# TETRA TECHNOLOGIES INC (TTI) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from TETRA TECHNOLOGIES INC's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/844965/000084496522000007/tti-20211231.htm
Accession: 0000844965-22-000007
Filing date: 2022-02-28
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/TTI/
All MD&A years: /company/TTI/mda/
Next year: /company/TTI/mda/fy2022/ (FY 2022)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion is intended to analyze major elements of our consolidated financial statements and provide insight into important areas of management’s focus. This section should be read in conjunction with the Consolidated Financial Statements and the accompanying Notes included elsewhere in this Annual Report. Statements in the following discussion may include forward-looking statements. These forward-looking statements involve risks and uncertainties. See “Item 1A. Risk Factors” for additional discussion of these factors and risks. For discussion of 2020 compared to 2019, see disclosures titled “Results of Operations” set forth in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 5, 2021.

Business Overview 

We are an industrial oil and gas products and services company operating on six continents, focused on bromine-based completion fluids, calcium chloride, water management solutions, frac flowback and production well testing services. We operate through two reporting segments - Completion Fluids & Products Division and Water & Flowback Services Division.

After declining to historic lows due to depressed oil prices resulting from Russia and Saudi Arabia’s price war and the COVID-19 pandemic last year, customer activity levels in the North America onshore business began to recover during the first half of 2021. Customer activity levels continued to improve through the second half of 2021 as oil prices continued to improve, averaging over $70 per barrel for the third and fourth quarters, while natural gas prices averaged over $4 per million Btu.

Completions Fluids & Products Division revenues were lower than the prior year due to lower Gulf of Mexico and international oil and gas activity and global shipping delays, partially offset by an increase in industrial chemicals product sales. In July 2021, we completed our first International TETRA CS Neptune® fluids job, reflecting acceptance of this proprietary technology into new markets. We also saw a significant rebound in our international business, particularly in completion fluid sales during the fourth quarter of 2021.

Our Water & Flowback Services revenues increased significantly compared to the prior year, due to a combination of higher overall customer activity levels and significant price recovery, particularly in the United States land business. Our international production testing business also improved during the fourth quarter of 2021. We also deployed our TETRA SandStormTM technology for two major long-term projects in Latin America. Revenue growth was a result of a record increase in the number of integrated projects and customers, and TETRA SandStormTM high utilization and market share gains with private oil and gas operators.

We are also committed to pursuing low-carbon energy initiatives that leverage our fluids and aqueous chemistry core competencies, our significant bromine and lithium assets (including our approximately 31,100 net acres of brine leases in Arkansas) and technologies, and our leading calcium chloride production capabilities. In May 2021, we signed a MOU with CarbonFree. During the one-year MOU period, both Companies will work towards a definitive agreement that might include investments by TETRA into CarbonFree, a joint venture, or other commercial arrangements. In December 2021, we invested $5.0 million in a convertible note issued by CarbonFree.

In August 2021, we announced completion of a preliminary technical assessment by an independent geological consulting firm to assess lithium and bromine exploration targets in our Southwest Arkansas brine leases. Bromine has been identified as a key mineral resource in zinc-bromide energy storage systems and our TETRA PureFlow™ high purity zinc bromide has been qualified by several battery technology companies. The lithium battery market is a rapidly growing market, affording us the opportunity to participate in a meaningful way. We will assess the next steps towards determining whether we can develop these key minerals to augment our current global infrastructure and chemistry expertise, allowing us to further expand beyond the oil and gas market. In December, 2021, we announced a strategic agreement with Eos involving a long-term supply and collaboration agreement to supply our high purity zinc bromide solution, TETRA PureFlowTM. TETRA and Eos expect to collaborate for improved battery performance, cost and system life including an end-of-life solution using TETRA's extensive experience with reclaiming and recycling zinc bromide.

Substantially all of our former Compression Division’s operations were conducted through our partially-owned CSI Compressco subsidiary. On January 29, 2021, we entered into the Purchase and Sale Agreement pursuant to which we sold the general partner of CSI Compressco, including IDRs in CSI Compressco and

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approximately 23.1% of the outstanding limited partner interests in CSI Compressco, in exchange for a combination of $13.9 million in cash and $3.1 million in contingent consideration in the form of cash and/or CSI Compressco common units if CSI Compressco achieves certain financial target on or before December 31, 2022. As of December 31, 2021, we held an interest in CSI Compressco consisting of approximately 3.8% of the outstanding common units. We recorded a book gain of $120.1 million during 2021 in connection with the GP Sale. This gain, most of which was non-cash, was a function of CSI Compressco having a negative carrying value within our consolidated balance sheet due to our share of cumulative losses and distributions. We have reflected the operations of our former Compression Division as discontinued operations for all periods presented. See Note 3 - “Discontinued Operations” in the Notes to Consolidated Financial Statements for further information.

During the first quarter of 2021, we used proceeds from the GP sale and available cash on hand, including $14.2 million of proceeds from the fourth quarter 2020 compressor unit sales to Spartan, to pay down $29.3 million on our term loan, which matures in September 2025. During the fourth quarter of 2021, we sold the 1.6 million Standard Lithium Ltd. shares we owned for approximately $17.6 million, before broker and transaction fees. We repaid an additional $8.2 million of our term loan in July 2021 and $13.0 million of our term loan in December 2021. Our liquidity at the end of the fourth quarter was $67.7 million consisting of $31.6 million of unrestricted cash plus $36.1 million of availability under the ABL Credit Agreement.

Results of Operations

The following data should be read in conjunction with the Consolidated Financial Statements and the associated Notes contained elsewhere in this report.

Consolidated Comparisons

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","Period to Period Change"],["","","2021","","2020","","2021 vs. 2020","","% Change"],["","","(In Thousands, Except Percentages)"],["Revenues","","$","388,272","","","$","377,715","","","$","10,557","","","2.8","%"],["Gross profit","","59,237","","","67,543","","","(8,306)","","","(12.3)","%"],["Gross profit as a percentage of revenue","","15.3","%","","17.9","%"],["General and administrative expense","","75,049","","","76,697","","","(1,648)","","","(2.1)","%"],["General and administrative expense as a percentage of revenue","","19.3","%","","20.3","%"],["Interest expense, net","","16,377","","","18,926","","","(2,549)","","","(13.5)","%"],["Gain on sale of assets","","(1,040)","","","(2,878)","","","1,838","","","(63.9)","%"],["Other income, net","","(16,428)","","","(116)","","","(16,312)","","","NM(1)"],["Loss before taxes and discontinued operations","","(14,721)","","","(25,086)","","","10,365","","","(41.3)","%"],["Loss before taxes and discontinued operations as a percentage of revenue","","(3.8)","%","","(6.6)","%"],["Provision for income taxes","","2,084","","","1,758","","","326","","","18.5","%"],["Loss before discontinued operations","","(16,805)","","","(26,844)","","","10,039","","","(37.4)","%"],["Income (loss) from discontinued operations, net of taxes","","120,407","","","(72,089)","","","192,496","","","(267.0)","%"],["Net income (loss)","","103,602","","","(98,933)","","","202,535","","","(204.7)","%"],["(Income) loss attributable to noncontrolling interest","","(269)","","","47,790","","","(48,059)","","","(100.6)","%"],["Net loss attributable to TETRA stockholders","","$","103,333","","","$","(51,143)","","","$","154,476","","","(302.0)","%"]]
[[/GREPCENT_TABLE]]

(1) Percent change is not meaningful

Revenues

Consolidated revenues for 2021 increased compared to the prior year primarily due to higher activity in our Water & Flowback Services division, where revenue increased by $33.6 million. The increase in our Water & Flowback Services division is primarily due to increasing customer activity levels from recent lows in response to an improving commodity price environment in 2021 and recovery from industry downturn in 2021 related to the COVID-19 pandemic. The increase in consolidated revenue was offset by decreased revenue in our Completion

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Fluids & Products division of $23.0 million, primarily due to lower Gulf of Mexico and international oil and gas activity. See “Divisional Comparisons” section below for additional discussion.

Gross Profit

Consolidated gross profit as a percentage of revenue declined primarily due to a change in revenue mix, with a higher portion of revenues generated from our Water & Flowback Services division. See Divisional Comparisons section below for additional discussion.

General and Administrative Expense

Consolidated general and administrative expenses decreased during 2021 compared to the prior year primarily due to a $6.1 million decrease in bad debt expense. This was offset by a $1.6 million increase in salary related expenses, primarily due to a phased reinstatement of reduced salaries and 401K match; a $1.9 million increase in legal, settlement and other expenses, and a $1.0 million increase in general expenses.

Interest Expense, Net

Consolidated interest expense, net, decreased in 2021 compared to the prior year primarily due to $50.5 million of repayments on our term credit facility during the current year.

Gain on Sale of Assets

Consolidated gain on sale of assets decreased during 2021 compared to the prior year primarily due to decreased asset sales during the year.

Other Income, net

Consolidated other (income) expense, net increased during 2021 compared to the prior year primarily due to an $11.7 million increase in income from our investment in Standard Lithium due to an increase in the Standard Lithium stock price and additional shares received in May 2021. All Standard Lithium shares were sold in the fourth quarter of 2021. Additionally, we benefited from favorable foreign exchange fluctuations of $4.1 million.

Income (Loss) from Discontinued Operations

Income from discontinued operations, net of taxes, was $120.4 million compared to a loss of $72.1 million for the prior year, including $20.8 million of asset impairments. The current year income includes a $120.1 million primarily non-cash accounting gain from the deconsolidation of CSI Compressco. This gain is net of a $0.01 million tax provision after taking into consideration utilization of net operating loss and credit carryforwards.

Provision for Income Tax

Our consolidated provision for income taxes during 2021 was primarily attributable to taxes in certain foreign jurisdictions and Texas gross margin taxes. Our consolidated effective tax rate for the year ended December 31, 2021 of negative 14.2% was primarily the result of losses generated in entities for which no related tax benefit has been recorded. The losses generated by these entities do not result in tax benefits due to offsetting valuation allowances being recorded against the related net deferred tax assets. 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 $114.6 million of net operating loss carryforwards that may be available to offset future income tax liabilities in the U.S. as well as in certain international jurisdictions where net operating loss carryforwards exist.

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Divisional Comparisons

Completion Fluids & Products Division

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","Period to Period Change"],["","","2021","","2020","","2021 vs. 2020","","% Change"],["","","(In Thousands, Except Percentages)"],["Revenues","","$","219,648","","","$","242,661","","","$","(23,013)","","","(9.5)","%"],["Gross profit (loss)","","58,458","","","77,206","","","(18,748)","","","(24.3)","%"],["Gross profit (loss) as a percentage of revenue","","26.6","%","","31.8","%"],["General and administrative expense","","20,446","","","24,852","","","(4,406)","","","(17.7)","%"],["General and administrative expense as a percentage of revenue","","9.3","%","","10.2","%"],["Interest (income) expense, net","","(596)","","","(666)","","","70","","","(10.5)","%"],["Other income, net","","(16,373)","","","(2,314)","","","(14,059)","","","NM"],["Income before taxes","","$","54,981","","","$","55,334","","","$","(353)","","","(0.6)","%"],["Income before taxes as a percentage of revenue","","25.0","%","","22.8","%"]]
[[/GREPCENT_TABLE]]

Revenues for our Completion Fluids & Products Division decreased primarily due to lower Gulf of Mexico and international oil and gas activity and global shipping delays, partially offset by an increase in industrial chemicals product sales. In addition, the prior year period benefited from two large international orders. The ramp down in activity due to the COVID-19 pandemic and associated reduction in oil prices lagged North America onshore, and did not have a significant impact on offshore Gulf of Mexico and international activity until the third and fourth quarters of 2020.

Completion Fluids & Products Division gross profit during 2021 decreased compared to the prior year due to lower revenue and was also negatively impacted by continued inflationary pressures in certain raw materials and higher logistics costs due to the global shipping crisis. Completion Fluids & Products Division profitability in future periods will continue to be affected by the mix of its products and services, market demand for our products and services, drilling and completions activity and commodity prices.

Pretax income for our Completion Fluids & Products Division remained relatively stable during 2021 compared to the prior year primarily due to the decrease in gross profit discussed above being offset by an increase in other income and a decrease in general and administrative expenses. The division had an $11.7 million increase in income from our investment in Standard Lithium compared to the prior year. Additionally, the Completion Fluids & Products Division bad debt expense decreased $4.1 million due to several bankruptcy-related reserves recorded in the prior year and foreign exchange fluctuations were favorable by $2.0 million.

Water & Flowback Services Division

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","Period to Period Change"],["","","2021","","2020","","2021 vs. 2020","","% Change"],["","","(In Thousands, Except Percentages)"],["Revenues","","$","168,624","","","$","135,054","","","$","33,570","","","24.9","%"],["Gross profit","","1,800","","","(8,856)","","","10,656","","","120.3","%"],["Gross profit as a percentage of revenue","","1.1","%","","(6.6)","%"],["General and administrative expense","","14,613","","","15,644","","","(1,031)","","","(6.6)","%"],["General and administrative expense as a percentage of revenue","","8.7","%","","11.6","%"],["Interest (income) expense, net","","(511)","","","(1,135)","","","624","","","(55.0)","%"],["Other income, net","","(1,186)","","","(1,515)","","","329","","","(21.7)","%"],["Loss before taxes","","$","(11,116)","","","$","(21,850)","","","$","10,734","","","(49.1)","%"],["Loss before taxes as a percentage of revenue","","(6.6)","%","","(16.2)","%"]]
[[/GREPCENT_TABLE]]

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Water & Flowback Services Division revenues increased during 2021 compared to the prior year primarily due to increased customer drilling and completion activity in certain onshore North America markets as the industry continues to recover from the COVID-19 pandemic. Revenues for the prior year were significantly impacted by industry-wide reductions in rig and frac count resulting from historically low oil prices. The current year was negatively impacted by severe weather that caused extended shut downs in certain locations during the first quarter.

The Water & Flowback Services Division reflected a gross profit during 2021 compared to a gross loss in the prior year primarily due to increased revenues as described above and pricing improvements offsetting ongoing inflationary pressures.

The Water & Flowback Services Division reported a lower pretax loss compared to the prior year, primarily due to the gross profit improvement described above. General and administrative expenses also decreased primarily due to a $2.0 million decrease in bad debt expense, partially offset by a $0.9 million increase in consulting and legal services.

Corporate Overhead

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","Period to Period Change"],["","","2021","","2020","","2021 vs. 2020","","% Change"],["","","(In Thousands, Except Percentages)"],["Depreciation and amortization","","$","1,032","","","$","818","","","$","214","","","26.2","%"],["General and administrative expense","","39,990","","","36,201","","","3,789","","","10.5","%"],["Interest expense, net","","17,483","","","20,727","","","(3,244)","","","(15.7)","%"],["Other (income) expense, net","","93","","","836","","","(743)","","","(88.9)","%"],["Loss before taxes","","$","(58,598)","","","$","(58,582)","","","$","(16)","","","\u2014","%"]]
[[/GREPCENT_TABLE]]

Corporate Overhead pretax loss remained stable during 2021 compared to the prior year primarily due to increased general and administrative expense, offset by decreased interest expense. Corporate general and administrative expense increased primarily due to increased salary related expense of $2.0 million, $1.0 million of increased general expenses and $0.8 million of increased professional fees. Interest expense decreased primarily due to $50.5 million of repayments on our term credit facility during the current year. The warrants issued in 2016 expired in December 2021.

Non-GAAP Financial Measures

     We use U.S. GAAP financial measures such as revenues, gross profit, income (loss) before taxes, 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 view Adjusted EBITDA as one of our primary management tools, and we track it on a monthly basis, both in dollars and as a percentage of revenues (typically compared to the prior month, prior year period, and to budget). We define Adjusted EBITDA as earnings before interest, taxes, depreciation, amortization, impairments and certain non-cash charges and non-recurring adjustments.

    Adjusted EBITDA is used as a supplemental financial measure by our management to:

•evaluate the financial performance of our assets without regard to financing methods, capital structure, or historical cost basis; and

•determine our ability to incur and service debt and fund capital expenditures.

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 flows from 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 entities, as other entities may not calculate Adjusted EBITDA in the same manner as we do. Management compensates for the limitations of Adjusted EBITDA as analytical tools by reviewing

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the comparable U.S. GAAP measures, understanding the differences between the measures, and incorporating this knowledge into management’s decision-making processes.

The following table reconciles net income (loss) to Adjusted EBITDA for the periods indicated:

[[GREPCENT_TABLE]]
[["","Year Ended"],["","December 31, 2021"],["","Completion Fluids & Products","","Water & Flowback Services","","Corporate SG&A","","Other and Eliminations","","","Total"],["","(In Thousands, Except Percents)"],["Revenue","$","219,648","","","$","168,624","","","$","\u2014","","","$","\u2014","","","","$","388,272"],["Net income (loss) before taxes and discontinued operations","54,981","","","(11,116)","","","(39,990)","","","(18,596)","","","","(14,721)"],["Adjustment to long-term incentives","\u2014","","","\u2014","","","4,675","","","\u2014","","","","4,675"],["Transaction and other expenses","322","","","878","","","2,419","","","\u2014","","","","3,619"],["Restructuring","1,209","","","840","","","\u2014","","","\u2014","","","","2,049"],["Stock warrant fair value adjustment","\u2014","","","\u2014","","","\u2014","","","(198)","","","","(198)"],["Former CEO stock appreciation right expense","\u2014","","","\u2014","","","865","","","\u2014","","","","865"],["Impairments and other charges","\u2014","","","\u2014","","","\u2014","","","132","","","","132"],["Allowance for bad debt","\u2014","","","(230)","","","\u2014","","","\u2014","","","","(230)"],["Adjusted income (loss) before taxes and discontinued operations","$","56,512","","","$","(9,628)","","","$","(32,031)","","","$","(18,662)","","","","$","(3,809)"],["Adjusted interest expense, net","(595)","","","(512)","","","\u2014","","","17,483","","","","16,376"],["Adjusted depreciation and amortization","6,885","","","25,045","","","\u2014","","","889","","","","32,819"],["Equity compensation expense","\u2014","","","\u2014","","","4,664","","","\u2014","","","","4,664"],["Adjusted EBITDA","$","62,802","","","$","14,905","","","$","(27,367)","","","$","(290)","","","","$","50,050"],["Adjusted EBITDA as % of revenue","28.6","%","","8.8","%","","","","","","","12.9","%"],["","Year Ended"],["","December 31, 2020"],["","Completion Fluids & Products","","Water & Flowback Services","","Corporate SG&A","","Other and Eliminations","","","Total"],["","(In Thousands, Except Percents)"],["Revenue","$","242,661","","","$","135,054","","","$","\u2014","","","$","\u2014","","","","$","377,715"],["Net income (loss) before taxes and discontinued operations","55,334","","","(21,850)","","","(36,201)","","","(22,369)","","","","$","(25,086)"],["Severance","1,166","","","1,853","","","1,555","","","\u2014","","","","4,574"],["Transaction and other expenses","(90)","","","124","","","1,009","","","\u2014","","","","1,043"],["Restructuring and severance expenses","1,267","","","861","","","\u2014","","","\u2014","","","","2,128"],["Stock warrant fair value adjustment","\u2014","","","\u2014","","","\u2014","","","(251)","","","","(251)"],["Impairments and other charges","108","","","\u2014","","","\u2014","","","98","","","","206"],["Allowance for bad debt","3,919","","","1,122","","","\u2014","","","\u2014","","","","5,041"],["Adjusted income (loss) before taxes and discontinued operations","$","61,704","","","$","(17,890)","","","$","(33,637)","","","$","(22,522)","","","","$","(12,345)"],["Adjusted interest expense, net","(853)","","","(1,594)","","","\u2014","","","20,727","","","","18,280"],["Adjusted depreciation and amortization","7,389","","","30,384","","","\u2014","","","708","","","","38,481"],["Equity compensation expense","\u2014","","","\u2014","","","4,721","","","\u2014","","","","4,721"],["Adjusted EBITDA","$","68,240","","","$","10,900","","","$","(28,916)","","","$","(1,087)","","","","$","49,137"],["Adjusted EBITDA as % of revenue","28.1","%","","8.1","%","","","","","","","13.0","%"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","Year Ended"],["","December 31, 2019"],["","Completion Fluids & Products","","Water & Flowback Services","","Corporate SG&A","","Other and Eliminations","","","Total"],["","(In Thousands, Except Percents)"],["Revenue","$","279,255","","","$","281,986","","","$","\u2014","","$","\u2014","","","$","561,241"],["Net income (loss) before taxes and discontinued operations","(33,969)","","","(21,173)","","","(51,466)","","","(21,501)","","","","(128,109)"],["Severance","\u2014","","","\u2014","","","1,511","","","\u2014","","","","1,511"],["Transaction and other expenses","(543)","","","\u2014","","","574","","","(351)","","","","(320)"],["Restructuring and severance expenses","77","","","759","","","\u2014","","","\u2014","","","","836"],["Stock warrant fair value adjustment","\u2014","","","\u2014","","","\u2014","","","(1,624)","","","","(1,624)"],["Impairments and other charges","91,606","","","24,784","","","\u2014","","","\u2014","","","","116,390"],["Former CEO stock appreciation right expense","\u2014","","","\u2014","","","\u2014","","","504","","","","504"],["Allowance for bad debt","\u2014","","","76","","","\u2014","","","\u2014","","","","76"],["Adjusted income (loss) before taxes and discontinued operations","$","57,171","","","$","4,446","","","$","(49,381)","","","$","(22,972)","","","","$","(10,736)"],["Adjusted interest expense, net","(720)","","","(1)","","","\u2014","","","21,473","","","","20,752"],["Adjusted depreciation and amortization","13,518","","","33,424","","","\u2014","","","621","","","","47,563"],["Equity compensation expense","\u2014","","","\u2014","","","7,064","","","\u2014","","","","7,064"],["Adjusted EBITDA","$","69,969","","","$","37,869","","","$","(42,317)","","","$","(878)","","","","$","64,643"],["Adjusted EBITDA as % of revenue","25.1","%","","13.4","%","","","","","","","11.5","%"]]
[[/GREPCENT_TABLE]]

Liquidity and Capital Resources

    We believe that our capital structure allows us to meet our financial obligations despite current uncertain operating conditions and financial markets. Our liquidity at the end of the fourth quarter was $67.7 million consisting of $31.6 million of unrestricted cash plus $36.1 million of availability under the ABL Credit Agreement. Liquidity is defined as unrestricted cash plus availability under the revolving credit facility.

    Our consolidated sources and uses of cash, including cash activity from our former Compression Division, for the years ended December 31, 2021 (which represents January 2021 prior to the closing of the GP sale), 2020 and 2019 are as follows:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","2019"],["","(In Thousands)"],["Operating activities","$","4,657","","","$","76,912","","","$","90,232"],["Investing activities","(5,175)","","","6,038","","","(106,442)"],["Financing activities","(50,054)","","","(17,629)","","","(5,925)"]]
[[/GREPCENT_TABLE]]

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Consolidated cash flows provided by operating activities totaled $4.7 million during 2021 compared to $76.9 million during the prior year, a decrease of $72.3 million, and compared to $90.2 million during the year ended December 31, 2019. Operating cash flows decreased due to including the results of CSI Compressco for one month during the current year compared to twelve months during the prior years. CSI Compressco generated $0.9 million, $20.8 million and $67.7 million of our consolidated cash flows provided by operating activities during the years ended December 31, 2021, 2020 and 2019, respectively. Excluding the activities of CSI Compressco, cash flow from operations decreased $52.4 million compared to the prior year primarily due to lower consolidated margins from the change in product mix and working capital changes. We continue to monitor customer credit risk in the current environment and focus on serving larger capitalized oil and gas operators and national oil companies.

Investing Activities

Total cash capital expenditures during 2021 were $20.5 million. Our Water & Flowback Services Division spent $13.6 million on capital expenditures, primarily to maintain, automate and upgrade its water management and flowback equipment fleet. Our Completion Fluids & Products Division spent $3.8 million on capital expenditures during 2021, the majority of which related to plant and facility additions. Capital expenditures also include $3.0 million from our former Compression Division during January 2021.

Investing activities for 2021 also included $17.6 million of proceeds from sale of our shares of Standard Lithium during October and November of 2021, offset by $5.0 million from our investment in a convertible note issued by CarbonFree in December 2021.

As a result of CSI Compressco’s and TETRA’s equipment sales, 2020 cash proceeds from the sale of used equipment exceeded the cash outflows to purchase new equipment. During the year ended December 31, 2020, cash provided by investing activities included $5.2 million from CSI Compressco, primarily consisting of $19.4 million in proceeds from sales of compressors and facilities, offset by $14.7 million of capital expenditures. During 2020, CSI Compressco launched an initiative to rationalize its fleet by selling smaller and mid-sized equipment to focus on the larger-horsepower fleet as well as to sell equipment outside its core area of focus. One of CSI Compressco’s larger customers purchased a small number of large units recently deployed. Additionally during 2020, CSI Compressco sold its Midland fabrication facility and real estate for $17.0 million. Investing cash flows for 2020 also include $14.2 million from TETRA’s sale of 15 high horse power compressor units during the fourth quarter.

During the year ended December 31, 2019, cash used in investing activities included $64.2 million from CSI Compressco, primarily consisting of $75.8 million of capital expenditures. Investing cash flows for 2019 also include proceeds of $12.9 million from our former Compression Division related to the sale of property, plant and equipment primarily the result of a sale-leaseback transaction in which CSI Compressco sold ten compression units and immediately leased them back at a monthly rate.

In August 2021, we announced the completion of a preliminary technical assessment by an independent geological consulting firm, APEX Geoscience Ltd. to assess lithium and bromine exploration targets in our approximately 31,100 net acres of brine leases in the Smackover Formation in Southwest Arkansas. We have rights to the brine, including rights to the bromine and lithium contained in the brine underlying this acreage, pursuant to certain brine leases and brine deeds with various landowners. With respect to approximately 27,500 acres of that total acreage, we have granted Standard Lithium an option to acquire lithium rights. While we continue to evaluate the next steps regarding the potential development of our brine leases, we have only recently started to conduct exploration work on the leases, and we are not currently able to determine the economic viability of the extraction of the lithium and bromine from the leased acreage. As of February 25, 2022, we are in the process of drilling an exploratory brine well on our dedicated acreage in the Smackover Formation in Arkansas. The results of the well, which is expected to be completed in the first quarter of 2022, are expected to advance our exploratory target lithium and bromine assets to more refined resources targets. In addition, the extraction of lithium and bromine from these brine leases will likely require a significant amount of time and capital, which we are not able to estimate at this time.

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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.

Financing Activities

During the year ended December 31, 2021, consolidated net cash used in financing activities was $50.1 million, primarily related to the $50.5 million pay down of our Term Credit Agreement. During the year ended December 31, 2020, consolidated net cash used in financing activities was $17.6 million, primarily related to the $8.0 million pay downs of our Term Credit Agreement and our ABL Credit Agreement and $5.0 million cash fees related to CSI Compressco’s exchange of debt. During the year ended December 31, 2019, consolidated net cash used in financing activities was $5.9 million primarily due to $28.0 million of net cash redemptions of the CSI Compressco Preferred Units, offset by $21.5 million of borrowings under our Term Credit Agreement and our ABL Credit Agreement. 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.

Asset-Based Credit Agreement. The amended ABL Credit Agreement provides for a senior secured revolving credit facility of up to $80 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 ABL Credit Agreement may be used for working capital needs, capital expenditures and other general corporate purposes. 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. The ABL Credit Agreement is scheduled to mature on May 31, 2025. As of December 31, 2021, we had $1.6 million outstanding under the ABL Credit Agreement and, subject to compliance with the covenants, borrowing base, and other provisions of the agreement that may limit borrowings, we had an availability of $36.1 million under the ABL Credit Agreement. As of February 25, 2022, we have $0.8 million of outstanding borrowings under our ABL Credit Agreement and $6.0 million letters of credit, resulting in $51.8 million of availability.

    Term Credit Agreement. The Term Credit Agreement is scheduled to mature on September 10, 2025. Our Term Credit Agreement requires us to annually prepay up to 50% of Excess Cash Flow (as defined in the Term Credit Agreement) from the most recent full fiscal year. If our Leverage Ratio (as defined in 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. As of February 25, 2022, $163.1 million in aggregate principal amount of our Term Credit Agreement is outstanding.

During the first quarter of 2021, we used proceeds from the GP sale and available cash on hand, including $14.2 million of proceeds from the fourth quarter 2020 compressor unit sales to Spartan, to pay down $29.3 million on our term loan. We repaid an additional $8.2 million of our term loan in July 2021 and $13.0 million of our term loan in December 2021.

As of December 31, 2021, we are in compliance with all covenants of our debt agreements. See Note 10 - “Long-Term Debt and Other Borrowings” in the Notes to Consolidated Financial Statements for further information.

Swedish Credit Facility. In January 2022, the Company entered into a new revolving credit facility for seasonal working capital needs of subsidiaries in Sweden and Finland (“Swedish Credit Facility”). There are no borrowings and the facility has availability of 50.0 million Swedish Krona, or approximately $5.3 million United States dollars, as of February 25, 2022. 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, 2022 and the Company intends to renew it annually.

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Other Sources and Uses of Cash

    In addition to the aforementioned credit facilities and senior notes, we fund our short-term liquidity requirements from cash generated by our operations and from short-term vendor financing. In addition, as of December 31, 2021, the market value of our equity holdings of CSI Compressco was $6.2 million, with no holding restrictions on our ability to monetize our investment. 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 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 transaction is in the best interest of our business. In challenging economic environments, we may experience increased delays and failures by customers to pay our invoices. Given the nature and significance of the COVID-19 pandemic and disruption in the oil and gas industry, we could experience delayed customer payments and payment defaults associated with customer liquidity issues and bankruptcies. 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 receivables would also negatively affect our borrowing availability under the ABL Credit Agreement.  

On April 11, 2019, we filed a universal shelf Registration Statement on Form S-3 with the SEC. On May 1, 2019, 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 regard to potential financings that we may undertake when market conditions permit or our financial condition may require. We intend to renew the shelf Registration Statement during the second quarter of 2022.

Leases

We have operating leases for some of our transportation equipment, office space, warehouse space, operating locations, and machinery and equipment. Our leases have remaining lease terms ranging from 1 to 13 years. See Note 2 - “Basis of Presentation and Significant Accounting Policies” in the Notes to Consolidated Financial Statements for further information our lease obligations.

Asset Retirement Obligations

We operate facilities in various U.S. and foreign locations that are used in the manufacture, storage, and sale of our products, inventories, and equipment. We are required to take certain actions in connection with the retirement of these assets.

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 December 31, 2021, 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 $114.5 million, extending through 2029, including commitments on average of $15.3 million per year from 2021 through 2026.

Off Balance Sheet Arrangements

As of December 31, 2021, we do not have any off balance sheet arrangements that may have a current or future material effect on our consolidated financial condition or results of operations.

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Litigation

For information regarding litigation, including contingencies of discontinued operations, see Note 11 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements.

Critical Accounting Policies and Estimates

This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements. We prepared these financial statements in conformity with U.S. GAAP. In preparing our consolidated financial statements, we make assumptions, estimates, and judgments that affect the amounts reported. We base these on historical experience, available information, and various other assumptions that we believe are reasonable. Our assumptions, estimates, and judgments 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. The following critical accounting policies reflect the most significant judgments and estimates used in the preparation of our financial statements.

Impairment of Long-Lived Assets

The determination of impairment of long-lived assets, including identified intangible assets, is conducted periodically whenever indicators of impairment are present. If such indicators are present, the determination of the amount of impairment is based on our judgments as to the future operating cash flows to be generated from these assets throughout their estimated useful lives. If an impairment of a long-lived asset is warranted, we estimate the fair value of the asset based on a present value of these cash flows or the value that could be realized from disposing of the asset in a transaction between market participants. The oil and gas industry is cyclical, and our estimates of the amount of future cash flows, the period over which these estimated future cash flows will be generated, as well as the fair value of an impaired asset, are imprecise. Our failure to accurately estimate these future operating cash flows or fair values could result in certain long-lived assets being overstated, which could result in impairment charges in periods subsequent to the time in which the impairment indicators were first present. Alternatively, if our estimates of future operating cash flows or fair values are understated, impairments might be recognized unnecessarily or in excess of the appropriate amounts.

Impairment of Goodwill

During the third quarter of 2019, we determined that the deteriorating energy industry outlook was an indicator requiring further analysis for impairment of goodwill. We determined at that time that the fair value of the Water Management reporting unit, the only reporting unit with goodwill, exceeded its carrying value and there was no impairment to goodwill.

During the fourth quarter of 2019, due to further deterioration in the energy industry outlook resulting in decreased expected future cash flows for our Water Management reporting unit, a component of our Water & Flowback Services Division, we recorded a full goodwill impairment of $25.9 million. As a result, there was no goodwill balance as of December 31, 2021 or 2020.

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