Tetra Technologies, Inc.

Good morning and welcome to Tetra Technologies' third 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 touchstone phone to withdraw your question please press star then two please note that this event is being recorded i will now turn the conference over to julian higuera please go ahead thank you vincent good morning and thank you for joining tetra's third quarter 2024 results call

The speakers for today's call are Brady Murphy, Chief Executive Officer, and Elegio 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 companies. You are cautioned that such statements are not guarantees of future performance and that actual results may differ materially from these projected in the forward-looking statements. In addition, in the course of the call, we may refer to EBITDA, adjusted EBITDA, adjusted EBITDA market, free cash flow, net debt, net leverage ratio, liquidity, returns on net capital employed, and 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 subject for financial information preferred in accordance with GAAP and should be considered within the context of our complete financial resource for the period. In addition to our press release announcement, we encourage you to refer to our tank queue that we also filed yesterday. I will now turn it over to Brady.

Thank you, Julian. Good morning, everyone, and welcome to Tetra's third quarter 2020 for earnings call. I'll summarize some highlights from our third quarter results and provide an update on our strategic initiatives before turning the call over to Aligio to discuss more details on third quarter financials and additional perspectives looking forward with some views on 2025. For the third quarter, despite considerable headwinds due to three Gulf of Mexico hurricane disruptions, as well as lower customer completion activity on U.S. land, Third quarter earnings, free cash flow, and adjusted EBITDA of $23.5 million came in consistent with our expectations. We achieved adjusted EBITDA margins of 31.7% for completion fluids and products and 14.6% for water and flowback services. Because of the second quarter seasonal peak in our northern European industrials chemicals business, the underlying performance of our business is highlighted by our year-on-year and first quarter comparisons. Third quarter revenue of $142 million was down 6% for both year-on-year and from first quarter 2024, while adjusted EBITDA was down $2.5 million from Q3 23, but up $700,000 from Q1 of 2024. Although revenue was lower, we achieved some very good wins in the quarter that is helping us build significant momentum for 2025. First is a major deepwater completions fluid award in Brazil. This is a multi-well, multi-year deepwater award for our high value, higher density bromine-based completion fluids. This is our second major deep water fluid award in Brazil in the last three years and establishes us as the clear deep water heavy fluids market leader in Brazil. The first well for this award is scheduled to start in late Q1 2025. Another important milestone for the third quarter was establishing an all-time record for produced water recycling for frac reuse. With additional recent customer wins, this third quarter record will again be eclipsed in the fourth quarter by another record that is a step change over Q3. Although U.S. completion activity has drifted down for the past 18 months, produced water is increasing and will continue to increase for many years to come. At the same time, seismicity events are driving more rapid adoption of recycling for frack reuse to avoid more overpressuring of disposal waste. Our strategy to focus our technology and investments into the produced water side of the business is paying off. and has been a key part of our success developing solutions for produced water beneficial reuse, which I'll discuss a bit later. A third highlight for the quarter was the recognition by Kimberlite, a leading oil and gas research company, that conducted a study on the completion of fluids and services segment in arguably the most technically challenging deep water market in the world, the Gulf of Mexico. The Kimberlite study concluded that, quotes, Tetra Technology stands out as the performance leader Tetra excels in technical support and service, responsiveness, and availability, aligning well with its pricing strategy to create differentiation in the market, unquote. As future wells in production in the Gulf of Mexico will come from very challenging lower tertiary with extreme high pressures and temperatures, Tetra is very well positioned to benefit as validated by the Kimberlite report. Coming back to the financials, at the end of the third quarter, Our trailing 12 months adjusted EBITDA was $101 million. We generated over $7 million of trailing 12 months total adjusted free cash flow, even after investing $23 million in Arkansas. Our current liquidity is approximately $197 million, inclusive of the $75 million delay draw feature to fund our future Arkansas bromine project. Now turning to the segment results, completion fluids and products third quarter adjusted EBITDA margin, excluding unrealized gains or losses on investments, was 32.1%, up to 180 basis points compared to Q1. The increase in margin was driven by a very favorable mix of higher-value completion fluid sales and our industrial chemicals business that continues its very strong financial performance. In the third quarter, we announced the introduction of Tetra-X, a new corrosion inhibitor for high-temperature downhole well environments that is a step-change improvement from what is available in the market today. We will market Tetra-X as a blend with our current completion fluids as a premium product and service for high temperature wells and to expand our market share further for this segment, including CS Neptune. We're also evaluating other non-completion fluids market to potentially market Tetra-X as a standalone corrosion inhibitor. Looking ahead for completion fluids and services, the fourth quarter will be comparable to slightly down from the third quarter, as the third quarter hurricanes in a fourth and early October has had an impact on our customers' deepwater completion schedules. The three-well CS Neptune project that we announced previously is now scheduled to start in early 2025. For the water and flowback segment, third quarter adjusted EBITDA margins for 14.6%, consistent with the goals that we have set. The decline in U.S. onshore frack crew activity, which according to Riestead Energy, is down close to 25% over the past 18 months, has lowered our completion-related revenues for our U.S. business with some pressure on margins, But we are accounting that with a more aggressive deployment of automation and new technology that allows us to get better or similar pricing, but with much lower labor costs, which is today the highest cost in this segment. Our strategy for water and pullback services remains a multi-pronged approach, automating all aspects of the service aimed at enhancing efficiency and safety, but with a goal of bridging us to water recycling for beneficial reuse, such as agriculture and industrial applications. While we've made significant progress in deploying blue links and water transfer automation, we're still in the early stages of rolling out automated systems for sandstorm and auto drill out. The early results have been exceptional, and customer feedback has been very positive. Even in this lower activity environment, we're near maximum utilization for our automated sandstorms, which today is only 20% of the fleet. We will be upgrading another 20% in 2025. This strategy linked with our growing recycling for frack reuse business will provide good cash flows to bridge us to the longer term goal of recycling for beneficial reuse, which will be a much larger market with higher returns. With regards to water desalination and beneficial reuse, we're making good progress advancing the commercial terms for our first field pilot project in the Permian Basin. In addition, we're processing a second customer's Permian Basin water with a pilot unit at our R&D center to a very high quality level. We're in discussions with other major customers for projects that, in addition to West Texas and South Texas, include mid-continent and Appalachia regions. We currently have nondisclosure agreements with seven customers and are in discussions with two additional major operators. Moving on to our strategic initiatives, we continue a very close and collaborative relationship and dialogue with EOS Energy for their long-duration energy storage electrolyte. We're confident EOS is on the verge of materially higher production volumes, requiring materially materially higher electrolyte. In the third quarter, we manufactured, qualified, and delivered our first full order of the EOS electrolyte. We have also increased our manufacturing and blending capacity in West Memphis to meet the planned EOS demand. As EOS ramps and brings the automated lineup, the volumes of pure flow and electrolyte they require will increase materially over the minimal volumes we will ship this year. This is adding to our confidence for a very strong year in 2025. On the Arkansas bromine side, we completed the SK-1300 Definitive Feasibility Report earlier in the quarter, highlighting very compelling economics, with a CapEx investment of $270 million, yielding an annual adjusted EBITDA increase of $90 to $115 million. The adjusted EBITDA increase is a result of higher sales volumes from a mix of both deepwater projects and long-duration battery needs, and lower production costs from the vertical integration. While we are confident we can fund the project from free cash flow and current liquidity while keeping below 2.5 net leverage ratio, we are evaluating a decision to fund the project in stages. The first stage would be a considerable reduction in the CAPEX from the $270 million and would target initial bromine production of 66% of DFS published volumes. We're still evaluating the revised CAPEX investment for this stage one, while also in discussions with multiple bromine suppliers to bridge our bromine supply needs until the full plant capacity is funded and realized. For our lithium opportunity and project, we're continuing the engineering work to define the project economics. But in the meantime, we're prioritizing our strategic initiatives on projects that can immediately impact our near-term results. With a focus on Tetra CS Neptune fluids in the Gulf of Mexico, such a pure flow electrolyte shipments to EOS Energy, further advancing our water desalination commercial pilots. Long term, we believe that lithium prices will rebound to levels that support increased investment in supply, especially from the U.S. And we and our Evergreen unit partner remain focused on completing all the engineering studies required to define the lithium project economics. With that, I'll turn it over to Alijo to provide some additional commentary on our financial results, and then we'll open it up for questions.