Tetra Technologies, Inc.

Good morning, and welcome to Tetra Technologies' fourth quarter 2023 results conference call. 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. I will now turn the conference over to Rego Gonzalez. Go ahead.

Thank you, Joelle. Good morning, and thank you for joining Tetra's fourth 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 complete financial results for the period. In addition to our press release announcement, we encourage you to refer to our 10-K that we also filed yesterday. I will now turn it over to Brady.

Thank you, Rigo. Good morning, everyone, and welcome to Tetra's fourth quarter earnings call. 2023 was a historical year for the company, and despite higher than usual year-ending activity slowdowns in a few of our segments, we were seeing good activity recovery in the first half of 2024 and expect another year of growth. For 2023, we achieved numerous historical financial highs, but also achieved some strategic milestones that will benefit the company for many years to come. Our full-year 2023 adjusted EBITDA, excluding mark-to-market, of $106 billion grew by 37% from 2022 and nearly three times higher than that of 2021, as both of our segments posted another year of strong returns. Our full-year 2023 adjusted free cash flow of $41.1 million was $61.6 higher than 2022 and was slightly above our guidance from the beginning of the year, representing approximately a 40% conversion rate of adjusted EBITDA to adjusted free cash flow. This was achieved despite significant investments made in Arkansas and investments made to finalize the engineering design for our first ever commercial produced water for beneficial reuse project, a solution that we believe will be disruptive for the industry in transforming oil and gas well-produced water from a waste into an important resource. Our strong 2023 adjusted EBITDA growth was achieved despite little contributions from Tetra CS Neptune and Tetra PureFlow, which we will believe will be catalysts for further growth in 2024. For the full year, our completion fluids and product segment grew revenue by $40 million, or 15%, while adjusted EBITDA grew $22 million, or 32%, representing an EBITDA fall through of nearly 55% driven by a strong performance in our industrial chemicals business and growth in our international offshore completion fluids operations. Total year completion fluids and product revenue of $313 million was the highest since 2015 when we completed two large Tetrasius Neptune projects in the Gulf of Mexico. Our industrial chemicals business boasted a historical year, achieving its highest revenue in adjusted EBITDA in our history. With 2023 revenue growth over 22, of over 18%, our industrial chemicals business is now 22% of the company's total revenue, and as we ramp up deliveries of zinc bromide-based electrolyte in the coming years, we expect this percentage to continue to increase. Our diversity in product offering, including grades for technology and food, and superior product quality allows us to participate in a wide range of markets and applications. As evidenced by our recent entry into the lithium production process in South America, and the chip manufacturing process in the United States. Our leading market positions in Northern Europe and U.S. gives us stable markets in which to operate with predictable revenue and earnings and strong free cash flow, allowing us to reinvest in our new high-growth opportunities. For energy services, total revenue attributed to offshore projects increased 11% year-over-year, and we anticipate another double-digit top-line growth in 2024, as our pipeline of offshore projects continues to build. We have already recovered the investments made in recent years where we strategically expanded capacity in key deepwater offshore markets and expect to continue to generate positive momentum in those markets. We have intentionally built our inventory levels to capture the upcoming growth in deepwater activity. Although floater utilization shows increasing rig availability through 2024, Ristead expects operators will continue to exercise outstanding options and or continue to re-contract rigs currently under contract. Marketed utilization is expected to peak in 2028 at 91% due to steady growth in project development activity. Tetra is well positioned to benefit from this multi-year growth trajectory. Our outlook for Tetra CS Neptune continues to improve. We've secured a second quarter job in the North Sea, and we are in early discussions with two different super majors for projects in the Gulf of Mexico. that are scheduled for late 2024 or early 2025. Earlier this month, the executive team and I visited EOS's state-of-the-art automated manufacturing line at the ACROS Wisconsin facility and came away with high confidence they will deliver to EOS's requirements. Earlier this year, EOS announced that it expanded its partnership with Tetra and designated the company as its preferred strategic supplier for the full electrolyte of its Z3 long-duration energy storage cube. The company was previously only providing our Tetra PureFlow zinc bromide solution, which was only a portion of the full electrolyte. The evolution of increasing Tetra's participation with EOS from only Tetra PureFlow to the full electrolyte will be accomplished without the need for incremental bromine and is a good fit within our chemistry expertise. Tetra is expected to supply a minimum of 75% of the total electrolyte product demand going forward, and we anticipate deliveries to be meaningfully higher than 2023. mostly in the second half of the year. This relationship and the timing of their expected growth also dovetails nicely with our Arkansas bromine production plants. According to our water and flowback services segment, despite declining rig activity and active freight fleets for most of 2023, all four-year revenue was up $33 million, or 12%, and adjusted EBITDA was up $10 million, or 23%. The majority of the growth was driven by continued market share gains and high utilization within our fleet of Tetra Sandstorm and an increasing part of our business dealing with produced water, which despite declining U.S. drilling and completion activity in 23, is only increasing along with oil and gas production. The market share gains and benefits of shifting our focus to production rather than drill bit can be seen by our 2023 revenue exceeding that of our previously year high in 2018, but with 50% less rig activity. These market share gains were achieved as we improved our adjusted EBITDA margins from 15.5% to 17% in 2023. International business, mainly Argentina, also drove some of the revenue increase, and although we strategically sold one of our EPFs in the fourth quarter, we anticipate earnings to be flat year-over-year in that region. As previously mentioned, these projects are longer-term contracts with established day rates, which also provide a steady stream of cash flows. Over the last several years, we have deployed significant growth capital in this segment to build out our fleet of tetra sandstorms, introduce new technology to help drive efficiencies, increase our capacity for water treatment and recycling, and investments in EPS to grow beyond North America. These investments are paying off, as demonstrated by our improvement in return on net capital employed, as we expect that they will continue to drive higher returns. As we move forward with this segment, we will continue to invest in technology and automation, but will maintain our focus on returns rather than additional growth, as we plan to divert much of the growth capital to Arkansas and our Produced Water for Beneficial Reuse projects. In November, a 5.2 magnitude earthquake was recorded in the Permian Basin, marking the fourth strongest recorded in Texas. Just within the past few weeks, earthquakes over 4.0 magnitude were reported in New Mexico, South Texas, and Oklahoma. As earthquakes become more frequent and more intense in areas of produced water disposal, regulators have increased sense of urgency to limit volumes of produced water disposal and find alternative solutions. Multiple agencies across multiple states are now very active in defining regulatory specifications for using produced water for industrial, farming, and other applications. CETRA is engaging with the regulatory agencies as well as operators to ensure our solutions will meet these requirements. We met our year-end target date to complete the engineering design for our first commercial produced water for beneficial reuse project. We are currently in advanced negotiations with one of the largest U.S. oil producers for their beneficial reuse project and have entered commercial discussions for a second high-salinity Permian Basin demonstration project. We are on track to deploy our first commercial project in the second half of this year. Lastly, in 2023, we significantly advanced our Arkansas lithium and bromine brine project. In June, we announced an MOU with Saltworks LLC, a wholly owned subsidiary of ExxonMobil, to pull both of our acreage to form the Evergreen Brine Unit, which was subsequently unanimously approved by the AOGC in September. In the fourth quarter, we launched and completed a technical research study for the Evergreen Brine Unit, which advanced our prior inferred resources to include the measured and indicated category, reflecting higher confidence in the resources evaluated by the study. The study highlighted the highest lithium concentrations to date of any lithium brine resource in the U.S., for which an SK1300, NI43-101, or JORC-compliant technical report summary has been published. I'm also pleased to announce that yesterday we closed on a 120-acre plant site that is ideally located just south of Stamps, Arkansas, that is within our 35,000 leased acres and one mile north of our evergreen brine unit. We're currently performing soil sampling before planning to break ground later this year. Finally, we're currently focused on completing the lithium feed study as well as finalizing the negotiations for operating joint venture and or joint development agreements relating to the development of the evergreen brine unit. Based on that report plus the engineering studies that were previously completed, We were able to secure the remaining finances required to complete the bromine processing facility once we get to FID, which we expect to be later this year. Now I'll turn it over to Alijo to provide some additional commentary on the successful financing and our financial results. Then we'll open it up for questions.