What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-04-30 compared with 2023-10-30 · 182 added, 187 removed, 227 unchanged (62% 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, and production well testing.

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 an energy services and solutions company with operations on six continents focused on developing environmentally conscious services and solutions that help make people's lives better.

In addition to providing products and services to the oil and gas industry and calcium chloride for diverse applications, TETRA is expanding into the low-carbon energy market with chemistry expertise, key mineral acreage, and global infrastructure, helping to meet the demand for sustainable energy in the twenty-first century.

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

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.

Consolidated revenue for the first three months of 2024 of $151.0 million reflects a 3.3% increase over the prior year, reflecting growth in international markets and the Gulf of Mexico.

Strong margins from our Completion Fluids & Products Division, driven largely by deepwater completion projects, more than offset a weaker first quarter for our Water & Flowback Services Division.

Completion Fluids & Products Division revenues for the first three months of 2024 increased 11.9% compared to the first three months of 2023 as pricing and market share have continued to improve.

Completion Fluids & Products Division revenues increased 6.5% sequentially.

Our Water & Flowback Services revenues decreased 8.5% sequentially and decreased 4.5% compared to the first three months of 2023, reflecting lower revenues following the sale of the first early production facility to our customer in Latin America in October 2023, as well as a slowdown in North America onshore completion activity.

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.

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.

In June 2023, we entered into the MOU with Saltwerx, an indirect wholly owned subsidiary of ExxonMobil Corporation, relating to a newly formed Brine Unit and potential bromine and lithium production from brine produced from the unit.

The MOU with Saltwerx 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, (iii) reimbursement by Saltwerx of certain expenses that we incurred for 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.

The extraction of lithium and bromine from these brine leases would likely require a significant amount of time and capital, which we are not able to estimate at this time.

We completed an initial preliminary economic assessment in early 2023 for a bromine extraction plant.

On January 8, 2024, we announced the completion of a technical resources report (the “Resources Report”) for our Brine Unit in Arkansas.

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

We have continued to advance the definitive feasibility study for the Arkansas bromine processing facility and negotiate a lithium joint venture with ExxonMobil for the Brine Unit.

Results of Operations

1 unchanged sentence

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

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

Three months ended March 31, 2024 compared with three months ended December 31, 2023.

Consolidated Comparisons

Three Months Ended Period to Period Change

September 30, June 30, $ Change % Change

March 31, December 31, $ Change % Change

(in thousands, except percentages)

8 unchanged sentences

Interest expense, net 5,952 5,677 275 4.8 %

Loss on debt extinguishment

5,535 — 5,535 100.0 %

Other income, net

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

Income before taxes and discontinued operations as a percentage of revenue 4.4 % 12.0 %

(3,978) (422) 3,556 842.7 %

Income (loss) before taxes and discontinued operations

1,295 (3,631) 4,926 NM (1)

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

0.9 % (2.4) %

Provision for income taxes 380 608 (228) (37.5) %

Income before discontinued operations 5,468 18,205 (12,737) (70.0) %

Income (loss) before discontinued operations

915 (4,239) 5,154 (121.6) %

Discontinued operations:

Loss from discontinued operations, net of taxes — 346 346 100.0 %

Net income 5,420 18,197 (12,777) (70.2) %

Net income (loss)

915 (3,893) 4,808 (123.5) %

Loss attributable to noncontrolling interests — 2 (2) 100.0 %

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

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.

Net income (loss) attributable to TETRA stockholders

$ 915 $ (3,891) $ 4,806 (123.5) %

(1) Percent change is not meaningful

Consolidated revenues decreased between the current and previous quarters primarily due to a decrease in revenues from the Water & Flowback Services Division partially offset by an increase in overall activity for the Completion Fluids & Products Division.

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

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

Consolidated gross profit as a percentage of revenue increased primarily due to our Completion Fluids & Products Division’s higher overall activity levels and margins.

See Divisional Comparisons section below for additional discussion.

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 exploration and pre-development costs decreased $5.3 million due to the capitalization of costs beginning in January 2024 following project developments, including the milestone Resource Report, compared to expensing of costs associated with the front-end engineering and design study and appraisal costs associated with the activity in the prior quarter.

Consolidated general and administrative expenses decreased compared to the prior quarter, primarily due to a $0.7 million decrease in compensation expenses, and a $0.3 million decrease in legal expenses.

Consolidated loss on debt extinguishment increased $5.5 million primarily from non-cash unamortized finance costs expensed in connection with the repayment of our prior Term Credit Agreement in January 2024.

Consolidated other income, net, increased in the current quarter, compared to the prior quarter primarily due to an increase in unrealized gains on investments, primarily due to the $2.4 million increase from the change in the unit price of the CSI Compressco common units we owned, and a $3.4 million decrease in foreign exchange losses primarily due to the impact of currency devaluation in Argentina during the prior quarter.

These changes were partially offset by a $2.6 million decrease in credits for exploration and pre-development costs reimbursable from Saltwerx as the credits are included in the Arkansas project cost capitalization beginning in January 2024.

Consolidated provision for income tax was $0.4 million during the current quarter, compared to a $0.6 million provision during the prior quarter.

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.

Our consolidated effective tax rate for the three months ended March 31, 2024 was 29.3% due to a significant portion of the income was in jurisdictions for which we were not 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.

4 unchanged sentences

Three Months Ended Period to Period Change

September 30, June 30, $ Change % Change

March 31, December 31, $ Change % Change

(in thousands, except percentages)

6 unchanged sentences

General and administrative expense as a percentage of revenue

Interest (income) expense, net

Interest income, net

(269) (47) (222) (472.3) %

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

Other (income) expense, net 215 (2,455) (2,670) NM (1)

Income before taxes and discontinued operations $ 19,792 $ 10,984 $ 8,808 80.2 %

Income before taxes and discontinued operations as a percentage of revenue 25.6 % 15.1 %

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.

(1) Percent change is not meaningful

Revenues for our Completion Fluids & Products Division increased primarily due to increased volumes and favorable pricing for industrial chemical sales in North America and Europe during the quarter.

Gross profit for our Completion Fluids & Products Division increased compared to the prior quarter primarily due to the increase in revenues mentioned above as well as favorable pricing and raw material cost changes.

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.

Completion Fluids & Products Division exploration and pre-development costs associated with our potential Southwest Arkansas bromine development project decreased $5.3 million due to the capitalization of costs beginning in January 2024, compared to expensing of costs associated with the front-end engineering and design study and well appraisal costs in the prior quarter.

Other income, net decreased primarily due to the $2.6 million decrease in credits for exploration and pre-development costs from Saltwerx following the shift to capitalize the project costs and reimbursement.

Water & Flowback Services Division

Three Months Ended Period to Period Change

September 30, June 30, $ Change % Change

March 31, December 31, $ Change % Change

(in thousands, except percentages)

2 unchanged sentences

Gross profit as a percentage of revenue

16.2 % 16.7 %

General and administrative expense 4,503 4,956 (453) (9.1) %

General and administrative expense as a percentage of revenue

Interest expense, net 190 27 163 603.7 %

Other (income) expense, net (425) (228) 197 (86.4) %

Interest (income) expense, net

76 (38) 114 (300.0) %

Other (income) expense, net (548) 2,353 2,901 NM (1)

Income before taxes and discontinued operations $ 721 $ 2,855 $ (2,134) (74.7) %

Income before taxes and discontinued operations as a percentage of revenue 1.0 % 3.5 %

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 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.

(1) Percent change is not meaningful

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

In addition, prior quarter revenues included the sale of our first early production facility in Latin America.

Gross profit for our Water & Flowback Services Division decreased compared to the previous quarter due to lower revenue and increased operating costs in water management, particularly in the North America onshore business.

We also experienced some one-off costs as activity levels rebounded.

We also maintained staff and equipment levels during the temporary slowdown through the first quarter in order to be prepared to respond to opportunities from the second quarter onwards.

The Water & Flowback Services Division income before taxes and discontinued operations decreased primarily due to a decline in gross profits described above partially offset by a $2.8 million decrease in foreign exchange losses from devaluation of the Argentinian Peso during the prior quarter.

Corporate Overhead

Three Months Ended Period to Period Change

September 30, June 30, $ Change % Change

March 31, December 31, $ Change % Change

(in thousands, except percentages)

Depreciation and amortization $ 81 $ 97 $ (16) (16.5) %

Impairments and other charges — 777 (777) (100.0) %

General and administrative expense 11,102 11,929 (827) (6.9) %

Interest expense, net 6,145 5,762 383 6.6 %

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

Loss on debt extinguishment

5,535 — 5,535 100.0 %

Other income, net (3,645) (318) 3,327 NM (1)

Loss before taxes and discontinued operations $ (19,218) $ (17,470) $ (1,748) 10.0 %

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.

(1) Percent change is not meaningful

Corporate overhead loss before taxes and discontinued operations increased compared to the prior quarter primarily due to the $5.5 million loss associated with the early extinguishment of our prior term credit agreement and a $0.4 million increase in interest expense due to increased borrowings on the new Term Credit Agreement.

These increases were partially offset by a $2.4 million increase in unrealized gains related to unit price changes of our investment in CSI Compressco and a $0.8 million decrease in general and administrative expenses, including lower compensation costs and professional services.

Three months ended March 31, 2024 compared with three months ended March 31, 2023.

Consolidated Comparisons

Nine Months Ended

September 30, Period to Period Change

Three Months Ended

March 31, Period to Period Change

2024 2023 $ Change % Change

9 unchanged sentences

Interest expense, net 5,952 5,092 860 16.9 %

Loss on debt extinguishment

5,535 — 5,535 100.0 %

Other income, net

(3,978) (214) 3,764 NM (1)

Income before taxes and discontinued operations 1,295 7,534 (6,239) (82.8) %

3 unchanged sentences

Discontinued operations:

(Income) loss from discontinued operations, net of taxes

Income from discontinued operations, net of taxes

— (12) (12) NM (1)

3 unchanged sentences

(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.

Consolidated revenues increased in the current year primarily due to higher activity compared to the prior year for our Completion Fluids & Products Division, partially offset by lower revenues from our Water & Flowback Services Division.

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

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

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 gross profit decreased in the current year primarily due to the decrease in revenue and an increase in operating costs from our Water & Flowback Services Division, partially offset by an increase in European and North American sales from our Completion Fluids & Products Division.

Profit margins for both divisions declined primarily due to the effect of changes in product mix.

Consolidated exploration and pre-development costs decreased $0.7 million due to the capitalization of certain pre-development costs related to our leased acreage in Arkansas beginning in January 2024.

Consolidated general and administrative expenses decreased compared to the prior year, primarily due to a $0.7 million decrease in professional services as well as a $0.3 million decrease in general expenses.

Consolidated interest expense, net, increased in the current year primarily due to increased borrowing on our Term Credit Agreement as well as higher interest rates.

Consolidated other income, net, increased in the current year compared to the prior year primarily due to a $4.2 million increase in unrealized gains due to the change in the unit price of the CSI Compressco common units we owned and a $0.3 million increase in foreign exchange gains, partially offset by a $1.0 million increase in unrealized losses on Standard Lithium shares.

Consolidated provision for income taxes was $0.4 million during the current year, compared to $1.5 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 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.

Our consolidated effective tax rate for the current year is 29.3%, compared to 19.8% during the prior year.

The decrease in our tax provision compared to the prior year was primarily due to the decrease in income.

Our effective tax rate increase was primarily the result of a significant portion of income generated in jurisdictions for which we were not 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

Nine Months Ended

September 30, Period to Period Change

Three Months Ended

March 31, Period to Period Change

2024 2023 $ Change % Change

8 unchanged sentences

Interest income, net (269) (395) (126) (31.9) %

Other income, net (7,650) (1,159) 6,491 NM (1)

Other (income) expense, net 215 (930) (1,145) NM (1)

Income before taxes and discontinued operations $ 19,792 $ 18,442 $ 1,350 7.3 %

1 unchanged sentence

(1) Percent change is not meaningful

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

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

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

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

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

Gross profit for our Completion Fluids & Products Division increased compared to the prior year due to an increase in sales volumes and higher pricing, combined with favorable raw material costs.

Profit margins declined due to the effect of changes in product mix.

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.

Income before taxes and discontinued operations for our Completion Fluids & Products Division increased compared to the prior year driven by higher gross profit, a $0.7 million decrease in costs associated with the exploratory brine project following the capitalization of costs beginning in January 2024, and a $0.5 million decrease in general and administrative costs due to lower professional services.

These decreases were partially offset by a $1.0 million increase in unrealized losses from our investment in Standard Lithium shares, which is included in other income, net.

Water & Flowback Services Division

Nine Months Ended

September 30, Period to Period Change

Three Months Ended

March 31, Period to Period Change

2024 2023 $ Change % Change

5 unchanged sentences

General and administrative expense as a percentage of revenue

Interest (income) expense, net

243 (3) 246 NM (1)

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

Interest expense, net

76 27 49 181.5%

Other (income) expense, net (548) 58 606 NM (1)

Income before taxes and discontinued operations $ 721 $ 6,378 $ (5,657) (88.7) %

1 unchanged sentence

(1) Percent change is not meaningful

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

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

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 became operational 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, 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.

Revenues for our Water & Flowback Services Division decreased for both water management and production testing due to lower customer drilling and completion activity.

This was partially offset by higher revenues from our early production facilities in Latin America and offshore well test operations.

Gross profit for our Water & Flowback Services Division decreased from the prior year primarily due to lower revenues resulting from the decreased activity levels described above and increased operating costs in water management, particularly in North America onshore.

Income before taxes and discontinued operations for our Water & Flowback Services Division decreased in the current year primarily due to a decline in the gross profit described above, partially offset by a $0.5 million decrease in general and administrative expense from lower compensation and professional services.

Corporate Overhead

Nine Months Ended

September 30, Period to Period Change

Three Months Ended

March 31, Period to Period Change

2024 2023 $ Change % Change

1 unchanged sentence

Depreciation and amortization $ 81 $ 109 $ (28) (25.7) %

Impairments and other charges 777 — 777 100.0 %

General and administrative expense 11,102 11,059 43 0.4 %

Interest expense, net 6,145 5,460 685 12.5 %

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

Loss on debt extinguishment

5,535 — 5,535 100.0 %

Other (income) expense, net (3,645) 658 (4,303) 654.0 %

Loss before taxes and discontinued operations $ (19,218) $ (17,286) $ (1,932) 11.2 %

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.

Corporate overhead loss before taxes and discontinued operations increased primarily due to a $5.5 million loss associated with the early extinguishment of our prior term credit agreement in January 2024 and a $0.7 million increase in interest expense, net due to an increase in borrowing and the interest rate on our Term Credit Agreement, partially offset by a $4.2 million increase in unrealized gains related to unit price changes of our investment in CSI Compressco.

Non-GAAP Financial Measures

1 unchanged sentence

Adjusted EBITDA .

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

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

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

2 unchanged sentences

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

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

We began capitalizing certain exploration and pre-development costs in January 2024 and therefore these costs are only excluded to the extent they were expensed.

Exploration and pre-development costs and the associated income from collaborative arrangement were excluded from Adjusted EBITDA in prior periods because they did not relate to the Company’s current business operations.

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.

These costs are excluded from Adjusted EBITDA because they did not relate to the periods presented and are considered to be outside of normal operations.

Long-term incentives are earned over a three-year period and the costs are recorded over the three-year period they are earned.

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Three Months Ended

September 30, 2023

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

March 31, 2024

Completion Fluids & Products Water & Flowback Services Corporate SG&A Corporate Other

(in thousands, except percentages)

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Net income (loss) before taxes and discontinued operations 19,792 721 (11,101) (8,117) 1,295

Insurance recoveries 174 — — — 174

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

Adjustment to long-term incentives — — 500 — 500

Former CEO stock appreciation right expense — — (186) — (186)

Transactions and other expenses — — 108 — 108

Income from collaborative arrangement (1,933) — — — (1,933)

Transactions, restructuring, and other expenses

(159) — 24 — (135)

Loss on debt extinguishment

— — — 5,535 5,535

Interest (income) expense, net (269) 76 — 6,145 5,952

Depreciation, amortization, and accretion

2,387 6,288 — 81 8,756

Equity-based compensation expense — — 1,623 — 1,623

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Three Months Ended

June 30, 2023

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

December 31, 2023

Completion Fluids & Products Water & Flowback Services Corporate SG&A Corporate Other

(in thousands, except percentages)

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Impairments and other charges 2,189 — — — 2,189

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

Exploration, pre-development costs, and collaborative arrangements

2,684 — — — 2,684

Adjustment to long-term incentives — — 281 — 281

Former CEO stock appreciation right expense — — (789) — (789)

Transaction and other expenses

Income from collaborative arrangement

Transaction, restructuring, and other expenses

— — 255 — 255

Interest expense, net

Unusual foreign exchange loss

— 2,444 — — 2,444

Interest (income) expense, net

(47) (38) — 5,762 5,677

Depreciation, amortization, and accretion

2,508 6,019 — 96 8,623

Equity-based compensation expense — — 6,406 — 6,406

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Liquidity and Capital Resources

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

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.

We believe that our capital structure allows us to meet our financial obligations on both a short-term and long-term basis.

Our liquidity at the end of the first quarter was $195.1 million.

Liquidity is defined as unrestricted cash plus availability under the delayed draw from our Term Credit Agreement, availability under the ABL Credit Agreement and Swedish Credit Facility.

Information about the terms and covenants of our debt agreements can be found in Note 5 - Long Term Debt and Other Borrowings.

Our consolidated sources and uses of cash are as follows:

Nine Months Ended

September 30,

Three Months Ended

(in thousands)

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Operating Activities

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.

Consolidated cash flows provided by operating activities decreased compared to the first three months of 2023 primarily due to working capital changes.

Investing Activities

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.

Water and Flowback Services Division capital expenditures also included expenditures related to construction of the third early production facility in Argentina.

Our Completion Fluids & Products Division spent $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 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.

Total cash capital expenditures during the first three months of 2024 were $15.8 million, which reflects increased expenditures to accommodate industry-wide activity.

Our Water & Flowback Services Division spent $8.0 million on capital expenditures, and to maintain, automate and upgrade its water management and flowback equipment fleet.

Water and Flowback Services Division capital expenditures also included expenditures related to expansion of early production facilities in Latin America.

Our Completion Fluids & Products Division spent $7.7 million on capital expenditures, primarily for advancement of our Arkansas brine resource development and investments to support projected activity levels in the United States and Europe.

Investing activities during the first three months of 2023 also included $2.9 million 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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However, we continue to review all capital expenditure plans carefully in an effort to conserve cash.

We currently have no long-term capital expenditure commitments.

We currently have no significant long-term capital expenditure commitments.

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

Lithium and Bromine Inferred Resources

Lithium and Bromine Resources

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

With respect to approximately 35,000 acres of that total acreage, we 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.

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

Properties” in our 202 3 Annual Report .

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

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.

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.

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

The extraction of lithium and bromine from these brine leases and the work needed to undertake these operations would likely require a significant amount of time and capital.

We completed an initial preliminary economic assessment in early 2023 for a bromine extraction plant.

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

We have continued to advance the definitive feasibility study for the Arkansas bromine processing facility and negotiate a lithium joint venture with ExxonMobil for the Brine Unit.

Financing Activities

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.

Our financing activities for the first three months of 2024 include $184.5 million of borrowings under our new Term Credit Agreement, net of discount, and $163.2 million of repayments primarily for our prior term credit agreement, as well as $0.3 million of capital lease payments associated with equipment leased primarily for the early production facilities in Latin America.

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.

We are aggressively managing our working capital and capital expenditure needs in order to maximize our liquidity in the current environment.

Long-Term Debt

Term Credit Agreement .

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.

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 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.

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

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

As of 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 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.

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.

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 a credit 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.

For additional information on our credit agreements, see Note 5 - “Long-Term Debt and Other Borrowings” in the Notes to Consolidated Financial Statements.

Other Sources and Uses of Cash

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 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 to our credit facilities, we fund our short-term liquidity requirements from cash generated by our operations and from short-term vendor financing.

In addition, as of March 31, 2024, the market value of our investments in CSI Compressco and Standard Lithium were $12.2 million and $0.9 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.

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.

We also hold an investment in a convertible note and common units issued by CarbonFree valued at $6.9 million as of March 31, 2024.

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

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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.

As of March 31, 2024, we had no “off balance sheet arrangements” that may have a current or future material effect on our consolidated financial condition or results of operations.

Critical Accounting Policies and Estimates

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Commitments and Contingencies

For information regarding litigation, see Note 7 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements and Part II, “Item 1.

Legal Proceedings” in this report.

There have been no material developments in our legal proceedings during the quarter ended March 31, 2024.

For additional discussion of our legal proceedings, please see our 2023 Annual Report .

Also see Part II,

Legal Proceedings” for information related to a putative class action complaint that was filed on April 25, 2024.

Long-Term Debt

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

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

the ability to obtain an indicated or measured resources report and an initial economic assessment, indicated or measured resources report, and/or pre-feasibility or feasibility studies regarding our lithium and bromine acreage;

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

and other statements that are not purely historical.

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

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

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

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

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

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

These forward-looking statements reflect our current views with respect to future events and financial performance and are based on assumptions that we believe to be reasonable, but such forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to:

economic and operating conditions that are outside of our control, including the trading price of our common stock, and the supply, demand, and prices of oil and natural gas;

the availability of adequate sources of capital to us;

the effect of inflation on the cost of goods and services;

the activity levels of our customers;

our operational performance;

actions taken by our customers, suppliers, competitors and third-party operators;

the availability of raw materials and labor at reasonable prices;

risks related to acquisitions and our growth strategy;

restrictions under our debt agreements and the consequences of any failure to comply with debt covenants;

the effect and results of litigation, commercial disputes, regulatory matters, settlements, audits, assessments, and contingencies;

potential regulatory initiatives to restrict hydraulic fracturing activities on federal lands as well as other actions to more stringently regulate certain aspects of oil and gas development such as air emissions and water discharges;

risks related to our foreign operations;

risks related to our non-controlling equity investments;

information and operational technology risks, including the risk of cyberattack;

our health, safety and environmental performance;

the effects of consolidation on our customers and competitors;

global or national health concerns, including the outbreak of pandemics or epidemics such as the coronavirus (COVID-19);

acts of terrorism, war or political or civil unrest in the United States or elsewhere, including the current conflict between Russia and Ukraine, the conflict in the Israel-Gaza region and continued hostilities in the Middle East, maritime piracy attacks, changes in laws and regulations, or the imposition of economic or trade sanctions affecting international commercial transactions;

and statements regarding our beliefs, expectations, plans, goals, future events and performance and other statements that are not purely historical.

These statements include statements concerning the inferred mineral resources of lithium and bromine, the potential extraction of lithium and bromine from the leased acreage, the development of the assets including construction of lithium and bromine extraction plants, the economic viability thereof, the demand for such resources, and the timing and cost of such activities;

the ability to obtain an initial economic assessment and/or pre-feasibility or feasibility studies regarding our lithium acreage;

the ability to obtain pre-feasibility or feasibility studies regarding our bromine acreage;

and the ability to obtain a resources report that moves the remaining portion of our bromine and lithium inferred resources to a higher resource or reserve category.

With respect to our disclosures of measured, indicated and inferred mineral resources, including bromine and lithium carbonate equivalent concentrations, it is unclear whether they will ever be economically developed.

Investors are cautioned that mineral resources do not have demonstrated economic value and further exploration may not result in the estimation of a mineral reserve.

Further there are a number of uncertainties related to processing lithium, which is an inherently difficult process, including, for example, the development of the technology to do so successfully and economically.

Therefore, investors are cautioned not to assume that all or any part of our resources can be economically or legally commercialized.

In particular, 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, and the ability to successfully and economically produce lithium and bromine from the Brine Unit.

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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