Tetra Technologies, Inc.

The fourth quarter 2022 results conference call. The speakers for today's call are Brady Murphy, Chief Executive Officer, and Elegio Serrano, Chief Financial Officer. All participants will be in a 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 1 on your touchtone phone. To withdraw your question, please press star, then 2. Please note, this event is being recorded. I will now turn the conference over to Mr. Serrano. Please go ahead, sir.

Thank you, Vaishnavi. Good morning, and thank you for joining Tetra's fourth quarter 2022 results call. I'd 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 several factors. These statements are subject to several 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, free 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 reconciliation of these non-GAAP financial measures to the nearest GAAP measures. 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 also encourage you to refer to our 10-K that we filed yesterday. Brady, I'll turn it over to you.

Thanks, Aligio. Good morning, everyone, and welcome to Tetra's fourth quarter 2022 earnings call. I'll summarize some highlights for the fourth quarter, comment on the current outlook, as well as provide an update on our strategic initiatives before turning it back to Aligio to discuss cash flow, working capital on the balance sheet, liquidity and add some color to the SK-1300 Section 19 economic analysis that we issued last night. We closed out a strong year in 2022 with a strong fourth quarter, growing revenues sequentially 9% over the third quarter and 42% for the full year over 2021. Adjusted EBITDA of $20.3 million increased from $18.6 million in the third quarter and for the full year, excluding market-to-market gains in 2021, our adjusted EBITDA for 2022 more than doubled, increasing by 112% over 2021, with almost a 30% fall-through on incremental EBITDA to incremental revenue. Despite some headwinds during the fourth quarter that we mentioned in our last quarterly call, including the postponement of pure flow orders and the need to purchase additional bromine at spot market prices, we more than overcame these challenges by capturing multiple high-margin completion fluid sales in an increasingly and strengthening offshore market. For the combined markets of the Gulf of Mexico and our international offshore businesses, we increase quarterly sequential revenue by 20% and more than 50% year-on-year. The completion of our first UK Neptune job, along with continued improvements to the disrupted supply chain for our European chemicals business contributed to our successful Q4 results. We are scheduled for another North Sea Neptune job in the second quarter, this time in Norway. We continue to believe we're entering a multi-year growth cycle for the offshore markets, and the increases in floater day rates, contract durations, and subsea tree orders are underpinnings for that belief. As a result of the offshore deepwater market concentration over the past eight years, certain oilfield services segments are already in a tight supply situation. This while Rystad Energy Services is projecting a 25% increase in deepwater floater rigs by 2025. In the fourth quarter, we took steps to further strengthen and expand our offshore completion fluids business with two key investments, with the acquisition of a North Sea completion fluids business and acquiring New Park's completion fluids inventory and deepwater base in Port Fouchon, Louisiana, servicing the Gulf of Mexico. These investments will increase Tetris fluid capacity by 70% in the UK sector of the North Sea and by almost 15% in deepwater Gulf of Mexico operations. Both operations contributed financially upon a close and approximately 40% of the acquired new park inventory has already been sold. The segment results for completion fluids and products fourth quarter 2022 revenue of 66 million increased from the third quarter of 2022 by 12%. Adjusted EBITDA of 16 million increased 1.3 million sequentially while adjusted EBITDA margins improved by 40 basis points sequentially when excluding unrealized gains and losses from both periods. Shifting to our water and flow back segment, revenues of $81 million grew 52% year-on-year and 7% quarter-on-quarter in a flat to slightly down active frack fleet market in the fourth quarter, somewhat due to year-end weather. This marks the seventh consecutive quarter of sequential revenue increases and the highest quarterly revenue since the second quarter of 2018. Adjusted EBITDA of $12.1 million improved by $5.2 million, or 75% year-on-year, although adjusted fourth quarter EBITDA margins of 14.9% fell slightly from Q3, mainly due to a mix of lower margin services. For the full year, water and flow back revenue for 2022 grew by 66%, and adjusted EBITDA increased by 191% for a fall through of slightly over 25%. We achieved our target set for 2022 of 15% adjusted EBITDA margin, with adjusted EBITDA of 43.4 million or 15.5% of revenue. Growth was driven by capital investments made in technology to expand our fleet of tetra sandstorms through international expansion from the deployment of the early production facilities in Argentina and leveraging our investments in automation by reducing operations personnel at the job site. We expect adjusted EBITDA margins to rebound in the first quarter and beyond for the full year of 2023. International contribution is also expected to increase in 2023 as we bring online an additional EPF in Argentina in the second quarter. To date, the two operating EPFs have been operating consistent with expectations. For 2023, we will continue to opportunistically invest in new capital projects with short-term returns, but our focus will be on EBITDA margin expansion and cash generation and less on new growth as we've achieved over the last couple of years. As previously announced in December, we're very pleased with the results of our first field pilot project for desalination of produced water for beneficial reuse in Texas for a major oil and gas operator. The results yielded as high as 92% desalinated water from the produced water with total dissolved solids below that of the average municipal tap water. The equipment has returned to our R&D facility and is undergoing further enhancements for a final commercial plant design. With the recent and increasingly seismicity events in the Permian Basin, along with expected increase in produced water and disposal restrictions, we continue to see significant customer interest in produced water beneficial reuse, including mineral extraction. Finally, in the fourth quarter, we continue to advance our strategic initiatives, including the technical and financial analysis for the development of our bromine and lithium brine resources in the Smackover Formation in southwest Arkansas. We issued a press release yesterday announcing the progress on our bromine project with an SK1300 Section 19 report available now on our website for review. A few key points regarding this potential project that supports our continued efforts to fully evaluate this resource development. Our current long-term bromine supply agreement has plenty of runway, so we will be very methodical about our evaluation and investment decision. As a reminder, the Inferred Resource Report provides estimates for both bromine and lithium within our targeted 5,000 acres. And although our SK-1300 Section 19 report focuses on bromine, 35% of the estimated project capex in our Section 19 report would be for wells and pipelines for brine production that would have both bromine and lithium in the brine. The proposed bromine plant, as part of the hard-growth feed study, would initially support 45% to 50% more volume than our current long-term supply agreements. However, the bromine tower itself is designed to accommodate up to 150% of our current supply agreements. If the multiple conditions that are laid out in our press release from yesterday are met that would support us moving forward on this project, we could meet our projected oil and gas demand for this upcoming offshore cycle, as well as what we believe to be a conservative estimate of the energy storage demand. Although methodical in our evaluation, we are committed to putting up the right effort and right resources to fully explore this significant opportunity. Finally, progress at our Woodlands Texas R&D Center continues on lithium extraction technology as we're establishing pilot units to address each stage of the process, starting with our raw smack-over brine from our well in Arkansas to successfully producing a lithium carbonate, which we've already demonstrated at lab scale. We will continue to communicate our progress as this work advances. With that, I'll turn it over to Alejo to provide some additional commentary, then we'll open it up for some questions.