What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-29 compared with 2024-07-31 · 112 added, 97 removed, 293 unchanged (42% of the section changed)

6 unchanged sentences

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 also developing and pilot testing technologies to treat and desalinate produced water from oil wells for beneficial reuse, including surface discharge.

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

Consolidated revenue for the first six months of 2024 of $322.9 million is consistent with the prior year, reflecting growth in our Completion Fluids & Products Division offset by declines in our Water & Flowback Services Division.

Completion Fluids & Products Division revenues for the first six months of 2024 increased 6.0% compared to the first six months of 2023 as pricing and market share have continued to improve.

Completion Fluids & Products Division revenues for the second quarter increased 29.4% sequentially, driven primarily by strong seasonal European industrial chemicals volumes.

Our Water & Flowback Services revenues decreased 6.9% compared to the first six months of 2023 and decreased 2.4% sequentially, reflecting a slowdown in North America onshore completion activity, partially offset by higher revenues from our early production facilities in Latin America.

Adjusted EBITDA margins of 15.2% for the second quarter improved sequentially as further deployment of automation and digital technology allowed us to reduce well site costs.

Investments in technologies including BlueLinx automation, TETRA SandStorm sand filtration TETRA SandStorm Advanced Cyclone Technology and TETRA Automated Drillout Systems Technology have allowed us to gain market share as the North America onshore market weakens.

Consolidated revenue for the first nine months of 2024 of $464.6 million decreased slightly compared to the prior year due to weaker activity in our Water & Flowback Services Division, partially offset by an increase in fluids shipments from our Completion Fluids & Products Division.

Completion Fluids & Products Division revenues for the first nine months of 2024 increased slightly compared to the first nine months of 2023, despite a 34.9% sequential decrease in revenues for the third quarter following traditionally strong seasonal European industrial chemicals volumes in the second quarter as well as three third-quarter hurricanes which shifted some of our planned Gulf of Mexico deepwater work into early 2025.

We were awarded a three-well TETRA CS Neptune fluids project in the Gulf of Mexico that is expected to begin in the first quarter of 2025.

TETRA CS Neptune fluids projects are historically higher revenue and margin projects.

We also recently secured a significant multi-well, multi-year deep water completion fluids contract in Brazil.

Our Water & Flowback Services revenues decreased 4.5% compared to the first nine months of 2023 reflecting weaker onshore activity in the Unites States and lower offshore completions fluids activity, primarily in the Gulf of Mexico and Middle East.

Water & Flowback Services revenues increased 6.5% sequentially, driven by the sale of an early production facility expansion in Argentina, which partially offset weaker onshore activity.

Adjusted EBITDA margins remained stable at 14.6% for the third quarter of 2024 mainly as a result of the early production facility expansion sale.

Investments in technologies including BlueLinx automation, TETRA SandStorm sand filtration and TETRA Automated Drillout Systems Technology have allowed us to gain market share as the North America onshore market weakens.

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.

We and Saltwerx continue to evaluate the development of the Brine Unit, including the negotiation of the joint venture for the Brine Unit.

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

We and Saltwerx continue to evaluate the development of the Evergreen Unit, including the negotiation of the joint venture for the Evergreen Unit.

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 third quarter 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 pursue the development of our bromine.

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

In August 2024, we published a definitive feasibility study with compelling economics for the production of bromine from our Evergreen Unit to meet the growing demands for oil and gas offshore completion fluids and the new market for the TETRA PureFlow+ electrolyte in the long duration energy storage market.

We believe that lithium prices will improve to levels that support increased supply investment.

We and Saltwerx continue to evaluate the development of the Evergreen Unit and are continuing to advance the engineering studies required to define the lithium project economics.

We are prioritizing our strategic initiatives on projects that can immediately impact our near-term results, focused on TETRA CS Neptune fluids in the Gulf of Mexico, TETRA PureFlow+ electrolyte shipments and further

advancing our water desalination pilot units that are expected to transition into long-duration contracts for commercial desalination plants.

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 June 30, 2024 compared with three months ended March 31, 2024.

Three months ended September 30, 2024 compared with three months ended June 30, 2024.

Consolidated Comparisons

Three Months Ended Period to Period Change

June 30, March 31, $ Change % Change

September 30, June 30, $ Change % Change

(in thousands, except percentages)

7 unchanged sentences

Interest expense, net 5,096 6,185 (1,089) (17.6) %

Loss on debt extinguishment

— 5,535 (5,535) (100.0) %

Other (income) expense, net

4 unchanged sentences

Provision for income taxes 4,744 4,839 (95) (2.0) %

Income (loss) before discontinued operations

2,832 7,640 (4,808) (62.9) %

Discontinued operations:

Loss from discontinued operations, net of taxes (5,830) — 5,830 100.0 %

(2,998) 7,640 (10,638) (139.2) %

Loss attributable to noncontrolling interests — 3 (3) 100.0 %

Net income attributable to TETRA stockholders

Net income (loss) attributable to TETRA stockholders

$ (2,998) $ 7,643 $ (10,641) (139.2) %

(1) Percent change is not meaningful

Consolidated revenues increased between the current and previous quarters primarily due to an increase in revenues from the Completion Fluids & Products Division lead by increased volume sales in the Northern European industrial chemicals market, slightly offset by lower revenues from the Water & Flowback Services Division.

Consolidated revenues decreased between the current and previous quarters primarily due to lower activity for the Completion Fluids & Products division, primarily due to lower sales volumes following the traditionally strong Northern European industrial chemicals seasonal impact in the second quarter.

Overall completion fluids activity was lower in the third quarter as three hurricanes impacted the timing of deepwater projects, resulting in sequentially lower volumes in the Gulf of Mexico.

These decreases were slightly offset by higher revenues for our Water & Flowback Services division from the early production facility expansion sale.

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

Consolidated gross profit increased primarily due to higher activity levels from the Completion Fluids & Products Division as well as improved margins from our Water & Flowback Services Division.

Consolidated gross profit as a percentage of revenue increased primarily due to a higher portion of revenues generated by the higher-margin Completion Fluids & Products Division.

Consolidated gross profit decreased primarily due to weaker activity levels from the Completion Fluids & Products Division.

See Divisional Comparisons section below for additional discussion.

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

Consolidated other (income) expense, net, decreased compared to the prior quarter primarily due to a decrease in unrealized gains on investments, primarily due to the $3.6 million decrease in unrealized gains from the change in the unit price of the CSI Compressco common units we owned during the prior quarter driven by CSI Compressco’s acquisition by Kodiak in April 2024, and a $2.7 million increase in foreign exchange losses, including a $1.4 million out-of-period correction for remeasurement of a prepaid tax balance.

These changes were partially offset by a $0.7 million decrease in unrealized losses from our Standard Lithium shares.

Consolidated other (income) expense, net, decreased compared to the prior quarter primarily due to a $2.1 million decrease in foreign exchange losses partially due to a $1.4 million out-of-period correction in the prior quarter for the remeasurement of a prepaid tax balance, and a $0.7 million net increase in unrealized gains on investments.

Consolidated provision for income tax was $4.7 million during the current quarter, compared to $4.8 million during the prior quarter.

Our consolidated effective tax rate for the three months ended June 30, 2024 was 38.8% due to a significant portion of income being 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.

Our consolidated effective tax rate for the three months ended September 30, 2024 was 62.6% due to a significant portion of income being generated in jurisdictions for which we were not able to utilize our net operating losses for which we had established valuation allowances.

Argentina being one of these jurisdictions,

the increase in the Argentinian taxes were significantly impacted by the sale of the early production facility expansion as well an inflation adjustment to Argentinian taxable income required to be made under local law.

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.

Loss from discontinued operations increased $5.8 million due to the accrual for decommissioning obligations associated with our former Offshore division recorded during the current quarter.

See Note 6 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements for additional information.

Divisional Comparisons

1 unchanged sentence

Three Months Ended Period to Period Change

June 30, March 31, $ Change % Change

September 30, June 30, $ Change % Change

(in thousands, except percentages)

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Income before taxes and discontinued operations as a percentage of revenue 29.4 % 26.6 %

Revenues for our Completion Fluids & Products Division increased primarily due to increased volumes and continued favorable pricing for industrial chemical sales, including higher sales volume from the seasonal uplift in Northern Europe during the second quarter.

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

Gross profit margin slightly decreased primarily due to the mix of fluid product sales.

Revenues for our Completion Fluids & Products Division decreased primarily due to weaker volumes for industrial chemical sales following the traditional seasonal uplift in Northern Europe in the prior quarter and lower completion fluids volumes as hurricanes in the Gulf of Mexico impacted the timing of deepwater projects, as well as lower sales in the Middle East as we transition from a term ending contract to a new two-year fluids award that will start in 2025.

Gross profit for our Completion Fluids & Products Division decreased compared to the prior quarter consistent with lower revenues.

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 general and administrative expense decreased $0.9 million, primarily due to a $0.6 million reduction in compensation expense including short-term incentive compensation.

Other expense, net increased primarily due to a $0.5 million increase in unrealized losses from our investment in CarbonFree convertible note embedded option, partially offset by a $0.3 million decrease in foreign exchange losses and a $0.2 million increase in unrealized gains from our investment in Standard Lithium shares due to an increase in the share price.

Water & Flowback Services Division

Three Months Ended Period to Period Change

June 30, March 31, $ Change % Change

September 30, June 30, $ Change % Change

(in thousands, except percentages)

2 unchanged sentences

Gross profit as a percentage of revenue

13.3 % 13.5 %

General and administrative expense 5,572 4,459 1,113 25.0 %

6 unchanged sentences

(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, partially offset by higher revenues from our early production facilities in Latin America.

Gross profit for our Water & Flowback Services Division increased compared to the previous quarter primarily due to improved cost control and the mix of projects between water management and production testing.

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 increased primarily due to an increase in gross profits described above partially offset by a $2.2 million increase in foreign exchange losses, including a $1.4 million out-of-period correction for remeasurement of a prepaid tax balance.

Revenues for our Water & Flowback Services Division increased in the current quarter compared to the prior quarter, primarily due to the sale of an early production facility expansion in Argentina, partially offset by weaker activity in North America as completions activity continues to slow down.

Gross profit for our Water & Flowback Services Division increased compared to the previous quarter primarily due to the sale of the early production facility expansion, offsetting weaker United States onshore activity.

The Water & Flowback Services Division income before taxes and discontinued operations improved due to the higher gross profits described above, a $1.8 million decrease in foreign exchange losses primarily due to a $1.4 million out-of-period correction in the prior quarter for remeasurement of a prepaid tax balance, and a $0.2 million increase in unrealized gains from our investment in KMX Technologies.

These improvements were partially offset by a $1.1 million increase in general and administrative expense, primarily an increase in compensation expense, including of $0.2 million severance expense associated with headcount reductions, and a $0.3 million increase in allowance for credit losses.

Corporate Overhead

Three Months Ended Period to Period Change

June 30, March 31, $ Change % Change

September 30, June 30, $ Change % Change

(in thousands, except percentages)

Depreciation and amortization $ 93 $ 84 $ 9 10.7 %

Impairments and other charges 109 — 109 100.0 %

General and administrative expense 10,780 10,689 91 0.9 %

Interest expense, net 6,043 6,252 (209) (3.3) %

Loss on debt extinguishment

— 5,535 (5,535) (100.0) %

Other (income) expense, net (808) 305 1,113 NM (1)

1 unchanged sentence

(1) Percent change is not meaningful

Corporate overhead loss before taxes and discontinued operations decreased compared to the prior quarter primarily due to a $5.5 million decrease from the recorded loss associated with the early extinguishment of our prior term credit agreement during the first quarter, partially offset by the $3.6 million decrease in unrealized gains related to unit price changes during the first quarter of our investment in CSI Compressco, which was acquired by Kodiak in April 2024.

Six months ended June 30, 2024 compared with six months ended June 30, 2023.

Corporate overhead loss before taxes and discontinued operations decreased compared to the prior quarter including a $0.7 million increase in unrealized gains related to unit price changes of our investment in Kodiak.

During the third quarter, we implemented headcount reductions reflecting the slowdown in onshore activity.

Nine months ended September 30, 2024 compared with nine months ended September 30, 2023.

Consolidated Comparisons

Six Months Ended

June 30, Period to Period Change

Nine Months Ended

September 30, Period to Period Change

2024 2023 $ Change % Change

19 unchanged sentences

Discontinued operations:

Income from discontinued operations, net of taxes

— (20) (20) (100.0) %

Loss from discontinued operations, net of taxes

(5,830) (68) 5,762 NM (1)

Net income 5,557 29,650 (24,093) (81.3) %

1 unchanged sentence

Net income attributable to TETRA stockholders $ 5,560 $ 29,675 $ (24,115) (81.3) %

Consolidated revenues remained comparable to the prior year as higher revenues from our Completion Fluids & Products Division were substantially offset by lower revenues from our Water & Flowback Services Division.

(1) Percent change is not meaningful

Consolidated revenues decreased compared to the prior year due to weaker United States onshore activity from our Water & Flowback Services Division, partially offset by stronger activity from our Completion Fluids & Products 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 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 gross profit decreased in the current year primarily due to weaker activity and margin contraction from our Water & Flowback Services Division, slightly offset by stable European and North American fluids sales volumes and favorable pricing from our Completion Fluids & Products Division.

Consolidated exploration and pre-development costs decreased $6.8 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 $3.4 million decrease in compensation expense primarily from lower incentive compensation, a $0.9 million decrease in provision for credit losses on trade accounts receivable and a $0.6 million decrease in professional services.

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

Consolidated general and administrative expenses decreased compared to the prior year due to a $6.4 million decrease in compensation expense primarily from lower incentive compensation and from headcount reductions.

Consolidated loss on debt extinguishment increased $5.5 million 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, decreased in the current year compared to the prior year primarily due to a $4.7 million decrease in income from collaborative arrangements representing the portion of exploration and pre-development costs that were reimbursable by Saltwerx included in other income, net prior to capitalization of net pre-development costs beginning in January 2024, a $2.1 million increase in foreign exchange loss, including a $1.4 million out-of-period correction for remeasurement of a prepaid tax balance, and a $1.6 million increase in unrealized losses from our investment in Standard Lithium shares, partially offset by $4.1 million increase in unrealized gains due to the change in the unit price of the CSI Compressco common units we owned, which were exchanged for common shares of Kodiak in connection with its acquisition of CSI Compressco in April 2024.

Consolidated other income, net, decreased in the current year compared to the prior year primarily due to a $6.7 million decrease in income from collaborative arrangements representing the portion of exploration and pre-development costs that were reimbursable by Saltwerx included in other income, net prior to capitalization of net pre-development costs beginning in January 2024.

In addition, a $2.6 million increase in foreign exchange loss including the $1.4 million out-of-period correction in the second quarter of 2024 for remeasurement of a prepaid tax balance, was partially offset by $3.7 million increase in net unrealized gains on investments.

Consolidated provision for income taxes was $10.0 million during the current year, compared to $5.6 million during the prior year.

Our consolidated effective tax rate for the current year is 37.9%, compared to 15.3% during the prior year.

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.

Our consolidated effective tax rate for the current year is 46.7%, compared to 15.9% during

the prior year.

Our effective tax rate increase was primarily the result of a significant portion of income generated in jurisdictions, mainly Argentina, for which we were not able to utilize net operating losses for which we had established valuation allowances.

The increase in the Argentinian taxes were significantly impacted by the sale of the early production facility expansion as well an inflation adjustment to Argentinian taxable income required under local law to be made.

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.

1 unchanged sentence

jurisdictions.

Loss from discontinued operations increased $5.8 million primarily due to the accrual for decommissioning obligations associated with our former Offshore division recorded during the current quarter.

See Note 6 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements for additional information.

Divisional Comparisons

Completion Fluids & Products Division

Six Months Ended

June 30, Period to Period Change

Nine Months Ended

September 30, Period to Period Change

2024 2023 $ Change % Change

12 unchanged sentences

(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.

Revenues for our Completion Fluids & Products Division increased slightly compared to the prior year primarily due to the strength of industrial chemical sales activity and favorable pricing.

Gross profit for our Completion Fluids & Products Division decreased compared to the prior year due to an unfavorable mix of fluid sales.

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.

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

Consolidated exploration and pre-development costs decreased $6.8 million due to the capitalization of costs beginning in January 2024 following project developments, including the completion of a technical resources 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 year.

Income before taxes and discontinued operations for our Completion Fluids & Products Division decreased compared to the prior year driven by lower gross profit, a $4.7 million decrease in income from collaborative arrangements representing the portion of exploration and pre-development costs related to our Arkansas development that were reimbursable by Saltwerx and included in other income, net prior to capitalization of net pre-development costs beginning in January 2024.

In addition, unrealized losses from our investment in Standard Lithium shares increased $1.6 million to a loss in the current year from a gain in the prior year, which are also included in other income, net.

These were partially offset by the $3.1 million decrease in costs associated with the exploratory brine project following the capitalization of costs beginning in January 2024, and a $2.0 million decrease in general and administrative expense from lower compensation expense, professional services and provision for credit losses on trade accounts receivable.

Income before taxes and discontinued operations for our Completion Fluids & Products Division decreased compared to the prior year driven by lower gross profit and a $6.7 million decrease in income from collaborative arrangements representing the portion of exploration and pre-development costs related to our Arkansas development that were reimbursable by Saltwerx and included in other income, net prior to capitalization of net pre-development costs beginning in January 2024.

Other (income) expense, net also decreased $1.1 million from lower cash and shares received from our arrangement with Standard Lithium and $0.8 million from increased unrealized losses from our CarbonFree convertible note embedded option.

These changes were partially offset by a $1.8 million decrease in general and administrative expense from lower compensation expense, professional services and provision for credit losses on trade accounts receivable, and a $0.4 million decrease in foreign exchange losses.

Water & Flowback Services Division

Six Months Ended

June 30, Period to Period Change

Nine Months Ended

September 30, Period to Period Change

2024 2023 $ Change % Change

11 unchanged sentences

(1) Percent change is not meaningful

Revenues for our Water & Flowback Services Division decreased primarily for water management due to lower customer drilling and completion activity, partially offset by slightly higher production testing revenues from our early production facilities in Latin America.

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 operating cost inflation.

Income before taxes and discontinued operations for our Water & Flowback Services Division decreased primarily due to a decline in the gross profit described above and a $2.2 million increase in foreign exchange losses, including a $1.4 million out-of-period correction for remeasurement of a prepaid tax balance, partially offset by a $1.1 million decrease in general and administrative expense primarily from lower compensation expenses.

Revenues for our Water & Flowback Services Division decreased primarily for water management due to lower United States drilling and completion activity, partially offset by revenue from the sale of the early production facility expansion in Argentina during the third quarter of 2024.

Gross profit for our Water & Flowback Services Division decreased from the prior year primarily due to lower revenues resulting from the decreased United States onshore activity levels described above and operating cost inflation.

Income before taxes and discontinued operations for our Water & Flowback Services Division decreased primarily due to a decline in the gross profit described above and a $2.6 million increase in foreign exchange losses including the $1.4 million out-of-period correction in the second quarter of 2024 for remeasurement of a prepaid tax balance, partially offset by a $0.2 million increase in unrealized gains from our investment in KMX Technologies.

Corporate Overhead

Six Months Ended

June 30, Period to Period Change

Nine Months Ended

September 30, Period to Period Change

2024 2023 $ Change % Change

6 unchanged sentences

5,535 — 5,535 100.0 %

Other (income) expense, net (3,339) 272 (3,611) 1,327.6 %

Other income, net (4,147) (446) 3,701 829.8 %

Loss before taxes and discontinued operations $ (52,765) $ (54,869) $ (2,104) (3.8) %

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 $1.1 million increase in interest expense, net due to an increase in borrowing on our Term Credit Agreement, partially offset by a $4.1 million increase in unrealized gains related to unit price changes of our investment in CSI Compressco, which was acquired by Kodiak in April 2024, and a $1.9 million decrease in general and administrative expenses primarily from lower compensation costs.

Corporate overhead loss before taxes and discontinued operations decreased primarily due to a $4.3 million increase in unrealized gains related to unit price changes of our investment in Kodiak, which acquired CSI Compressco in April 2024, and a $4.6 million decrease in general and administrative expenses primarily from lower variable compensation costs, partially offset by a $5.5 million loss associated with the early extinguishment of our prior term credit agreement in January 2024 and a $1.4 million increase in interest expense, net due to an increase in borrowing on our Term Credit Agreement.

Non-GAAP Financial Measures

5 unchanged sentences

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.

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

8 unchanged sentences

Three Months Ended

June 30, 2024

September 30, 2024

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

2 unchanged sentences

Net income (loss) before taxes and discontinued operations 19,119 4,674 (10,779) (5,438) 7,576

Former CEO stock appreciation right expense — — (428) — (428)

Impairments and other charges — — 109 — 109

Former CEO stock appreciation right credit

— — (190) — (190)

Transactions, restructuring, and other expenses

Unusual foreign exchange loss

39 203 350 — 592

6 unchanged sentences

Three Months Ended

March 31, 2024

June 30, 2024

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

4 unchanged sentences

Transaction, restructuring, and other expenses

(159) — 24 — (135)

Loss on debt extinguishment

Unusual foreign exchange loss

— 1,387 — — 1,387

13 unchanged sentences

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 second quarter was $180.0 million.

Liquidity is defined as unrestricted cash plus availability under the delayed draw from our Term Credit Agreement and availability under our credit agreements.

Our liquidity at the end of the third quarter was $196.5 million.

Liquidity is defined as unrestricted cash plus availability of $75 million under the delayed draw from our Term Credit Agreement and availability under our credit agreements.

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:

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

3 unchanged sentences

Operating Activities

Consolidated cash flows provided by operating activities decreased compared to the first six months of 2023 primarily due to a decrease in gross profit and working capital changes.

Consolidated cash flows provided by operating activities decreased compared to the first nine months of 2023 primarily due to a decrease in gross profit and working capital changes.

Investing Activities

Total cash capital expenditures during the first six months of 2024 were $31.2 million, which reflects increased expenditures for advancement of our Arkansas brine resource development and additions to accommodate industry-wide activity.

Total cash capital expenditures during the first nine months of 2024 were $45.8 million, which reflects increased expenditures for advancement of our Arkansas brine resource development and additions to accommodate industry-wide activity.

Our Completion Fluids & Products Division spent $29.3 million on capital expenditures, including $22.6 million for our Arkansas brine resource development, and additional investments to support projected activity levels in the United States and Europe.

Our Water & Flowback Services Division spent $16.3 million on capital expenditures 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.

Investing activities during the first six months of 2023 also included $2.9 million of proceeds for insurance settlements from damage to our Lake Charles facility in 2020.

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

Investing activities during the first nine 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.

We are also focused on enhancing shareholder value by capitalizing on our key mineral assets, brine mineral extraction expertise, and aqueous 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.

As of June 30, 2024, we have commitments of $5.6 million related to long-lead infrastructure for our Completion Fluids & Products Division’s planned bromine plant in Arkansas.

As of September 30, 2024, we have commitments of $5.6 million related to long-lead infrastructure for our Completion Fluids & Products Division’s planned bromine plant in Arkansas.

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

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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 late 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 pursue the development of

We and Saltwerx continue to evaluate the development of the Brine Unit, including the negotiation of the joint venture for the Brine Unit.

We believe that lithium prices will improve to levels that support increased supply investment.

We and Saltwerx continue to evaluate the development of the Evergreen Unit

and are continuing to advance the engineering studies required to define the lithium project economics, including the negotiation of the joint venture for the Evergreen Unit.

Financing Activities

Our financing activities for the first six months of 2024 include $184.6 million of borrowings primarily under our new Term Credit Agreement, net of discount, and $163.4 million of repayments primarily for our prior term credit agreement, and $6.0 million of debt issuance costs associated with our new term loan in January 2024 and the ABL Amendment in May 2024, as well as $0.6 million of capital lease payments associated with equipment leased primarily for the early production facilities in Latin America.

Our financing activities for the first nine months of 2024 include $184.7 million of borrowings primarily under our new Term Credit Agreement, net of discount, and $163.5 million of repayments primarily for our prior term credit agreement, and $6.0 million of debt issuance costs associated with our new term loan in January 2024 and the ABL Amendment in May 2024, as well as $1.1 million of capital lease payments associated with equipment leased primarily for the early production facilities in Argentina.

We may supplement our existing cash balances and cash flow from operating activities with short-term borrowings, long-term borrowings, issuances of equity and debt securities, and other sources of capital.

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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 June 30, 2024, the market value of our investments in Kodiak, which acquired CSI Compressco in April 2024, and Standard Lithium were $12.3 million and $1.0 million, respectively, with no holding restrictions on our ability to monetize our interests.

In addition, as of September 30, 2024, the market value of our investments in Kodiak and Standard Lithium were $13.1 million and $1.3 million, respectively, with no holding restrictions on our ability to monetize our interests.

In addition, we are party to agreements in which Standard Lithium has the right to explore for, and an option to acquire the right to produce and extract lithium in our Arkansas leases as well as additional potential resources, in the Mojave region of California.

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 $6.8 million as of June 30, 2024.

We also hold an investment in a convertible note and common units issued by CarbonFree valued at $6.8 million as of September 30, 2024.

In May 2022, we filed a universal shelf Registration Statement on Form S-3 with the SEC, which was declared effective by 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 June 30, 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.

As of September 30, 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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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 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;

These statements include statements concerning the mineral resource estimates and reserve estimates 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 accuracy of our resources report, feasibility study and economic assessment regarding our lithium and 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.

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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.

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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