8-K: TETRA Technologies Announces Mixed First Quarter Results Amid Strategic Advances

TETRA Technologies reported a 3% year-over-year revenue increase for the first quarter of 2024, alongside a net income of $915,000, while also highlighting progress in strategic initiatives.

Summary

• TETRA Technologies' first quarter 2024 revenue reached $151 million, a 3% increase compared to the same period last year.
• Net income for the quarter was $915,000, or $0.01 per share, but adjusted net income per share was $0.05 when excluding unusual items.
• The company experienced a net cash outflow from operating activities of $13.8 million, with an adjusted free cash flow use of $29.6 million.
• Adjusted EBITDA for the quarter was $22.8 million, an 11% increase year-over-year.
• Completion Fluids & Products revenue grew by 12% year-over-year, with adjusted EBITDA margins of 28.1%.
• Water & Flowback Services revenue decreased by 4.5% year-over-year, with adjusted EBITDA margins of 9.6%.
• The company refinanced its term loan, securing capital for the bromine project and extending the maturity to 2030.
• Working capital increased by $30 million from the prior quarter to $134 million.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to strong performance in Completion Fluids & Products and progress in strategic initiatives, but tempered by negative cash flow and weakness in Water & Flowback Services.

Positives

• Completion Fluids & Products business showed strong performance with a 12% year-over-year revenue growth.
• Adjusted EBITDA margins for Completion Fluids & Products were a robust 28.1%.
• The company successfully refinanced its term loan, securing funding for the bromine project and extending the maturity to 2030.
• Strategic initiatives, including the desalination of produced water and the lithium joint venture, are advancing positively.
• The company expects Water & Flowback Services Adjusted EBITDA margins to rebound to the mid-teens in the second quarter.
• Deepwater projects are lining up for the year, positively impacting the high-value completion fluids business.
• The company's pipeline of CS Neptune projects is growing with a confirmed job in the North Sea in June.

Negatives

• Net cash used in operating activities was $13.8 million.
• Adjusted free cash flow was a use of $29.6 million.
• Water & Flowback Services revenue declined by 4.5% year-over-year.
• Water & Flowback Services Adjusted EBITDA margins decreased to 9.6%.
• The company experienced some one-off costs in the Water Services business.
• Accounts receivable increased by $20.6 million sequentially due to the timing of revenue.

Risks

• The company's Water & Flowback Services business experienced a decline in revenue and margins due to a slowdown in North America onshore completion activity.
• There were one-off costs in the Water Services business that impacted margins.
• The company's adjusted free cash flow was negative, indicating a cash outflow.
• The company's working capital increased by $30 million, which may require management.
• The company's strategic initiatives, including lithium and bromine projects, are subject to uncertainties related to development and commercialization.

Future Outlook

The company is encouraged by the outlook for 2024 and beyond, with an improving base business and strategic initiatives coming into focus. They anticipate Water & Flowback Services revenues to be more in-line with pre-year end activity decline and Adjusted EBITDA margins returning to the mid-teens in the second quarter. Completion Fluids & Products is expected to exceed results for the second half of 2023 in the first half of 2024.

Management Comments

• Overall first quarter results were in-line with our expectations as Completion Fluids and Products Adjusted EBITDA margins of 28.1% more than offset an anticipated weaker Water & Flowback Services start to the year.
• We are very encouraged with the deepwater projects that are lining up for the year and the impact that those have on our high-value completion fluids business.
• We also expect Water & Flowback Services Adjusted EBITDA margins to rebound to the mid-teens in the second quarter.
• Each of our strategic initiatives are all advancing in very positive directions.
• With an improving base business and exciting strategic initiatives that are coming into focus, we are very encouraged with the outlook for 2024 and beyond.
• Our Completion Fluids and Products business continues with strong performance with 12% year-on-year revenue growth and 28.1% adjusted EBITDA margins driven largely by 15 deepwater completion operations in the quarter.
• Looking ahead to the second quarter, we anticipate Water & Flowback Services revenues to be more in-line with the pre-year end activity decline and Adjusted EBITDA margins returning to the mid-teens while offshore activity continues with strong momentum and our industrial chemicals business ramps up for its seasonal peak.

Industry Context

The results reflect the cyclical nature of the oil and gas industry, with a slowdown in North America onshore activity impacting the Water & Flowback Services segment, while the Completion Fluids & Products segment benefited from strong deepwater activity. The company's strategic initiatives in lithium and bromine align with the broader industry trend towards energy transition and diversification.

Comparison to Industry Standards

• TETRA's Completion Fluids & Products segment's 28.1% adjusted EBITDA margin is strong compared to industry averages, suggesting a competitive advantage in this area.
• The 12% year-over-year revenue growth in Completion Fluids & Products is a positive indicator, potentially outperforming some competitors in the sector.
• The decline in Water & Flowback Services revenue and margins highlights the challenges faced by companies exposed to onshore activity slowdowns, which is a common theme in the industry.
• The company's strategic initiatives in lithium and bromine are in line with the industry's move towards diversification and energy transition, similar to companies like Albemarle and Livent in the lithium space.
• The refinancing of the term loan and securing capital for the bromine project is a positive step, similar to other companies securing funding for growth projects.

Stakeholder Impact

• Shareholders may be encouraged by the strong performance in Completion Fluids & Products and the progress in strategic initiatives.
• Employees in the Completion Fluids & Products segment may benefit from the positive performance.
• Customers of the Completion Fluids & Products segment may experience continued high-quality service.
• Suppliers to the Completion Fluids & Products segment may see increased demand.
• Creditors may be reassured by the successful refinancing of the term loan.

Next Steps

• The company will host a conference call on May 1, 2024, to discuss the results.
• The company expects Water & Flowback Services Adjusted EBITDA margins to rebound to the mid-teens in the second quarter.
• The company will continue to advance its strategic initiatives, including the desalination of produced water, Eos Energy Enterprises battery electrolyte ramp-up, and the lithium joint venture with ExxonMobil.

Key Dates

Keywords

TETRA Technologies, Financial Results, First Quarter 2024, Completion Fluids, Water Services, Adjusted EBITDA, Bromine Project, Lithium Venture, Term Loan Refinancing, Free Cash Flow