Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and accompanying notes included in this Quarterly Report. In addition, the following discussion and analysis should also be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (“SEC”) on February 27, 2024 (“2023 Annual Report”). This discussion includes forward-looking statements that involve certain risks and uncertainties.
Business Overview
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 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 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.
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Results of Operations
The following information should be read in conjunction with the Consolidated Financial Statements and the associated Notes contained elsewhere in this report. The analysis herein reflects the optional approach to discuss results of operations on a sequential-quarter basis, which we believe provides information that is most useful in assessing our quarterly results of operations.
Three months ended March 31, 2024 compared with three months ended December 31, 2023.
Consolidated Comparisons
Three Months Ended Period to Period Change
March 31, December 31, $ Change % Change
2024 2023
(in thousands, except percentages)
Revenues $ 150,972 $ 153,126 $ (2,154) (1.4) %
Gross profit 31,102 30,243 859 2.8 %
Gross profit as a percentage of revenue
20.6 % 19.8 %
Exploration and pre-development costs — 5,283 (5,283) (100.0) %
General and administrative expense 22,298 23,336 (1,038) (4.4) %
General and administrative expense as a percentage of revenue
14.8 % 15.2 %
Interest expense, net 5,952 5,677 275 4.8 %
Loss on debt extinguishment
5,535 — 5,535 100.0 %
Other income, net
(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 (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 (loss)
915 (3,893) 4,808 (123.5) %
Loss attributable to noncontrolling interests — 2 (2) 100.0 %
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 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 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.
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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 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. Included in our deferred tax assets are net operating loss carryforwards and tax credits that are available to offset future income tax liabilities in the United States and certain other non-U.S. jurisdictions.
Divisional Comparisons
Completion Fluids & Products Division
Three Months Ended Period to Period Change
March 31, December 31, $ Change % Change
2024 2023
(in thousands, except percentages)
Revenues $ 77,282 $ 72,556 $ 4,726 6.5 %
Gross profit 26,431 20,215 6,216 30.7 %
Gross profit as a percentage of revenue
34.2 % 27.9 %
Exploration and pre-development costs — 5,283 (5,283) (100.0) %
General and administrative expense 6,693 6,450 243 3.8 %
General and administrative expense as a percentage of revenue
8.7 % 8.9 %
Interest income, net
(269) (47) (222) (472.3) %
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 %
(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 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.
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Water & Flowback Services Division
Three Months Ended Period to Period Change
March 31, December 31, $ Change % Change
2024 2023
(in thousands, except percentages)
Revenues $ 73,690 $ 80,570 $ (6,880) (8.5) %
Gross profit 4,752 10,126 (5,374) (53.1) %
Gross profit as a percentage of revenue
6.4 % 12.6 %
General and administrative expense 4,503 4,956 (453) (9.1) %
General and administrative expense as a percentage of revenue
6.1 % 6.2 %
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 %
(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
March 31, December 31, $ Change % Change
2024 2023
(in thousands, except percentages)
Depreciation and amortization $ 81 $ 97 $ (16) (16.5) %
General and administrative expense 11,102 11,929 (827) (6.9) %
Interest expense, net 6,145 5,762 383 6.6 %
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 %
(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.
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Three months ended March 31, 2024 compared with three months ended March 31, 2023.
Consolidated Comparisons
Three Months Ended
March 31, Period to Period Change
2024 2023 $ Change % Change
(in thousands, except percentages)
Revenues $ 150,972 $ 146,209 $ 4,763 3.3 %
Gross profit 31,102 36,323 (5,221) (14.4) %
Gross profit as a percentage of revenue
20.6 % 24.8 %
Exploration and pre-development costs — 720 (720) 100.0 %
General and administrative expense 22,298 23,191 (893) (3.9) %
General and administrative expense as a percentage of revenue
14.8 % 15.9 %
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) %
Income before taxes and discontinued operations as a percentage of revenue 0.9 % 5.2 %
Provision for income taxes 380 1,489 (1,109) (74.5) %
Income before discontinued operations 915 6,045 (5,130) (84.9) %
Discontinued operations:
Income from discontinued operations, net of taxes
— (12) (12) NM (1)
Net income 915 6,033 (5,118) (84.8) %
Loss attributable to noncontrolling interests — 7 (7) 100.0 %
Net income attributable to TETRA stockholders $ 915 $ 6,040 $ (5,125) (84.9) %
(1) Percent change is not meaningful
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 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 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 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.
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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 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. Included in our deferred tax assets are net operating loss carryforwards and tax credits that are available to offset future income tax liabilities in the United States as well as in certain non-U.S. jurisdictions.
Divisional Comparisons
Completion Fluids & Products Division
Three Months Ended
March 31, Period to Period Change
2024 2023 $ Change % Change
(in thousands, except percentages)
Revenues $ 77,282 $ 69,042 $ 8,240 11.9 %
Gross profit 26,431 25,010 1,421 5.7 %
Gross profit as a percentage of revenue
34.2 % 36.2 %
Exploration and pre-development costs — 720 (720) 100.0 %
General and administrative expense 6,693 7,173 (480) (6.7) %
General and administrative expense as a percentage of revenue
8.7 % 10.4 %
Interest income, net (269) (395) (126) (31.9) %
Other (income) expense, net 215 (930) (1,145) NM (1)
Income before taxes and discontinued operations $ 19,792 $ 18,442 $ 1,350 7.3 %
Income before taxes and discontinued operations as a percentage of revenue 25.6 % 26.7 %
(1) Percent change is not meaningful
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, 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.
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Water & Flowback Services Division
Three Months Ended
March 31, Period to Period Change
2024 2023 $ Change % Change
(in thousands, except percentages)
Revenues $ 73,690 $ 77,167 $ (3,477) (4.5) %
Gross profit 4,752 11,422 (6,670) (58.4) %
Gross profit as a percentage of revenue 6.4 % 14.8 %
General and administrative expense 4,503 4,959 (456) (9.2) %
General and administrative expense as a percentage of revenue
6.1 % 6.4 %
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) %
Income before taxes and discontinued operations as a percentage of revenue 1.0 % 8.3 %
(1) Percent change is not meaningful
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
Three Months Ended
March 31, Period to Period Change
2024 2023 $ Change % Change
(in thousands, except percentages)
Depreciation and amortization $ 81 $ 109 $ (28) (25.7) %
General and administrative expense 11,102 11,059 43 0.4 %
Interest expense, net 6,145 5,460 685 12.5 %
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 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
We use U.S. GAAP financial measures such as revenues, gross profit, income (loss) before taxes and discontinued operations, and net cash provided by operating activities, as well as certain non-GAAP financial measures, including Adjusted EBITDA, as performance measures for our business.
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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), 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. Exploration and pre-development costs represent expenditures incurred to evaluate potential future development of TETRA’s lithium and bromine properties in Arkansas. Such costs include exploratory drilling and associated engineering studies. Income from collaborative arrangement represents the portion of exploration and pre-development costs that are reimbursable by our strategic partner. 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 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. The amounts accrued or incurred are based on a cumulative of the three-year period. Equity-based compensation expense represents compensation that has been or will be paid in equity and is excluded from Adjusted EBITDA because it is a non-cash item.
Adjusted EBITDA is used by management as a supplemental financial measure to assess financial performance, without regard to charges or credits that are considered by management to be outside of its normal operations and without regard to financing methods, capital structure or historical cost basis, and to assess the Company’s ability to incur and service debt and fund capital expenditures.
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The following tables reconcile net income (loss) before taxes and discontinued operations to Adjusted EBITDA for the periods indicated:
Three Months Ended
March 31, 2024
Completion Fluids & Products Water & Flowback Services Corporate SG&A Corporate Other
Total
(in thousands, except percentages)
Revenue $ 77,282 $ 73,690 $ — $ — $ 150,972
Net income (loss) before taxes and discontinued operations 19,792 721 (11,101) (8,117) 1,295
Former CEO stock appreciation right expense — — (186) — (186)
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
Adjusted EBITDA $ 21,751 $ 7,085 $ (9,640) $ 3,644 $ 22,840
Adjusted EBITDA as % of revenue 28.1 % 9.6 % 15.1 %
Three Months Ended
December 31, 2023
Completion Fluids & Products Water & Flowback Services Corporate SG&A Corporate Other
Total
(in thousands, except percentages)
Revenue $ 72,556 $ 80,570 $ — $ — $ 153,126
Net income (loss) before taxes and discontinued operations 10,984 2,855 (11,929) (5,541) (3,631)
Insurance recoveries 3 — — — 3
Impairments and other charges 2,189 — — — 2,189
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, restructuring, and other expenses
— — 255 — 255
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
Adjusted EBITDA $ 18,321 $ 11,280 $ (5,776) $ 317 $ 24,142
Adjusted EBITDA as % of revenue 25.3 % 14.0 % 15.8 %
Adjusted EBITDA is a financial measure that is not in accordance with U.S. GAAP and should not be considered an alternative to net income, operating income, cash provided by operating activities, or any other measure of financial performance presented in accordance with U.S. GAAP. This measure may not be comparable to similarly titled financial metrics of other companies, as other companies may not calculate Adjusted EBITDA in the same manner as we do. Management compensates for the limitations of Adjusted EBITDA as an analytical tool by reviewing the comparable U.S. GAAP measures, understanding the differences between the measures, and incorporating this knowledge into management’s decision-making processes.
Liquidity and Capital Resources
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.
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Our consolidated sources and uses of cash are as follows:
Three Months Ended
March 31,
2024 2023
(in thousands)
Operating activities $ (13,816) $ 8,985
Investing activities $ (15,748) $ (11,197)
Financing activities $ 13,348 $ 5,136
Operating Activities
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 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. We are also focused on enhancing shareholder value by capitalizing on our key mineral assets, brine mineral extraction expertise, and deep chemistry competency to expand our offerings into the low carbon energy markets. However, we continue to review all capital expenditure plans carefully in an effort to conserve cash. 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 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. Additional information on these inferred, indicated and measured resources is described in Part I, “Item 2. Properties” in our 202 3 Annual Report .
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 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.
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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 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 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. On May 17, 2022, the Registration Statement on Form S-3 was declared effective by the SEC. Pursuant to this registration statement, we have the ability to sell debt or equity securities in one or more public offerings up to an aggregate public offering price of $400 million. This shelf registration statement currently provides us additional flexibility with regards to potential financing that we may undertake when market conditions permit or our financial condition may require.
Should additional capital be required, the ability to raise such capital through the issuance of additional debt or equity securities may currently be limited. Instability or volatility in the capital markets at the times we need to access capital may affect the cost of capital and the ability to raise capital for an indeterminable length of time. If it is necessary to issue additional equity to fund our capital needs, additional dilution of our common stockholders will occur. We periodically evaluate engaging in strategic transactions and may consider divesting non-core assets where our evaluation suggests such transactions are in the best interest of our business. In challenging economic environments, we may experience increased delays and failures by customers to pay our invoices. If our customers delay paying or fail to pay us a significant amount of our outstanding receivables, it could have an adverse effect on our liquidity. An increase in unpaid aged receivables would also negatively affect our borrowing availability under the ABL Credit Agreement.
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
There have been no material changes or developments in the evaluation of the accounting estimates and
the underlying assumptions or methodologies pertaining to our Critical Accounting Policies and Estimates disclosed
in our 202 3 Annual Report . In preparing our consolidated financial statements, we make assumptions, estimates, and judgments that affect the amounts reported. These judgments and estimates may change as new events occur, as new information is acquired, and as changes in our operating environments are encountered. Actual results are likely to differ from our current estimates, and those differences may be material.
Commitments and Contingencies
Litigation
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,
“Item 1. Legal Proceedings” for information related to a putative class action complaint that was filed on April 25, 2024.
Long-Term Debt
For information on our credit agreements, see Note 5 - “Long-Term Debt and Other Borrowings” in the Notes to Consolidated Financial Statements.
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Leases
We have operating leases for some of our transportation equipment, office space, warehouse space, operating locations, and machinery and equipment. We have finance leases for certain facility storage tanks and equipment rentals. Information about the terms of our lease agreements can be found in our 202 3 Annual Report .
Product and Asset Purchase Obligations
For information on product and asset purchase obligations, see Note 6 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements.
Cautionary Statement for Purposes of Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements in this Quarterly Report are identifiable by the use of the following words, the negative of such words, and other similar words: “anticipates”, “assumes”, “believes”, “budgets”, “could”, “estimates”, “expects”, “forecasts”, “goal”, “intends”, “may”, “might”, “plans”, “predicts”, “projects”, “schedules”, “seeks”, “should”, “targets”, “will”, and “would”.
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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.
Management believes that these forward-looking statements are reasonable as and when made. However, investors are cautioned not to place undue reliance on any such forward-looking statements. Such statements speak only as of the date on which they are made, and the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations, forecasts or projections. These risks and uncertainties include, but are not limited to, those described in Part II, “Item 1A. Risk Factors” and elsewhere in this report and in our 202 3 Annual Report , and those described from time to time in our future reports filed with the SEC.
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