Tetra Technologies, Inc.

And welcome to Tetra Technologies' third quarter 2023 results conference call. All participants will be in a listen-only mode. And should you need any 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 a question, please press star, then two. Please also note that this event is being recorded today. I will now turn the conference over to Rigo Gonzalez, Manager of Corporate Finance and Investor Relations. Please go ahead.

Thank you, Joe. Good morning, and thank you for joining Tetra's third quarter 2023 results call. The speakers for today's call are Brady Murphy, Chief Executive Officer, and Eligio 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, including projections, financial guidance, profitability, and estimated earnings. 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, returns on net capital employed, 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, we encourage you to also refer to our 10-Q that we filed yesterday as well. I will now turn it over to Brady.

Thanks, Rigo. Good morning, everyone, and welcome to Tetra's third quarter 2023 earnings call. Our third quarter delivered solid financial results in our base business with adjusted EBITDA of $26.1 million, the highest third quarter since the third quarter of 2015, while significantly advancing our strategic initiatives. Because of the second quarter seasonal peak in our northern European industrial chemicals business, The underlying strength of our business is highlighted by our year-on-year growth and our progression from the first quarter. Year-on-year, we grew revenue 12% and adjusted EBITDA by 40%. Compared to the third quarter of 2023, we grew revenues 4% or first quarter, sorry, of 2023, we grew revenues 4% and adjusted EBITDA by 27%. Our 2023 year-to-date adjusted EBITDA of $83 million already well exceeds our full year 2022 adjusted EBITDA of $78 million. As of the end of the third quarter, our trailing 12 months adjusted EBITDA was $103 million. Furthermore, as of September of 2023, our trailing 12 months return on net capital employed, or RONCI, a non-GAAP measure, was 20.7%, highlighting our focus on driving returns above our cost of capital to enhance shareholder value. I'll provide additional color in our overall Q3 performance, but first would like to highlight a historical milestone for the company. As a reminder, on June 26th of this year, Tetra announced that it had entered into a memorandum of understanding with an indirect wholly owned subsidiary of a Fortune 500 company for the purpose of pooling respective brine mineral rights in Arkansas' Smackover Formation. This was done in support of an application for a 6138-acre brine production unit with the Arkansas Oil and Gas Commission, or AOGC, for the purpose of bromine and lithium extraction from the brine. In September, the unit application was unanimously approved by the AOGC, giving Tetra and our partner the rights to develop and produce the brine for bromine production and future lithium production once the lithium royalty is established by the AOGC. With this approval, the binding terms of our MOU have become effective and Tetra and our partner have entered into joint venture negotiations for operating and joint development agreements relating to the development of the brine unit with the anticipation of having these agreements in place by the end of the year or early in 2024. In addition, we completed the data gathering and sampling operations for the second test well with results yielding lithium measurements in the upper smackover as high as 646 milligrams per liter or 35% higher than the first test well, which was located on the southern end of the unit that we reported in September of 2022, and bromine values of 5890 milligrams per liter, which are in line with the first test well. These strong concentration results, along with the very positive porosity and well testing data, are being used to update the lithium and bromine resource report for our approved brine unit, which we plan to complete and release shortly. The updated resource report will update the estimated volumes of lithium and bromine in our unit and will classify those between measured, indicated, and inferred. Moving back to our third quarter business results, our completion fluids and product segment continues to see the benefit of strong industrial chemicals margins as well as the offshore and deepwater market recovery. We executed a moderate-sized Tetra-CF Neptune job in the UK sector of the North Sea for a deepwater supermajor operator the first Tetra CS Neptune job for this customer. The segment year-on-year revenue growth was 24%, with adjusted EBITDA up 42%. The recovery and growth in the offshore market that we've been forecasting is well-supported by a Rystad report, which highlights that for the first time since 2014, the average contract duration for high-spec drill chips has surpassed 12 months and committed utilization for ultra-deepwater rigs is approximately 90%. In line with this data point, our pipeline of deep water opportunities for offshore completion fluid projects continues to grow, and although the overall activity trend is upward, because deep water completions for Tetra can be as much as five to ten times the value of a non-deep water well, our revenues will experience fluctuations depending on the overall number of customer deep water wells completed in a given quarter. For example, although the deep water recount has remained consistent in the Gulf of Mexico, The number of deepwater completions is down in the second half of 23 compared to the first half, with nine completion jobs completed compared to 15 in our record-setting Q2. This is driven by the timing of our customers' well drilling operations versus completion activity, which, depending on the project, can be separated by months. For this reason, as deepwater continues to ramp up, It is important to look at tetra completion fluids and products over a longer time horizon than quarter by quarter. Year-to-date, tetra completion fluids and products are up 16% on revenue and 59% on adjusted EBITDA without mark-to-market losses. I'm also pleased with the results of the 2023 Completion Fluids Offshore Supplier Analysis report by Kimberlite International Oilfield Research. Tetra remained ranked as the top supplier in the Gulf of Mexico for product quality and overall performance. Timberlight is an international oil and gas market research and consulting company that uses data collected from one-on-one interviews with operators to assess market trends and establish performance benchmarks for oilfield equipment and service providers. This report indicated that Tetra continues to receive the highest customer loyalty rating as measured by the Net Promoter Score. In the third quarter, we were awarded a multi-year, multi-well contract extension with one of the most active deepwater supermajors in the Gulf of Mexico, further validating our market position and strength in the region. Our chemicals business also posted a strong quarter as manufacturing utilization and production volumes remain strong. Our Tetra Chemicals Europe business recently entered into a distribution agreement with European-based GC Reber, focusing on calcium chloride extracted from fly ash with no CO2 emissions. This agreement will provide us with incremental volumes of sustainable and more environmental-friendly calcium chloride to supply to our network of customers. In our water and flow-back services segment, we continued the strong momentum by focusing on margin enhancement by achieving adjusted EBITDA margin of 19%, which was our fourth consecutive quarter of margin expansion and within our previously announced year-end 2023 adjusted EBITDA margin target. Year over year, our U.S. revenue was relatively flat, even though the U.S. onshore average rig count was down nearly 15%, and active frac fleets down nearly 5% from the third quarter of last year. Sequentially, our U.S. activity was also flat, as demand for our products and services has remained resilient in this slight downturn. Our target to have our engineering completed for our first produced water desalination plant for beneficial reuse applications is on track for year-end or early in 2024. In parallel to the engineering design work, we were in commercial discussions with one of the largest North America shale producers for their beneficial reuse projects in multiple unconventional basins and expect to have our first project awarded shortly. We continue to see very strong customer interest and regulatory support for bringing a solution to market, not only to reduce the volume of fresh water for fracking operations, but also reducing the number of disposal-related seismicity events and bringing a valuable resource to local communities and industries. Finally, in the third quarter, we received notice from Standard Lithium exercising the lithium extraction option in the identified acreage outside of the approved brine unit, consistent with our 2017 agreement. Based on the assumptions in Standard Lithium's preliminary feasibility study of their Southwest Arkansas project, which includes a base case production of 30,000 tons per year of battery-quality lithium hydroxyl hydroxide monohydrate, or LHM, with a long-term selling price of $30,000 per metric ton of LHM, Tetra's illustrative royalties would be $22.5 million per year based on our 2.5% royalty on gross lithium revenues without any investments required by Tetra. Per the study, Standard Lithium is targeting construction in 2025 and commencing production in 2027. Now I'll turn it over to Aligio to provide some additional commentary, and we'll open it up for questions.