TETRA TECHNOLOGIES INC Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Q4 and Full Year Results: Fourth quarter results were in line with expectations, with strong offshore and industrial chemicals performance offsetting weaker U.S. land operations. Adjusted EBITDA margins improved. Industrial chemicals had highest revenue and adjusted EBITDA in company history.
• Strategic Initiatives: Secured power for bromine Arkansas project, completed front-end engineering design. In discussions with bromine suppliers for bridging supply. Lithium opportunity with partners completed FEED studies. Deploying CS Neptune in Gulf of America, shipping TetraPure to Eos Energy Enterprises, and advancing water desalination pilot units.
• Cash Flow and Liquidity: Eliminated valuation allowance for deferred taxes due to expected use of NOLs. Cash on hand at end of December was $37 million, total liquidity near $207 million. Investments in offshore business led to negative free cash flow in 2024 but expect strong free cash flow in H1 2025.

Segment Performance

• Completion Fluids and Products: Fourth quarter offshore performance was strong with thirteen deepwater completion jobs. Industrial chemicals business achieved record revenue and adjusted EBITDA in Q4, with 2024 revenue growth over 2023 by over 9%. Full year Completion Fluids and Products revenue was down 1% but EBITDA grew 2% year over year. Industrial chemicals represents 22% of TETRA's total revenue and is expected to increase as they ramp up zinc bromide-based electrolyte.
• Water and Flowback Services: Q4 EBITDA margins were 13.8%. The volume of produced water reached a record 89 million barrels of treated and recycled produced water for frac reuse in Q4. The segment focuses on produced water treatment, recycle, and desalination for beneficial reuse.

Guidance

• First half of 2025 projected net income before taxes between $19 million and $34 million and adjusted EBITDA between $55 million and $65 million.
• Full year 2025 expected high single-digit to low double-digit top-line growth, with margins holding or slightly above current levels.

Risks

• General risks associated with project delays, such as with the bromine Arkansas project.
• Market uncertainties impacting the adoption of water desalination beneficial reuse projects.
• Regulatory challenges related to produced water disposal and desalination.

Question and Answer

Q: How do you think about the evolution of businesses like electrolytes and water desalination in 2025?

A: Eos electrolyte shipments are material for 2025. Water desalination pilots in 2025, but commercial scale projects expected in 2026. Bromine plant construction may be deferred or funded by cash flow.

Q: What is your capacity for pilot count this year for water desalination?

A: Lead time for pilots based on membrane systems, with ability to place orders for additional pilots in 2025, but midyear start may be a stretch.

Q: How are discussions with potential customers for beneficial reuse project Oasis going?

A: Momentum building, but regulatory and logistics challenges exist. Discussions with blue-chip customers, including data centers, with seven NDAs extended to a midstream player.

Q: Can we expect CS Neptune projects to be more consistent in future years?

A: Yes, with pipeline of projects more visible, expecting faster cadence of CS Neptune projects both in Gulf of Mexico and outside, including deeper water markets.