Tetra Technologies, Inc.

Good morning and welcome to the Tetra Technologies first quarter 2022 results conference call. The speakers for today's call are Brady Murphy, Chief Executive Officer, and Alijio Serrano, Chief Financial Officer. All participants will be in listen-only mode. Should 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 touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. We'll now turn the conference over to Mr. Serrano. Please go ahead.

Thank you, Andrea. Good morning, and thank you for joining Tetra's first quarter 2022 results 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 cautious 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 cash flow, net debt, net leverage ratio, liquidity, or other non-GAAP financial measures. Please refer to yesterday's press release or to our public website for reconciliations of non-GAAP financial measures to the nearest GAAP measure. These reconciliations are not a substitute for financial information prepared in accordance with 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 also refer to our thank you that was filed yesterday. I'll turn it over to Brady.

Thank you, Aligio. Good morning, everyone, and welcome to Tetra's first quarter 2022 earnings call. I'll summarize some highlights for the first quarter and current outlook before turning it back to Aligio to discuss cash flow, the balance sheet, and liquidity. I'm pleased to report very positive results for the first quarter of 2022 across both our completion fluids and water and flow back business segments, including multi-year highs for various sub-segments. First quarter revenue of $130 million increased 15% sequentially, and adjusted EBITDA of $20.5 million increased 57% sequentially. We generated $5.9 million of cash from operating activities and improved our liquidity by $28 million in the first quarter. These results clearly highlight that our strategies continue throughout the severe COVID-19 industry downturn. To continue to invest in automation and technology differentiation, such as our high-value completion fluid and sand management with Sandstorm, to focus on produced water treatment and recycling rather than water infrastructure challenged with seismicity events, and to leverage our vertical integration during unprecedented supply chain disruptions and inflation challenges have proven to be very successful. Our first quarter cash flow and net income performance far exceeds our pre-pandemic first quarter 2020 results, and our revenue and adjusted EBITDA are nearly on par with pre-pandemic levels, despite customer activity levels being double-digit percentages lower in terms of active frack crews as well as U.S. and international rig counts. Not only have we gained market share in each segment, but we've improved our water and flowback margins on significantly lower activity. Our low-carbon energy strategies continue to gain traction, and despite very early days, are generating positive adjusted EBITDA and cash flow. Each quarter is a step change in pure flow deliveries to EOS, which is projected to accelerate throughout this year and beyond, based on EOS's continued growing backlog and manufacturing ramp-up. And while the extraordinary lithium market prices continue to maintain at record highs, adding more potential value to our Arkansas brine leases, it is creating more push towards the type of zinc bromide electrolyte energy storage technology developed by use and others where pure flow is ideally positioned water and flow back services benefited from stronger north american activity as revenue increased 17 percent sequentially and 85 percent from a year ago first quarter revenue was down only one percent from the pre-pandemic first quarter of 2020 which compares to the U.S. rig count and active frac fleet count being down 19% and 14% lower, respectively, from the same period. Adjusted EBITDA margins of 14.5% improved 160 basis points sequentially, and for the month of March, adjusted EBITDA margins were 15.1%, getting to the total year target faster than what we were anticipating as a result of better pricing in the aforementioned investments in automation. As an example of our automation technology benefiting our bottom line, our U.S. water and flowback headcount is down 16% from the first quarter of 2020 on essentially the same revenue. Our integrated water management offering is pulling through more services on less activity compared to pre-COVID levels, as the adjusted EBITDA for North America in Q1 of 2022 was the highest since the third quarter of 2019. Our Permian Basin business led the increase with adjusted EBITDA in the first quarter being the highest since the third quarter of 2019, even though the Permian rig count in the first quarter of 2022 was 30% below that in the third quarter of 2019. We continue to build on our produced water treatment and recycling success with four new recycling awards in the first quarter, including our first recycling project for a midstream company. Our Appalachia region is also strengthening as pricing approaches pre-COVID levels with demand for our system continues to grow. We were also awarded another early production facility in Argentina that will come online in the first quarter of 2023. This is in addition to the other two awards we received last year that will come online in the second half of this year. Completion fluids and products first quarter revenue increased 22% sequentially and 57% year over year. due to stronger activity in the Gulf of Mexico and the international markets, plus an increase in industrial chemical product sales. While the exceptional quarter-on-quarter and year-on-year revenue growth had some unforecasted sales due to customer wealth changes in the Gulf of Mexico and the acceleration of some international offshore sales moving from the second quarter to the first quarter, the overall trend of higher offshore activity is gaining momentum. Completion fluids and products adjusted EBITDA increased 14% sequentially, to 26.1%, which, excluding the benefit of realized mark-to-market gains in the fourth quarter of 2021, improved 570 basis points. First quarter adjusted EBITDA, excluding CS Neptune sales and mark-to-market gains, was the highest since our first quarter of 2020. Our North American industrial chemicals business had an outstanding first quarter, achieving the highest adjusted EBITDA since the first quarter of 2017, driven by market share gains and favorable customer mix. In the first quarter, we executed a new and first-time MSA with a supermajor deepwater operator in the Gulf of Mexico for the application of CS Neptune and automated testing for their future deepwater projects. We also recognized a small portion of the North Sea first-generation one CS Neptune job that we mentioned in our last earnings call, which was scheduled for the second quarter of this year, but the full job execution now looks like it will happen in the third quarter. As a reminder, The typical CS Neptune job in the North Sea will be considerably smaller than what we have historically seen in the Gulf of Mexico. Overall, we are very well positioned for what we expect to be a multi-year growth cycle in the key deep water and offshore markets such as Brazil, Gulf of Mexico, North Sea, and increasingly growing offshore market in the Middle East. As we look towards the second quarter of 2022, based on new customer awards and ongoing activity increases, We expect to see further growth and margin expansion for our water and flow back segment in the second quarter. For completion fluids and products, we will see the revenue benefit from the seasonal increase in northern Europe calcium chloride activity, albeit at slightly less levels than in prior years due to supply chain and inflation issues that is impacting Europe from the Russia and Ukraine conflict. Our offshore completion fluids business in the first quarter benefited from the movement on some projects from the second quarter into the first quarter, So depending on timing of key customer completions, we expect to see flattish revenue quarter on quarter with a mix of higher European sales and slightly lower offshore sales. For the third quarter and beyond, we anticipate continued offshore activity increases, including the benefit from our previously announced awards in deep water. Our low-carbon energy business initiatives continue to progress at a very rapid pace. We completed the successful drilling and exploration, sorry, drilling and exploratory well on our Arkansas leases in the area where Tetra retains 100% of the lithium and bromine rights. The well was drilled with fluid samples collected throughout the upper and middle smackover zones. And to our knowledge, these are the first brine samples within our 40,000 gross acres collected and analyzed to include the middle smackover formation. We are encouraged with the results to date based on our own internal assessments. but are awaiting third-party validation of the brine samples we collected. Once we obtain the third-party lab results, we will move forward with the inferred resources study, which should be completed within a few months. This should further refine the current exploration target of 2.54 million to 8.58 million tons of bromine, and exploration target 85,000 to 286,000 tons of lithium carbonate equivalent. We are currently interviewing engineering firms to award the project to one of them to complete the Preliminary Economic Assessment, or PEA, to produce both lithium carbonate and elemental bromine from our acreage. On the zinc bromide battery storage side, we continue to work with and ship increasing pure flow volumes to EOS Energy on a quarterly basis. EOS is a leading U.S. provider of safe, scalable, efficient, and sustainable zinc-based long-duration energy storage systems. Our team is working hand-in-hand with EOS to ensure the volume of bromide are delivered as they expand the production of their proprietary battery technology. Our executive team recently visited their expanding manufacturer operations in Pennsylvania to ensure full alignment on the increasing needs of zinc bromide and that Tetra are ready to fulfill those needs. Both EOSA and Tetra recognize the need and value of being able to recycle the end-of-life electrolyte and that a collaborative long-term supplier relationship is important for both sides. Carbon Free continues to make progress with our sky cycle technology as we successfully launched our first CO2 reaction-free calcium chloride pilot plant, developed to supply the large quantities of low-level CO2 calcium chloride for their innovative sky cycle technology. We remain engaged and are working closely with them as they move towards their first commercial arrangement with one or several potential CO2 emitters. Overall, we had a very successful quarter on every front, including strong financial performance from both segments, validation of our successful strategies, and great progress on our low-carbon businesses. I'm very pleased with what our employees were able to deliver in the first quarter and the future we are creating for our company. I'll turn it over to Alejo to provide some additional color, and we'll open it up for more questions.