Tetra Technologies, Inc.

Good morning and welcome to TITRA Technologies' second quarter 2024 results conference call. All participants will be in listen-only mode. Should you need assistance, we 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 Julian Higuera. Please go ahead.

Good morning and thank you for joining Tetra's second 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. We are cautioned that such statements are not guarantees of future performance and that the 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 margins, pre-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-Q that we also filed yesterday. I will now turn it over to Brady.

Thanks, Julian. Good morning, everyone, and welcome to Tetra's second quarter 2024 earnings call. I'll summarize some highlights from our second quarter results and provide an update on our strategic initiatives before turning the call over to Aligio to discuss second quarter financials and additional perspectives on our third quarter. Our second quarter results can be characterized as mostly consistent with the overall trending oil and gas markets during the second quarter, which was lower U.S. completion activity with increasing activity in the international offshore market. This combined with our seasonal second quarter peak for our European industrial chemicals business and lower deep water project activity in the Gulf of Mexico contributed to our results of 14% sequential revenue growth and 32% increased adjusted EBITDA. Our completion fluids and products and water and flow back segments achieved adjusted EBITDA margins of 28.9% and 15.2% respectively. Water and flow back adjusted EBITDA margins of 15.2% was an anticipated rebound from 9.6% in the first quarter, a sequential improvement of 560 basis points. Year-over-year revenue was down 2% compared to U.S. onshore rig activity down approximately 16%. Adjusted EBITDA of $30.2 million was 17.6% of total revenue and inclusive of $1.1 million of foreign exchange losses. During the second quarter, we secured a three-well deepwater Gulf of Mexico CS Neptune fluids project for a supermajor oil and gas operator. This is an important milestone as this is the second supermajor operator in the Gulf of Mexico to select CS Neptune for their completions program. and the first Gulf of Mexico deepwater CS Neptune fluids project since the fourth quarter of 2019. Following a dramatic impact to the timing of potential CS Neptune deepwater projects due to the COVID pandemic in 2020 and 2021, we have since seen our pipeline of projects move forward and are pleased we have been successful awarded this project. The first well is not expected to begin the completion phase until the fourth quarter of this year, and the timing of the entire project is expected to be between Q4 2024 and the second quarter of 2025. Unlike our prior CS Neptune Fluid Gulf of Mexico projects, which were single wells spread out across several years, this program is a three-well batch, drill, and complete program, with the completion phase expected to start in the fourth quarter. As a result, it is likely that the three wells will be completed between a six to nine month period, assuming things go as planned. As demonstrated from the past CS Neptune Gulf of Mexico projects, these wells represent a material revenue increase over our typical deep water completions. Because of the back-to-back efficient, back-to-batch, back-to-batch, sorry, excuse me, back-to-back batch completion program, there are some efficiency on the inventory side planned for the project But the overall project revenue numbers will also be very dependent on the fluid losses from each well. Obviously, we are excited for this award, and we continue to have productive discussions with other operators for CS Neptune programs in the Gulf of Mexico. For water and flow back, we previously announced that we expected second quarter margins to recover in the mid-teens, and despite lower operator completion activity levels in the second quarter, we are pleased we achieved adjusted EBITDA margins of 15.2%. a 560 basis points sequential improvement. Our strategy for water flowback continues to be a two-pronged approach. Automation of every service aspect from Blue Link's automated movement and transfer of water to the automated sandstorm, automated and automated drill-out systems. And secondly, the treatment of operator-produced water for frack reuse and desalination for beneficial reuse. Collectively, these strategies will reduce HSE exposure for our employees and our customers, lower labor costs per job, and provide an environmental benefit of less freshwater usage while reducing seismicity risk and providing a valuable water resource for agriculture and industrial applications. While this strategy is well underway with blue links and water transfer, the number of automated systems deployed for sandstorm and auto drillout is only just beginning, but so far with exceptional results and customer acceptance. We're also deploying our first sandstorm to the Middle East market for a major national oil customer. If a successful trial is completed as anticipated, this could be a major new market opportunity for the company. With regards to water desalination and beneficial reuse, I would like to provide some color on where we are. We previously communicated that a South Texas commercial production facility was imminent. Unexpectedly, our customer was told that the permitting would be on hold and linked to results from a West Texas pilot program where urgency for a solution is a bigger priority. This is highlighted by the most recent earthquakes to hit West Texas, the largest of which hit 5.1 on the Richter scale and prompted the Texas Railroad Commission to open investigation. Accordingly, we are working closely with our customer on the commercial terms for a beneficial reuse pilot project in the Permian Basin. In addition, we have ongoing discussions with three other major customers for pilot projects that, in addition to West Texas and South Texas, include Mid-Continent and Appalachia regions. We currently have non-disclosure agreements with seven customers and have had many of them visiting our functioning pilot units at our research facility in Conroe, Texas. While the delay of the launch of our first commercial project was unexpected, we realize our customers have to work with the regulatory bodies and focus on areas with the biggest impact to the environmental challenges the industry faces. We have demonstrated that our technology is able to treat oil and gas well-produced water to the regulatory environmental specifications required and oftentimes to be of higher quality than to what is found in rivers and in water wells, with the ability to scale for commercial applications. Since utilizing operator oil and gas well-produced water for agricultural purposes has been occurring in California for several years, we are optimistic that Texas and New Mexico will soon follow suit. Moving on to our strategic initiatives, following our very recent visit with the EOS Executive Management to their plant in Turtle Creek, Pittsburgh, We are confident EOS is on the verge of materially higher production volumes, requiring materially higher volumes for their electrolyte. Ali and I were very encouraged with what we saw firsthand with their automated line and the excitement of their employees working to automate the line from start to finish. EOS recently completed a recapitalization that allowed them to source the capital to complete the first line and have the working capital required. Seeing the automated line working at EOS facilities is a vast improvement from what we have seen in our prior visits. As EOS ramps and brings the automated line up, the volumes of pure flow and electrolyte they require will increase materially over the minimal volumes that we have shipped them so far this year. We have increased our capacity in West Memphis to meet the expected EOS demand. We also continue to advance discussions with a second zinc bromide customer using pure flow for their electrolyte technology. On the Arkansas bromine side, we're in the final review of an SK-1300 Definitive Feasibility Report, or DFS. The economic analysis is prepared based on the assumption that the bromine project is completed independent of the planned lithium project. As a reminder, the bromine project allows us to achieve the following benefits. First, vertical integration for supply of elemental bromine at a lower cost than buying it from third parties, making this a margin enhancement project. Second, it gives us more volumes to meet the continued growth in oil and gas demand for high-end, high-value completion fluids and the growing zinc bromide long-duration battery market requirements. And third positions is for the long-term, utilizing our Arkansas bromine leases estimated to be over 80 years of resource supply as our current long-term elemental supply agreement comes to an end at the end of 2029. On the lithium side, we're continuing the feed engineering effort and are targeting a major milestone for the plus minus 10% project cost and economics by the fourth quarter of this year. At that time, we will also be able to quantify the cost synergies for having both lithium and bromine production from the same plant and upstream brine unit. Summarizing on the strategic initiative side of things, the desalination of produced water for beneficial reuse, pure flow electrolyte for long-duration energy storage, Arkansas bromine, and future lithium supply are all material financial benefit to the company that we will quantify as we complete key milestones for each throughout the year. Collectively, they are transformational for the company. It's also important to understand that the desalination of produced water, zinc bromide-based electrolyte for energy storage, and direct lithium extraction are not only new businesses for Tetra, but for the most part are new and emerging markets for the United States. So predicting accurate timing on key events is more challenging than for existing and established businesses. Our processes have been very methodical, and our focus is to get it right and not get it out before we're highly confident with our work in our analysis. Without, I'll turn it over to Alejo to provide some additional commentary on our financial results and then we'll take some time for questions.