TETRA TECHNOLOGIES INC 10-Q

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 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 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 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 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 21 Table of Contents advancing our water desalination pilot units that are expected to transition into long-duration contracts for commercial desalination plants. 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 September 30, 2024 compared with three months ended June 30, 2024. Consolidated Comparisons Three Months Ended Period to Period Change September 30, June 30, $ Change % Change 2024 2024 (in thousands, except percentages) Revenues $ 141,700 $ 171,935 $ (30,235) (17.6) % Gross profit 34,363 43,253 (8,890) (20.6) % Gross profit as a percentage of revenue 24.3 % 25.2 % General and administrative expense 22,406 22,137 269 1.2 % General and administrative expense as a percentage of revenue 15.8 % 12.9 % Interest expense, net 5,096 6,185 (1,089) (17.6) % Other (income) expense, net (715) 2,452 3,167 NM (1) Income before taxes and discontinued operations 7,576 12,479 (4,903) (39.3) % Income before taxes and discontinued operations as a percentage of revenue 5.3 % 7.3 % 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 % Net income (2,998) 7,640 (10,638) (139.2) % Loss attributable to noncontrolling interests — 3 (3) 100.0 % Net income (loss) attributable to TETRA stockholders $ (2,998) $ 7,643 $ (10,641) (139.2) % (1) Percent change is not meaningful 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 decreased primarily due to weaker activity levels from the Completion Fluids & Products Division. See Divisional Comparisons section below for additional discussion. 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 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, 22 Table of Contents 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 Completion Fluids & Products Division Three Months Ended Period to Period Change September 30, June 30, $ Change % Change 2024 2024 (in thousands, except percentages) Revenues $ 65,131 $ 100,019 $ (34,888) (34.9) % Gross profit 24,391 33,631 (9,240) (27.5) % Gross profit as a percentage of revenue 37.4 % 33.6 % General and administrative expense 6,055 6,991 (936) (13.4) % General and administrative expense as a percentage of revenue 9.3 % 7.0 % Interest income, net (942) (135) 807 597.8 % Other expense, net 159 122 37 30.3 % Income before taxes and discontinued operations $ 19,119 $ 26,653 $ (7,534) (28.3) % Income before taxes and discontinued operations as a percentage of revenue 29.4 % 26.6 % 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. 23 Table of Contents Water & Flowback Services Division Three Months Ended Period to Period Change September 30, June 30, $ Change % Change 2024 2024 (in thousands, except percentages) Revenues $ 76,569 $ 71,916 $ 4,653 6.5 % Gross profit 10,174 9,707 467 4.8 % Gross profit as a percentage of revenue 13.3 % 13.5 % General and administrative expense 5,572 4,459 1,113 25.0 % General and administrative expense as a percentage of revenue 7.3 % 6.2 % Interest (income) expense, net (5) 68 (73) (107.4) % Other (income) expense, net (67) 2,024 (2,091) NM (1) Income before taxes and discontinued operations $ 4,674 $ 3,156 $ 1,518 48.1 % Income before taxes and discontinued operations as a percentage of revenue 6.1 % 4.4 % (1) Percent change is not meaningful 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 September 30, June 30, $ Change % Change 2024 2024 (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) % Other (income) expense, net (808) 305 1,113 NM (1) Loss before taxes and discontinued operations $ (16,217) $ (17,330) $ (1,113) (6.4) % (1) Percent change is not meaningful 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. 24 Table of Contents Nine months ended September 30, 2024 compared with nine months ended September 30, 2023. Consolidated Comparisons Nine Months Ended September 30, Period to Period Change 2024 2023 $ Change % Change (in thousands, except percentages) Revenues $ 464,607 $ 473,136 $ (8,529) (1.8) % Gross profit 108,718 123,402 (14,684) (11.9) % Gross profit as a percentage of revenue 23.4 % 26.1 % Exploration and pre-development costs — 6,836 (6,836) 100.0 % General and administrative expense 66,841 73,254 (6,413) (8.8) % General and administrative expense as a percentage of revenue 14.4 % 15.5 % Interest expense, net 17,233 16,672 561 3.4 % Loss on debt extinguishment 5,535 — 5,535 100.0 % Other income, net (2,241) (8,690) (6,449) (74.2) % Income before taxes and discontinued operations 21,350 35,330 (13,980) (39.6) % Income before taxes and discontinued operations as a percentage of revenue 4.6 % 7.5 % Provision for income taxes 9,963 5,612 4,351 77.5 % Income before discontinued operations 11,387 29,718 (18,331) (61.7) % Discontinued operations: Loss from discontinued operations, net of taxes (5,830) (68) 5,762 NM (1) Net income 5,557 29,650 (24,093) (81.3) % Loss attributable to noncontrolling interests 3 25 (22) (88.0) % Net income attributable to TETRA stockholders $ 5,560 $ 29,675 $ (24,115) (81.3) % (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 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 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 $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 46.7%, compared to 15.9% during 25 Table of Contents 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. 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. 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 Nine Months Ended September 30, Period to Period Change 2024 2023 $ Change % Change (in thousands, except percentages) Revenues $ 242,432 $ 240,474 $ 1,958 0.8 % Gross profit 84,453 87,469 (3,016) (3.4) % Gross profit as a percentage of revenue 34.8 % 36.4 % Exploration and pre-development costs — 6,836 (6,836) (100.0) % General and administrative expense 19,739 21,553 (1,814) (8.4) % General and administrative expense as a percentage of revenue 8.1 % 9.0 % Interest income, net (1,346) (600) 746 124.3 % Other (income) expense, net 496 (7,650) (8,146) NM (1) Income before taxes and discontinued operations $ 65,564 $ 67,330 $ (1,766) (2.6) % Income before taxes and discontinued operations as a percentage of revenue 27.0 % 28.0 % (1) Percent change is not meaningful 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 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 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. 26 Table of Contents Water & Flowback Services Division Nine Months Ended September 30, Period to Period Change 2024 2023 $ Change % Change (in thousands, except percentages) Revenues $ 222,175 $ 232,662 $ (10,487) (4.5) % Gross profit 24,632 37,012 (12,380) (33.4) % Gross profit as a percentage of revenue 11.1 % 15.9 % General and administrative expense 14,533 14,496 37 0.3 % General and administrative expense as a percentage of revenue 6.5 % 6.2 % Interest expense, net 139 243 (104) (42.8)% Other (income) expense, net 1,409 (596) (2,005) NM (1) Income before taxes and discontinued operations $ 8,551 $ 22,869 $ (14,318) (62.6) % Income before taxes and discontinued operations as a percentage of revenue 3.8 % 9.8 % (1) Percent change is not meaningful 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 Nine Months Ended September 30, Period to Period Change 2024 2023 $ Change % Change (in thousands, except percentages) Depreciation and amortization $ 258 $ 303 $ (45) (14.9) % Impairments and other charges 109 777 (668) (86.0) % General and administrative expense 32,570 37,206 (4,636) (12.5) % Interest expense, net 18,440 17,029 1,411 8.3 % Loss on debt extinguishment 5,535 — 5,535 100.0 % 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 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. 27 Table of Contents 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. 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 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. 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. 28 Table of Contents The following tables reconcile net income (loss) before taxes and discontinued operations to Adjusted EBITDA for the periods indicated: Three Months Ended September 30, 2024 Completion Fluids & Products Water & Flowback Services Corporate SG&A Corporate Other Total (in thousands, except percentages) Revenue $ 65,131 $ 76,569 $ — $ — $ 141,700 Net income (loss) before taxes and discontinued operations 19,119 4,674 (10,779) (5,438) 7,576 Impairments and other charges — — 109 — 109 Former CEO stock appreciation right credit — — (190) — (190) Transactions, restructuring, and other expenses 39 203 350 — 592 Interest (income) expense, net (942) (5) — 6,043 5,096 Depreciation, amortization, and accretion 2,416 6,328 — 93 8,837 Equity-based compensation expense — — 1,481 — 1,481 Adjusted EBITDA $ 20,632 $ 11,200 $ (9,029) $ 698 $ 23,501 Adjusted EBITDA as % of revenue 31.7 % 14.6 % 16.6 % Three Months Ended June 30, 2024 Completion Fluids & Products Water & Flowback Services Corporate SG&A Corporate Other Total (in thousands, except percentages) Revenue $ 100,019 $ 71,916 $ — $ — $ 171,935 Net income (loss) before taxes and discontinued operations 26,653 3,156 (10,689) (6,641) 12,479 Former CEO stock appreciation right expense — — (428) — (428) Transaction, restructuring, and other expenses 37 — — — 37 Unusual foreign exchange loss — 1,387 — — 1,387 Interest (income) expense, net (135) 68 — 6,252 6,185 Depreciation, amortization, and accretion 2,361 6,329 — 84 8,774 Equity-based compensation expense — — 1,800 — 1,800 Adjusted EBITDA $ 28,916 $ 10,940 $ (9,317) $ (305) $ 30,234 Adjusted EBITDA as % of revenue 28.9 % 15.2 % 17.6 % 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 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. 29 Table of Contents Our consolidated sources and uses of cash are as follows: Nine Months Ended September 30, 2024 2023 (in thousands) Operating activities $ 30,885 $ 51,331 Investing activities $ (44,444) $ (28,918) Financing activities $ 9,998 $ (1,894) Operating Activities 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 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 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 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 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. 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 2023 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. 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 30 Table of Contents 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 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. We are aggressively managing our working capital and capital expenditure needs in order to maximize our liquidity in the current environment. 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 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 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. 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 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 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 2023 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. 31 Table of Contents Commitments and Contingencies Litigation For discussion of our legal proceedings, please see our 2023 Annual Report and Note 6 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements included in this Quarterly Report. 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. 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 2023 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”. 32 Table of Contents 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 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. 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 Evergreen 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 2023 Annual Report , and those described from time to time in our future reports filed with the SEC. 33 Table of Contents