operations 319 Income from discontinued operations attributable to TETRA stockholders $ 319 Nine Months Ended September 30, 2022 Offshore Services Maritech Total Major classes of line items constituting income from discontinued operations Cost of revenues $ 54 $ — $ 54 General and administrative expense 533 — 533 Other income, net — ( 28 ) ( 28 ) Pretax income (loss) from discontinued operations ( 587 ) 28 ( 559 ) Pretax gain on disposal of discontinued operations 829 Total pretax income from discontinued operations 270 Income from discontinued operations attributable to TETRA stockholders $ 270 Reconciliation of Major Classes of Assets and Liabilities of the Discontinued Operations to Amounts Presented Separately in the Statement of Financial Position (in thousands) September 30, 2023 Offshore Services Maritech Total (unaudited) Carrying amounts of major classes of liabilities included as part of discontinued operations Trade payables $ 319 $ — $ 319 Accrued liabilities and other — 95 95 Total liabilities associated with discontinued operations $ 319 $ 95 $ 414 December 31, 2022 Offshore Services Maritech Total Carrying amounts of major classes of liabilities included as part of discontinued operations Trade payables $ 319 $ — $ 319 Accrued liabilities and other 506 95 601 Total liabilities associated with discontinued operations $ 825 $ 95 $ 920 NOTE 3 – REVENUE FROM CONTRACTS WITH CUSTOMERS Our contract asset balances, primarily associated with contractual invoicing milestones and/or customer documentation requirements, were $ 30.7 million and $ 33.1 million as of September 30, 2023 and December 31, 2022, respectively. Contract assets, along with billed trade accounts receivable, are included in trade accounts receivable in our consolidated balance sheets. 12 Table of Contents Unearned income includes amounts in which the Company was contractually allowed to invoice prior to satisfying the associated performance obligations. We are also party to agreements whereby Standard Lithium has the right to explore for, and an option to acquire the rights to produce and extract, lithium in our Arkansas leases and other potential resources in the Mojave region of California. The Company receives cash and stock of Standard Lithium under the terms of the arrangements. The cash and stock component of consideration received is initially recorded as unearned income based on the quoted market price at the time the stock is received, then recognized in income over the contract term. Unearned income balances were $ 4.0 million and $ 3.7 million as of September 30, 2023 and December 31, 2022, respectively, and vary based on the timing of (i) invoicing, (ii) performance obligations being met and (iii) the receipt of stock and cash from Standard Lithium. Unearned income is included in accrued liabilities and other in our consolidated balance sheets. During the three-month and nine-month periods ended September 30, 2023 and September 30, 2022, contract costs were not significant. We recognized approximately $ 1.2 million and $ 1.6 million of revenue during the three-month and nine-month periods ended September 30, 2023, respectively, and $ 2.6 million and $ 1.7 million of revenue during the three-month and nine-month periods ended September 30, 2022, respectively, deferred in unearned income as of the beginning of the period. We also recognized approximately $ 0.7 million and $ 2.4 million of income during the three-month and nine-month periods ended September 30, 2023, respectively, and $ 0.9 million and $ 2.4 million of income during the three-month and nine-month periods ended September 30, 2022, respectively, related to the Standard Lithium arrangements deferred in unearned income as of the beginning of the period and included in other income, net in our consolidated statements of operations. We disaggregate revenue from contracts with customers into Product Sales and Services within each segment, as noted in our two reportable segments in Note 10 - “Industry Segments.” In addition, we disaggregate revenue from contracts with customers by geography based on the following table below. Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in thousands) Completion Fluids & Products United States $ 36,484 $ 30,261 $ 115,167 $ 103,449 International 36,726 28,902 125,307 103,706 73,210 59,163 240,474 207,155 Water & Flowback Services United States 67,877 67,641 204,446 182,059 International 10,377 8,208 28,216 16,551 78,254 75,849 232,662 198,610 Total Revenue United States 104,361 97,902 319,613 285,508 International 47,103 37,110 153,523 120,257 $ 151,464 $ 135,012 $ 473,136 $ 405,765 NOTE 4 – INVENTORIES Components of inventories as of September 30, 2023 and December 31, 2022 are as follows: September 30, 2023 December 31, 2022 (in thousands) Finished goods $ 79,689 $ 60,481 Raw materials 4,313 3,734 Parts and supplies 6,622 6,432 Work in progress 1,504 1,466 Total inventories $ 92,128 $ 72,113 Finished goods inventories include newly manufactured clear brine fluids as well as used brines that are repurchased from certain customers for recycling . 13 Table of Contents NOTE 5 – INVESTMENTS Our investments as of September 30, 2023 and December 31, 2022 consist of the following: September 30, 2023 December 31, 2022 (in thousands) Investment in CSI Compressco $ 7,228 $ 6,967 Investment in CarbonFree 6,563 6,139 Investment in Standard Lithium 2,264 1,180 Other investments 350 — Total Investments $ 16,405 $ 14,286 Following the January 2021 sale of the general partner of CSI Compressco LP (“CSI Compressco”), we continue to own approximately 3.7 % of the outstanding CSI Compressco common units (NASDAQ: CCLP) as of September 30, 2023. We have an intellectual property joint development agreement in place with CarbonFree to evaluate potential new technologies. CarbonFree is a carbon capture company with patented technologies that capture CO 2 and mineralize emissions to make commercial, carbon-negative chemicals. In December 2021, we invested $ 5.0 million in a convertible note issued by CarbonFree. Our exposure to potential losses by CarbonFree is limited to our investments and capitalized and accrued interest associated with the CarbonFree convertible note. In addition, we are party to agreements whereby Standard Lithium has the right to explore for, and an option to acquire the rights to produce and extract, lithium in our Arkansas leases and other additional potential resources in the Mojave region of California. The Company receives cash and stock of Standard Lithium under the terms of the arrangements. The cash and stock component of consideration received is initially recorded as unearned income based on the quoted market price at the time the stock is received, then recognized in income over the contract term. See Note 8 - “Fair Value Measurements” for further information. NOTE 6 – LONG-TERM DEBT AND OTHER BORROWINGS Consolidated long-term debt as of September 30, 2023 and December 31, 2022 consists of the following: Scheduled Maturity September 30, 2023 December 31, 2022 (in thousands) Term Credit Agreement (1) September 10, 2025 $ 156,748 $ 154,570 Asset-Based Credit Agreement (2) May 31, 2025 — 1,885 Argentina Credit Agreement October 19, 2023 1,900 — Swedish Credit Facility December 31, 2023 11 3 Total debt 158,659 156,458 Less current portion ( 1,911 ) ( 3 ) Total long-term debt $ 156,748 $ 156,455 (1) Net of unamortized discount of $ 2.5 million and $ 3.4 million as of September 30, 2023 and December 31, 2022, respectively, and net of unamortized deferred financing costs of $ 3.8 million and $ 5.1 million as of September 30, 2023 and December 31, 2022, respectively. (2) Net of unamortized deferred financing costs of $ 1.1 million as of December 31, 2022. Deferred financing costs of $ 0.7 million as of September 30, 2023 were classified as other long-term assets on the accompanying consolidated balance sheet as there was no outstanding balance on our asset-based credit agreement. Term Credit Agreement As of September 30, 2023, we had $ 156.7 million outstanding, net of unamortized discounts and unamortized deferred financing costs under our term credit agreement (“Term Credit Agreement”). The Term Credit Agreement requires us to offer to prepay up to 50 % of Excess Cash Flow (as defined in the Term Credit Agreement) from the most recent full fiscal year within five business days of filing our Annual Report. If our Leverage Ratio (as 14 Table of Contents defined in the Term Credit Agreement) at year-end is less than 2.00 to 1.00, the prepayment requirement is decreased to 25 %. If our Leverage Ratio at year-end is less than 1.50 to 1.00, then no prepayment is required. The Term Credit Agreement was amended in June 2023 to remove references to LIBOR and Eurodollar rates. Borrowings under the Term Credit Agreement bear interest at a rate per annum equal to, at the option of TETRA, either (i) SOFR (subject to a 1% floor) plus a margin of 6.25 % per annum or (ii) a base rate plus a margin of 5.25 % per annum. As of September 30, 2023, the interest rate per annum on borrowings under the Term Credit Agreement is 11.68 %. In addition to paying interest on the outstanding principal under the Term Credit Agreement, TETRA is required to pay a commitment fee in respect of the unutilized commitments at the rate of 1.0 % per annum, paid quarterly in arrears based on utilization of the commitments under the Term Credit Agreement. All obligations under the Term Credit Agreement and the guarantees of those obligations are secured, subject to certain exceptions, by a security interest for the benefit of the Term Lenders on substantially all of the personal property of TETRA and certain of its subsidiaries, the equity interests in certain domestic subsidiaries, and a maximum of 65 % of the equity interests in certain foreign subsidiaries. ABL Credit Agreement As of September 30, 2023, our asset-based credit agreement (“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 determined monthly 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. As of September 30, 2023, we had no balance outstanding and $ 11.5 million in letters of credit and guarantees under our ABL Credit Agreement. Subject to compliance with the covenants, borrowing base, and other provisions of the ABL Credit Agreement that may limit borrowings, we had availability of $ 68.5 million under this agreement. The ABL Credit Agreement was amended in May 2023 to remove references to LIBOR. Borrowings under the ABL Credit Agreement bear interest at a rate per annum equal to, at the option of TETRA, either (i) SOFR plus 0.10 %, (ii) a base rate plus a margin based on a fixed charge coverage ratio, (iii) the Daily Simple Risk Free Rate plus 0.10 %, or (iv) with respect to borrowings denominated in Sterling, the Daily Simple Risk Free Rate for Sterling plus 0.0326 %. The base rate is determined by reference to the highest of (a) the prime rate of interest as announced from time to time by JPMorgan Chase Bank, N.A. (b) the Federal Funds Effective Rate (as defined in the ABL Credit Agreement) plus 0.5 % per annum and (c) SOFR (adjusted to reflect any required bank reserves) for a one-month period on such day plus 1.0 % per annum. In addition to paying interest on the outstanding principal under the ABL Credit Agreement, TETRA is required to pay a commitment fee in respect of the unutilized commitments at an applicable rate ranging from 0.375 % to 0.5 % per annum, paid monthly in arrears based on utilization of the commitments under the ABL Credit Agreement. TETRA is also required to pay a customary letter of credit fee equal to the applicable margin on LIBOR-based loans and fronting fees. All obligations under the ABL Credit Agreement and the guarantees of those obligations are secured, subject to certain exceptions, by a security interest for the benefit of the ABL Lenders on substantially all of the personal property of TETRA and certain subsidiaries of TETRA, the equity interests in certain domestic subsidiaries, and a maximum of 65 % of the equity interests in certain foreign subsidiaries. 15 Table of Contents Argentina Credit Agreement 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 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 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 (“Swedish Credit Facility”). As of September 30, 2023, we had a nominal amount outstanding and availability of approximately $ 4.6 million under the Swedish Credit Facility. During each year, all outstanding loans under the Swedish Credit Facility must be repaid for at least 30 consecutive days. Borrowings bear interest at a rate of 2.95 % per annum. The Swedish Credit Facility expires on December 31, 2023 and the Company intends to renew it annually. Finland Credit Agreement In January 2022, the Company also entered into an agreement guaranteed by certain accounts receivable and inventory in Finland (“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. Covenants Our credit agreements contain certain affirmative and negative covenants, including covenants that restrict the ability to pay dividends or other restricted payments. As of September 30, 2023, we are in compliance with all covenants under the credit agreements. NOTE 7 – COMMITMENTS AND CONTINGENCIES Litigation We are named defendants in several lawsuits and respondents in certain governmental proceedings arising in the ordinary course of business. While the outcome of lawsuits or other proceedings against us cannot be predicted with certainty, management does not consider it reasonably possible that a loss resulting from such lawsuits or other proceedings in excess of any amounts accrued has been incurred that is expected to have a material adverse impact on our financial condition, results of operations, or liquidity. There have been no other material developments in our legal proceedings during the quarter ended September 30, 2023. For additional discussion of our legal proceedings, please see our 2022 Annual Report and Quarterly Report on Form 10-Q for the quarter ended June 30, 2023. Product Purchase Obligations In the normal course of our Completion Fluids & Products Division operations, we enter into supply agreements with certain manufacturers of various raw materials and finished products. Some of these agreements have terms and conditions that specify a minimum or maximum level of purchases over the term of the agreement. Other agreements require us to purchase the entire output of the raw material or finished product produced by the manufacturer. Our purchase obligations under these agreements apply only with regard to raw materials and finished products that meet specifications set forth in the agreements. We recognize a liability for the purchase of such products at the time we receive them. As of September 30, 2023, the aggregate amount of the fixed and determinable portion of the purchase obligation pursuant to our Completion Fluids & Products Division’s supply agreements was approximately $ 74.9 million, including $ 4.0 million for the remainder of 2023, $ 24.0 million in 2024, $ 21.9 million in 2025, $ 15.6 million in 2026, $ 7.1 million in 2027, and $ 2.3 million thereafter, extending through 2028 . 16 Table of Contents NOTE 8 – FAIR VALUE MEASUREMENTS Financial Instruments Investments We retained an interest in CSI Compressco representing approximately 3.7 % of CSI Compressco’s outstanding common units as of September 30, 2023. In December 2021, we invested in a $ 5.0 million convertible note issued by CarbonFree. In addition, we receive cash and stock of Standard Lithium under the terms of our arrangements as noted in Note 5 - “Investments.” Our investments in CSI Compressco and Standard Lithium are recorded in investments on our consolidated balance sheets based on the quoted market stock price (Level 1 fair value measurements). The stock component of consideration received from Standard Lithium is initially recorded as unearned income based on the quoted market price at the time the stock is received, then recognized in income over the contract term. Changes in the value of stock are recorded in other (income) expense, net in our consolidated statements of operations. Our investment in convertible notes issued by CarbonFree is recorded in our consolidated financial statements based on an internal valuation with assistance from a third-party valuation specialist (Level 3 fair value measurement). The valuation is impacted by key assumptions, including the assumed probability and timing of potential debt or equity offerings. The convertible note includes an option to convert the note into equity interests issued by CarbonFree. The change in the fair value of the embedded option is included in other (income) expense, net in our consolidated statements of operations. The change in the fair value of the convertible note, excluding the embedded option, is included in other comprehensive income (loss) in our consolidated statements of comprehensive income. The change in our investment in CarbonFree for the nine-month period ended September 30, 2023 is as follows: Nine Months Ended September 30, 2023 (in thousands) Balance at beginning of period $ 6,139 Change in fair value of embedded option ( 50 ) Change in fair value of convertible note, excluding embedded option 474 Balance at end of period $ 6,563 Recurring fair value measurements by valuation hierarchy as of September 30, 2023 and December 31, 2022 are as follows: Fair Value Measurements Using Total as of Quoted Prices in Active Markets for Identical Assets or Liabilities Significant Other Observable Inputs Significant Unobservable Inputs Description September 30, 2023 (Level 1) (Level 2) (Level 3) (in thousands) Investment in CSI Compressco $ 7,228 $ 7,228 $ — $ — Investment in CarbonFree 6,563 — — 6,563 Investment in Standard Lithium 2,264 2,264 — — Other investments 350 — — 350 Total investments $ 16,405 17 Table of Contents Fair Value Measurements Using Total as of Quoted Prices in Active Markets for Identical Assets or Liabilities Significant Other Observable Inputs Significant Unobservable Inputs Description December 31, 2022 (Level 1) (Level 2) (Level 3) (in thousands) Investment in CSI Compressco $ 6,967 $ 6,967 $ — $ — Investment in CarbonFree 6,139 — — 6,139 Investment in Standard Lithium 1,180 1,180 — — Investments $ 14,286 Impairments During the second quarter of 2023, we recorded a $ 0.8 million impairment of our corporate office lease. The fair values were estimated based on the discounted cash flows from our lease and sublease agreements, including the rent rate per square foot (a Level 3 fair value measurement) in accordance with the fair value hierarchy. Other The fair values of cash, restricted cash, accounts receivable, accounts payable, accrued liabilities, short-term borrowings and long-term debt pursuant to our Term Credit Agreement, ABL Credit Agreement, Argentina Credit Agreement, and Swedish Credit Agreement approximate their carrying amounts. See Note 6 - “Long-Term Debt and Other Borrowings” for further discussion. NOTE 9 – NET INCOME PER SHARE The following is a reconciliation of the weighted average number of common shares outstanding with the number of shares used in the computations of net income per common and common equivalent share: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in thousands) Number of weighted average common shares outstanding 129,777 128,407 129,395 127,890 Assumed vesting of equity awards 2,312 — 1,440 1,814 Average diluted shares outstanding 132,089 128,407 130,835 129,704 The average diluted shares outstanding excludes the impact of certain outstanding equity awards of 1.5 million shares for the three-month period ended September 30, 2022 as the inclusion of these shares would have been anti-dilutive due to the net loss from continuing operations recorded during this period. 18 Table of Contents NOTE 10 – INDUSTRY SEGMENTS We manage our operations through two segments: Completion Fluids & Products Division and Water & Flowback Services Division. Summarized financial information concerning the business segments is as follows: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in thousands) Revenues from external customers Product sales Completion Fluids & Products Division $ 68,532 $ 55,354 $ 228,415 $ 195,469 Water & Flowback Services Division 435 140 2,304 381 Consolidated $ 68,967 $ 55,494 $ 230,719 $ 195,850 Services Completion Fluids & Products Division $ 4,678 $ 3,809 $ 12,059 $ 11,686 Water & Flowback Services Division 77,819 75,709 230,358 198,229 Consolidated $ 82,497 $ 79,518 $ 242,417 $ 209,915 Total revenues Completion Fluids & Products Division $ 73,210 $ 59,163 $ 240,474 $ 207,155 Water & Flowback Services Division 78,254 75,849 232,662 198,610 Consolidated $ 151,464 $ 135,012 $ 473,136 $ 405,765 Income (loss) before taxes and discontinued operations Completion Fluids & Products Division $ 16,932 $ 12,357 $ 67,330 $ 46,910 Water & Flowback Services Division 8,475 6,482 22,869 10,808 Interdivision Eliminations — 3 — 9 Corporate Overhead (1) ( 18,691 ) ( 16,727 ) ( 54,869 ) ( 45,398 ) Consolidated $ 6,716 $ 2,115 $ 35,330 $ 12,329 (1) Amounts reflected include the following general corporate expenses: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in thousands) General and administrative expense $ 13,552 $ 11,968 $ 37,206 $ 33,856 Depreciation and amortization 101 165 303 528 Impairments and other charges — — 777 — Interest expense 5,755 4,437 17,029 11,978 Other general corporate (income) expense, net ( 717 ) 157 ( 446 ) ( 964 ) Total $ 18,691 $ 16,727 $ 54,869 $ 45,398 19 Table of Contents