TETRA TECHNOLOGIES INC 10-Q

Item 1. Financial Statements. TETRA Technologies, Inc. and Subsidiaries Consolidated Statements of Operations (In Thousands, Except Per Share Amounts) (Unaudited) Three Months Ended March 31, 2023 2022 Revenues: Product sales $ 65,535 $ 70,055 Services 80,674 59,982 Total revenues 146,209 130,037 Cost of revenues: Cost of product sales 42,395 46,004 Cost of services 61,671 47,684 Depreciation, amortization, and accretion 8,670 7,679 Insurance recoveries ( 2,850 ) ( 3,750 ) Total cost of revenues 109,886 97,617 Gross profit 36,323 32,420 Exploration and pre-development costs 720 1,930 General and administrative expense 23,191 20,643 Interest expense, net 5,092 3,324 Other income, net ( 214 ) ( 2,411 ) Income before taxes and discontinued operations 7,534 8,934 Provision for income taxes 1,489 1,200 Income before discontinued operations 6,045 7,734 Loss from discontinued operations, net of taxes ( 12 ) ( 15 ) Net income 6,033 7,719 Loss attributable to noncontrolling interests 7 1 Net income attributable to TETRA stockholders $ 6,040 $ 7,720 Basic net income per common share: Income from continuing operations $ 0.05 $ 0.06 Income from discontinued operations — — Net income attributable to TETRA stockholders $ 0.05 $ 0.06 Weighted average basic shares outstanding 128,940 127,259 Diluted net income per common share: Income from continuing operations $ 0.05 $ 0.06 Income from discontinued operations — — Net income attributable to TETRA stockholders $ 0.05 $ 0.06 Weighted average diluted shares outstanding 129,975 129,211 See Notes to Consolidated Financial Statements 1 Table of Contents TETRA Technologies, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (In Thousands) (Unaudited) Three Months Ended March 31, 2023 2022 Net income $ 6,033 $ 7,719 Foreign currency translation adjustment from continuing operations, net of taxes of $ 0 in 2023 and 2022 1,421 192 Unrealized gain on investment in CarbonFree 121 — Comprehensive income 7,575 7,911 Less: Comprehensive loss attributable to noncontrolling interests 7 1 Comprehensive income attributable to TETRA stockholders $ 7,582 $ 7,912 See Notes to Consolidated Financial Statements 2 Table of Contents TETRA Technologies, Inc. and Subsidiaries Consolidated Balance Sheets (In Thousands) March 31, 2023 December 31, 2022 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 16,683 $ 13,592 Trade accounts receivable, net of allowances of $ 517 in 2023 and $ 538 in 2022 117,604 129,631 Inventories 83,941 72,113 Prepaid expenses and other current assets 18,587 23,112 Total current assets 236,815 238,448 Property, plant, and equipment: Land and building 24,336 25,723 Machinery and equipment 313,968 318,693 Automobiles and trucks 11,112 11,832 Chemical plants 63,757 63,528 Construction in progress 9,657 7,660 Total property, plant, and equipment 422,830 427,436 Less accumulated depreciation ( 317,579 ) ( 325,856 ) Net property, plant, and equipment 105,251 101,580 Other assets: Patents, trademarks and other intangible assets, net of accumulated amortization of $ 48,241 in 2023 and $ 46,996 in 2022 32,005 32,955 Operating lease right-of-use assets 33,973 33,818 Investments 13,902 14,286 Other assets 13,638 13,279 Total other assets 93,518 94,338 Total assets $ 435,584 $ 434,366 See Notes to Consolidated Financial Statements 3 Table of Contents TETRA Technologies, Inc. and Subsidiaries Consolidated Balance Sheets (In Thousands, Except Share Amounts) March 31, 2023 December 31, 2022 (Unaudited) LIABILITIES AND EQUITY Current liabilities: Trade accounts payable $ 49,334 $ 49,121 Current portion of long-term debt 2,162 3 Compensation and employee benefits 19,700 30,958 Operating lease liabilities, current portion 8,249 7,795 Accrued taxes 8,961 9,913 Accrued liabilities and other 22,127 25,557 Current liabilities associated with discontinued operations 914 920 Total current liabilities 111,447 124,267 Long-term debt, net 160,510 156,455 Operating lease liabilities 27,716 28,108 Asset retirement obligations 13,828 13,671 Deferred income taxes 2,059 2,038 Other liabilities 3,871 3,430 Total long-term liabilities 207,984 203,702 Commitments and contingencies (Note 7) Equity: TETRA stockholders’ equity: Common stock, par value 0.01 per share; 250,000,000 shares authorized at March 31, 2023 and December 31, 2022; 132,522,347 shares issued at March 31, 2023 and 131,800,975 shares issued at December 31, 2022 1,325 1,318 Additional paid-in capital 479,993 477,820 Treasury stock, at cost; 3,138,675 shares held at March 31, 2023 and December 31, 2022 ( 19,957 ) ( 19,957 ) Accumulated other comprehensive loss ( 47,521 ) ( 49,063 ) Retained deficit ( 296,453 ) ( 302,493 ) Total TETRA stockholders’ equity 117,387 107,625 Noncontrolling interests ( 1,234 ) ( 1,228 ) Total equity 116,153 106,397 Total liabilities and equity $ 435,584 $ 434,366 See Notes to Consolidated Financial Statements 4 Table of Contents TETRA Technologies, Inc. and Subsidiaries Consolidated Statements of Equity (In Thousands) (Unaudited) Common Stock Par Value Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Deficit Noncontrolling Interest Total Equity Currency Translation Unrealized Gain (Loss) on Investment Balance at December 31, 2022 $ 1,318 $ 477,820 $ ( 19,957 ) $ ( 48,991 ) $ ( 72 ) $ ( 302,493 ) $ ( 1,228 ) $ 106,397 Net income (loss) for first quarter 2023 — — — — — 6,040 ( 7 ) 6,033 Translation adjustment, net of taxes of $ 0 — — — 1,421 — — — 1,421 Other comprehensive income — — — — 121 — — 121 Comprehensive income 7,575 Treasury stock activity, net — — — — — — — — Equity-based compensation (1) — 3,514 — — — — — 3,514 Other 7 ( 1,341 ) — — — — 1 ( 1,333 ) Balance at March 31, 2023 $ 1,325 $ 479,993 $ ( 19,957 ) $ ( 47,570 ) $ 49 $ ( 296,453 ) $ ( 1,234 ) $ 116,153 (1) Equity-based compensation for the three months ended March 31, 2023 includes $ 2.3 million for a portion of short-term incentive compensation that was settled through grants of restricted stock units rather than cash. Common Stock Par Value Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Loss Retained Deficit Noncontrolling Interest Total Equity Currency Translation Balance at December 31, 2021 $ 1,301 $ 475,624 $ ( 19,957 ) $ ( 46,932 ) $ ( 310,332 ) $ ( 1,141 ) $ 98,563 Net income (loss) for first quarter 2022 — — — — 7,720 ( 1 ) 7,719 Translation adjustment, net of taxes of $ 0 — — — 192 — — 192 Comprehensive income 7,911 Equity compensation expense — 1,104 — — — — 1,104 Other 7 ( 673 ) — — — ( 10 ) ( 676 ) Balance at March 31, 2022 $ 1,308 $ 476,055 $ ( 19,957 ) $ ( 46,740 ) $ ( 302,612 ) $ ( 1,152 ) $ 106,902 See Notes to Consolidated Financial Statements 5 Table of Contents TETRA Technologies, Inc. and Subsidiaries Consolidated Statements of Cash Flows (In Thousands, Unaudited) Three Months Ended March 31, 2023 2022 Operating activities: Net income $ 6,033 $ 7,719 Reconciliation of net income to net cash provided by operating activities: Depreciation, amortization, and accretion 8,670 7,679 Loss (gain) on investments 505 ( 1,100 ) Equity-based compensation expense 1,276 1,104 Provision for (recovery of) credit losses ( 21 ) 61 Amortization and expense of financing costs 884 780 Insurance recoveries associated with damaged equipment ( 2,850 ) ( 3,750 ) Gain on sale of assets ( 170 ) ( 218 ) Other non-cash credits ( 100 ) ( 101 ) Changes in operating assets and liabilities: Accounts receivable 12,626 ( 13,185 ) Inventories ( 11,313 ) 4,579 Prepaid expenses and other current assets 4,496 2,510 Trade accounts payable and accrued expenses ( 11,179 ) 9 Other 128 ( 153 ) Net cash provided by operating activities 8,985 5,934 Investing activities: Purchases of property, plant, and equipment, net ( 12,784 ) ( 9,305 ) Proceeds from sale of property, plant, and equipment 289 416 Proceeds from insurance recoveries associated with damaged equipment 2,850 3,750 Other investing activities ( 1,552 ) ( 453 ) Net cash used in investing activities ( 11,197 ) ( 5,592 ) Financing activities: Proceeds from long-term debt and credit agreements 52,756 1,533 Principal payments on long-term debt and credit agreements ( 47,362 ) ( 811 ) Payments on financing lease obligations ( 258 ) — Net cash provided by financing activities 5,136 722 Effect of exchange rate changes on cash 167 236 Increase in cash and cash equivalents 3,091 1,300 Cash and cash equivalents at beginning of period 13,592 31,551 Cash and cash equivalents at end of period $ 16,683 $ 32,851 See Notes to Consolidated Financial Statements 6 Table of Contents TETRA Technologies, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) NOTE 1 – ORGANIZATION, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES Organization We are an industrial and oil and gas products and services company operating on six continents, focused on bromine-based completion fluids, calcium chloride, water management solutions, frac flowback and production well testing services. We were incorporated in Delaware in 1981 and are composed of two segments – Completion Fluids & Products Division and Water & Flowback Services Division. Unless the context requires otherwise, when we refer to “we,” “us,” and “our,” we are describing TETRA Technologies, Inc. and its subsidiaries on a consolidated basis. Presentation Our unaudited consolidated financial statements include the accounts of our wholly owned or controlled subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The information furnished reflects all normal recurring adjustments, which are, in the opinion of management, necessary to provide a fair statement of the results for the interim periods. Operating results for the period ended March 31, 2023 are not necessarily indicative of results that may be expected for the twelve months ended December 31, 2023. We have reflected the operations of our former Compression Division and Offshore Division as discontinued operations for all periods presented. See Note 2 - “Discontinued Operations” for further information. Unless otherwise noted, amounts and disclosures throughout these Notes to Consolidated Financial Statements relate solely to continuing operations and exclude all discontinued operations. The accompanying unaudited consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the U.S. Securities and Exchange Commission (“SEC”) and do not include all information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. These financial statements should be read in conjunction with the financial statements for the year ended December 31, 2022 and notes thereto included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2023 (the “ 2022 Annual Report ”). Tax Benefits Preservation Plan On February 28, 2023, the Board of Directors adopted a Tax Benefits Preservation Plan (the “Tax Plan”) designed to protect the availability of the Company’s net operating loss carryforwards and other tax attributes (collectively, the “Tax Attributes”), which may be utilized in certain circumstances to reduce the Company’s future income tax obligations. The Tax Plan is intended to reduce the likelihood that any changes in the Company’s investor base would limit the Company’s future use of its Tax Attributes as a result of the Company experiencing an “ownership change” under Section 382 (“Section 382”) of the Internal Revenue Code of 1986, as amended (the “Code”). If a corporation experiences an “ownership change,” any NOLs, losses or deductions attributable to a “net unrealized built-in loss” and other Tax Attributes could be substantially limited, and timing of the usage of such Tax Attributes could be substantially delayed. A corporation generally will experience an ownership change if one or more stockholders (or group of stockholders) who are each deemed to own at least 5% of the corporation’s stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a testing period (generally, a rolling three-year period). In adopting the Tax Plan, the Board of Directors declared a dividend of one Series A Junior Participating Preferred Stock purchase right (the “Rights”) for each outstanding share of Common Stock pursuant to the terms of the Tax Plan. Initially, each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $ 0.01 per share, of the Company (the “Preferred Stock”) at a price of $ 20.00 per one one-thousandth of a share of Preferred Stock (the “Purchase Price”), subject to adjustment. The Rights will cause substantial dilution to a person or group that acquires 4.99 % or more of the Common Stock (or to a person or group that already owns 4.99 % or more of the Company’s Common Stock if 7 Table of Contents such person or group acquires additional shares representing 2 % of the Company’s then outstanding shares of Common Stock) without prior approval from the Board of Directors. The Rights will expire at the earliest of: (i) the close of business on February 28, 2026 (the “Final Expiration Date”); (ii) the time at which the Rights are redeemed pursuant to the Tax Plan, (iii) the time at which the Rights are exchanged pursuant to the Tax Plan; (iv) the closing of any merger or other acquisition transaction involving the Company pursuant to an agreement as described in the penultimate paragraph of Section 1.3 of the Tax Plan; (v) the close of business on the effective date of the repeal of Section 382 of the Code if the Board determines that the Tax Plan is no longer necessary or desirable for the preservation of the Tax Attributes; or (vi) the close of business on the first day of a taxable year of the Company following a Board determination that no Tax Attributes may be carried forward or otherwise utilized. The Tax Plan adopted by the Board of Directors is similar to plans adopted by other publicly held companies with significant NOLs or other substantial tax benefits and is not designed to prevent any action that the Board of Directors determines to be in the best interest of the Company and its stockholders. As discussed further in the Company’s definitive proxy statement for the annual meeting of stockholders, which is anticipated to be held on May 24, 2023, the Company intends to submit the Tax Plan to our stockholders for ratification at such meeting. The Rights are in all respects subject to and governed by the provisions of the Tax Plan. The foregoing summary provides only a general description of the Tax Plan and does not purport to be complete. The Tax Plan, which specifies the terms of the Rights and includes as Exhibit A the Form of Certificate of Designation of Series A Junior Participating Preferred Stock of the Company and as Exhibit B the Form of Right Certificate, is attached to the Company’s Current Report on Form 8-K, which was filed with the SEC on March 1, 2023, as Exhibit 4.1 and is incorporated herein by reference. The foregoing summary should be read together with the entire Tax Plan and is qualified in its entirety by reference to the Tax Plan. Significant Accounting Policies Our significant accounting policies are described in the notes to our consolidated financial statements for the year ended December 31, 2022 included in our 2022 Annual Report . There have been no significant changes in our accounting policies or the application thereof during the first quarter of 2023. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclose contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses, and impairments during the reporting period. Actual results could differ from those estimates, and such differences could be material. Reclassifications Certain previously reported financial information has been reclassified to conform to the current year's presentation. The impact of reclassifications was not significant to the prior year's overall presentation. Foreign Currency Translation We have designated the Euro, the British pound, the Canadian dollar, the Brazilian real, and the Mexican peso as the functional currencies for our operations in Finland and Sweden, the United Kingdom, Canada, Brazil, and certain of our operations in Mexico, respectively. The United States dollar is the designated functional currency for all of our other non-U.S. operations. The cumulative translation effects of translating the applicable accounts from the functional currencies into the United States dollar at current exchange rates are included as a separate component of equity. Foreign currency exchange (gains) and losses are included in other (income) expense, net and totaled $ 0.2 million and $( 0.8 ) million during the three months ended March 31, 2023 and 2022, respectively. Fair Value Measurements We utilize fair value measurements to account for certain items and account balances within our consolidated financial statements. Fair value measurements are utilized on a recurring basis in the determination of the carrying values of certain investments. See Note 8 - “Fair Value Measurements” for further discussion. Fair 8 Table of Contents value measurements are also utilized on a nonrecurring basis in certain circumstances, including the impairment of long-lived assets (a Level 3 fair value measurement). Supplemental Cash Flow Information Supplemental cash flow information is as follows: Three Months Ended March 31, 2023 2022 (in thousands) Interest paid $ 4,513 $ 3,096 Income taxes paid $ 1,358 $ 741 March 31, 2023 December 31, 2022 (in thousands) Accrued capital expenditures $ 2,490 $ 4,901 New Accounting Pronouncements Standard adopted during 2023 In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the previously-used incurred loss methodology, which will result in the more timely recognition of losses on financial instruments not accounted for at fair value through net income. The provisions require credit impairments to be measured over the contractual life of an asset and developed with consideration for past events, current conditions, and forecasts of future economic information. Credit impairment will be accounted for as an allowance for credit losses deducted from the amortized cost basis at each reporting date. Updates at each reporting date after initial adoption will be recorded through selling, general, and administrative expense. On January 1, 2023, we adopted ASU 2016-13. The adoption of this standard did not have a material impact on our consolidated financial statements. Standard not yet adopted In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)”, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848.” Entities may elect to apply the amendments for contract modifications made on or before December 31, 2024. During the three months ended September 30, 2021, our asset-based credit agreement and term credit agreement were amended to allow replacement of LIBOR with another benchmark rate, such as the secured overnight financing rate (“SOFR”) in the event that LIBOR cannot be determined or does not fairly reflect the cost to our lenders of funding our loans. If LIBOR is not available, we cannot predict what alternative index would be negotiated with our lenders. We will assess the impact of adopting ASU 2020-04, as extended by ASU 2022-06, on our consolidated financial statements when our contracts are modified to eliminate references to LIBOR. NOTE 2 – DISCONTINUED OPERATIONS On March 1, 2018, we closed a series of related transactions that resulted in the disposition of our Offshore Division, consisting of our Offshore Services and Maritech segments. Our former Offshore Division is reported as discontinued operations for all periods presented. Our consolidated balance sheets and consolidated statements of operations report discontinued operations separate from continuing operations. Our consolidated statements of comprehensive income, statements of equity and statements of cash flows combine continuing and discontinued operations. Our loss from discontinued operations for the three months ended March 31, 2023 and 2022 consist of general and administrative expense associated with ongoing litigation for our former Offshore Division. A summary of additional financial information related to our discontinued operations is as follows: 9 Table of Contents Reconciliation of Major Classes of Assets and Liabilities of the Discontinued Operations to Amounts Presented Separately in the Statement of Financial Position (in thousands) March 31, 2023 Offshore Services Maritech Total (unaudited) Carrying amounts of major classes of liabilities included as part of discontinued operations Trade payables $ 319 $ — $ 319 Accrued liabilities and other 500 95 595 Total liabilities associated with discontinued operations $ 819 $ 95 $ 914 December 31, 2022 Offshore Services Maritech Total Carrying amounts of major classes of liabilities included as part of discontinued operations Trade payables $ 319 $ — $ 319 Accrued liabilities and other 506 95 601 Total liabilities associated with discontinued operations $ 825 $ 95 $ 920 NOTE 3 – REVENUE FROM CONTRACTS WITH CUSTOMERS Our contract asset balances, primarily associated with contractual invoicing milestones and/or customer documentation requirements, were $ 28.8 million and $ 33.1 million as of March 31, 2023 and December 31, 2022, respectively. Contract assets, along with billed trade accounts receivable, are included in trade accounts receivable in our consolidated balance sheets. Unearned income includes amounts in which the Company was contractually allowed to invoice prior to satisfying the associated performance obligations. We are also party to agreements in which Standard Lithium Ltd. (NYSE: SLI) (“Standard Lithium”) has the right to explore, and an option to acquire the rights to produce and extract lithium in our Arkansas leases as well as other potential resources in the Mojave region of California. The Company receives cash and stock of Standard Lithium under the terms of the arrangements. The cash and stock component of consideration received is initially recorded as unearned income based on the quoted market price at the time the stock is received, then recognized in income over the contract term. Unearned income balances were $ 4.2 million and $ 3.7 million as of March 31, 2023 and December 31, 2022, respectively, and vary based on the timing of invoicing and performance obligations being met and the timing of the receipt of stock and cash from Standard Lithium. Unearned income is included in accrued liabilities and other in our consolidated balance sheets. During the three-month periods ended March 31, 2023 and March 31, 2022, contract costs were not significant. During the three-month periods ended March 31, 2023 and March 31, 2022, we recognized approximately $ 0.7 million and $ 0.3 million of revenue, respectively, deferred in unearned income as of the beginning of the period. We also recognized approximately $ 0.9 million and $ 0.6 million of income during the three-month periods ended March 31, 2023 and March 31, 2022, respectively, related to the Standard Lithium arrangements. These amounts are included in other income, net in our consolidated statements of operations. 10 Table of Contents We disaggregate revenue from contracts with customers into Product Sales and Services within each segment, as noted in our two reportable segments in Note 10 - “Industry Segments.” In addition, we disaggregate revenue from contracts with customers by geography based on the following table below. Three Months Ended March 31, 2023 2022 (in thousands) Completion Fluids & Products United States $ 32,824 $ 38,843 International 36,218 34,351 69,042 73,194 Water & Flowback Services United States 68,338 52,763 International 8,829 4,080 77,167 56,843 Total Revenue United States 101,162 91,606 International 45,047 38,431 $ 146,209 $ 130,037 NOTE 4 – INVENTORIES Components of inventories as of March 31, 2023 and December 31, 2022 are as follows: March 31, 2023 December 31, 2022 (in thousands) Finished goods $ 71,590 $ 60,481 Raw materials 4,521 3,734 Parts and supplies 6,063 6,432 Work in progress 1,767 1,466 Total inventories $ 83,941 $ 72,113 Finished goods inventories include newly manufactured clear brine fluids as well as used brines that are repurchased from certain customers for recycling . NOTE 5 – INVESTMENTS Our investments as of March 31, 2023 and December 31, 2022 consist of the following: March 31, 2023 December 31, 2022 (in thousands) Investment in CSI Compressco $ 6,443 $ 6,967 Investment in CarbonFree 5,939 6,139 Investment in Standard Lithium 1,520 1,180 Total Investments $ 13,902 $ 14,286 Following the January 2021 sale of the general partner of CSI Compressco LP (“CSI Compressco”), we continue to own approximately 3.7 % of the outstanding CSI Compressco common units (NASDAQ: CCLP) as of March 31, 2023. 11 Table of Contents We have an intellectual property joint development agreement in place with CarbonFree to evaluate potential new technologies. CarbonFree is a carbon capture company with patented technologies that capture CO 2 and mineralize emissions to make commercial, carbon-negative chemicals. In December 2021, we invested $ 5.0 million in a convertible note issued by CarbonFree. Our exposure to potential losses by CarbonFree is limited to our investment in the convertible note and associated capitalized and accrued interest. In addition, we are party to agreements in which Standard Lithium has the right to explore, and an option to acquire the rights to produce and extract lithium in our Arkansas leases as well as additional potential resources in the Mojave region of California. The Company receives cash and stock of Standard Lithium under the terms of the arrangements. The cash and stock component of consideration received is initially recorded as unearned income based on the quoted market price at the time the stock is received, then recognized in income over the contract term. See Note 8 - “Fair Value Measurements” for further information. NOTE 6 – LONG-TERM DEBT AND OTHER BORROWINGS Consolidated long-term debt as of March 31, 2023 and December 31, 2022 consists of the following: Scheduled Maturity March 31, 2023 December 31, 2022 (in thousands) Term Credit Agreement (1) September 10, 2025 $ 155,282 $ 154,570 Asset-Based Credit Agreement (2) May 31, 2025 5,229 1,885 Argentina Credit Agreement October 19, 2023 1,700 — Swedish Credit Facility December 31, 2023 461 3 Total debt 162,672 156,458 Less current portion ( 2,162 ) ( 3 ) Total long-term debt $ 160,510 $ 156,455 (1) Net of unamortized discount of $ 3.1 million and $ 3.4 million as of March 31, 2023 and December 31, 2022, respectively, and net of unamortized deferred financing costs of $ 4.7 million and $ 5.1 million as of March 31, 2023 and December 31, 2022, respectively. (2) Net of unamortized deferred financing costs of $ 1.0 million and $ 1.1 million as of March 31, 2023 and December 31, 2022, respectively. Term Credit Agreement As of March 31, 2023, we had $ 155.3 million outstanding, net of unamortized discounts and unamortized deferred financing costs under our term credit agreement (“Term Credit Agreement”). The Term Credit Agreement requires us to offer to prepay a percentage of Excess Cash Flow (as defined in the Term Credit Agreement) within five business days of filing our Annual Report. As of March 31, 2023, the interest rate per annum on borrowings under the Term Credit Agreement is 10.88 %. For additional information on our Term Credit agreement, see our 2022 Annual Report . ABL Credit Agreement As of March 31, 2023, our asset-based credit agreement (“ABL Credit Agreement”) provides for a senior secured revolving credit facility of up to $ 80.0 million, with a $ 20.0 million accordion. The credit facility is subject to a borrowing base determined monthly by reference to the value of inventory and accounts receivable, and includes a sublimit of $ 20.0 million for letters of credit, a swingline loan sublimit of $ 11.5 million, and a $ 15.0 million sub-facility subject to a borrowing base consisting of certain trade receivables and inventory in the United Kingdom. As of March 31, 2023, we had $ 6.2 million outstanding and $ 8.3 million in letters of credit and guarantees under our ABL Credit Agreement, respectively. Subject to compliance with the covenants, borrowing base, and other provisions of the ABL Credit Agreement that may limit borrowings, we had availability of $65.4 million under this agreement. 12 Table of Contents Argentina Credit Agreement In January 2023, the Company entered into a revolving credit facility for certain working capital and capital expenditure needs for its subsidiary in Argentina (“Argentina Credit Facility”). As of March 31, 2023, we had $ 1.7 million outstanding and availability of approximately $ 0.3 million under the Argentina Credit Agreement. Borrowings bear interest at a rate of 2.50 % per annum. The Argentina Credit Facility expires on October 19, 2023 and is backed by a letter of credit under our ABL Credit Agreement. Swedish Credit Facility In January 2022, the Company entered into a revolving credit facility for seasonal working capital needs of subsidiaries in Sweden (“Swedish Credit Facility”). As of March 31, 2023, we had $ 0.5 million outstanding and availability of approximately $ 4.4 million under the Swedish Credit Facility. During each year, all outstanding loans under the Swedish Credit Facility must be repaid for at least 30 consecutive days. Borrowings bear interest at a rate of 2.95 % per annum. The Swedish Credit Facility expires on December 31, 2023 and the Company intends to renew it annually. Finland Credit Agreement In January 2022, the Company also entered into an agreement guaranteed by certain accounts receivable and inventory in Finland (“Finland Credit Agreement”). As of March 31, 2023, there were $ 1.5 million of letters of credit outstanding against the Finland Credit Agreement. The Finland Credit Agreement expires on January 31, 2024 and the Company intends to renew it annually. Covenants Our credit agreements contain certain affirmative and negative covenants, including covenants that restrict the ability to pay dividends or other restricted payments. As of March 31, 2023, we are in compliance with all covenants under the credit agreements. NOTE 7 – COMMITMENTS AND CONTINGENCIES Litigation We are named defendants in several lawsuits and respondents in certain governmental proceedings arising in the ordinary course of business. While the outcome of lawsuits or other proceedings against us cannot be predicted with certainty, management does not consider it reasonably possible that a loss resulting from such lawsuits or other proceedings in excess of any amounts accrued has been incurred that is expected to have a material adverse impact on our financial condition, results of operations, or liquidity. We have a Bromine Requirements Sales Agreement (“Sales Agreement”) to purchase a certain volume of elemental bromine from LANXESS Corporation (formerly Chemtura Corporation) (“LANXESS”), included in Product Purchase Obligations below. LANXESS notified us of a proposed non-ordinary course increase to the price of bromine, which we believe is not justified nor appropriate under the Sales Agreement. After lengthy discussions, we and LANXESS were unable to reach an agreement regarding the validity of the proposed price increase; therefore, we filed for arbitration in May 2022 seeking declaratory relief, among other relief, declaring that the proposed price increase is invalid. In September 2022, LANXESS filed a counterclaim with the American Arbitration Association seeking declaratory relief, among other relief, declaring that the proposed price increase was valid and seeking damages in the amount of the price increase from July 1, 2022 forward. In October 2022, we filed a reply to LANXESS’ counterclaim disputing the counterclaim and amending our original demand. The arbitration is currently pending, and the final hearing is set to begin on March 4, 2024. Discussions with LANXESS regarding this arbitration are ongoing. We are unable to predict the duration, scope, or impact of this proceeding on our consolidated financial statements. There have been no other material developments in our legal proceedings during the quarter ended March 31, 2023. For additional discussion of our legal proceedings, please see our 2022 Annual Report . 13 Table of Contents Product Purchase Obligations In the normal course of our Completion Fluids & Products Division operations, we enter into supply agreements with certain manufacturers of various raw materials and finished products. Some of these agreements have terms and conditions that specify a minimum or maximum level of purchases over the term of the agreement. Other agreements require us to purchase the entire output of the raw material or finished product produced by the manufacturer. Our purchase obligations under these agreements apply only with regard to raw materials and finished products that meet specifications set forth in the agreements. We recognize a liability for the purchase of such products at the time we receive them. As of March 31, 2023, the aggregate amount of the fixed and determinable portion of the purchase obligation pursuant to our Completion Fluids & Products Division’s supply agreements was approximately $ 113.9 million, including $ 11.4 million for the remainder of 2023, an average of $ 17.9 million per year from 2024 to 2027 and $ 30.8 million thereafter, extending through 2029. Asset Purchase Obligation In March 2023, we signed a purchase and sale agreement to acquire a chemical plant in Brazil to expand our completion fluids operational capacity. The new facility is adjacent to our existing facility. and the purchase price is $ 3.2 million, consisting of $ 0.6 million due at closing and two payments of $ 1.3 million due on each of the first and second anniversary of closing. The acquisition is expected to close during the second quarter of 2023, subject to government approval. This investment, in addition to the Gulf of Mexico and North Sea investments during the fourth quarter of 2022, complete our planned expansions in three of our key offshore markets. 14 Table of Contents NOTE 8 – FAIR VALUE MEASUREMENTS Financial Instruments Investments We retained an interest in CSI Compressco representing approximately 3.7 % of CSI Compressco’s outstanding common units as of March 31, 2023 and in December 2021, we invested in a $ 5.0 million convertible note issued by CarbonFree. In addition, we receive cash and stock of Standard Lithium under the terms of our arrangements as noted in Note 5 - “Investments.” Our investments in CSI Compressco and Standard Lithium are recorded in investments on our consolidated balance sheets based on the quoted market stock price (Level 1 fair value measurements). The stock component of consideration received from Standard Lithium is initially recorded as unearned income based on the quoted market price at the time the stock is received, then recognized in income over the contract term. Changes in the value of stock are recorded in other (income) expense, net in our consolidated statements of operations. Our investment in CarbonFree is recorded in our consolidated financial statements based on an internal valuation with assistance from a third-party valuation specialist (a Level 3 fair value measurement). The valuation is impacted by key assumptions, including the assumed probability and timing of potential debt or equity offerings. The convertible note includes an option to convert the note into equity interests issued by CarbonFree. The change in the fair value of the embedded option is included in other (income) expense, net in our consolidated statements of operations. The change in the fair value of the convertible note, excluding the embedded option, is included in other comprehensive income (loss) in our consolidated statements of comprehensive income. The change in our investment in CarbonFree for the three-month period ended March 31, 2023 is as follows: Three Months Ended March 31, 2023 (in thousands) Balance at beginning of period $ 6,139 Change in fair value of embedded option ( 321 ) Change in fair value of convertible note, excluding embedded option 121 Balance at end of period $ 5,939 Recurring fair value measurements by valuation hierarchy as of March 31, 2023 and December 31, 2022 are as follows: Fair Value Measurements Using Total as of Quoted Prices in Active Markets for Identical Assets or Liabilities Significant Other Observable Inputs Significant Unobservable Inputs Description March 31, 2023 (Level 1) (Level 2) (Level 3) (in thousands) Investment in CSI Compressco $ 6,443 $ 6,443 $ — $ — Investment in CarbonFree 5,939 — — 5,939 Investment in Standard Lithium 1,520 1,520 — — Investments $ 13,902 15 Table of Contents Fair Value Measurements Using Total as of Quoted Prices in Active Markets for Identical Assets or Liabilities Significant Other Observable Inputs Significant Unobservable Inputs Description December 31, 2022 (Level 1) (Level 2) (Level 3) (in thousands) Investment in CSI Compressco $ 6,967 $ 6,967 $ — $ — Investment in CarbonFree 6,139 — — 6,139 Investment in Standard Lithium 1,180 1,180 — — Investments $ 14,286 Other The fair values of cash, restricted cash, accounts receivable, accounts payable, accrued liabilities, short-term borrowings and long-term debt pursuant to our Term Credit Agreement, ABL Credit Agreement, Argentina Credit Agreement, and Swedish Credit Agreement approximate their carrying amounts. See Note 6 - “Long-Term Debt and Other Borrowings” for further discussion. NOTE 9 – NET INCOME PER SHARE The following is a reconciliation of the weighted average number of common shares outstanding with the number of shares used in the computations of net income per common and common equivalent share: Three Months Ended March 31, 2023 2022 (in thousands) Number of weighted average common shares outstanding 128,940 127,259 Assumed vesting of equity awards 1,035 1,952 Average diluted shares outstanding 129,975 129,211 16 Table of Contents NOTE 10 – INDUSTRY SEGMENTS We manage our operations through two segments: Completion Fluids & Products Division and Water & Flowback Services Division. Summarized financial information concerning the business segments is as follows: Three Months Ended March 31, 2023 2022 (in thousands) Revenues from external customers Product sales Completion Fluids & Products Division $ 65,515 $ 69,888 Water & Flowback Services Division 20 167 Consolidated $ 65,535 $ 70,055 Services Completion Fluids & Products Division $ 3,527 $ 3,306 Water & Flowback Services Division 77,147 56,676 Consolidated $ 80,674 $ 59,982 Total revenues Completion Fluids & Products Division $ 69,042 $ 73,194 Water & Flowback Services Division 77,167 56,843 Consolidated $ 146,209 $ 130,037 Income (loss) before taxes Completion Fluids & Products Division $ 18,442 $ 19,292 Water & Flowback Services Division 6,378 2,682 Interdivision Eliminations — 3 Corporate Overhead (1) ( 17,286 ) ( 13,043 ) Consolidated $ 7,534 $ 8,934 (1) Amounts reflected include the following general corporate expenses: Three Months Ended March 31, 2023 2022 (in thousands) General and administrative expense $ 11,059 $ 10,346 Depreciation and amortization 109 191 Interest expense 5,460 3,647 Other general corporate (income) expense, net 658 ( 1,141 ) Total $ 17,286 $ 13,043 17 Table of Contents