Tetra Technologies, Inc.

Good morning, and welcome to Tetra Technologies' fourth quarter and full year 2021 results conference call. The speakers for today's call are Brady Murphy, Chief Executive Officer, and Elio Serrano, Chief Financial Officer. All participants will be in listen-only mode. So if you need assistance, please signal a conference specialist by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note, today's event is being recorded. I will now turn the conference over to Mr. Serrano. Please go ahead.

Thank you, Rocco. Good morning, and thank you for joining Tetra's fourth quarter and the year 2020 call. I would like to remind you that this conference call may contain statements that are or may be deemed to be forward-looking. These statements are based on certain assumptions and analysis made by Tetra and are based on a number of factors. These statements are subject to a number of risks and uncertainties, many of which are beyond the control of the company. You are cautioned that such statements are not guarantees of future performance and that actual results may differ materially from those projected in the forward-looking statements. In addition, in the course of the call, we may refer to EBITDA, adjusted EBITDA, adjusted EBITDA gross margins, adjusted free cash flow, net debt, liquidity, or other non-GAAP financial measures. Please refer to yesterday's press release on our public website for reconciliation of non-GAAP financial measures to the nearest GAAP measure. These reconciliations are not a substitute for financial information prepared in GAAP and should be considered within the context of our complete financial results for the period. In addition to our press release announcement that went out yesterday, we encourage you to refer to our 10-K that was filed yesterday. With that, I'll turn it over to Brady.

Thank you, Aligio. Good morning, everyone, and welcome to Tetra's fourth quarter and full-year 2020 earnings call. I will summarize some highlights for the fourth quarter and current outlook and then provide an update on our low-carbon energy initiatives before turning it back over to Aligio to discuss cash flow, the balance sheet, and liquidity. Let me start by thanking all of our Tetra employs for delivering strong fourth quarter operating results and a solid year given the number of extraordinary headwinds we faced, including a second year of COVID-19 pandemic, unprecedented inflation, a record-breaking first quarter freeze, and a devastating third quarter hurricane. Despite all of this, we finished another year of positive cash flow, 13% adjusted EBITDA margins, and strong momentum in the fourth quarter, with the best quarterly operating results, not including the mark-to-market gains from Standard Lithium and CSI Compresco, in the last seven quarters and since the start of the pandemic. For the year 2021, we delivered $50 million of adjusted EBITDA on $388 million in revenue. With the pandemic largely behind us, in the past two years, we were able to achieve positive free cash flow, significantly reduced total debt outstanding, and improved adjusted EBITDA margins to nearly 13% despite an average 32% revenue drop from 2019 and before the impact of COVID-19. This again shows the resiliency and strength of our business model in the severest of downturns, but as importantly, coming out of the downturn from the prior two years, we are a stronger company with a much improved balance sheet, well positioned for a recovering oil and gas industry, and the opportunity to execute on a high-growth energy transition market. Revenue for the fourth quarter of $113 million grew 19 percent sequentially and 50 percent year-on-year. We generated over $13 million of adjusted EBITDA in the fourth quarter in the face of continued inflation and global logistics challenges. Excluding the realized and unrealized mark-to-market adjustments for Standard Lithium and CSI Compressco, this was the highest adjusted EBITDA since the pre-pandemic first quarter of 2020. We generated $7.4 million of free cash flow in the fourth quarter and again reduced our term loan, this time by $13 million, for a total of $68.5 million over the past two years. Water and flow back has seen a significant recovery from the negative impacts of COVID-19 as fourth quarter revenue of $53 million increased 14% sequentially and 70% from the fourth quarter of 2020. pandemic first quarter of 2020. This compares to the U.S. rig count and active frac fleet count down 29% and 36% sequentially or respectively from the same period. Overcoming inflation, we were able to improve our adjusted EBITDA margins by 200 basis points from the third quarter and the 12.9% adjusted EBITDA for the quarter was the best since the third quarter of 2019, again on much lower activity levels. These results, comparing to pre-pandemic numbers, reflect the strength of our business through market share gains, ongoing pricing improvements, efficiency through our automation technology, a strategy focused on treatment and recycling of produced water, leading proprietary technology such as Sandstorm and Tetrasteel, and another record quarter with 62 integrated water management projects. Regarding Sandstorms, we gained 24 new customers in 2021, 11 of which were gained in the fourth quarter. Argentina continues to be a bright spot as the most active unconventional share market outside of the U.S. In addition to our current fully deployed sandstorms in Argentina, we were awarded two significant early production facilities that will positively impact us beginning in the second quarter of 2022, and which will also include additional sandstorms as part of those facilities. In addition to the significant increased interest in produced water recycling for frac reuse, in part due to the increased seismic activity in key disposal areas, we are also seeing a new area of interest from both the operators and the midstream companies for extracting key minerals from produced water. Tetrastor core competency in aqueous chemistry and experience with extracting and manufacturing products from such minerals is a good fit with this growing opportunity. Overall, I'm pleased with the continued improvement in our water and flow back services business, and our performance demonstrates we are a much stronger business heading into a recovering market in 2022. I'm optimistic we will surpass our next level adjusted EBITDA margins target of 15% earlier in 2022 than we previously anticipated. Completion fluids and products fourth quarter revenue increased 23% sequentially and 36% year over year as we saw a strong demand from our previously mentioned Gulf of Mexico and international deep water awards on top of the recovery from the hurricanes in the Gulf of Mexico. Our Eastern Hemisphere energy services revenue more than doubled from Q3 and we believe is indicative of improved international market activity going forward. Although Q4 had mild weather for our seasonal calcium chloride sales, January and February weather has changed dramatically in our favor and will contribute to even stronger revenue for the first quarter of 2022. Excluding the benefit of the realized mark-to-market gains, completion fluids and products adjusted EBITDA increased 14 percent sequentially, with 20.4 percent EBITDA margins. This represents the 11th straight quarter of adjusted EBITDA margins of over 20 percent, despite double-digit inflation across most of our raw materials, energy prices, energy prices for the plants, and global logistics. As you look towards the first quarter of 2022, We expect further double-digit growth over the fourth quarter from a recovering oil and gas market and strong chemical sales, supported by a five-year distribution agreement with a new industrial chemicals customer for the western U.S., and a ramp-up of our pure flow zinc bromide sales for energy storage. We secured our first Generation 1 CS Neptune job for the North Sea, which is scheduled for completion in the second quarter. As a reminder, the typical CS Deptum job in the North Sea will be considerably smaller than what we have historically seen in the Gulf of Mexico, but it is an indication of continued acceptance of our technologies outside of the Gulf of Mexico. The previously mentioned plant investment in Northern Europe for a 25% increase in calcium chloride production capacity continues to be on track for completion in the third quarter of 2022. For the full year and beyond, deep water is showing signs of recovery as well. and given the new outlook on much lower U.S. shale growth production compared to the years from 2014 to 2019, we believe deep water activity will be key to support oil and gas demand for years to come. Considering that the 2021 global active drill ship rig count was 58% below the 2014 to 2015 peak, there is considerable deep water growth potential at current oil and gas prices. In a review of our CS Neptune pipeline in the pre-pandemic period of Q1 2020, We found that nearly every CS Neptune project we had been tracking at that time is still in our pipeline. But in nearly every case, the pandemic had dramatically slowed or even paused the projects from moving forward. That now seems to be changing as the customer dialogue on these key projects is active again. This is supported by the fact that the first 20,000 PSI rated ultra deep water drill ship is scheduled for a Gulf of Mexico project later this year, followed by the second drill ship for an additional project in early 2023. Other than the North Sea job scheduled for the second quarter that I mentioned previously, we do not yet have additional wells confirmed for this year, but the project pipeline and the customer discussions are encouraging compared to the past two years. We do expect that the continuous supply chain challenges to have some impact on the timing of customer deepwater projects as well. In the meantime, we continue to strengthen our IP position for CS Neptune with over 13 patents granted and 10 patents allowed. Our low-carbon energy business initiatives continue to progress at a rapid pace. On December 16th, 2021, we announced our long-term partnership with EOS Energy, a leading U.S. provider of safe, scalable, efficient, and sustainable zinc-based long-duration energy storage systems. This partnership aligns well with our strategy to utilize our aqueous chemistry core competency and U.S. manufacturing capabilities to enable the supply chain for low-carbon energy solutions. Tetra is supplying EOS with our high-purity zinc bromide pure flow to support the manufacturing of EOS's innovative Aqueous Zinc Battery. From the recent EOS Q4 earnings call, they will be increasing their revenues from $5 million in 2021 to $50 million in 2022, with a backlog of 148 million booked orders. They also increased their opportunity pipeline from $3.7 billion at the end of the third quarter to 4.1 billion, or 25 gigawatt hours of energy storage. To put this in perspective, 25 gigawatt hours of energy storage translated into pure flow volumes would equal more than 20 percent of the current annual production of bromine globally for all industries. For this reason, along with our ability to recycle the end-of-life electrolyte, a collaborative long-term strategic relationship is important for both parties. Which brings us to our Arkansas brine leases and plans. We're currently drilling an expiratory well on our Arkansas leases in the area where Tetra retains 100% of the lithium and bromine rights. We expect this well to be completed this month and expect the information and data gained will satisfy requirements necessary for an inferred resources report in the second quarter for our current exploration target of 2.54 million to 8.58 million tons of bromine, an exploration target of 85,000 to 286,000 tons of lithium carbonate equivalent. From these results, we expect to initiate a preliminary economic assessment, or PEA, to produce lithium carbonate and elemental bromine from our acreage. In December of 2021, we invested $5 million and signed a joint intellectual property agreement with CarbonFree, a CO2 capture and mineralization technology company, for CO2-free calcium chloride production solution to enable CarbonFree's SkyCycle CO2 capture technology. This will allow us to participate in the equity upside as Carbon Free continues to make progress in commercializing its SkyCycle proprietary technology, and we continue to advance our long-term business relationship, jointly working on plans to source and provide substantial volumes of calcium chloride. Carbon Free has successfully mineralized CO2 in its San Antonio SkyCycle pilot plant. This process requires large volumes of calcium chloride as a key part of the conversion chemistry. And Tetra will bring its global leadership in the production of calcium chloride, supply chain network, and technical expertise to the partnership. With that, I'll turn it over to Elijo to provide some additional color, and we'll close with some comments, and then open for some questions.