Tetra Technologies, Inc.

Good morning and welcome to Tetra Technologies' first quarter 2024 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 the number two. Please note that this event is being recorded. I will now turn the conference over to Julian Higuero. Please go ahead.

Thank you, Constantine. Good morning, and thank you for joining Tetra's first quarter 2024 results call. The speakers for today's call are Brady Murphy, Chief Executive Officer, and Elicio 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. You are cautioned that such statements are not guarantees of future performance and that actual results may differ materially from those projected in these overlooking 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 refer to our 10-K that we also filed yesterday. I will now turn it over to Brady.

Thanks, Julian. Good morning, everyone, and welcome to TECH's first quarter 2024 earnings call. I'll summarize some highlights for the first quarter and provide an update on our strategic initiatives before turning the call over to Ligio to discuss first quarter financials and provide an update on our balance sheet and second quarter outlook. Overall first quarter results were in line with our expectations, with strong completion fluids and products results all setting an anticipated weaker start to the year in our water and flow back segment. Year over year, our revenue grew 3% and adjusted EBITDA grew 11%, while U.S. land rig count was down 18% in the first quarter of 2024 versus the first quarter of 2023. Adjusted EBITDA was $22.8 million, with strong completion fluids and products adjusted EBITDA margins at 28.1%, driven by 15 offshore deepwater operations that we serviced during the quarter. The outlook for offshore and deepwater continues to point to a longer duration upcycle, and Tetra is well prepared to benefit to our recent strategic capacity investments in Brazil, Gulf of Mexico, and the North Sea. For the water and flowback segment, the year-end 2023 customer activity slowed down, which impacted our water services business in the fourth quarter, had a carryover effect to the first quarter for our flowback services, which operationally lags one quarter behind our water services. At the same time, our higher margin sandstorm services were slower in the first quarter. We did experience some water services ramp-up costs as activity levels rebounded. Looking to the second quarter, both water services and flowback, including sandstorms, We'll be operating at a more normalized activity levels with margins expected to recover to the mid-teens. Before discussing more details on each of the segments, I'd like to highlight the progress that we've made with regards to our strategic initiatives. 2024 will be a key year for us to complete milestones that will allow us to quantify the financial benefits of each initiative. On the energy storage side, we remain in close contact with EOS. I'm very encouraged with the progress they're making on automating their first production line. We fully expect EOS to be up and running their Z3 zinc bromine battery automation line in the second half of this year, which is expected to result in material sales of electrolyte from Tetra. In the coming weeks, we're hopeful to have our first commercial desalination for beneficial reuse contract in place that should be operational by the first part of 2025. This is planned to be a 24,000-barrel-a-day South Texas facility. We're also in discussions for a one-year commercial pilot project in the New Mexico area of the Delaware Basin using Tetra's proprietary pre-treatment technology and our solution for higher total dissolved solids. We're in the process of tying the legal terms and conditions together for these two projects, which has delayed our first project slightly, but we're optimistic to close on both of these opportunities in the near term. The demand for beneficial reuse projects continues to build as this solution is the ultimate answer to overpressured disposal wells in areas like the Permian Basin that need usable water sources. There was a very informative article in this weekend's version of the Wall Street Journal that highlighted the challenges of continuing to dispose so much produced water. I would encourage you to read that article. By the end of June, we hope to publish our Arkansas bromine definitive feasibility report which will include updated financials, taking into account the shared CapEx investment and OpEx sharing with our planned lithium joint venture, ExxonMobil. Because of this sharing with the lithium project, we expect the bromine economics to reflect material improvement from what we previously published, and with financing in place for bromine, we expect board approval to move forward with this project. We're targeting the first half of 2026 to be operational with our bromine plant, which will give us the needed capacity to meet our growing deep water completion fluids demand and the significant EOS electrolyte requirement. Finally, on the lithium side, we continue advancing the feed study, as well as finalizing the negotiations for the joint venture, joint development agreements, and operating the Evergreen brine unit. We continue to work with ExxonMobil on many fronts to advance our project. Before the end of this year, we expect to have our joint venture in place and the Evergreen lithium feed and financial evaluation completed. Individually, these initiatives represent a material benefit to the company that we will quantify as we complete key milestones throughout the year. Collectively, they are transformational for the company. Now turning to the segments. Our completion fluids and product segment first quarter 2024 revenue of $77 million increased 7% sequentially, driven by stronger activity in the Gulf of Mexico and the Middle East. Adjusted EBITDA of $22.6 million increased 20% sequentially, representing EBITDA fall-through of nearly 79%. Adjusted EBITDA margins of 29.3% compared to the 26% in the fourth quarter of 2023. Adjusted EBITDA margins improved by 330 basis points sequentially when excluding unrealized gains and losses from both periods, driven by solid performance in our industrial chemicals business and growth in our offshore completion fluids operations, particularly in the Gulf of Mexico. 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're seeing globally is resulting in higher demand for our high-value bromine-based completion fluids, which includes tetra-CS-Neptune. Regarding CS-Neptune, our outlook continues to improve, as in addition to another job for a supermajor in the North Sea that is confirmed in June, Discussions with two different supermajors for two different projects in the Gulf of Mexico continue to evolve for projects that are scheduled for the fourth quarter of 24 or early 25. The level of discussions with operators in the Gulf of Mexico for CS Neptune projects has been the highest in several years, as many of the anticipated projects in our pipeline are moving forward. Shifting to our water and flowback services segment, revenues of $74 million decreased by 5% year-on-year, while adjusted EBITDA of 7.1 fell by 5.8 million year-on-year. Although water services revenue rebounded from the fourth quarter slowdown, the non-recurring EPF sale and lower flowback activity in the first quarter resulted in revenue lower by 6.9 million, or 9% quarter-over-quarter. Combination of water project startup costs and lower activity for higher-margin sandstorm activity resulted in lower adjusted EBITDA margins of 9.6%. Despite a slow start to the year, We're very encouraged about the outlook for the rest of the year as we expect water and flow back services margins to rebound to the mid-teens. We also remain encouraged in the resiliency of activity and continue to expect single-digit revenue growth for our overall segment in 2024. As operators continue to transfer and utilize more and more produced water in their frac operations through treatment and recycling, the risk profile of produced water management and water spills increases, and the value of automation and technology increases. Over time, we're confident these customer trends will work in our favor. Additionally, while Tetra does not have significant exposure to gas markets, we believe the softness in those markets will be balanced by our continued market share gains in produced water services, led by water recycling and sand management with Tetra Sandstorms. Our strategic priority for 2024 is to continue driving margin expansion with operational efficiencies and automation that will allow us to maximize returns on capital and generate meaningful cash flow. Now I'll turn it over to Alijo to provide some additional commentary on our results. Then we'll open it up for questions.