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TETRA TECHNOLOGIES INC - Quarter Report: 2023 June (Form 10-Q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
 (Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
or 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from             to            .
 
Commission File Number 1-13455
TETRA Technologies, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware74-2148293
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No.)
  
24955 Interstate 45 North 
The Woodlands,
Texas77380
(Address of Principal Executive Offices)(Zip Code)
(281) 367-1983
(Registrant’s Telephone Number, Including Area Code)
_______________________________________________________________________
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockTTINew York Stock Exchange
Preferred Share Purchase RightN/ANew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes   No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No

 As of July 28, 2023, there were 129,556,619 shares outstanding of the Company’s Common Stock, $0.01 par value per share.



TETRA Technologies, Inc. and Subsidiaries
Table of Contents
Page
PART I—FINANCIAL INFORMATION
PART II—OTHER INFORMATION


Table of Contents
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Revenues:  
Product sales
$96,217$70,301$161,752 $140,356 
Services
79,24670,415159,920 130,397 
Total revenues
175,463140,716321,672 270,753 
Cost of revenues:  
Cost of product sales
55,87348,34198,268 94,345 
Cost of services
61,20154,258122,872 101,942 
Depreciation, amortization, and accretion
8,4577,74817,127 15,427 
Impairments and other charges
7772,262777 2,262 
Insurance recoveries
(2,850)(3,750)
Total cost of revenues
126,308112,609236,194 210,226 
Gross profit
49,15528,10785,478 60,527 
Exploration and pre-development costs2,3416343,061 2,564 
General and administrative expense26,22523,62049,416 44,263 
Interest expense, net5,9443,61011,036 6,934 
Other income, net(6,435)(1,037)(6,649)(3,448)
Income before taxes and discontinued operations21,0801,28028,614 10,214 
Provision for income taxes2,875(479)4,364 721 
Income before discontinued operations18,2051,75924,250 9,493 
Loss from discontinued operations, net of taxes(8)(34)(20)(49)
Net income18,1971,72524,230 9,444 
Loss attributable to noncontrolling interests182025 21 
Net income attributable to TETRA stockholders$18,215$1,745$24,255 $9,465 
Basic net income per common share: 
Income from continuing operations$0.14$0.01$0.19 $0.07 
Income from discontinued operations— — 
Net income attributable to TETRA stockholders$0.14$0.01$0.19 $0.07 
Weighted average basic shares outstanding129,460127,992129,201 127,627 
Diluted net income per common share:  
Income from continuing operations$0.14$0.01$0.19 $0.07 
Income from discontinued operations— — 
Net income attributable to TETRA stockholders$0.14$0.01$0.19 $0.07 
Weighted average diluted shares outstanding129,925130,099129,953 129,654 



See Notes to Consolidated Financial Statements
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TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In Thousands)
(Unaudited)
 
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Net income$18,197 $1,725 $24,230 $9,444 
Foreign currency translation adjustment from continuing operations, net of taxes of $0 in 2023 and 2022
1,045 (3,414)2,466 (3,222)
Unrealized gain on investment in CarbonFree207 — 328 — 
Comprehensive income (loss)19,449 (1,689)27,024 6,222 
Less: Comprehensive loss attributable to noncontrolling interests18 20 25 21 
Comprehensive income (loss) attributable to TETRA stockholders$19,467 $(1,669)$27,049 $6,243 


See Notes to Consolidated Financial Statements
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TETRA Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands)
 
 June 30,
2023
December 31,
2022
 (Unaudited) 
ASSETS  
Current assets:  
Cash and cash equivalents
$27,675$13,592
Trade accounts receivable, net of allowances of $1,177 in 2023 and
$538 in 2022
130,386129,631
Inventories
81,83372,113
Prepaid expenses and other current assets
21,05823,112
Total current assets
260,952238,448
Property, plant, and equipment:  
Land and building
23,48825,723
Machinery and equipment
320,977318,693
Automobiles and trucks
10,79611,832
Chemical plants
64,74363,528
Construction in progress
4,5887,660
Total property, plant, and equipment
424,592427,436
Less accumulated depreciation
(315,098)(325,856)
Net property, plant, and equipment
109,494101,580
Other assets:  
Patents, trademarks and other intangible assets, net of accumulated amortization of $49,447 in 2023 and $46,996 in 2022
31,10232,955
Operating lease right-of-use assets
36,96433,818
Investments16,71814,286
Other assets
14,76213,279
Total other assets
99,54694,338
Total assets$469,992$434,366
 

See Notes to Consolidated Financial Statements
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TETRA Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Share Amounts)
 
 June 30,
2023
December 31,
2022
 (Unaudited) 
LIABILITIES AND EQUITY  
Current liabilities:  
Trade accounts payable
$53,673$49,121
Current portion of long-term debt1,9003
Compensation and employee benefits23,11730,958
Operating lease liabilities, current portion8,4617,795
Accrued taxes10,8989,913
Accrued liabilities and other
27,36825,557
Current liabilities associated with discontinued operations414920
Total current liabilities
125,831124,267
Long-term debt, net156,007156,455
Operating lease liabilities31,13628,108
Asset retirement obligations13,98313,671
Deferred income taxes2,0002,038
Other liabilities3,9783,430
Total long-term liabilities
207,104203,702
Commitments and contingencies (Note 7)  
Equity:  
TETRA stockholders’ equity:  
Common stock, par value 0.01 per share; 250,000,000 shares authorized at June 30, 2023 and December 31, 2022; 132,695,294 shares issued at June 30, 2023 and 131,800,975 shares issued at December 31, 2022
1,3271,318
Additional paid-in capital
481,448477,820
Treasury stock, at cost; 3,138,675 shares held at June 30, 2023 and December 31, 2022
(19,957)(19,957)
Accumulated other comprehensive loss(46,269)(49,063)
Retained deficit
(278,238)(302,493)
Total TETRA stockholders’ equity138,311107,625
Noncontrolling interests
(1,254)(1,228)
Total equity
137,057106,397
Total liabilities and equity$469,992$434,366
 

See Notes to Consolidated Financial Statements
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TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Equity
(In Thousands)
(Unaudited)
Common Stock
Par Value
Additional Paid-In
Capital
Treasury
Stock
Accumulated Other 
Comprehensive Income (Loss)
Retained
Deficit
Noncontrolling
Interest
Total
Equity
Currency
Translation
Unrealized Gain (Loss) on Investment
Balance at December 31, 2022$1,318 $477,820 $(19,957)$(48,991)$(72)$(302,493)$(1,228)$106,397 
Net income (loss) for first quarter 2023— — — — — 6,040 (7)6,033 
Translation adjustment, net of taxes of $0
— — — 1,421 — — — 1,421 
Other comprehensive income— — — — 121 — — 121 
Comprehensive income7,575 
Equity-based compensation(1)
— 3,514 — — — — — 3,514 
Other(1,341)— — — — (1,333)
Balance at March 31, 2023$1,325 $479,993 $(19,957)$(47,570)$49 $(296,453)$(1,234)$116,153 
Net income (loss) for second quarter 2023— — — — — 18,215 (18)18,197 
Translation adjustment,
net of taxes of $0
— — — 1,045 — — — 1,045 
Other comprehensive income— — — — 207 — — 207 
Comprehensive income19,449 
Equity-based compensation— 1,507 — — — — — 1,507 
Other(52)— — — — (2)(52)
Balance at June 30, 2023$1,327 $481,448 $(19,957)$(46,525)$256 $(278,238)$(1,254)$137,057 
(1)    Equity-based compensation for the three months ended March 31, 2023 includes $2.3 million for a portion of short-term incentive compensation that was settled through grants of restricted stock units rather than cash.
Common Stock
Par Value
Additional Paid-In
Capital
Treasury
Stock
Accumulated Other 
Comprehensive Loss
Retained
Deficit
Noncontrolling
Interest
Total
Equity
Currency
Translation
Balance at December 31, 2021$1,301 $475,624 $(19,957)$(46,932)$(310,332)$(1,141)$98,563 
Net income (loss) for first quarter 2022— — — — 7,720 (1)7,719 
Translation adjustment, net of taxes of $0
— — — 192 — — 192 
Comprehensive income7,911 
Equity compensation expense— 1,104 — — — — 1,104 
Other(673)— — — (10)(676)
Balance at March 31, 2022$1,308 $476,055 $(19,957)$(46,740)$(302,612)$(1,152)$106,902 
Net income (loss) for second quarter 2022— — — — 1,745 (20)1,725 
Translation adjustment, net of taxes of $0
— — — (3,414)— — (3,414)
Comprehensive income (loss)(1,689)
Equity compensation expense— 1,159 — — — — 1,159 
Other(833)— — — (9)(836)
Balance at June 30, 2022$1,314 $476,381 $(19,957)$(50,154)$(300,867)$(1,181)$105,536 


See Notes to Consolidated Financial Statements
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TETRA Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands, Unaudited)
 Six Months Ended
June 30,
 20232022
Operating activities:  
Net income$24,230 $9,444 
Reconciliation of net income to net cash provided by operating activities:
Depreciation, amortization, and accretion17,127 15,427 
Impairment and other charges777 2,262 
Gain on investments(403)(390)
Equity-based compensation expense2,768 2,263 
Provision for credit losses720 244 
Amortization and expense of financing costs1,781 1,573 
Insurance recoveries associated with damaged equipment(2,850)(3,750)
Gain on sale of assets(281)(719)
Other non-cash credits(737)(313)
Changes in operating assets and liabilities:  
Accounts receivable(514)(14,581)
Inventories(8,549)4,519 
Prepaid expenses and other current assets2,242 (2,282)
Trade accounts payable and accrued expenses443 11,185 
Other603 (1,079)
Net cash provided by operating activities37,357 23,803 
Investing activities:  
Purchases of property, plant, and equipment, net(23,274)(20,412)
Proceeds from sale of property, plant, and equipment497 1,194 
Proceeds from insurance recoveries associated with damaged equipment2,850 3,750 
Purchase of investment(250)— 
Other investing activities(1,827)(451)
Net cash used in investing activities(22,004)(15,919)
Financing activities:  
Proceeds from credit agreements and long-term debt97,169 1,667 
Principal payments on credit agreements and long-term debt(98,237)(3,267)
Payments on financing lease obligations(689)(1,174)
Net cash used in financing activities(1,757)(2,774)
Effect of exchange rate changes on cash487 (329)
Increase in cash and cash equivalents14,083 4,781 
Cash and cash equivalents at beginning of period13,592 31,551 
Cash and cash equivalents at end of period $27,675 $36,332 


See Notes to Consolidated Financial Statements
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TETRA Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 – ORGANIZATION, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES

Organization

We are an energy services and solutions company operating on six continents, focused on calcium chloride, completion fluids and associated products and services, comprehensive water management solutions, frac flowback, production well testing and offshore rig cooling. We were incorporated in Delaware in 1981 and are composed of two segments – Completion Fluids & Products Division and Water & Flowback Services Division. Unless the context requires otherwise, when we refer to “we,” “us,” and “our,” we are describing TETRA Technologies, Inc. and its subsidiaries on a consolidated basis.

Presentation

Our unaudited consolidated financial statements include the accounts of our wholly owned or controlled subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The information furnished reflects all normal recurring adjustments, which are, in the opinion of management, necessary to provide a fair statement of the results for the interim periods. Operating results for the period ended June 30, 2023 are not necessarily indicative of results that may be expected for the twelve months ended December 31, 2023.

We have reflected the operations of our former Compression Division and Offshore Division as discontinued operations for all periods presented. See Note 2 - “Discontinued Operations” for further information. Unless otherwise noted, amounts and disclosures throughout these Notes to Consolidated Financial Statements relate solely to continuing operations and exclude all discontinued operations.

The accompanying unaudited consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the U.S. Securities and Exchange Commission (“SEC”) and do not include all information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. These financial statements should be read in conjunction with the financial statements for the year ended December 31, 2022 and notes thereto included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2023 (the “2022 Annual Report”).

Tax Benefits Preservation Plan

On February 28, 2023, the Board of Directors adopted a Tax Benefits Preservation Plan (the “Tax Plan”) designed to protect the availability of the Company’s net operating loss carryforwards (“NOLs”) and other tax attributes (collectively, the “Tax Attributes”), which may be utilized in certain circumstances to reduce the Company’s future income tax obligations. The Tax Plan is intended to reduce the likelihood that any changes in the Company’s investor base would limit the Company’s future use of its Tax Attributes as a result of the Company experiencing an “ownership change” under Section 382 (“Section 382”) of the Internal Revenue Code of 1986, as amended (the “Code”). If a corporation experiences an “ownership change,” any NOLs, losses or deductions attributable to a “net unrealized built-in loss” and other Tax Attributes could be substantially limited, and timing of the usage of such Tax Attributes could be substantially delayed. A corporation generally will experience an ownership change if one or more stockholders (or group of stockholders) who are each deemed to own at least 5% of the corporation’s stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a testing period (generally, a rolling three-year period).

In adopting the Tax Plan, the Board of Directors declared a dividend of one Series A Junior Participating Preferred Stock purchase right (the “Rights”) for each outstanding share of Common Stock pursuant to the terms of the Tax Plan. Initially, each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $0.01 per share, of the Company (the “Preferred Stock”) at a price of $20.00 per one one-thousandth of a share of Preferred Stock (the “Purchase Price”), subject to adjustment. The Rights will cause substantial dilution to a person or group that acquires 4.99% or more of the Common Stock (or to a person or group that already owns 4.99% or more of the Company’s Common Stock if
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such person or group acquires additional shares representing 2% of the Company’s then outstanding shares of Common Stock) without prior approval from the Board of Directors.

The Rights will expire at the earliest of: (i) the close of business on February 28, 2026 (the “Final Expiration Date”); (ii) the time at which the Rights are redeemed pursuant to the Tax Plan, (iii) the time at which the Rights are exchanged pursuant to the Tax Plan; (iv) the closing of any merger or other acquisition transaction involving the Company pursuant to an agreement as described in the penultimate paragraph of Section 1.3 of the Tax Plan; (v) the close of business on the effective date of the repeal of Section 382 of the Code if the Board determines that the Tax Plan is no longer necessary or desirable for the preservation of the Tax Attributes; or (vi) the close of business on the first day of a taxable year of the Company following a Board determination that no Tax Attributes may be carried forward or otherwise utilized.

The Tax Plan adopted by the Board of Directors is similar to plans adopted by other publicly held companies with significant NOLs or other substantial tax benefits and is not designed to prevent any action that the Board of Directors determines to be in the best interest of the Company and its stockholders. At the Company’s 2023 annual meeting of stockholders held on May 24, 2023, the Company’s stockholders ratified the adoption of the Tax Plan.

The Rights are in all respects subject to and governed by the provisions of the Tax Plan. The foregoing summary provides only a general description of the Tax Plan and does not purport to be complete. The Tax Plan, which specifies the terms of the Rights and includes as Exhibit A the Form of Certificate of Designation of Series A Junior Participating Preferred Stock of the Company and as Exhibit B the Form of Right Certificate, is attached to the Company’s Current Report on Form 8-K, which was filed with the SEC on March 1, 2023, as Exhibit 4.1 and is incorporated herein by reference. The foregoing summary should be read together with the entire Tax Plan and is qualified in its entirety by reference to the Tax Plan.

Mineral Resources Arrangement

We have rights to the brine underlying our approximately 40,000 gross acres of brine leases in the Smackover Formation in Southwest Arkansas, including rights to the bromine and lithium contained in the brine. We recognized approximately $2.3 million and $3.1 million of expense during the three-month and six-month periods ended June 30, 2023, respectively, and $0.6 million and $2.6 million of expense during the three-month and six-month periods ended June 30, 2022, respectively, for exploration and pre-development costs representing expenditures incurred to evaluate potential future development of our lithium and bromine properties in Arkansas.

In June 2023, we entered into a memorandum of understanding (“MOU”) with Saltwerx LLC (“Saltwerx”), an indirect wholly owned subsidiary of a Fortune 500 company, relating to a newly-proposed brine unit in the Smackover Formation in Southwest Arkansas and potential bromine and lithium production from brine produced from the unit. The binding provisions of the MOU provide, among other things, that (i) we will file an amended brine unit application (“the Application”) covering approximately 6,138 acres, which expands the size of the unit area and also combines brine acreage that was previously leased by each of TETRA and Saltwerx (“the Brine Unit”), with the Arkansas Oil & Gas Commission (“AOGC”) and (ii) Saltwerx will provide a letter to us in support of the Application. The MOU also contains provisions effective after, and contingent on, the approval of the Brine Unit by the AOGC, including provisions relating to: (i) initial brine ownership percentages within the Brine Unit, including the bromine and lithium contained in the brine, (ii) the transfer of certain leased acres outside the proposed Brine Unit from the Company to Saltwerx, (iii) Saltwerx reimbursing the Company for certain expenses incurred by the Company to date regarding the development of leased acreage to be included in the Brine Unit, and (iv) an allocation of certain future costs for the drilling of a brine production test well and other development operations, including FEED studies for bromine and lithium production facilities. We recognized approximately $4.7 million of income during the three-month and six-month periods ended June 30, 2023 for income from collaborative arrangement representing the portion of exploration and pre-development costs that are reimbursable by Saltwerx and is included in other income, net in our consolidated statements of operations.
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Significant Accounting Policies

Our significant accounting policies are described in the notes to our consolidated financial statements for the year ended December 31, 2022 included in our 2022 Annual Report. There have been no significant changes in our accounting policies or the application thereof during the second quarter of 2023.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclose contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses, and impairments during the reporting period. Actual results could differ from those estimates, and such differences could be material.

Reclassifications

Certain previously reported financial information has been reclassified to conform to the current year's presentation. The impact of reclassifications was not significant to the prior year's overall presentation.

Foreign Currency Translation

We have designated the Euro, the British pound, the Canadian dollar, the Brazilian real, and the Mexican peso as the functional currencies for our operations in Finland and Sweden, the United Kingdom, Canada, Brazil, and certain of our operations in Mexico, respectively. The United States dollar is the designated functional currency for all of our other non-U.S. operations. The cumulative translation effects of translating the applicable accounts from the functional currencies into the United States dollar at current exchange rates are included as a separate component of equity. Foreign currency exchange gains are included in other (income) expense, net and totaled losses of $67,000 and $0.2 million during the three and six months ended June 30, 2023, respectively, and gains of $0.8 million and $1.6 million during the three and six months ended June 30, 2022, respectively.

Fair Value Measurements

We utilize fair value measurements to account for certain items and account balances within our consolidated financial statements. Fair value measurements are utilized on a recurring basis in the determination of the carrying values of certain investments. See Note 8 - “Fair Value Measurements” for further discussion. Fair value measurements are also utilized on a nonrecurring basis in certain circumstances, including the impairment of long-lived assets (a Level 3 fair value measurement).

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Supplemental Cash Flow Information

Supplemental cash flow information is as follows:
Six Months Ended
June 30,
20232022
(in thousands)
Interest paid$9,412 $8,056 
Income taxes paid$2,012 $1,470 
June 30, 2023December 31, 2022
(in thousands)
Accrued capital expenditures$3,142 $4,901 

New Accounting Pronouncements

Standards adopted during 2023

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the previously-used incurred loss methodology, which will result in the more timely recognition of losses on financial instruments not accounted for at fair value through net income. The provisions require credit impairments to be measured over the contractual life of an asset and developed with consideration for past events, current conditions, and forecasts of future economic information. Credit impairment will be accounted for as an allowance for credit losses deducted from the amortized cost basis at each reporting date. Updates at each reporting date after initial adoption will be recorded through selling, general, and administrative expense. On January 1, 2023, we adopted ASU 2016-13. The adoption of this standard did not have a material impact on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)”, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848.” During the three months ended June 30, 2023, our asset-based credit agreement and term credit agreement were amended to replace LIBOR and Eurodollar rates with the secured overnight financing rate (“SOFR”). There were no significant costs associated with the amendments and the amendments did not have a significant impact on our consolidated financial statements.
NOTE 2 – DISCONTINUED OPERATIONS

On March 1, 2018, we closed a series of related transactions that resulted in the disposition of our Offshore Division, consisting of our Offshore Services and Maritech segments. Our former Offshore Division is reported as discontinued operations for all periods presented. Our consolidated balance sheets and consolidated statements of operations report discontinued operations separate from continuing operations. Our consolidated statements of comprehensive income, statements of equity and statements of cash flows combine continuing and discontinued operations. Our loss from discontinued operations for the three and six months ended June 30, 2023 consist of general and administrative expense associated with ongoing litigation for our former Offshore Division. A summary of additional financial information related to our discontinued operations is as follows:

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Reconciliation of the Line Items Constituting Pretax Loss from Discontinued Operations to the After-Tax Loss from Discontinued Operations
(in thousands, unaudited)
Three Months Ended
June 30, 2022
Offshore ServicesMaritechTotal
Major classes of line items constituting income from discontinued operations
Cost of revenues$54 $— $54 
General and administrative expense— 
Other income, net— (28)(28)
Pretax income (loss) from discontinued operations(62)28 (34)
Loss from discontinued operations attributable to TETRA stockholders$(34)
Six Months Ended
June 30, 2022
Offshore ServicesMaritechTotal
Major classes of line items constituting income from discontinued operations
Cost of revenues$55 $— $55 
General and administrative expense22 — 22 
Other income, net— (28)(28)
Pretax income (loss) from discontinued operations(77)28 (49)
Loss from discontinued operations attributable to TETRA stockholders$(49)

Reconciliation of Major Classes of Assets and Liabilities of the Discontinued Operations to Amounts Presented Separately in the Statement of Financial Position
(in thousands)
June 30, 2023
Offshore ServicesMaritechTotal
(unaudited)
Carrying amounts of major classes of liabilities included as part of discontinued operations
Trade payables$319 $— $319 
Accrued liabilities and other— 95 95 
Total liabilities associated with discontinued operations$319 $95 $414 
December 31, 2022
Offshore ServicesMaritechTotal
Carrying amounts of major classes of liabilities included as part of discontinued operations
Trade payables$319 $— $319 
Accrued liabilities and other506 95 601 
Total liabilities associated with discontinued operations$825 $95 $920 
NOTE 3 – REVENUE FROM CONTRACTS WITH CUSTOMERS

Our contract asset balances, primarily associated with contractual invoicing milestones and/or customer documentation requirements, were $36.7 million and $33.1 million as of June 30, 2023 and December 31, 2022, respectively. Contract assets, along with billed trade accounts receivable, are included in trade accounts receivable in our consolidated balance sheets.

Unearned income includes amounts in which the Company was contractually allowed to invoice prior to satisfying the associated performance obligations. We are also party to agreements whereby Standard Lithium Ltd.
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(NYSE: SLI) (“Standard Lithium”) has the right to explore for, and an option to acquire the rights to produce and extract lithium in our Arkansas leases and other potential resources in the Mojave region of California. The Company receives cash and stock of Standard Lithium under the terms of the arrangements. The cash and stock component of consideration received is initially recorded as unearned income based on the quoted market price at the time the stock is received, then recognized in income over the contract term. Unearned income balances were $5.1 million and $3.7 million as of June 30, 2023 and December 31, 2022, respectively, and vary based on the timing of (i) invoicing, (ii) performance obligations being met and (iii) the receipt of stock and cash from Standard Lithium. Unearned income is included in accrued liabilities and other in our consolidated balance sheets. During the six-month periods ended June 30, 2023 and June 30, 2022, contract costs were not significant.

We recognized approximately $1.4 million and $0.9 million of revenue during the three-month and six-month periods ended June 30, 2023, respectively, and $0.2 million and $0.5 million of revenue during the three-month and six-month periods ended June 30, 2022, respectively, deferred in unearned income as of the beginning of the period. We also recognized approximately $0.8 million and $1.4 million of income during the three-month and six-month periods ended June 30, 2023, respectively, and $0.9 million and $1.5 million of income during the three-month and six-month periods ended June 30, 2022, respectively, related to the Standard Lithium arrangements deferred in unearned income as of the beginning of the period and included in other income, net in our consolidated statements of operations.

We disaggregate revenue from contracts with customers into Product Sales and Services within each segment, as noted in our two reportable segments in Note 10 - “Industry Segments.” In addition, we disaggregate revenue from contracts with customers by geography based on the following table below.
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
 (in thousands)
Completion Fluids & Products
United States$45,859 $34,344 $78,682 $73,188 
International52,363 40,454 88,582 74,804 
98,222 74,798 167,264 147,992 
Water & Flowback Services
United States68,231 61,654 136,569 114,417 
International9,010 4,264 17,839 8,344 
77,241 65,918 154,408 122,761 
Total Revenue
United States114,090 95,998 215,251 187,605 
International61,373 44,718 106,421 83,148 
$175,463 $140,716 $321,672 $270,753 
NOTE 4 – INVENTORIES

Components of inventories as of June 30, 2023 and December 31, 2022 are as follows:
 June 30, 2023December 31, 2022
 (in thousands)
Finished goods$68,141 $60,481 
Raw materials5,287 3,734 
Parts and supplies6,477 6,432 
Work in progress1,928 1,466 
Total inventories
$81,833 $72,113 

Finished goods inventories include newly manufactured clear brine fluids as well as used brines that are repurchased from certain customers for recycling.
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NOTE 5 – INVESTMENTS

Our investments as of June 30, 2023 and December 31, 2022 consist of the following:
June 30, 2023December 31, 2022
(in thousands)
Investment in CSI Compressco
$6,599 $6,967 
Investment in CarbonFree6,269 6,139 
Investment in Standard Lithium3,600 1,180 
Other investment250 — 
Total Investments$16,718 $14,286 
Following the January 2021 sale of the general partner of CSI Compressco LP (“CSI Compressco”), we continue to own approximately 3.7% of the outstanding CSI Compressco common units (NASDAQ: CCLP) as of June 30, 2023.

We have an intellectual property joint development agreement in place with CarbonFree to evaluate potential new technologies. CarbonFree is a carbon capture company with patented technologies that capture CO2 and mineralize emissions to make commercial, carbon-negative chemicals. In December 2021, we invested $5.0 million in a convertible note issued by CarbonFree. Our exposure to potential losses by CarbonFree are limited to our investments and capitalized and accrued interest associated with the CarbonFree convertible note.

In addition, we are party to agreements whereby Standard Lithium has the right to explore for, and an option to acquire the rights to produce and extract, lithium in our Arkansas leases and other additional potential resources in the Mojave region of California. The Company receives cash and stock of Standard Lithium under the terms of the arrangements. The cash and stock component of consideration received is initially recorded as unearned income based on the quoted market price at the time the stock is received, then recognized in income over the contract term.

See Note 8 - “Fair Value Measurements” for further information.
NOTE 6 – LONG-TERM DEBT AND OTHER BORROWINGS

Consolidated long-term debt as of June 30, 2023 and December 31, 2022 consists of the following:
 Scheduled MaturityJune 30, 2023December 31, 2022
  (in thousands)
Term Credit Agreement(1)
September 10, 2025$156,007 $154,570 
Asset-Based Credit Agreement(2)
May 31, 2025— 1,885 
Argentina Credit AgreementOctober 19, 20231,900 — 
Swedish Credit FacilityDecember 31, 2023— 
Total debt 157,907 156,458 
Less current portion (1,900)(3)
Total long-term debt $156,007 $156,455 
(1) Net of unamortized discount of $2.8 million and $3.4 million as of June 30, 2023 and December 31, 2022, respectively, and net of unamortized deferred financing costs of $4.2 million and $5.1 million as of June 30, 2023 and December 31, 2022, respectively.
(2) Net of unamortized deferred financing costs of $1.1 million as of December 31, 2022. Deferred financing costs of $0.9 million as of June 30, 2023, were classified as other long-term assets on the accompanying consolidated balance sheet as there was no outstanding balance on our asset-based credit agreement.

Term Credit Agreement

    As of June 30, 2023, we had $156.0 million outstanding, net of unamortized discounts and unamortized deferred financing costs under our term credit agreement (“Term Credit Agreement”). The Term Credit Agreement requires us to offer to prepay up to 50% of Excess Cash Flow (as defined in the Term Credit Agreement) from the most recent full fiscal year within five business days of filing our Annual Report. If our Leverage Ratio (as defined in
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the Term Credit Agreement) at year-end is less than 2.00 to 1.00, the prepayment requirement is decreased to 25%. If our Leverage Ratio at year-end is less than 1.50 to 1.00, then no prepayment is required.

The Term Credit Agreement was amended in June 2023 to remove references to LIBOR and Eurodollar rates. Borrowings under the Term Credit Agreement bear interest at a rate per annum equal to, at the option of TETRA, either (i) SOFR (subject to a 1% floor) plus a margin of 6.25% per annum or (ii) a base rate plus a margin of 5.25% per annum. As of June 30, 2023, the interest rate per annum on borrowings under the Term Credit Agreement is 11.40%. In addition to paying interest on the outstanding principal under the Term Credit Agreement, TETRA is required to pay a commitment fee in respect of the unutilized commitments at the rate of 1.0% per annum, paid quarterly in arrears based on utilization of the commitments under the Term Credit Agreement.

    All obligations under the Term Credit Agreement and the guarantees of those obligations are secured, subject to certain exceptions, by a security interest for the benefit of the Term Lenders on substantially all of the personal property of TETRA and certain of its subsidiaries, the equity interests in certain domestic subsidiaries, and a maximum of 65% of the equity interests in certain foreign subsidiaries.

ABL Credit Agreement

As of June 30, 2023, our asset-based credit agreement (“ABL Credit Agreement”) provides for a senior secured revolving credit facility of up to $80.0 million, with a $20.0 million accordion. The credit facility is subject to a borrowing base determined monthly by reference to the value of inventory and accounts receivable, and includes a sublimit of $20.0 million for letters of credit, a swingline loan sublimit of $11.5 million, and a $15.0 million sub-facility subject to a borrowing base consisting of certain trade receivables and inventory in the United Kingdom.

As of June 30, 2023, we had no balance outstanding and $11.5 million in letters of credit and guarantees under our ABL Credit Agreement. Subject to compliance with the covenants, borrowing base, and other provisions of the ABL Credit Agreement that may limit borrowings, we had availability of $66.6 million under this agreement.

The ABL Credit Agreement was amended in May 2023 to remove references to LIBOR. Borrowings under the ABL Credit Agreement bear interest at a rate per annum equal to, at the option of TETRA, either (i) SOFR plus 0.10%, (ii) a base rate plus a margin based on a fixed charge coverage ratio, (iii) the Daily Simple Risk Free Rate plus 0.10%, or (iv) with respect to borrowings denominated in Sterling, the Daily Simple Risk Free Rate for Sterling plus 0.0326%. The base rate is determined by reference to the highest of (a) the prime rate of interest as announced from time to time by JPMorgan Chase Bank, N.A. (b) the Federal Funds Effective Rate (as defined in the ABL Credit Agreement) plus 0.5% per annum and (c) SOFR (adjusted to reflect any required bank reserves) for a one-month period on such day plus 1.0% per annum. In addition to paying interest on the outstanding principal under the ABL Credit Agreement, TETRA is required to pay a commitment fee in respect of the unutilized commitments at an applicable rate ranging from 0.375% to 0.5% per annum, paid monthly in arrears based on utilization of the commitments under the ABL Credit Agreement. TETRA is also required to pay a customary letter of credit fee equal to the applicable margin on LIBOR-based loans and fronting fees.

     All obligations under the ABL Credit Agreement and the guarantees of those obligations are secured, subject to certain exceptions, by a security interest for the benefit of the ABL Lenders on substantially all of the personal property of TETRA and certain subsidiaries of TETRA, the equity interests in certain domestic subsidiaries, and a maximum of 65% of the equity interests in certain foreign subsidiaries.

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Argentina Credit Agreement

In January 2023, the Company entered into a revolving credit facility for certain working capital and capital expenditure needs for its subsidiary in Argentina (“Argentina Credit Facility”). As of June 30, 2023, we had $1.9 million outstanding and availability of $0.1 million under the Argentina Credit Agreement. Borrowings bear interest at a rate of 2.50% per annum. The Argentina Credit Facility expires on October 19, 2023 and is backed by a letter of credit under our ABL Credit Agreement.

Swedish Credit Facility

In January 2022, the Company entered into a revolving credit facility for seasonal working capital needs of subsidiaries in Sweden (“Swedish Credit Facility”). As of June 30, 2023, we had no balance outstanding and availability of approximately $4.6 million under the Swedish Credit Facility. During each year, all outstanding loans under the Swedish Credit Facility must be repaid for at least 30 consecutive days. Borrowings bear interest at a rate of 2.95% per annum. The Swedish Credit Facility expires on December 31, 2023 and the Company intends to renew it annually.

Finland Credit Agreement

In January 2022, the Company also entered into an agreement guaranteed by certain accounts receivable and inventory in Finland (“Finland Credit Agreement”). As of June 30, 2023, there were $1.5 million of letters of credit outstanding against the Finland Credit Agreement. The Finland Credit Agreement expires on January 31, 2024 and the Company intends to renew it annually.

Covenants

Our credit agreements contain certain affirmative and negative covenants, including covenants that restrict the ability to pay dividends or other restricted payments. As of June 30, 2023, we are in compliance with all covenants under the credit agreements.
NOTE 7 – COMMITMENTS AND CONTINGENCIES

Litigation

We are named defendants in several lawsuits and respondents in certain governmental proceedings arising in the ordinary course of business. While the outcome of lawsuits or other proceedings against us cannot be predicted with certainty, management does not consider it reasonably possible that a loss resulting from such lawsuits or other proceedings in excess of any amounts accrued has been incurred that is expected to have a material adverse impact on our financial condition, results of operations, or liquidity.

We have a Bromine Requirements Sales Agreement (“Sales Agreement”) to purchase a certain volume of elemental bromine from LANXESS Corporation (formerly Chemtura Corporation) (“LANXESS”), included in Product Purchase Obligations below. LANXESS notified us of a proposed non-ordinary course increase to the price of bromine. After lengthy discussions, we and LANXESS were unable to reach an agreement regarding the validity of the proposed price increase; therefore, we filed for arbitration in May 2022 seeking declaratory relief, among other relief, declaring that the proposed price increase is invalid. In September 2022, LANXESS filed a counterclaim with the American Arbitration Association seeking declaratory relief, among other relief. On May 25, 2023, TETRA entered into the Third Amendment to Bromine Requirements Sales Agreement (the “Amendment”) with LANXESS. The Amendment has an effective date of April 1, 2023 and was entered into in connection with the entry into a settlement agreement in the Company’s arbitration with LANXESS. The Amendment provides for, among other things, revised volume requirements and related terms. On June 14, 2023, in light of the settlement agreement, and in response to the parties’ stipulated motion to dismiss, the arbitration panel issued an Order of Dismissal, which dismissed all claims in the arbitration with prejudice.

There have been no other material developments in our legal proceedings during the quarter ended June 30, 2023. For additional discussion of our legal proceedings, please see our 2022 Annual Report.

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Product Purchase Obligations

In the normal course of our Completion Fluids & Products Division operations, we enter into supply agreements with certain manufacturers of various raw materials and finished products. Some of these agreements have terms and conditions that specify a minimum or maximum level of purchases over the term of the agreement. Other agreements require us to purchase the entire output of the raw material or finished product produced by the manufacturer. Our purchase obligations under these agreements apply only with regard to raw materials and finished products that meet specifications set forth in the agreements. We recognize a liability for the purchase of such products at the time we receive them. As of June 30, 2023, the aggregate amount of the fixed and determinable portion of the purchase obligation pursuant to our Completion Fluids & Products Division’s supply agreements was approximately $63.6 million, including $5.2 million for the remainder of 2023, $21.4 million in 2024, $19.3 million in 2025, $13.0 million in 2026, and $4.7 million in 2027.
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NOTE 8 – FAIR VALUE MEASUREMENTS
 
Financial Instruments

Investments

We retained an interest in CSI Compressco representing approximately 3.7% of CSI Compressco’s outstanding common units as of June 30, 2023. In December 2021, we invested in a $5.0 million convertible note issued by CarbonFree. In addition, we receive cash and stock of Standard Lithium under the terms of our arrangements as noted in Note 5 - “Investments.”

Our investments in CSI Compressco and Standard Lithium are recorded in investments on our consolidated balance sheets based on the quoted market stock price (Level 1 fair value measurements). The stock component of consideration received from Standard Lithium is initially recorded as unearned income based on the quoted market price at the time the stock is received, then recognized in income over the contract term. Changes in the value of stock are recorded in other (income) expense, net in our consolidated statements of operations.

Our investment in convertible notes issued by CarbonFree is recorded in our consolidated financial statements based on an internal valuation with assistance from a third-party valuation specialist (Level 3 fair value measurement). The valuation is impacted by key assumptions, including the assumed probability and timing of potential debt or equity offerings. The convertible note includes an option to convert the note into equity interests issued by CarbonFree. The change in the fair value of the embedded option is included in other (income) expense, net in our consolidated statements of operations. The change in the fair value of the convertible note, excluding the embedded option, is included in other comprehensive income (loss) in our consolidated statements of comprehensive income. The change in our investment in CarbonFree for the six-month period ended June 30, 2023 is as follows:

Six Months Ended June 30, 2023
(in thousands)
Balance at beginning of period$6,139 
Change in fair value of embedded option
(198)
Change in fair value of convertible note, excluding embedded option
328 
Balance at end of period$6,269 

Recurring fair value measurements by valuation hierarchy as of June 30, 2023 and December 31, 2022 are as follows:
  Fair Value Measurements Using
Total as ofQuoted Prices in Active Markets for Identical Assets or LiabilitiesSignificant Other Observable InputsSignificant Unobservable Inputs
DescriptionJune 30, 2023(Level 1)(Level 2)(Level 3)
(in thousands)
Investment in CSI Compressco
$6,599 $6,599 $— $— 
Investment in CarbonFree6,269 — — 6,269 
Investment in Standard Lithium3,600 3,600 — — 
Other investment250 — — 250 
Investments$16,718 
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   Fair Value Measurements Using
Total as of Quoted Prices in Active Markets for Identical Assets or LiabilitiesSignificant Other Observable InputsSignificant Unobservable Inputs
DescriptionDecember 31, 2022(Level 1)(Level 2)(Level 3)
(in thousands)
Investment in CSI Compressco
$6,967 $6,967 $— $— 
Investment in CarbonFree6,139 — — 6,139 
Investment in Standard Lithium1,180 1,180 — — 
Investments$14,286 

Impairments

During the second quarter of 2023, we recorded a $0.8 million impairment of our corporate office lease. The fair values were estimated based on the discounted cash flows from our lease and sublease agreements, including the rent rate per square foot (a Level 3 fair value measurement) in accordance with the fair value hierarchy.

Other

The fair values of cash, restricted cash, accounts receivable, accounts payable, accrued liabilities, short-term borrowings and long-term debt pursuant to our Term Credit Agreement, ABL Credit Agreement, Argentina Credit Agreement, and Swedish Credit Agreement approximate their carrying amounts. See Note 6 - “Long-Term Debt and Other Borrowings” for further discussion.
NOTE 9 – NET INCOME PER SHARE

The following is a reconciliation of the weighted average number of common shares outstanding with the number of shares used in the computations of net income per common and common equivalent share:
Three Months Ended
June 30,
Six Months Ended
June 30,
 2023202220232022
 (in thousands)
Number of weighted average common shares outstanding
129,460 127,992 129,201 127,627 
Assumed vesting of equity awards465 2,107 752 2,027 
Average diluted shares outstanding
129,925 130,099 129,953 129,654 
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NOTE 10 – INDUSTRY SEGMENTS

We manage our operations through two segments: Completion Fluids & Products Division and Water & Flowback Services Division.

Summarized financial information concerning the business segments is as follows:
Three Months Ended
June 30,
Six Months Ended
June 30,
 2023202220232022
 (in thousands)
Revenues from external customers    
Product sales  
Completion Fluids & Products Division$94,368 $70,227 $159,883 $140,115 
Water & Flowback Services Division1,849 74 1,869 241 
Consolidated$96,217 $70,301 $161,752 $140,356 
Services   
Completion Fluids & Products Division$3,854 $4,571 $7,381 $7,877 
Water & Flowback Services Division75,392 65,844 152,539 122,520 
Consolidated$79,246 $70,415 $159,920 $130,397 
Total revenues  
Completion Fluids & Products Division$98,222 $74,798 $167,264 $147,992 
Water & Flowback Services Division77,241 65,918 154,408 122,761 
Consolidated$175,463 $140,716 $321,672 $270,753 
Income (loss) before taxes  
Completion Fluids & Products Division$31,956 $15,261 $50,398 $34,553 
Water & Flowback Services Division8,014 1,644 14,394 4,326 
Interdivision Eliminations— — 
Corporate Overhead(1)
(18,890)(15,628)(36,178)(28,671)
Consolidated$21,080 $1,280 $28,614 $10,214 
(1) Amounts reflected include the following general corporate expenses:
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2023202220232022
 (in thousands)
General and administrative expense$12,594 $11,542 $23,654 $21,888 
Depreciation and amortization92 172 202 363 
Impairments and other charges777 — 777 — 
Interest expense5,813 3,894 11,273 7,541 
Other general corporate (income) expense, net(386)20 272 (1,121)
Total$18,890 $15,628 $36,178 $28,671 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and accompanying notes included in this Quarterly Report. In addition, the following discussion and analysis should also be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (“SEC”) on February 27, 2023 (“2022 Annual Report”). This discussion includes forward-looking statements that involve certain risks and uncertainties.
Business Overview

We are an energy services and solutions company operating on six continents, focused on calcium chloride, completion fluids and associated products and services, comprehensive water management solutions, frac flowback, production well testing and offshore rig cooling. Calcium chloride is used in the oil and gas industry, and also has broad industrial applications to the agricultural, road, food and beverage and lithium production markets. We are composed of two segments – Completion Fluids & Products Division and Water & Flowback Services Division.

Second-quarter consolidated revenue of $175.5 million reflects the highest quarterly revenue in the Company’s history, excluding discontinued operations. Our strong second-quarter results reflect our employees delivering operational and financial excellence in our core businesses while simultaneously advancing our key strategic initiatives.

Completion Fluids & Products Division revenues increased 42% sequentially, resulting in a new segment record high driven by growth in international markets and the Gulf of Mexico, as well as the seasonal peak for our Northern Europe industrial chemicals business. Our strong offshore results have benefited from our recent investments to expand fluids capacity in the North Sea, Brazil and the Gulf of Mexico.

Our Water & Flowback Services revenues remained stable compared to the first quarter of 2023 and improved compared to the prior year, driven primarily by the first two early production facilities in Latin America that became operational in the third quarter of 2022 and the third early production facility which became operational in May 2023. The early production facilities are longer-term, high-margin projects with stable and predictable cash flows. Our growing fleet of TETRA SandStormTM advanced cyclone technology separators also remains at high utilization with continued market penetration and positive pricing progression.

We are committed to pursuing low-carbon energy initiatives that leverage our fluids and aqueous chemistry core competencies, our significant bromine and lithium assets and technologies, and our leading calcium chloride production capabilities. In June 2023, we entered into a memorandum of understanding (“MOU”) with Saltwerx LLC (“Saltwerx”), an indirect wholly owned subsidiary of a Fortune 500 company, relating to a newly-proposed brine unit in the Smackover Formation in Southwest Arkansas and potential bromine and lithium production from brine produced from the unit. The binding provisions of the MOU provide, among other things, that: (i) we will file an amended brine unit application (the “Application”) covering approximately 6,138 acres, which expands the size of the unit area and also combines brine acreage that was previously leased by each of TETRA and Saltwerx (the “Brine Unit”), with the Arkansas Oil & Gas Commission (“AOGC”) and (ii) Saltwerx will provide a letter to us in support of the Application. We are evaluating results from the second exploratory well on our acreage in Arkansas. We expect to receive the well results during the third quarter with the intent to improve the accuracy of our lithium and bromine resource estimates. Additional steps are required before making a decision to develop the bromine assets, and include further studies to analyze the resource as well as completion of a pre-feasibility and/or feasibility study.
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Results of Operations
The following information should be read in conjunction with the Consolidated Financial Statements and the associated Notes contained elsewhere in this report. The analysis herein reflects the optional approach to discuss results of operations on a sequential-quarter basis, which we believe provides information that is most useful in assessing our quarterly results of operations.

Three months ended June 30, 2023 compared with three months ended March 31, 2023.

Consolidated Comparisons
Three Months EndedPeriod to Period Change
 June 30,March 31,$ Change% Change
20232023
 (in thousands, except percentages)
Revenues$175,463 $146,209 $29,254 20.0 %
Gross profit49,155 36,323 12,832 35.3 %
Gross profit as a percentage of revenue
28.0 %24.8 %  
Exploration and pre-development costs2,341 720 1,621 225.1 %
General and administrative expense26,225 23,191 3,034 13.1 %
General and administrative expense as a
   percentage of revenue
14.9 %15.9 %  
Interest expense, net5,944 5,092 852 16.7 %
Other income, net(6,435)(214)6,221 
NM(1)
Income before taxes and discontinued operations21,080 7,534 13,546 179.8 %
Income before taxes and discontinued operations as a percentage of revenue12.0 %5.2 %  
Provision for income taxes2,875 1,489 1,386 93.1 %
Income before discontinued operations18,205 6,045 12,160 201.2 %
Discontinued operations:
Loss from discontinued operations, net of taxes(8)(12)(4)(33.3)%
Net income18,197 6,033 12,164 201.6 %
Loss attributable to noncontrolling interests18 11 157.1 %
Net income attributable to TETRA stockholders$18,215 $6,040 $12,175 201.6 %
(1) Percent change is not meaningful

Consolidated revenues increased between the current and previous quarters primarily due to an increase in overall activity for the Completion Fluids & Products division lead by increased pricing and volume sales in the Northern European industrial chemicals market. See Divisional Comparisons section below for a more detailed discussion of the change in our revenues.

Consolidated gross profit as a percentage of revenue increased primarily due to our Completion Fluids & Products division benefiting from increased overall activity levels and margins. See Divisional Comparisons section below for additional discussion.

Consolidated exploration and pre-development costs increased primarily due to drilling costs associated with our second exploratory brine well in Arkansas.

Consolidated general and administrative expenses increased compared to the prior year, primarily due to a $2.7 million increase in wage and benefit-related expenses driven by divisional headcount additions as operational activity levels increased, as well as higher short and long-term incentive expense. General and administrative expenses also increased $0.8 million due to a higher provision for credit losses, partially offset by a $0.6 million decrease in legal expenses.

Consolidated other income, net, increased in the current quarter, compared to the prior quarter primarily due to the $4.7 million cumulative credit for exploration and pre-development costs reimbursable from Saltwerx, a $0.7 million increase in unrealized gain due to the change in the unit price of the CSI Compressco common units we own, a $0.3 million increase in unrealized gain from our Standard Lithium shares received in April 2022 and 2023
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and a $0.4 million increase in unrealized gain from the change in fair value of the CarbonFree convertible note embedded option.

Consolidated provision for income tax was $2.9 million during the current quarter, compared to a $1.5 million provision during the prior quarter. Our consolidated effective tax rate for the three months ended June 30, 2023 was 13.6% due to income generated during the quarter, partially offset by the utilization of net operating loss carryforwards in the United States and certain other non-U.S. jurisdictions for which a valuation allowance had been established. We establish a valuation allowance to reduce the deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Included in our deferred tax assets are net operating loss carryforwards and tax credits that are available to offset future income tax liabilities in the United States and certain other non-U.S. jurisdictions.

Divisional Comparisons

Completion Fluids & Products Division
Three Months EndedPeriod to Period Change
 June 30,March 31,$ Change% Change
20232023
 (in thousands, except percentages)
Revenues$98,222 $69,042 $29,180 42.3 %
Gross profit37,133 25,010 12,123 48.5 %
Gross profit as a percentage of revenue
37.8 %36.2 % 
Exploration and pre-development costs2,341 720 1,621 225.1 %
General and administrative expense8,551 7,173 1,378 19.2 %
General and administrative expense as a percentage of revenue
8.7 %10.4 %  
Interest expense (income), net104 (395)499 126.3 %
Other income, net(5,819)(930)4,889 525.7 %
Income before taxes and discontinued operations$31,956 $18,442 $13,514 73.3 %
Income before taxes and discontinued operations as a percentage of revenue32.5 %26.7 %  

Revenues for our Completion Fluids & Products Division increased primarily due to increased pricing and volumes for industrial chemical sales, including higher sales volume from the seasonal uplift in Northern Europe, as well as an increase in offshore activity levels.

Gross profit for our Completion Fluids & Products Division increased compared to the prior quarter period primarily due to the pricing and sales volume impact mentioned above. Our industrial calcium chloride business reflects the seasonal peak in Europe, high production volumes, and supply chain benefits that yielded higher margins. Our profitability in future periods will continue to be affected by the mix of our products and services, market demand for our products and services, drilling and completions activity, supply chain challenges and inflationary pressures.

Completion Fluids & Products Division exploration and pre-development costs associated with our potential Southwest Arkansas bromine development project increased $1.6 million due to a second exploratory well drilled during the current quarter, as well as ongoing engineering and design work. General and administrative expense for the division increased $1.4 million to support higher activity levels. Interest expense (income), net increased $0.5 million due to lower interest income on deposit accounts in Brazil and Europe. Other income, net increased primarily due to the $4.7 million cumulative credit for exploration and pre-development costs from Saltwerx, a $0.4 million unrealized gain from the change in fair value of the CarbonFree convertible note embedded option and a $0.3 million increase in unrealized gain from our investment in Standard Lithium shares, partially offset by a $0.5 million increase in foreign exchange losses.



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Water & Flowback Services Division
Three Months EndedPeriod to Period Change
June 30,March 31,$ Change% Change
 20232023
 (in thousands, except percentages)
Revenues$77,241 $77,167 $74 0.1 %
Gross profit12,893 11,422 1,471 12.9 %
Gross profit as a percentage of revenue
16.7 %14.8 %  
General and administrative expense5,080 4,959 121 2.4 %
General and administrative expense as a percentage of revenue
6.6 %6.4 %  
Interest expense, net27 27 — — %
Other (income) expense, net(228)58 286 493.1 %
Income before taxes and discontinued operations$8,014 $6,378 $1,636 25.7 %
Income before taxes and discontinued operations as a percentage of revenue10.4 %8.3 %  

Revenues for our Water & Flowback Services Division in the current quarter remained comparable to the prior quarter as higher revenues from our early production facilities in Latin America were offset by lower customer activity in the North America onshore business.

Gross profit for our Water & Flowback Services Division increased compared to the prior quarter due to a revenue shift toward higher margin service offerings, including the early production facilities in Latin America. Gross profit as a percentage of revenue increased reflecting the continued margin expansion efforts driven by investments in technology, integration, digitalization and the benefit of our early production facilities in Argentina. While we have seen some signs of softness in certain land segments in the United States, pricing has remained relatively stable for our differentiated products and service offerings.

The Water & Flowback Services Division income before taxes and discontinued operations increased primarily due to an improvement in the gross profit described above, as well as a $0.3 million increase in foreign exchange gains.

Corporate Overhead
Three Months EndedPeriod to Period Change
June 30,March 31,$ Change% Change
 20232023
 (in thousands, except percentages)
Depreciation and amortization$93 $109 $(16)(14.7)%
Impairments and other charges777 — 777 100.0 %
General and administrative expense12,595 11,059 1,536 13.9 %
Interest expense, net5,813 5,460 353 6.5 %
Other (income) expense, net(388)658 1,046 159.0 %
Loss before taxes and discontinued operations$(18,890)$(17,286)$(1,604)9.3 %

Corporate overhead loss before taxes and discontinued operations increased primarily due to a $1.6 million increase in wages and benefits related expenses driven by higher short and long-term incentive expenses, a $0.8 million impairment associated with our corporate office lease, and a $0.4 million increase in interest expense due to an increase in the interest rate on our Term Credit Agreement. These expenses are partially offset by an increase in other (income) expense, net primarily due to a $0.7 million increase in unrealized gains related to unit price changes of our investment in CSI Compressco, and a $0.3 million increase in foreign exchange gains.
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Six months ended June 30, 2023 compared with six months ended June 30, 2022.
Consolidated Comparisons
Six Months Ended
June 30,Period to Period Change
 20232022$ Change% Change
 (in thousands, except percentages)
Revenues$321,672 $270,753 $50,919 18.8 %
Gross profit85,478 60,527 24,951 41.2 %
Gross profit as a percentage of revenue
26.6 %22.4 %  
Exploration and pre-development costs3,061 2,564 497 19.4 %
General and administrative expense49,416 44,263 5,153 11.6 %
General and administrative expense as a percentage of revenue
15.4 %16.3 %  
Interest expense, net11,036 6,934 4,102 59.2 %
Other income, net(6,649)(3,448)3,201 92.8 %
Income before taxes and discontinued operations28,614 10,214 18,400 180.1 %
Income before taxes and discontinued operations as a percentage of revenue8.9 %3.8 %  
Provision for income taxes4,364 721 3,643 505.3 %
Income before discontinued operations24,250 9,493 14,757 155.5 %
Discontinued operations:
Loss from discontinued operations, net of taxes(20)(49)(29)(59.2)%
Net income24,230 9,444 14,786 156.6 %
Loss attributable to noncontrolling interests25 21 19.0 %
Net income attributable to TETRA stockholders$24,255 $9,465 $14,790 156.3 %

Consolidated revenues increased in the current year primarily due to improving industry conditions compared to the prior year for both our Completion Fluids & Products and Water & Flowback Services divisions, as well as the first two early production facilities in Argentina that commenced operations in the third quarter of 2022 and a third early production facility that became operational in the second quarter of 2023. See Divisional Comparisons section below for a more detailed discussion of the change in our revenues.

Consolidated gross profit increased in the current year primarily due to the increase in revenue, partially offset by an increase in costs associated with the higher Water & Flowback Services division activity levels described above. Profit margins for both divisions also improved due to stronger market conditions and a shift to higher-margin projects.

Consolidated exploration and pre-development costs increased $0.5 million compared to the prior year primarily due to drilling costs associated with our second exploratory brine well in Arkansas

Consolidated general and administrative expenses increased compared to the prior year, primarily due to $4.6 million of increased wage and benefit-related expenses driven by divisional headcount additions as operational activity levels increased, as well as higher short and long-term incentive expense. General and administrative expenses also increased $0.5 million due to a higher provision for credit loss allowances on trade accounts receivable.

Consolidated interest expense, net, increased in the current year primarily due to an increase in the interest rate on our Term Credit Agreement and higher borrowings under our ABL Credit Agreement.

Consolidated other income, net, increased in the current year, compared to the prior year primarily due to a $4.7 million cumulative credit for exploration and pre-development costs reimbursable from Saltwerx, offset by a $1.9 million increase in foreign exchange losses.

Consolidated provision for income taxes was $4.4 million during the current year, compared to $0.7 million during the prior year. Our consolidated effective tax rate for the current year was 15.3%, compared to 7.1% during the prior year. The increase in our tax provision and effective tax rate compared to the prior year was primarily due
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to increased income generated in certain non-U.S. jurisdictions for which a net operating loss carryforward is not available for offset. We establish a valuation allowance to reduce the deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Included in our deferred tax assets are net operating loss carryforwards and tax credits that are available to offset future income tax liabilities in the United States as well as in certain non-U.S. jurisdictions.

Divisional Comparisons

Completion Fluids & Products Division
Six Months Ended
June 30,Period to Period Change
 20232022$ Change% Change
 (in thousands, except percentages)
Revenues$167,264 $147,992 $19,272 13.0 %
Gross profit62,142 48,209 13,933 28.9 %
Gross profit as a percentage of revenue
37.2 %32.6 %  
Exploration and pre-development costs3,061 2,564 497 19.4 %
General and administrative expense15,723 12,243 3,480 28.4 %
General and administrative expense as a percentage of revenue
9.4 %8.3 %  
Interest income, net(291)(606)(315)(52.0)%
Other income, net(6,749)(545)6,204 
NM(1)
Income before taxes and discontinued operations$50,398 $34,553 $15,845 45.9 %
Income before taxes and discontinued operations as a percentage of revenue30.1 %23.3 %  
 (1) Percent change is not meaningful

Revenues for our Completion Fluids & Products Division increased compared to the prior year primarily due to higher European industrial chemical sales volumes, as well as favorable pricing and customer mix. The division also benefited from recent capacity expansions following investments in Brazil, the Gulf of Mexico and the United Kingdom.

Gross profit for our Completion Fluids & Products Division increased compared to the prior year due to increase in revenues. Gross profit as a percentage of revenue for our Completion Fluids & Products division increased primarily due to favorable pricing improvements. Our profitability in future periods will continue to be affected by the mix of our products and services, market demand for our products and services, drilling and completions activity, supply chain challenges and inflationary pressures.

Income before taxes and discontinued operations for our Completion Fluids & Products Division increased compared to the prior year driven by higher gross profit and the $4.7 million cumulative credit for exploration and pre-development costs reimbursable from Saltwerx, partially offset by a $3.5 million increase in general and administrative costs due to higher compensation and short-term incentive expense due to increased activity levels, increased provision for credit loss allowances on trade accounts receivable and higher research and development expenses, as well as a $0.5 million increase in costs associated with the exploratory brine project compared to the prior period.

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Water & Flowback Services Division
Six Months Ended
June 30,Period to Period Change
 20232022$ Change% Change
 (in thousands, except percentages)
Revenues$154,408 $122,761 $31,647 25.8 %
Gross profit24,315 12,676 11,639 91.8 %
Gross profit as a percentage of revenue15.7 %10.3 %  
General and administrative expense10,039 10,132 (93)(0.9)%
General and administrative expense as a percentage of revenue
6.5 %8.3 %  
Interest expense (income), net54 (1)55 
NM(1)
Other income, net(172)(1,781)(1,609)(90.3)%
Income before taxes and discontinued operations$14,394 $4,326 $10,068 232.7 %
Income before taxes and discontinued operations as a percentage of revenue9.3 %3.5 %  
 (1) Percent change is not meaningful

Revenues for our Water & Flowback Services Division increased significantly for both water management and production testing due to overall higher customer drilling and completion activity. Customer activity levels have continued to improve, primarily in our North America land business. Revenues have also increased in Latin America due to two early production facilities that began operations in the third quarter of 2022 and a third early production facility that came on line in the second quarter of 2023.

Gross profit for our Water & Flowback Services Division improved substantially from the prior year primarily due to higher revenues resulting from the increased activity levels described above and pricing improvements as activity levels improved and continuous efforts to increase margins through streamlining operations and automation.

Income before taxes and discontinued operations for our Water & Flowback Services Division increased in the current year primarily due to an improvement in the gross profit described above, partially offset by a $0.9 million decrease in foreign exchange gains, and a $0.5 million decrease in gains on asset sales.

Corporate Overhead
Six Months Ended
June 30,Period to Period Change
 20232022$ Change% Change
 (in thousands, except percentages)
Depreciation and amortization$202 $363 $(161)(44.4)%
Impairments and other charges777 — 777 100.0 %
General and administrative expense23,654 21,888 1,766 8.1 %
Interest expense, net11,273 7,541 3,732 49.5 %
Other (income) expense, net272 (1,121)1,393 124.3 %
Loss before taxes and discontinued operations$(36,178)$(28,671)$(7,507)26.2 %

Corporate overhead loss before taxes and discontinued operations increased due to a $1.8 million increase in general and administrative expense, and a $3.7 million increase in interest expense, net due to an increase in the interest rate on our Term Credit Agreement and higher borrowings under our ABL Credit Agreement, as well as a $1.4 million decrease in other (income) expense, net and a $0.8 million impairment of our corporate office lease. Corporate general and administrative expenses increased compared to the prior year, primarily due to increased wage and benefit-related expenses driven by higher short and long-term incentive expenses. Other (income) expense, net decreased primarily due to a $1.0 million decrease in unrealized gains related to unit price changes of our investment in CSI Compressco, and a $1.0 million decrease in foreign exchange gains, partially offset by a $0.6 million increase in income from investments.
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Non-GAAP Financial Measures

We use U.S. GAAP financial measures such as revenues, gross profit, income (loss) before taxes and discontinued operations, and net cash provided by operating activities, as well as certain non-GAAP financial measures, including Adjusted EBITDA, as performance measures for our business.

Adjusted EBITDA. We define Adjusted EBITDA as net income (loss) before taxes and discontinued operations, excluding impairments, exploration and pre-development costs, certain special, non-recurring or other charges (or credits), interest, depreciation and amortization, income from collaborative arrangement 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.
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The following tables reconcile net income (loss) before taxes and discontinued operations to Adjusted EBITDA for the periods indicated:
Three Months Ended
June 30, 2023
Completion Fluids & ProductsWater & Flowback ServicesCorporate SG&AOther and EliminationsTotal
(in thousands, except percentages)
Revenue$98,222 $77,241 $ $ $175,463 
Net income (loss) before taxes and discontinued operations31,956 8,014 (12,595)(6,295)21,080 
Insurance recoveries(5)— — — (5)
Impairments and other charges— — 777 — 777 
Exploration and pre-development costs2,341 — — — 2,341 
Adjustment to long-term incentives— — 322 — 322 
Former CEO stock appreciation right expense— — 329 — 329 
Transactions and other expenses— — 57 — 57 
Income from collaborative arrangement(4,749)— — — (4,749)
Interest (income) expense, net104 27 — 5,813 5,944 
Depreciation, amortization and accretion2,193 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 % of revenue32.4 %18.4 %20.5 %
Three Months Ended
March 31, 2023
Completion Fluids & ProductsWater & Flowback ServicesCorporate SG&AOther and EliminationsTotal
(in thousands, except percentages)
Revenue$69,042 $77,167 $ $ $146,209 
Net income (loss) before taxes and discontinued operations18,442 6,378 (11,059)(6,227)7,534 
Insurance recoveries(2,850)— — — (2,850)
Exploration and pre-development costs720 — — — 720 
Adjustment to long-term incentives— — 353 — 353 
Interest (income) expense, net(395)27 — 5,460 5,092 
Depreciation, amortization and accretion2,052 6,509 — 109 8,670 
Equity-based compensation expense17 — 1,276 — 1,293 
Transaction, restructuring and other expenses— — 82 — 82 
Former CEO stock appreciation right expense— — (307)— (307)
Adjusted EBITDA$17,986 $12,914 $(9,655)$(658)$20,587 
Adjusted EBITDA as % of revenue26.1 %16.7 %14.1 %
Adjusted EBITDA is a financial measure that is not in accordance with U.S. GAAP and should not be considered an alternative to net income, operating income, cash provided by operating activities, or any other measure of financial performance presented in accordance with U.S. GAAP. This measure may not be comparable to similarly titled financial metrics of other companies, as other companies may not calculate Adjusted EBITDA in the same manner as we do. Management compensates for the limitations of Adjusted EBITDA as an analytical tool by reviewing the comparable U.S. GAAP measures, understanding the differences between the measures, and incorporating this knowledge into management’s decision-making processes.
Liquidity and Capital Resources

We believe that our capital structure allows us to meet our financial obligations. Our liquidity at the end of the second quarter was $99.0 million. Liquidity is defined as unrestricted cash plus availability under the ABL Credit Agreement, Argentina Credit Facility and Swedish Credit Facility. Information about the terms and covenants of our debt agreements can be found in Note 6 - Long Term Debt and Other Borrowings.

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Our consolidated sources and uses of cash are as follows:
Six Months Ended
June 30,
20232022
(in thousands)
Operating activities$37,357 $23,803 
Investing activities(22,004)(15,919)
Financing activities(1,757)(2,774)

Operating Activities

Consolidated cash flows provided by operating activities increased compared to the first six months of 2022 primarily due to an increase in cash profit and working capital changes.

Investing Activities

Total cash capital expenditures during the first six months of 2023 were $23.3 million, which reflects increased expenditures to accommodate industry-wide activity recoveries as well as traditional front-loading of expected annual expenditures. Our Water & Flowback Services Division spent $16.6 million on capital expenditures, primarily to deploy additional SandStorm units to meet increased demands and to maintain, automate and upgrade its water management and flowback equipment fleet. Water and Flowback Services Division capital expenditures also included expenditures related to construction of the third early production facility in Argentina. Our Completion Fluids & Products Division spent $6.5 million on capital expenditures, primarily investing in additional capacity to support higher projected activity levels in the United States, Latin America and Europe.

Investing activities during the first six months of 2023 and 2022 included $2.9 million and $3.8 million, respectively, of proceeds for insurance settlements from damage to our Lake Charles facility in 2020.

Historically, a significant majority of our planned capital expenditures have been related to identified opportunities to grow and expand our existing businesses. We are also focused on enhancing shareholder value by capitalizing on our key mineral assets, brine mineral extraction expertise, and deep chemistry competency to expand our offerings into the low carbon energy markets. However, we continue to review all capital expenditure plans carefully in an effort to conserve cash. We currently have no long-term capital expenditure commitments. If the forecasted demand for our products and services increases or decreases, the amount of planned expenditures on growth and expansion may be adjusted.

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Lithium and Bromine Inferred Resources

We have rights to the brine underlying our approximately 40,000 gross acres of brine leases in the Smackover Formation in Southwest Arkansas, including rights to the bromine and lithium contained in the brine. With respect to approximately 35,000 acres of that total acreage, we granted Standard Lithium an option to acquire the lithium rights. The agreements governing this option contemplate a 2.5% royalty that Standard Lithium would pay us based on gross lithium revenues. Additional information on these inferred resources is described in Part I, “Item 2. Properties” in our 2022 Annual Report.

During early 2023, we completed an initial economic assessment for a bromine extraction plant. We expect an initial economic assessment to follow in late 2023 for a lithium extraction plant, subject to the progress of early engineering. In June 2023, we entered into the MOU with Saltwerx, an indirect wholly owned subsidiary of a Fortune 500 company, relating to a newly-proposed brine unit in the Smackover Formation in Southwest Arkansas and potential bromine and lithium production from brine produced from the unit. The binding provisions of the MOU provide, among other things, that (i) the Company will file the Application covering the Brine Unit with the AOGC and (ii) Saltwerx will provide a letter to the Company in support of the Application. The MOU also contains provisions effective after, and contingent on, the approval of the Brine Unit by the AOGC, including provisions relating to: (i) initial brine ownership percentages within the Brine Unit, including the bromine and lithium contained in the brine, (ii) the transfer of certain leased acres outside the proposed Brine Unit from us to Saltwerx, (iii) Saltwerx reimbursing us for certain expenses incurred by us to date regarding the development of leased acreage to be included in the Brine Unit, and (vi) an allocation of certain future costs for the drilling of a brine production test well and other development operations, including FEED studies for bromine and lithium production facilities. During the second quarter of 2023, we also contracted a third-party firm to execute a front-end engineering and design study for a lithium production facility. Only upon completion of an indicated resources study, pre-feasibility and/or feasibility study and attainment of capital commitment from either a joint venture partner, governments grants or loans, or other cost-effective sources of capital that will not over-lever the Company, in addition to confirmation of a successful recapitalization of the long-duration zinc-bromide battery storage manufacturers, would we proceed to a final investment decision.

Financing Activities

Our financing activities for the first six months of 2023 include $97.2 million of borrowings and $98.2 million of repayments under the ABL Credit Agreement, Argentina Credit Facility and Swedish Credit Facility, as well as $0.7 million of capital lease payments associated with equipment leased primarily for the early production facilities in Argentina. We may supplement our existing cash balances and cash flow from operating activities with short-term borrowings, long-term borrowings, issuances of equity and debt securities, and other sources of capital. We are aggressively managing our working capital and capital expenditure needs in order to maximize our liquidity in the current environment.
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Long-Term Debt

Term Credit Agreement.    The Term Credit Agreement is scheduled to mature on September 10, 2025. Our Term Credit Agreement requires us to offer to prepay a percentage of Excess Cash Flow (as defined in the Term Credit Agreement) within five business days of filing our Annual Report. As of June 30, 2023, $163.1 million in aggregate principal amount of our Term Credit Agreement is outstanding.

Asset-Based Credit Agreement. As of June 30, 2023, our ABL Credit Agreement provides for a senior secured revolving credit facility of up to $80.0 million, with a $20.0 million accordion. The credit facility is subject to a borrowing base to be determined by reference to the value of inventory and accounts receivable, and includes a sublimit of $20.0 million for letters of credit, a swingline loan sublimit of $11.5 million, and a $15.0 million sub-facility subject to a borrowing base consisting of certain trade receivables and inventory in the United Kingdom. The amounts we may borrow under the ABL Credit Agreement are derived from our accounts receivable, certain accrued receivables and certain inventory. Changes in demand for our products and services have an impact on our eligible accounts receivable, accrued receivables and the value of our inventory, which could result in significant changes to our borrowing base and therefore our availability under our ABL Credit Agreement. As of June 30, 2023, we had no balance outstanding and $11.5 million in letters of credit and guarantees against our ABL Credit Agreement and availability of $66.6 million, subject to compliance with the covenants, borrowing base, and other provisions of the ABL Credit Agreement.

Argentina Credit Facility. In January 2023, the Company entered into a revolving credit facility for certain working capital and capital expenditure needs for its subsidiary in Argentina (“Argentina Credit Facility”). As of June 30, 2023, we had $1.9 million outstanding and availability of approximately $0.1 million under the Argentina Credit Agreement. Borrowings bear interest at a rate of 2.50% per annum. The Argentina Credit Facility expires on October 19, 2023 and is backed by a letter of credit under our ABL Credit Agreement.

Swedish Credit Facility. In January 2022, the Company entered into a revolving credit facility for seasonal working capital needs of subsidiaries in Sweden. As of June 30, 2023, we had no balance outstanding and availability of approximately $4.6 million under this agreement. During each year, all outstanding loans under the Swedish Credit Facility must be repaid for at least 30 consecutive days. Borrowings bear interest at a rate of 2.95% per annum. The Swedish Credit Facility expires on December 31, 2023 and the Company intends to renew it annually.

Finland Credit Agreement. In January 2022, the Company also entered into a credit agreement guaranteed by certain accounts receivable and inventory in Finland (“Finland Credit Agreement”). As of June 30, 2023, there were $1.5 million of letters of credit outstanding against the Finland Credit Agreement. The Finland Credit Agreement expires on January 31, 2024 and the Company intends to renew it annually.

Other Sources and Uses of Cash

In addition to the aforementioned credit facilities, we fund our short-term liquidity requirements from cash generated by our operations and from short-term vendor financing. In addition, as of June 30, 2023, the market value of our investments in CSI Compressco and Standard Lithium were $6.6 million and $3.6 million, respectively, with no holding restrictions on our ability to monetize our interests. In addition, we are party to agreements in which Standard Lithium has the right to explore for, and an option to acquire the right to produce and extract lithium in our Arkansas leases as well as additional potential resources in the Mojave region of California. We received an additional 400,000 shares of Standard Lithium stock in April 2023 under the terms of this agreement. We also hold an investment in a convertible note issued by CarbonFree valued at $6.3 million as of June 30, 2023.

On May 5, 2022, we filed a universal shelf Registration Statement on Form S-3 with the SEC. On May 17, 2022, the Registration Statement on Form S-3 was declared effective by the SEC. Pursuant to this registration statement, we have the ability to sell debt or equity securities in one or more public offerings up to an aggregate public offering price of $400 million. This shelf registration statement currently provides us additional flexibility with regards to potential financing that we may undertake when market conditions permit or our financial condition may require.

Should additional capital be required, the ability to raise such capital through the issuance of additional debt or equity securities may currently be limited. Instability or volatility in the capital markets at the times we need to
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access capital may affect the cost of capital and the ability to raise capital for an indeterminable length of time. If it is necessary to issue additional equity to fund our capital needs, additional dilution of our common stockholders will occur. We periodically evaluate engaging in strategic transactions and may consider divesting non-core assets where our evaluation suggests such transactions are in the best interest of our business. In challenging economic environments, we may experience increased delays and failures by customers to pay our invoices. If our customers delay paying or fail to pay us a significant amount of our outstanding receivables, it could have an adverse effect on our liquidity. An increase of unpaid aged receivables would also negatively affect our borrowing availability under the ABL Credit Agreement.

As of June 30, 2023, we had no “off balance sheet arrangements” that may have a current or future material effect on our consolidated financial condition or results of operations.
Critical Accounting Policies and Estimates

    There have been no material changes or developments in the evaluation of the accounting estimates and
the underlying assumptions or methodologies pertaining to our Critical Accounting Policies and Estimates disclosed
in our 2022 Annual Report. In preparing our consolidated financial statements, we make assumptions, estimates, and judgments that affect the amounts reported. These judgments and estimates may change as new events occur, as new information is acquired, and as changes in our operating environments are encountered. Actual results are likely to differ from our current estimates, and those differences may be material.
Commitments and Contingencies

Litigation

For information regarding litigation, see Note 7 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements and Part II, “Item 1. Legal Proceedings” in this report.

Long-Term Debt

For information on our credit agreements, see Note 6 - “Long-Term Debt and Other Borrowings” in the Notes to Consolidated Financial Statements.

Leases

We have operating leases for some of our transportation equipment, office space, warehouse space, operating locations, and machinery and equipment. We have finance leases for certain facility storage tanks and equipment rentals. Information about the terms of our lease agreements can be found in our 2022 Annual Report.

Product and Asset Purchase Obligations

For information on product and asset purchase obligations, see Note 7 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements.
Cautionary Statement for Purposes of Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements in this Quarterly Report are identifiable by the use of the following words, the negative of such words, and other similar words: “anticipates”, “assumes”, “believes”, “budgets”, “could”, “estimates”, “expects”, “forecasts”, “goal”, “intends”, “may”, “might”, “plans”, “predicts”, “projects”, “schedules”, “seeks”, “should”, “targets”, “will”, and “would”.

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These forward-looking statements include statements concerning the inferred mineral resources of lithium and bromine, the potential extraction of lithium and bromine from the leased acreage, the development of the assets including construction of bromine extraction plants, the economic viability thereof, the demand for such resources, and the timing and cost of such activities; the ability to obtain an indicated or measured resources report and an initial economic assessment, indicated or measured resources report, and/or pre-feasibility or feasibility studies regarding our lithium and bromine acreage; 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 inferred mineral resources do not have demonstrated economic value. Inferred mineral resources have a high degree of uncertainty as to their existence and as 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, investors 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. 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, the approval of the application and Brine Unit by the AOGC, and the ability to successfully and economically produce lithium and bromine from the Brine Unit.

Management believes that these forward-looking statements are reasonable as and when made. However, investors are cautioned not to place undue reliance on any such forward-looking statements. Such statements speak only as of the date on which they are made, and the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations, forecasts or projections. These risks and uncertainties include, but are not limited to, those described in Part II, “Item 1A. Risk Factors” and elsewhere in this report and in our 2022 Annual Report, and those described from time to time in our future reports filed with the SEC.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Interest Rate Risk

The interest on our borrowings is subject to market risk exposure related to changes in applicable interest rates. Borrowings under the Term Credit Agreement bear interest at a rate per annum equal to, at the option of TETRA, either (i) SOFR (subject to a 1% floor) plus a margin of 6.25% per annum or (ii) a base rate plus a margin of 5.25% per annum. Borrowings under our ABL Credit Agreement bear interest at an agreed-upon percentage rate spread above SOFR. Borrowings under our Argentina Credit Facility and Swedish Credit Facility bear interest at fixed rates of 2.50% and 2.95%, respectively. The following table sets forth as of June 30, 2023, the principal amount due under our long-term debt obligations and their respective weighted average interest rates. As of June 30, 2023, we had no balance outstanding under our ABL Credit Agreement or Swedish Credit Facility. We are not a party to an interest rate swap contract or other derivative instrument designed to hedge our exposure to interest rate fluctuation risk.
Interest
June 30, 2023
 Scheduled MaturityRate
  (in thousands)
Term Credit AgreementSeptember 10, 202511.40%$163,072 
Argentina Credit FacilityOctober 19, 20232.50%1,900 
TETRA total debt, including current portion $164,972 

Exchange Rate Risk

We have currency exchange rate risk exposure related to revenues, expenses, operating receivables, and payables denominated in foreign currencies. We may enter into short-term foreign-currency forward derivative contracts as part of a program designed to mitigate the currency exchange rate risk exposure on selected transactions of certain foreign subsidiaries. Although contracts pursuant to this program will serve as an economic
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hedge of the cash flow of our currency exchange risk exposure, they are not expected to be formally designated as hedge contracts or qualify for hedge accounting treatment. Accordingly, any change in the fair value of these derivative instruments during a period will be included in the determination of earnings for that period. As of June 30, 2023, we did not have any foreign currency exchange contracts outstanding.
Item 4. Controls and Procedures.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2023, the end of the period covered by this quarterly report.

There were no changes in our internal controls over financial reporting that occurred during the quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings.

On May 31, 2022, TETRA filed a demand for arbitration with the American Arbitration Association (“AAA”) under a certain Bromine Requirements Sales Agreement between TETRA and LANXESS Corporation (formerly Chemtura Corporation, “LANXESS”) (the “Sales Agreement”).

Under the Sales Agreement, TETRA agreed to purchase a certain volume of elemental bromine. LANXESS notified TETRA of a proposed non-ordinary course increase to the price of bromine. After lengthy discussions, TETRA and LANXESS were unable to reach an agreement regarding the validity of the proposed price increase; therefore, TETRA filed for arbitration seeking declaratory relief, among other relief, declaring that the proposed price increase is invalid. On September 19, 2022, LANXESS filed a counterclaim with the AAA seeking declaratory relief, among other relief.

On May 25, 2023, TETRA entered into the Third Amendment to Bromine Requirements Sales Agreement (the “Amendment”) with LANXESS. The Amendment has an effective date of April 1, 2023 and was entered into in connection with the entry into a settlement agreement in the Company’s arbitration with LANXESS. The Amendment provides for, among other things, revised volume requirements and related terms. On June 14, 2023, in light of the settlement agreement, and in response to the parties’ stipulated motion to dismiss, the arbitration panel issued an Order of Dismissal, which dismissed all claims in the arbitration with prejudice.

For more information regarding litigation, see “Item 1. Legal Proceedings” in our 2022 Annual Report and Note 7 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements.
Item 1A. Risk Factors.

As of the date of this filing, TETRA and its operations continue to be subject to the risk factors previously disclosed in the “Risk Factors” sections contained in our 2022 Annual Report. In addition, we are subject to the following supplemental risk factor.

We may not be able to utilize all or a portion of our net operating loss carryforwards or other tax benefits to offset future taxable income for U.S. federal, state or foreign tax purposes, which could adversely affect our financial position, results of operations and cash flows. We have adopted a Tax Benefits Preservation Plan that is designed to protect our Tax Attributes.

As of December 31, 2022, we had United States federal, state, and foreign deferred tax assets associated with net operating loss carryforwards (“NOLs”) equal to approximately $86.2 million, $11.1 million, and $7.8 million, respectively. In those countries and states in which NOLs are subject to an expiration period, our NOLs, if not utilized, will expire at various dates from 2023 through 2042.

We may be limited in the portion of our NOLs that we can use in the future to offset taxable income for United States, federal, state, and foreign income tax purposes. Utilization of these NOLs depends on many factors, including our future taxable income, which cannot be assured.

Under Section 382 (“Section 382”) of the Internal Revenue Code of 1986, as amended (the “Code”), if a corporation experiences an “ownership change,” any NOLs, losses or deductions attributable to a “net unrealized built-in loss” and other tax attributes (“Tax Attributes”) could be substantially limited, and timing of the usage of such Tax Attributes could be substantially delayed. A corporation generally will experience an ownership change if one or more stockholders (or group of stockholders) who are each deemed to own at least 5% of the corporation’s stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a testing period (generally, a rolling three-year period). Utilization of our Tax Attributes may be subject to a significant annual limitation as a result of prior or future “ownership changes.” Determining the limitations under Section 382 is technical and highly complex, and no assurance can be given that upon further analysis our ability to take advantage of our NOLs or other Tax Attributes may be limited to a greater extent than we currently anticipate.
The Board of Directors has adopted the Tax Plan to protect the availability of the Company’s Tax Attributes. The Tax Plan is designed to reduce the likelihood that we experience an ownership change by deterring certain acquisitions of our common stock. There can be no assurances, however, that the deterrent mechanism will be effective, and,
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therefore, such acquisitions may still occur. In addition, the Tax Plan could adversely affect the marketability of our common stock by discouraging existing or potential investors from acquiring our common stock or additional shares of our common stock. If the Company is unable to use the Tax Attributes in years in which it has taxable income, the Company will pay significantly more in cash tax than if it were able to utilize the Tax Attributes, and those tax costs would negatively impact the Company’s financial position, results of operations and cash flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.
Item 3. Defaults Upon Senior Securities.

None.
Item 4. Mine Safety Disclosures.

None.
Item 5. Other Information.

None.
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Item 6. Exhibits.
 
Exhibits:
3.1
3.2
3.3
3.4
3.5
4.1*+
4.2*+
4.3
4.4
10.1+
10.2*+#
31.1*
31.2*
32.1**
32.2**
101.SCH++XBRL Taxonomy Extension Schema Document.
101.CAL++XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF++XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB++XBRL Taxonomy Extension Label Linkbase Document.
101.PRE++XBRL Taxonomy Extension Presentation Linkbase Document.
104*Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL documents
*    Filed with this report.
**    Furnished with this report.
+     Portions have been omitted pursuant to Regulation S-K Item 601(b)(10)(iv), because the omitted information is both not material and is the type that the Company treats as private or confidential.
++    Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Operations for the three and six-month periods ended June 30, 2023 and 2022; (ii) Consolidated Statements of Comprehensive Income for the three and six-month periods ended June 30, 2023 and 2022; (iii) Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022; (iv) Consolidated Statements of Equity for the six-month periods ended June 30, 2023 and 2022 ; (v) Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2023 and 2022; and (vi) Notes to Consolidated Financial Statements for the six months ended June 30, 2023.
#    Certain schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant agrees to furnish supplementally a copy of any such omitted schedule to the SEC upon request.
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
 
TETRA Technologies, Inc.
 
   
Date:July 31, 2023By:/s/Brady M. Murphy
  Brady M. Murphy
  President and Chief Executive Officer
Principal Executive Officer
   
Date: July 31, 2023By:/s/Elijio V. Serrano
  Elijio V. Serrano
  Senior Vice President and Chief Financial Officer
  Principal Financial Officer
   
Date: July 31, 2023By:/s/Richard D. O’Brien
  Richard D. O’Brien
  Vice President – Finance and Global Controller
  Principal Accounting Officer

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