Tetra Technologies, Inc.

Good morning and welcome to Tetra Technologies first quarter 2023 results conference call. 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 one on your touch tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I will now turn the conference over to Rigo Gonzalez, Manager of Corporate Finance and Investor Relations. Please go ahead.

Thank you, Vaishnavi. Good morning, and thank you for joining Tetra's first quarter 2023 results call. The speaker for today's call are Brady Murphy, Chief Executive Officer, and Alijo Serrano, Chief Financial Officer. 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 several factors. These statements are subject to several risks and uncertainties, many of which are beyond the control of the company. Your caution 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 reconciliations of 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 yesterday, we encourage you to also refer to our 10-Q that we also filed yesterday. I will now turn it over to Brady.

Thank you, Rego. Good morning, everyone. Welcome to Tetra's first quarter 2023 earnings call. I'll summarize some highlights for the first quarter, discuss our near-term market outlook, and provide an update on our strategic initiatives before turning the call over to Aligio to discuss first quarter financials and provide an update on our second quarter financial outlook. With the exception of some one-time legal and employee benefits costs, first quarter results were in line with our internal expectations, including stronger EBITDA margins in both of our segments. Adjusted EBITDA, excluding gains or losses on investments, increased by 6% quarter-over-quarter and by 8% year-over-year and was the highest adjusted EBITDA since the first quarter of 2020. Revenue from our international locations grew by 9% from the fourth quarter. including strong performance by our European industrials chemicals business, where operations have nearly returned to the pre-Russia-Ukraine conflict levels, coupled with stronger pricing. Revenue from international markets grew by 17% as compared to the first quarter of 2022, driven by stronger activity in Latin America, as well as a contribution from strategic investments announced at the end of last year. We recently completed another completion fluids investment, this one in Brazil, that will more than double our deepwater operational capacity ahead of the well-communicated growth in the deepwater Brazil market. With the Brazil expansion, we have now completed our investment plans for our key offshore market expansions that also includes the Gulf of Mexico and North Sea. As mentioned in our first quarter press release, we feel these investments are very well-timed to support our significant revenue and adjusted EBITDA projections for the second quarter. If realized, our second quarter projections will be the highest revenue quarter for our completion fluid segment since the third quarter of 2015, when there were more than 50% more active deepwater rigs operating globally. The outlook in the international and offshore markets remains strong, and as communicated previously, we feel we're still in the early days of a longer-term deepwater market upcycle. Our strong second quarter forecast reflects the most recent capacity investments. Market share gains from our recognized service performance as well as innovation leadership such as CSNeptune. The combination of these has positioned us very well for this upcycle. Domestically, despite near-term volatility in commodity prices, particularly natural gas, we remain encouraged in the resiliency of activity and continue to expect double-digit growth for our overall water and flow-back services segment in 2023. While Tetra does not have significant exposure to the gas markets, We believe the softness in those markets will be balanced by growth in the oil basins and our continued market share gains in production-based services, including water recycling and sand management with tetrasand storms. Our strategic priority for 2023 is to continue driving market and expansion, maximize returns on capital, and generate meaningful cash flow. Now turning to the segments. Completion fluids and products first quarter 2023 revenue of $69 million increased 4% sequentially, despite significant projects that had previously moved up from the first quarter of 23 into the fourth quarter of 22. Adjusted EBITDA of $18 million increased $2 million sequentially, with adjusted EBITDA margins of 26.1% compared to 24.2% in the fourth quarter of 2022. Adjusted EBITDA margins approved by 110 basis points sequentially when excluding unrealized gains and losses from both periods. For the quarter, we benefited from strong sales in the Middle East and positive manufacturing variances across all of our plants. As a reminder, we estimate that 70% of the deepwater wells completed in the Gulf of Mexico use bromine-based completion fluids. So the deepwater activity increase that we are seeing globally is resulting in very high demand for our high-value bromine-based completion fluids, which includes tetracious neptune. We're currently executing a C.S. Neptune job in Norway and feel there is a high probability we will execute a second North Sea C.S. Neptune job during the quarter. Our market-leading European industrial chemicals business is nearly back to pre-Russia-Ukraine conflict levels and is well prepared for the seasonal second quarter activity peak, contributing to the strong second quarter forecast. Shifting to our water and flowback services segment, revenues of $77 million improved $20 million, or 36% year-on-year, while adjusted EBITDA of $12.9 million improved by $4.7 million, or 57% year-on-year. Revenue decreased $4.1 million, or 5% quarter-over-quarter, due to the timing of certain customer completion schedules. Water and Flow Back Services adjusted EBITDA margins of 16.7%, improved 180 basis points, as we execute on our strategic priority of margin expansion. Market penetration and customer adoption of our differentiated Sandstorm advanced cyclone technology continues to improve as revenues associated with this product offering grew by 40% as compared to the same quarter last year. In addition, we signed an agreement with a valuable customer to supply a fleet of Sandstorms for their production facilities, which is a new application and new market avenue for growth. Based on our current utilization and discussions with key customers, We expect to remain at near sold-out levels throughout the year on 20% higher average fleet count versus 2022. The third early production facility in Argentina is expected to come online in the second quarter. We continue to drive operational efficiencies and automation in our water management businesses, all of which support double-digit growth for the year and our goal of achieving adjusted EBITDA margins from the range of 18.5% to 20.5% by the end of the year. Our water desalination initiatives also continue to progress as we're making engineering improvements to our proprietary pretreatment process that feeds our exclusive desalination technologies. We're targeting to complete a commercial plant design by the end of this year. Finally, in the first quarter, we continue to make good progress on our low-carbon energy initiatives. We're currently drilling a delineation well on our estimated 5,000-acre section in southwest Arkansas with the intent to improve the accuracy of our lithium and bromine resource estimates and progressed from a bromine preliminary economic assessment towards a feasibility study. We also continue to evolve our long-duration energy storage electrolyte formulation to include chemistry beyond the zinc bromide pure flow component to cover the broader electrolyte chemistry. Additionally, we are also in the process of selecting an engineering procurement and construction contractor for a front-end engineering design or feed study for our lithium project, which has an estimated inferred resources of $240 234,000 tons of lithium carbonate equivalent. As a reminder, should Tetra decide to approve a development project for lithium, bromine, or both, the capital required for the wells and pipelines would support the production of brine with both minerals, where the Inferred Resources Report lists an average of 416 milligrams per liter of lithium and 5,370 milligrams per liter of bromine. With that, I'll turn it over to Aligio to provide some additional commentary. Then we'll open it up for questions.