TETRA TECHNOLOGIES INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Third Quarter Results: Despite hurricanes and lower U.S. land completion activity, third quarter earnings, free cash flow, and adjusted EBITDA were consistent with expectations. Trailing 12 months adjusted EBITDA was $101 million, and liquidity was approximately $197 million.
• Strategic Initiatives:
  • Major deepwater completions fluid award in Brazil for multi-well, multi-year project.
  • Established all-time record for produced water recycling for frac reuse, with fourth quarter expected to eclipse this.
  • Kimberlite study recognized TETRA as performance leader in Gulf of Mexico deepwater market.
  • Continued collaboration with Eos Energy for electrolyte production, increased manufacturing capacity in West Memphis.
  • Arkansas bromine project feasibility report showed strong economics, evaluating staged funding.
  • Prioritizing projects impacting near-term results like TETRA CS Neptune Fluids, water desalination pilots.

Segment Performance

• Completion Fluids & Products: Third quarter adjusted EBITDA margin excluding unrealized gains or losses on investments was 32.1%, up 200 basis points or 80 basis points compared to Q1. Driven by higher value completion fluids sales and strong industrial chemicals performance. Introduced TETRA X, a new corrosion inhibitor. Fourth quarter expected to be comparable to slightly down from third quarter due to hurricane impact on deepwater completion schedules.
• Water & Flowback Services: Third quarter adjusted EBITDA margins were 14.6%. Decline in U.S. onshore frac crew activity affected revenues, but automation efforts and progress in produced water recycling for frac reuse are aiming to maintain margins.

Guidance

• No 2025 guidance provided, but expects strong first half of 2025 from Neptune projects, Brazil Deepwater Award, electrolyte shipments to Eos, and automation efforts. Fourth quarter expected to mirror third quarter for Water & Flowback Services, while Completion Fluids & Products expects margins to improve with Neptune projects.

Risks

• Uncertainty around the outcome of the AOGC ruling on lithium royalties which could impact investment in lithium projects.
• Dependence on regulatory approvals for water desalination pilots, including permits from the Texas Railroad Commission.
• Potential delays or changes in customer completion schedules due to external factors like hurricanes.

Question and Answer

Q: Stephen Gengaro on deepwater projects and CS Neptune in 2025 A: Elijio Serrano mentioned pipeline of CS Neptune projects starting to move forward, with cautious optimism for more projects in 2025, noting Neptune is unique in price range and compatibility with operators' technologies.

Q: Kurt Hallead on water desalination technology and bromine project A: Brady Murphy discussed stages of water desalination from sample analysis, pilot operations to field pilots, and mentioned staged approach for Arkansas bromine project with lower initial CapEx.

Q: Bobby Brooks on lithium royalties and Standard Lithium A: Brady Murphy talked about uncertainty around AOGC ruling on lithium royalties, with TETRA having a 2.5% royalty from Standard Lithium's commercial production, and efforts to justify optimal royalty structure.

Q: Josh Jayne on automation in Water & Flowback and TETRA X A: Brady Murphy noted high customer acceptance of automation, with sold-out utilization of current equipment and staged approach to full automation. TETRA X is marketed blended with completion fluids, with TAM discussed but no specific revenue timeline yet.

Q: Jesse Sobelson on PureFlow+ electrolyte with Eos Energy A: Elijio Serrano explained blending PureFlow+ with other products to meet Eos's electrolyte needs, with capacity in West Memphis to support demand, but margins not specified for specific customers.

Q: Dan Weston on sandstorm trial in Middle East and DOE funding for lithium A: Brady Murphy said sandstorm trial in Middle East is being delivered, with field trials in Q1 2025. Elijio Serrano mentioned TETRA doesn't comment on DOE funding applications, focusing on success if achieved.