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TETRA TECHNOLOGIES, INC. ANNOUNCES THIRD QUARTER 2023 FINANCIAL RESULTS AND PROVIDES UPDATE ON ARKANSAS BROMINE AND LITHIUM BRINE UNIT
  • Third quarter revenue of $151.5 million increased 12% year-over-year.
  • Net income before discontinued operations was $5.5 million and net income per share attributable to TETRA stockholders was $0.04, each improved from break-even in the same quarter a year ago.
  • Net cash provided by operating activities was $14.0 million while adjusted free cash flow was $7.1 million.
  • Adjusted EBITDA of $26.1 million increased 40% year-over-year.

THE WOODLANDS, Texas, Oct. 30, 2023 /PRNewswire/ -- TETRA Technologies, Inc. ("TETRA" or the "Company") (NYSE:TTI) today announced third quarter 2023 financial results. Brady Murphy, TETRA President and Chief Executive Officer, stated, "In addition to another strong financial performance, in the third quarter we achieved an important milestone in our Company's history with unanimous approval by the Arkansas Oil & Gas Commission ("AOGC") of the 6,138 acre joint brine unit application, giving TETRA and our partner the rights to develop and produce the brine for bromine production and future lithium production once the lithium royalty is established by the AOGC. In addition, we completed the data gathering and sampling operations for the second test well with results yielding lithium measurements in the upper Smackover as high as 646 mg/l, 35% higher than the first test well which was on the southern end of the unit that we reported in September 2022, and bromine values of 5,890 mg/l, in line with the first test well. These results are being used to update the lithium and bromine resource report which we plan to complete and release shortly.

On August 8, Standard Lithium Ltd. ("Standard Lithium") released a Preliminary Feasibility Study ("PFS") on its South West Arkansas Project, which is part of the roughly 35,000 gross acres held by TETRA and where Standard Lithium has the option to acquire lithium mineral rights. The Standard Lithium PFS indicates a base case production of 30,000 tonnes per annum of battery-quality lithium hydroxide monohydrate ("LHM"). The PFS also assumes a long-term selling price of battery-quality LHM of $30,000 per metric ton. Based on these assumptions, TETRA's illustrative royalties would be $22.5 million per year based on a 2.5% royalty on gross lithium revenues, without any investments required by TETRA. The PFS study stated that Standard Lithium is targeting construction in 2025 and commencing production in 2027. In October we received notice from Standard Lithium exercising the option in accordance with the 2017 option agreement.

Financial results for the third quarter are highlighted by year-on-year revenue growth of 12%, net income before discontinued operations growth of $5.5 million, and adjusted EBITDA growth of 40%. Net income was $5.4 million, inclusive of $3.7 million of non-recurring charges, net of credits, and compares to net income of $0.3 million in the third quarter of 2022, inclusive of $2.7 million of non-recurring charges, and to net income of $18.2 million in the second quarter of 2023, inclusive of $0.9 million of non-recurring credits, net of charges. Third quarter results included unrealized losses on investments of $0.6 million. Excluding these unrealized losses on investments, Adjusted EBITDA for the third quarter of 2023 was $26.6 million, or 18% of revenue. Completion Fluids & Products led the way with year-on-year revenue growth of 24%, net income before taxes and discontinued operations growth of 37% and Adjusted EBITDA growth of 52%, when adjusted for unrealized gains or losses on investments. Due to the strong Northern European industrial chemicals seasonality impact each year on the second quarter results, the third quarter performance can be compared to the first quarter performance. Compared to the first quarter, total Company revenues were up 4%, net income before discontinued operations was down 10%, and Adjusted EBITDA was up 27%. Both segments contributed to the Adjusted EBITDA growth as both segments achieved fall through of 100% or greater versus the first quarter, when excluding gains or losses from investments.

"Third quarter cash flow from operating activities was $14.0 million and compares to $2.1 million in the third quarter of 2022 and to $28.4 million in the second quarter of 2023. Adjusted free cash flow was $7.1 million in the third quarter of 2023 and compares to a use of cash of $9.8 million in the third quarter of 2022 and to cash flow of $17.7 million in the second quarter of 2023. Working capital at the end of the third quarter was $110 million and represents a slight increase from the prior quarter due to a temporary build in inventory which is expected to be monetized as products are shipped for future projects. Working capital is defined as current assets, excluding cash and restricted cash, less current liabilities.

"Completion Fluids & Products revenue of $73 million increased 24% year-on-year driven by another robust performance in our industrial calcium chloride business where utilization and production volumes remained strong. Higher offshore activity year-on-year also drove higher demand for our high value completion fluids products. Sequentially, revenue decreased 25% reflecting the seasonal decrease in our Northern Europe industrial calcium chloride business. Net income before taxes for the quarter was $16.9 million (23.1% of revenue) and compares to $12.4 million (20.9% of revenue) in the third quarter of 2022 and to $32.0 million (32.5% of revenue) in the second quarter of 2023. Adjusted EBITDA was $20.9 million (28.6% of revenue) and compares to $14.7 million (24.9% of revenue in the third quarter of 2022 and to $31.8 million (32.4% of revenue) in the second quarter of 2023. The third quarter included $1.2 million in net unrealized losses from investments. Excluding unrealized losses from investments. Adjusted EBITDA margins were 30.2% and above the 30% mark for two consecutive quarters.

"In the third quarter, we were awarded a multi-year, multi-well contract extension with one of the most active deepwater supermajors in the Gulf of Mexico, further validating our market position in the region. Kimberlite International Oilfield Research  published an updated 2023 Completion Fluids Offshore Supplier Analysis where TETRA remained ranked as the top supplier in the Gulf of Mexico for product quality and overall performance. Kimberlite is an international oil & gas market research and consulting company that uses data collected from one-on-one interviews with operators to assess market trends and establish performance benchmarks for oilfield equipment and service suppliers. The report indicated that TETRA continues to receive the highest customer loyalty ratings as measured by the net promoter score.

"Water & Flowback Services revenue of $78 million improved modestly by 3% year-on-year while remaining flat sequentially. The increase in revenue was driven by international operations. U.S. revenue was relatively flat, even though the U.S. onshore average rig count was down nearly 15% and active frac fleets were down nearly 5% from the third quarter of last year. Net income before taxes for the quarter was $8.5 million (10.8% of revenue) and compares to $6.5 million (9% of revenue) in the third quarter of 2022 and to $8.0 million (10.4% of revenue) in the second quarter of 2023. Adjusted EBITDA of $14.8 million improved by $1.7 million (13%) year-on-year and by $0.6 million (4%) quarter-over-quarter. Water & Flowback Services Adjusted EBITDA margins continued to improve (up 60 basis points from 18.4% in the second quarter of 2023 to 19.0% in the third quarter of 2023) despite the pullback in fracking activity and achieved the Company's target set earlier this year. The 19.0% margins are the highest margins achieved since the fourth quarter of 2018 and the fourth consecutive quarter of margin improvement, reflecting our focus on technology and automation. We have been successful in maintaining stable pricing for our differentiated products and services meanwhile continuing to drive cost-reduction efforts in our US land business, which helped us achieve sequential Adjusted EBITDA margin fall-through greater than 60%.

"In October, we sold one of the three early production facilities ("EPF") in Argentina to the operator for an amount in excess of $5 million, with all the cash proceeds received in October. TETRA will continue to operate and maintain the EPF on behalf of the operator for a fixed monthly fee. We are currently in the process of expanding the EPF to process greater volumes of oil and are in discussions with this same operator to potentially construct 1 to 3 additional facilities in the future.

"Our target to have the engineering completed for our first produced water desalination plant for beneficial re-use applications is on track for year end or early part of 2024. In parallel to the engineering design work, we are in commercial discussions with one of the largest North America shale producers for their beneficial re-use projects in multiple unconventional basins and expect to have our first project awarded shortly.

"Finally, we anticipate strong cash from operating activities and Adjusted Free Cash Flow in the fourth quarter, driven by the cash proceeds from the EPF sale and working capital improvements. Total year 2023 cash from operating activities is expected to be between $70 million and $79 million while Adjusted Free Cash Flow is expected to be between $35 million and $40 million. Cash generation from our existing businesses positions us to continue investing in the evaluation and development of our Arkansas bromine and lithium assets."

This press release includes the following financial measures that are not presented in accordance with generally accepted accounting principles in the United States ("GAAP"): Adjusted net income per share, Adjusted EBITDA, and Adjusted EBITDA Margin (Adjusted EBITDA as a percent of revenue) on consolidated and segment basis, adjusted net income, adjusted free cash flow, net debt, net leverage ratio and return on capital employed. Please see Schedules E through K for reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures.

Third Quarter Results and Highlights

A summary of key financial metrics for the third quarter are as follows:

Third Quarter 2023 Results



Three Months Ended


September 30,
2023


June 30,
2023


September 30,
2022


(in thousands, except per share amounts)

Revenue

$              151,464


$              175,463


$              135,012

Income before discontinued operations

5,468


18,205


(63)

Adjusted EBITDA

26,059


36,046


18,595

Net income attributable to TETRA stockholders

0.04


0.14


0.00

Adjusted net income per share

0.07


0.13


0.00

Net cash provided by operating activities

13,974


28,372


2,145

Adjusted free cash flow

$                  7,073


$                17,711


$                (9,774)

 

Free Cash Flow, Balance Sheet and Income Taxes

Cash from operating activities was $14.0 million in the third quarter and adjusted free cash flow from continuing operations was $7.1 million. Liquidity at the end of the third quarter was $107 million, an improvement over the second quarter. Liquidity is defined as unrestricted cash plus availability under our revolving credit facilities. At the end of the third quarter, unrestricted cash was $34 million and availability under our credit agreements was $73 million. Long-term debt, primarily with a September 2025 maturity, was $159 million, while net debt was $125 million. TETRA's net leverage ratio improved to 1.4X at the end of the third quarter of 2023, down from 1.5X as of June 30, 2023 and down from almost 2.0X at the end of the fourth quarter of 2022. As of September 30, 2023, TETRA held $9.5 million in total marketable securities between its holdings in CSI Compressco and Standard Lithium. TETRA's return on net capital employed improved to 20.7% at the end of the third quarter of 2023, up from 18.2% as of June 30, 2023.

Non-recurring Charges and Expenses

Non-recurring credits, charges and expenses are reflected on Schedule E and include the following:

  • $1.8 million of costs associated with our Arkansas bromine and lithium project including evaluating the second test well as well as ongoing engineering and design work net of the amounts recovered from Saltwerx consistent with the recently completed Memorandum of Understanding ("MOU").
  • $1.1 million of non-cash stock appreciation right expense and $0.5 million of adjustments to long-term incentives.

Unrealized losses on investments totaling $0.6 million are included in both reported and adjusted earnings.

Conference Call

TETRA will host a conference call to discuss these results tomorrow, October 31, at 10:30 a.m. Eastern Time. The phone number for the call is 1-888-347-5303. The conference call will also be available by live audio webcast. A replay of the conference call will be available at 1-877-344-7529 conference number 4719291, for one week following the conference call and the archived webcast will be available through the Company's website for thirty days following the conference call.

Investor Contact

For further information, please contact Elijio Serrano, CFO, TETRA Technologies, Inc. at (281) 367-1983 or via email at eserrano@tetratec.com or Rigo Gonzalez, Manager of Corporate Finance and Investor Relations, at (281) 364-2213 or via email at rgonzalez@tetratec.com.

Financial Statements, Schedules and Non-GAAP Reconciliation Schedules (Unaudited)

Schedule A:   Consolidated Income Statement
Schedule B:   Condensed Consolidated Balance Sheet
Schedule C:   Consolidated Statements of Cash Flows
Schedule D:   Statement Regarding Use of Non-GAAP Financial Measures
Schedule E:   Non-GAAP Reconciliation of Adjusted Net Income
Schedule F:   Non-GAAP Reconciliation of Adjusted EBITDA
Schedule G:   Non-GAAP Reconciliation of Net Debt
Schedule H:   Non-GAAP Reconciliation to Adjusted Free Cash Flow
Schedule I:     Non-GAAP Reconciliation to Net Leverage Ratio
Schedule J:    Non-GAAP Reconciliation to Return on Capital Employed
Schedule K:   Non-GAAP Reconciliation to Adjusted Free Cash Flow – Full Year Guidance

Company Overview

TETRA Technologies, Inc. is an energy services and solutions company operating on six continents with a focus on bromine-based completion fluids, calcium chloride, water management solutions, frac flowback, and production well testing services. Calcium chloride is used in the oil and gas, industrial, agricultural, road, food, and beverage markets. TETRA is evolving its business model by expanding into the low carbon energy markets with its chemistry expertise, key mineral acreage, and global infrastructure. Low carbon energy initiatives include commercialization of TETRA PureFlow®, an ultra-pure zinc bromide clear brine fluid for stationary batteries and energy storage; advancing an innovative carbon capture utilization and storage technology with CarbonFree to capture CO2 and mineralize emissions to make commercial, carbon-negative chemicals; and development of TETRA's lithium and bromine mineral acreage to meet the growing demand for oil and gas products and energy storage. Visit the Company's website at www.tetratec.com for more information.

Cautionary Statement Regarding Forward Looking Statements

This news release includes certain statements that are deemed to be forward-looking statements. Generally, the use of words such as "may," "see," "expectation," "expect," "intend," "estimate," "projects," "anticipate," "believe," "assume," "could," "should," "plans," "targets" or similar expressions that convey the uncertainty of future events, activities, expectations or outcomes identify forward-looking statements that the Company intends to be included within the safe harbor protections provided by the federal securities laws. These forward-looking statements include statements concerning economic and operating conditions that are outside of our control, including statements concerning recovery of the oil and gas industry; customer delays for international completion fluids related to global shipping and logistics issues; potential revenue associated with prospective energy storage projects or our pending carbon capture partnership; inferred mineral resources of lithium and bromine, the potential extraction of lithium and bromine from the leased acreage, including the acreage subject to Standard Lithium's option, the economic viability thereof, the demand for such resources, the timing and costs of such activities, and the expected revenues and profits from such activities, including the illustrative royalty revenue associated with the Standard Lithium option; the ability to obtain an indicated or measured resources report and initial economic assessment regarding our lithium and bromine acreage; projections or forecasts concerning the Company's business activities, financial guidance, profitability, estimated earnings, earnings per share, and statements regarding the Company's beliefs, expectations, plans, goals, future events and performance, and other statements that are not purely historical. With respect to the Company's disclosures of inferred mineral resources, including bromine and lithium carbonate equivalent concentrations, it is uncertain if further exploration will ever result in the estimation of a higher category of mineral resource or a mineral reserve. Inferred mineral resources are considered to have the lowest level of geological confidence of all mineral resources. Investors are cautioned that mineral resources do not have demonstrated economic value. Inferred mineral resources have a high degree of uncertainty as to their existence and to whether they can be economically or legally commercialized. A significant amount of exploration must be completed in order to determine whether an inferred mineral resource may be upgraded to a higher category. Therefore, you are cautioned not to assume that all or any part of an inferred mineral resource exists, that it can be economically or legally commercialized, or that it will ever be upgraded to a higher category. These forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Such statements are subject to a number of risks and uncertainties, many of which are beyond the control of the Company. 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. Investors are cautioned that any such statements are not guarantees of future performances or results and that actual results or developments may differ materially from those projected in the forward-looking statements. Some of the factors that could affect actual results are described in the section titled "Risk Factors" contained in the Company's Annual Reports on Form 10-K, as well as other risks identified from time to time in its reports on Form 10-Q and Form 8-K filed with the Securities and Exchange Commission. Investors should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement, and the Company undertakes no obligation to update or revise any forward-looking statements, except as may be required by law.

Schedule A: Consolidated Income Statement (Unaudited)



Three Months Ended


September 30,
2023


June 30,
2023


September 30,
2022


(in thousands, except per share amounts)

Revenues

$                    151,464


$                    175,463


$                    135,012







Cost of sales, services, and rentals

104,962


117,074


96,905

Depreciation, amortization, and accretion

8,578


8,457


8,634

Impairments and other charges


777


Total cost of revenues

113,540


126,308


105,539

Gross profit

37,924


49,155


29,473

Exploration and appraisal costs

3,775


2,341


936

General and administrative expense

23,838


26,225


23,833

Interest expense, net

5,636


5,944


3,999

Other (income) expense, net

(2,041)


(6,435)


(1,410)

Income before taxes and discontinued operations

6,716


21,080


2,115

Provision (benefit) for income taxes

1,248


2,875


2,178

Income (loss) before discontinued operations

5,468


18,205


(63)

Discontinued operations:






Income (loss) from discontinued operations, net of taxes

(48)


(8)


319

Net income

5,420


18,197


256

Loss attributable to noncontrolling interest


18


22

Net income attributable to TETRA stockholders

$                         5,420


$                       18,215


$                            278







Basic per share information:






Income from continuing operations

$                           0.04


$                           0.14


$                           0.00

Net income attributable to TETRA stockholders

$                           0.04


$                           0.14


$                           0.00

Weighted average shares outstanding

129,777


129,460


128,407







Diluted per share information:






Income from continuing operations

$                           0.04


$                           0.14


$                           0.00

Net income attributable to TETRA stockholders

$                           0.04


$                           0.14


$                           0.00

Weighted average shares outstanding

132,089


129,925


128,407

 

Schedule B: Condensed Consolidated Balance Sheet (Unaudited)



September 30,
2023


December 31,
2022


(in thousands)


(unaudited)



ASSETS




Current assets:




Cash and cash equivalents

$            33,826


$            13,592

Trade accounts receivable

122,900


129,631

Inventories

92,128


72,113

Prepaid expenses and other current assets

21,575


23,112

Total current assets

270,429


238,448

Property, plant, and equipment, net

106,079


101,580

Other intangible assets, net

30,132


32,955

Operating lease right-of-use assets

34,227


33,818

Investments

16,405


14,286

Other assets

15,147


13,279

Total long-term assets

201,990


195,918

Total assets

$          472,419


$          434,366

LIABILITIES AND EQUITY




Current liabilities:




Trade accounts payable

$            50,322


$            49,121

Current portion of long-term debt

1,911


3

Compensation and employee benefits

31,090


30,958

Operating lease liabilities, current portion

8,745


7,795

Accrued taxes

10,777


9,913

Accrued liabilities and other

23,281


25,557

Current liabilities associated with discontinued operations

414


920

Total current liabilities

126,540


124,267

Long-term debt, net

156,748


156,455

Operating lease liabilities

28,013


28,108

Asset retirement obligations

14,132


13,671

Deferred income taxes

1,890


2,038

Other liabilities

3,959


3,430

Total long-term liabilities

204,742


203,702

Commitments and contingencies




TETRA stockholders' equity

142,393


107,625

Noncontrolling interests

(1,256)


(1,228)

Total equity

141,137


106,397

Total liabilities and equity

$          472,419


$          434,366

 

Schedule C: Consolidated Statements of Cash Flows (Unaudited)



Three Months Ended


September 30,
2023


June 30,
2023


September 30,
2022


(in thousands)

Operating activities:






Net income

$                5,420


$              18,197


$                   256

Adjustments to reconcile net income (loss) to net cash provided by operating activities:






Depreciation, amortization, and accretion

8,578


8,457


8,634

Impairments and other charges


777


(Gain) loss on investments

560


(908)


549

Equity-based compensation expense

1,431


1,492


1,098

Provision for (recovery of) credit losses

(530)


741


(213)

Amortization and expense of financing costs

926


897


805

Gain on sale of assets

(151)


(111)


(261)

Provision (benefit) for deferred taxes

(780)


(23)


(10)

Other non-cash credits

(204)


(614)


(102)

Changes in operating assets and liabilities:






Accounts receivable

8,114


(13,140)


(2,080)

Inventories

(11,441)


2,764


(10,226)

Prepaid expenses and other current assets

(929)


(2,254)


(1,500)

Trade accounts payable and accrued expenses

2,450


11,622


5,884

Other

530


475


(689)

Net cash provided by operating activities

13,974


28,372


2,145

Investing activities:






Purchases of property, plant, and equipment, net

(6,966)


(10,490)


(12,266)

Proceeds from sale of property, plant, and equipment

161


208


295

Purchase of investments

(100)


(250)


Other investing activities

(9)


(275)


(390)

Net cash used in investing activities

(6,914)


(10,807)


(12,361)

Financing activities:






Proceeds from credit agreements and long-term debt

215


44,413


28

Principal payments on credit agreements and long-term debt

(204)


(50,875)


(25)

Payments on financing lease obligations

(148)


(431)


Net cash (used in) provided by financing activities

(137)


(6,893)


3

Effect of exchange rate changes on cash

(772)


320


(872)

Increase (decrease) in cash and cash equivalents

6,151


10,992


(11,085)

Cash and cash equivalents at beginning of period

27,675


16,683


36,332

Cash and cash equivalents at end of period

$              33,826


$              27,675


$              25,247







Supplemental cash flow information:






Interest paid

$                4,870


$                4,899


$                3,522

Income taxes paid

1,906


654


1,055

Increase (decrease) in accrued capital expenditures

(1,871)


652


(2,389)

 

Schedule D: Statement Regarding Use of Non-GAAP Financial Measures

In addition to financial results determined in accordance with U.S. GAAP, this press release may include the following non-GAAP financial measures for the Company: adjusted net income per share; consolidated and segment Adjusted EBITDA; segment Adjusted EBITDA as a percent of revenue ("Adjusted EBITDA margin"); adjusted net income, adjusted free cash flow; net debt, net leverage ratio, and return on capital employed. The following schedules provide reconciliations of these non-GAAP financial measures to their most directly comparable U.S. GAAP measures. The non-GAAP financial measures should be considered in addition to, not as a substitute for, financial measures prepared in accordance with U.S. GAAP, as more fully discussed in the Company's financial statements and filings with the Securities and Exchange Commission.

Management believes that the exclusion of the special charges and credits from the historical results of operations enables management to evaluate more effectively the Company's operations over the prior periods and to identify operating trends that could be obscured by the excluded items.

Adjusted net income is defined as the Company's income before noncontrolling interests and discontinued operations, excluding certain special or other charges (or credits), and including noncontrolling interest attributable to continued operations. Adjusted net income 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.

Adjusted net income per share is defined as the Company's diluted net income per share attributable to TETRA stockholders excluding certain special or other charges (or credits). Adjusted net income per share 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.

Adjusted EBITDA is defined as net income before taxes and discontinued operations, excluding impairments, exploration and pre-development costs, income from collaborative arrangement, certain special, non-recurring or other charges (or credits), interest, depreciation and amortization and certain non-cash items such as equity-based compensation expense. The most directly comparable GAAP financial measure is net income (loss) before taxes and discontinued operations. Exploration and pre-development costs represent expenditures incurred to evaluate potential future development of TETRA's lithium and bromine properties in Arkansas. Such costs include exploratory drilling and associated engineering studies. Income from collaborative arrangement represents the portion of exploration and pre-development costs that are reimbursable by our strategic partner. Exploration and pre-development costs and the associated income from collaborative arrangement are excluded from Adjusted EBITDA because they do not relate to the Company's current business operations. Adjustments to long-term incentives represent cumulative adjustments to valuation of long-term cash incentive compensation awards that are related to prior years. These costs are excluded from Adjusted EBITDA because they do not relate to the current year and are considered to be outside of normal operations. 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.

Adjusted free cash flow is defined as cash from operations less capital expenditures net of sales proceeds and cost of equipment sold, less payments on financing lease obligations and including cash distributions to TETRA from CSI Compressco and cash from other investments. Management uses this supplemental financial measure to:

  • assess the Company's ability to retire debt;
  • evaluate the capacity of the Company to further invest and grow; and
  • to measure the performance of the Company as compared to its peer group.

Adjusted free cash flow does not necessarily imply residual cash flow available for discretionary expenditures, as they exclude cash requirements for debt service or other non-discretionary expenditures that are not deducted.

Net debt is defined as the sum of the carrying value of long-term and short-term debt on its consolidated balance sheet, less cash, excluding restricted cash on the balance sheet. Management views net debt as a measure of TETRA's ability to reduce debt, add to cash balances, pay dividends, repurchase stock, and fund investing and financing activities.

Net leverage ratio is defined as debt excluding financing fees & discount on term loan and including letters of credit and guarantees, less cash divided by trailing twelve months adjusted EBITDA for credit facilities. Adjusted EBITDA for credit facilities consists of adjusted EBITDA described above, less non-cash (gain) loss on sale of investments, (gain) loss on sales of assets and excluding certain special or other charges (or credits). Management primarily uses this metric to assess TETRA's ability to borrow, reduce debt, add to cash balances, pay distributions, and fund investing and financing activities.

Return on capital employed is defined as Adjusted EBIT divided by average net capital employed. Adjusted EBIT is defined as net income (loss) before taxes and discontinued operations, interest, and certain non-cash charges, and non-recurring adjustments. Net capital employed is defined as assets, excluding assets associated with discontinued operations, plus impaired assets, less cash and cash equivalents and restricted cash, and less current liabilities, excluding current liabilities associated with discontinued operations. Average net capital employed is calculated as the average of the beginning and ending net capital employed for the respective periods. Return on capital employed is used by management as a supplemental financial measure to assess the financial performance of the Company relative to assets, without regard to financing methods or capital structure.

Schedule E: Non-GAAP Reconciliation of Adjusted Net Income (Unaudited)



Three Months Ended


September 30,
2023


June 30,
2023


September 30,
2022


(in thousands, except per share amounts)







Income before taxes and discontinued operations

$                6,716


$              21,080


$                2,115

Provision (benefit) for income taxes

1,248


2,875


2,178

Noncontrolling interest attributed to continuing operations


18


22

Income (loss) from continuing operations

5,468


18,187


(85)

Insurance recoveries

174


(5)


Impairments and other charges


777


Exploration and pre-development costs

3,775


2,341


936

Adjustment to long-term incentives

500


322


1,731

Former CEO stock appreciation right expense

1,074


329


Transaction, legal, and other expenses

108


57


82

Income from collaborative arrangement

(1,933)


(4,749)


Adjusted net income

$                9,166


$              17,259


$                2,664







Diluted per share information






Net income attributable to TETRA stockholders

$                  0.04

0

$                  0.14


$                  0.00

Adjusted net income

$                  0.07


$                  0.13


$                  0.02

Diluted weighted average shares outstanding

132,089


129,925


128,407

 

Schedule F: Non-GAAP Reconciliation of Adjusted EBITDA (Unaudited)



Three Months Ended September 30, 2023


Completion Fluids & Products


Water & Flowback Services


Corporate SG&A


Other and Eliminations


Total


(in thousands, except percents)

Revenues

$      73,210


$      78,254


$                  —


$                  —


$    151,464

Net income (loss) before taxes and

discontinued operations

16,932


8,475


(13,552)


(5,139)


6,716

Insurance recoveries

174





174

Exploration and pre-development costs

3,775





3,775

Adjustment to long-term incentives



500



500

Former CEO stock appreciation right expense



1,074



1,074

Transaction and other expenses



108



108

Income from collaborative arrangement

(1,933)





(1,933)

Interest expense, net

(309)


190



5,755


5,636

Depreciation, amortization and accretion

2,301


6,176



101


8,578

Equity-based compensation expense



1,431



1,431

Adjusted EBITDA

$      20,940


$      14,841


$        (10,439)


$               717


$      26,059











Adjusted EBITDA as a % of revenue

28.6 %


19.0 %






17.2 %












Three Months Ended June 30, 2023


Completion Fluids & Products


Water & Flowback Services


Corporate SG&A


Other and Eliminations


Total


(in thousands, except percents)

Revenues

$      98,222


$      77,241


$                  —


$                  —


$    175,463

Net income (loss) before taxes and

discontinued operations

31,956


8,014


(12,595)


(6,295)


21,080

Insurance recoveries

(5)





(5)

Impairments and other charges



777



777

Exploration and pre-development costs

2,341





2,341

Adjustment to long-term incentives



322



322

Former CEO stock appreciation right expense



329



329

Transaction and other expenses



57



57

Income from collaborative arrangements

(4,749)





(4,749)

Interest (income) expense, net

104


27



5,813


5,944

Depreciation, amortization and accretion

2,193


6,172



93


8,458

Equity-based compensation expense



1,492



1,492

Adjusted EBITDA

$      31,840


$      14,213


$          (9,618)


$             (389)


$      36,046











Adjusted EBITDA as a % of revenue

32.4 %


18.4 %






20.5 %




Three Months Ended September 30, 2022


Completion Fluids & Products


Water & Flowback Services


Corporate SG&A


Other and Eliminations


Total


(in thousands, except percents)

Revenues

$      59,163


$      75,849


$                  —


$                  —


$    135,012

Net income (loss) before taxes and

discontinued operations

12,357


6,482


(11,968)


(4,756)


2,115

Exploration and pre-development costs

936





936

Adjustment to long-term incentives



1,731



1,731

Transaction and other expenses


82




82

Interest (income) expense, net

(436)


(2)



4,437


3,999

Depreciation, amortization and accretion

1,846


6,626



162


8,634

Equity-based compensation expense



1,098



1,098

Adjusted EBITDA

$      14,703


$      13,188


$          (9,139)


$             (157)


$      18,595











Adjusted EBITDA as a % of revenue

24.9 %


17.4 %






13.8 %

 

Schedule G: Non-GAAP Reconciliation of Net Debt (Unaudited)

The following reconciliation of net debt is presented as a supplement to financial results prepared in accordance with GAAP.



September 30,
2023


December 31,
2022


(in thousands)

Unrestricted Cash

$                      33,826


$                      13,592





Term Credit Agreement

$                    156,748


$                    154,570

Asset-Based Credit Agreement


1,885

Argentina Credit Agreement

1,900


Swedish Credit Facility

11


3

Net debt

$                    124,833


$                    142,866

 

Schedule H: Non-GAAP Reconciliation to Adjusted Free Cash Flow (Unaudited)



Three Months Ended


Nine Months Ended


September 30,
2023


June 30,
2023


September 30,
2022


September 30,
2023


September 30,
2022


(in thousands)

Cash from operating activities

$              13,974


$              28,372


2,145


$          51,331


$          25,948

Capital expenditures, net of proceeds from asset sales

(6,805)


(10,282)


(11,971)


(29,582)


(31,189)

Payments on financing lease obligations

(148)


(431)



(837)


(1,174)

Distributions from CSI Compressco LP (1)

52


52


52



157

Adjusted Free Cash Flow

$                7,073


$              17,711


$              (9,774)


$          20,912


$          (6,258)



(1)

Following the GP Sale on January 29, 2021, TETRA retained an investment CSI Compressco representing a 3.7% limited partner interest as of September 30, 2023.

 

Schedule I: Non-GAAP Reconciliation to Net Leverage Ratio (Unaudited)



Three Months Ended


Twelve
Months Ended


September 30,
2023


June 30,
2023


March 31,
2023


December 31,
2022


September 30,
2023


(in thousands)

Net income (loss) before taxes and

discontinued operations

$              6,716


$            21,080


$               7,534


$            (1,163)


$             34,167

Insurance recoveries

174


(5)


(2,850)



(2,681)

Impairments and other charges


777



542


1,319

Exploration and pre-development costs

3,775


2,341


720


3,135


9,971

Adjustment to long-term incentives

500


322


353


131


1,306

Former CEO stock appreciation right expense (credit)

1,074


329


(307)


(57)


1,039

Transaction, restructuring and other expenses

108


57


82


576


823

Income from collaborative arrangement

(1,933)


(4,749)




(6,682)

Adjusted interest expense, net

5,636


5,944


5,092


4,900


21,572

Adjusted depreciation and amortization

8,578


8,458


8,670


8,758


34,464

Equity compensation expense

1,431


1,492


1,293


3,519


7,735

Acquisition trailing EBITDA




503


503

Non-cash (gain) loss on investments

560


(907)


504


(286)


(129)

Gain on sale of assets

(151)


(112)


(170)


(190)


(623)

Other debt covenant adjustments

426




249


675

Debt covenant adjusted EBITDA

$            26,894


$            35,027


$            20,921


$            20,617


$           103,459




















September 30,
2023










(in thousands,
except ratio)

Term credit agreement









$           163,071

ABL credit agreement









Argentina credit agreement









1,900

Swedish credit agreement









11

ABL letters of credit and guarantees









11,457

Total debt and commitments









176,439

Unrestricted cash









33,826

Debt covenant net debt and commitments








$           142,613

Net leverage ratio









1.4

 

Schedule J: Non-GAAP Reconciliation to Return on Net Capital Employed



Three Months Ended


Twelve
Months Ended


September 30,
2023


June 30,
2023


March 31,
2023


December 31,
2022


September 30,
2023


(in thousands)

Net income (loss) before taxes and

discontinued operations

$              6,716


$            21,080


$               7,534


$         (1,163)


$             34,167

Insurance recoveries

174


(5)


(2,850)



(2,681)

Impairments and other charges


777



542


1,319

Exploration and pre-development costs

3,775


2,341


720


3,135


9,971

Adjustment to long-term incentives

500


322


353


131


1,306

Former CEO stock appreciation right expense (credit)

1,074


329


(307)


(57)


1,039

Transaction, restructuring and other expenses

108


57


82


576


823

Income from collaborative arrangement

(1,933)


(4,749)




(6,682)

Adjusted interest expense, net

5,636


5,944


5,092


4,900


21,572

Other adjustments

426




249


675

Adjusted EBIT

$            16,476


$            26,096


$            10,624


$          8,313


$             61,509


















September 30,
2023


September 30,
2022








(in thousands, except ratio)

Consolidated total assets







$      472,419


$           413,486

Plus: assets impaired in last twelve months




1,319


2,394

Less: cash, cash equivalents and restricted cash




33,826


25,247

Adjusted assets employed







$      439,912


$           390,633











Consolidated current liabilities







$      126,540


$           111,504

Less: current liabilities associated with discontinued operations




414


919

Adjusted current liabilities







$      126,126


$           110,585











Net capital employed







$      313,786


$           280,048

Average net capital employed






$      296,917



Return on net capital employed for the

twelve months ended September 30, 2023




20.7 %



 

Schedule K: Non-GAAP Reconciliation of Adjusted Free Cash Flow (Unaudited) – Full Year Guidance




Twelve Months Ending
December 31, 2023


(in millions)

Cash from operating activities


$70 - $79

Capital expenditures, net of proceeds from asset sales


(38) - (42)

Cash received from other investments


4

Payments on financing lease obligations


(1)

Adjusted Free Cash Flow


$35 - $40

 

TETRA Technologies, Inc. logo. (PRNewsFoto/TETRA Technologies, Inc.)

 

SOURCE TETRA Technologies, Inc.