TETRA Technologies, Inc. (NYSE:TTI) is a diversified energy services company that provides a range of products and services to the oil and gas industry, as well as calcium chloride for diverse applications. The company operates through two main segments: Completion Fluids & Products Division and Water & Flowback Services Division.
Business Overview
The Completion Fluids & Products Division manufactures and markets clear brine fluids, additives, and associated products and services to the oil and gas industry for use in well drilling, completion, and workover operations. The division also markets liquid and dry calcium chloride products to a variety of markets outside the energy industry, including the agricultural, road, food and beverage, and lithium production markets. Additionally, the division markets TETRA PureFlow, an ultra-pure zinc bromide, as well as TETRA PureFlow Plus, an ultra-pure zinc bromide/zinc chloride blend, to battery technology companies.
The Water & Flowback Services Division provides onshore oil and gas operators with comprehensive water management services, including frac flowback, production well testing, and other associated services in many of the major oil and gas producing regions in the United States, as well as in oil and gas basins in certain countries in Latin America, Europe, and the Middle East.
Financials
In the fiscal year 2023, TETRA Technologies reported annual revenue of $626,262,000 and net income of $25,784,000. The company's annual operating cash flow was $70,206,000, and its annual free cash flow was $32,054,000.
For the first quarter of 2024, TETRA Technologies reported revenue of $150,972,000, a 3.3% increase compared to the same period in the prior year. The company's gross profit for the quarter was $31,102,000, with a gross profit margin of 20.6%. Net income for the first quarter of 2024 was $915,000.
Segment Performance
The company's Completion Fluids & Products Division reported revenue of $77,282,000 in the first quarter of 2024, an 11.9% increase compared to the same period in the prior year. The division's adjusted EBITDA margin was 28.1% in the first quarter of 2024, driven by strong demand for its high-value bromine-based completion fluids, including the TETRA CS Neptune product line. The company expects continued growth in the offshore and deepwater markets, which it is well-positioned to capitalize on through its recent strategic capacity investments in Brazil, the Gulf of Mexico, and the North Sea.
The Water & Flowback Services Division reported revenue of $73,690,000 in the first quarter of 2024, a 4.5% decrease compared to the same period in the prior year. The division's adjusted EBITDA margin was 9.6% in the first quarter of 2024, reflecting lower activity levels and increased operating costs. However, the company expects margins in this division to rebound to the mid-teens in the second quarter of 2024 as activity levels normalize and the impact of cost-saving initiatives takes effect.
Liquidity
TETRA Technologies' balance sheet remains strong, with liquidity of approximately $202 million as of the end of the first quarter of 2024, including a $75 million delayed draw feature that the company does not expect to utilize until 2025. The company's net leverage ratio was 1.5x at the end of the first quarter of 2024. TETRA Technologies has no plans to issue equity to fund its strategic growth initiatives, including the development of its bromine and lithium projects in Arkansas, which it expects to self-fund through its strong free cash flow generation.
Outlook
The company's strategic priorities for 2024 include continuing to drive margin expansion in its Water & Flowback Services Division through operational efficiencies and automation, as well as advancing its key growth initiatives in the areas of energy storage, beneficial water reuse, and the development of its bromine and lithium resources in Arkansas.
In the energy storage segment, TETRA Technologies is working closely with Eos Energy Enterprises, Inc. (NASDAQ:EOSE) to support the ramp-up of Eos' automated production line for its Z3 zinc-bromine battery, which is expected to result in material sales of electrolyte from TETRA in the second half of 2024.
The company's beneficial water reuse initiatives are also progressing, with TETRA Technologies expecting to finalize contracts for a 24,000 barrel per day desalination facility in South Texas and a commercial pilot project in the Permian Basin in the near term. These projects are expected to generate revenue for the company starting in 2025.
Regarding the company's bromine and lithium projects in Arkansas, TETRA Technologies is targeting the first half of 2026 for the operational start-up of its bromine extraction plant, which will help meet the growing demand for its high-value bromine-based completion fluids and the significant electrolyte requirements of Eos. The company is also advancing the front-end engineering and design (FEED) study for its lithium extraction project and expects to finalize a joint venture agreement with ExxonMobil Corporation (NYSE:XOM) for the development of these resources before the end of 2024.
Conclusion
Overall, TETRA Technologies is well-positioned to capitalize on the favorable market dynamics in the oil and gas industry, as well as the growing demand for sustainable energy solutions and water management services. The company's diversified business model, strong balance sheet, and strategic growth initiatives provide a solid foundation for long-term value creation for shareholders.