Tetra Technologies, Inc.

Good morning and welcome to Tetra Technologies' fourth quarter 2024 results conference call. All participants are in listen-only mode. If you require operator assistance, please press star zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star one on your touch-tone phone. To withdraw your question, please press star two. Please note that this event is being recorded, and I would now like to turn the conference over to Julian Higuera. Please go ahead, sir.

Thank you, John. Good morning, and thank you for joining Tetra's fourth quarter and full year 2024 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 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 filed yesterday. I'll now turn it over to Brady.

Thank you, Julian. Good morning, everyone, and welcome to Tetra's fourth quarter and full-year 2024 earnings call. I'll summarize some highlights from our fourth quarter and full-year results, discuss the current outlook, and provide an update on our strategic initiatives before turning the call over to Aligio to discuss more details on the fourth quarter and some views on 2025. Our fourth quarter results were overall in line with our expectations as strong offshore and industrial chemicals performance mostly offset a weaker than expected year-end slowdown for our U.S. land operations. Adjusted EBITDA margins of 17% improved from 16.6% in the third quarter and from 15.8% in the fourth quarter of 2023. despite lower revenue quarter-in-quarter and year-on-year. Contributing to our strong offshore performance in the fourth quarter, we executed 13 deepwater completion jobs compared to 11 in the third quarter, while our industrial chemicals business achieved a record revenue and adjusted EBITDA for the fourth quarter. Our water and flowback segment achieved EBITDA margins of 13.8% and was impacted by a more severe-than-normal year-end completion slowdown. And although both rig count and frac fleet count are down more than double digit from last year, the volume of produced water continues to increase. In the fourth quarter, we achieved a record volume of 89 million barrels of treated and recycled produced water for frac reuse. Our primary focus and capital allocation for this segment will continue to be on solutions for produced water treatment and recycle, including desalination for beneficial reuse. For the full year, our completion fluids and product segment revenue was down 1%, but grew EBITDA by 2%. year over year, driven by a strong performance in our industrial chemicals business. Total year completion fluids and products revenue of $311 million was the second highest since 2015 when we completed two large CS Neptune projects in the Gulf of America. Our industrial chemicals business had an excellent year, achieving its highest revenue and adjusted EBITDA in our company's history. With 24 revenue growth over 2023 of over 9%, Our industrial chemicals business represents 22% of Tetra's total revenue. This year and into the future, we expect to ramp up meaningful volumes of zinc bromide-based electrolyte, and so we expect this percentage to continue to increase. Our diversification of calcium chloride markets continues to increase, including grades for food, agriculture, paper, industrial applications, the more seasonal demand for de-icing and dust binding, plus a growing demand for technology, including chip manufacturing. The superior purity level of our zinc bromide allows us to participate in the long-duration energy storage electrolyte market, as evidenced by our first batch of pure flow-based electrolyte shipments to EOS Energy Enterprises in the fourth quarter. Our leading market positions in Northern Europe and the 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 business opportunities. Looking back on 2024, we made some strategic investments that are paying off as we head into 2025. Capital investments in the expansion of our capacity in Brazil is supporting a large deepwater completion fluids award, which will start in the second quarter of 2025. Investments in the Gulf of America has led increased deepwater activity for us, including a three-well Tetra CS Neptune project currently ongoing. We just completed the first of the three wells and we'll be getting the second well shortly. Inventory ramp up for both of these projects contributed to a year-on-year working capital increase of $21 million, but the combined capex and working capital investments are expected to be earned back more than dollar for dollar in the first six months of 2025. Turning to our water and flow back services segment, 2024 proved to be a challenging year. Operator consolidation, as well as low natural gas prices, contributed to a decline in the rig count and fracked fleets by 17% and 30%, respectively, over the past two years. Our water and flowback focus remains in two areas. First is deploying relatively low dollar capital to automate our existing fleet of water management and flowback assets, including sandstorm, that lower labor costs and increase margins. And two, focus on recycling, treatment, and desalination of produced water for beneficial reuse. We believe that we're industry leaders in both of these areas, which we expect over time will improve margins and give us a significant path to grow through desalination. Looking ahead to 2025 for water and flow back, we expect revenue to remain flattish while increasing margins by enhancing operational efficiencies, including automation, enabling us to maximize capital returns and generate substantial cash flow. Earlier this month, I had the pleasure of being a keynote speaker at the well-attended 35th Annual Produced Water Society Conference in Houston. The main topic of focus for the conference is the industry's challenge dealing with over 23 million barrels per day of produced water in the Permian Basin. It is clear that downhole pore pressure in water disposal wells is filling up. Disposal well pressures are increasing and potentially more regulatory restrictions are coming. The best long-term solution for this problem is reducing the volumes of water for disposal and desalinating the water for beneficial reuse, including industrial, agriculture, and irrigation purposes. I discussed Tetra's commercial offering, Tetra Oasis Total Desalination Solution, or TDS, as a comprehensive end-to-end desalination solution for beneficial reuse and emphasized the added benefit of recovering essential minerals from produced water as part of the process. Our recent announcement of Tetra Oasis TDS has been very well received and our blue-chip customer engagement continues to grow broader and deeper. Although we expect favorable gas prices will contribute to pockets of increased activity in 2025, we will limit our capital investment to automating our current business assets and expect to deploy multiple pilot projects for desalination. In total, we're expecting a very strong start to the year in 2025. The combination of a strong Gulf of Mexico market, three-well Neptune project, the start of the Brazil deepwater work, increased EOS electrolyte deliveries, and our seasonal second quarter European peak has us projecting a significant year-over-year increase in both revenue and EBITDA in the first half of 2025, as detailed in our Q4 press release. We project net income before taxes between $19 million and $34 million and adjusted EBITDA between $55 million and $65 million for the first half of 2025, levels approaching or exceeding a 10-year record high for the company. Moving on to our strategic initiatives, regarding our bromine Arkansas project, we have secured power for the project. We've completed the plus or minus 10% front-end engineering design and prepared the plant site for the next phase of construction. As communicated previously, we're in discussions with multiple elemental bromine suppliers for a bridging supply agreement. The purpose of the bridging supply would give us more flexibility on timing for capital spend, give us more opportunity to accumulate cash from operations, and allow us to execute a staged approach, targeting initial bromine production at approximately two-thirds of the published definitive feasibility study volumes. To ensure that we find the most capital-efficient alternative, we are also exploring scenarios where we could dovetail our upstream operations and investments with our lithium neighbors, which could significantly reduce our overall project capital investment. We will continue to communicate our progress and actions with this critical, long-term, low-cost bromine supply investment as we achieve various milestones. For our lithium opportunity and project, we and our partners have completed the plus or minus 10% feed studies as well. We believe the lithium OPEX from the plant could be more competitive than current hard rock mining operations, but as owners of 65% of the lithium resources in our evergreen unit, we're waiting for the royalty decision and a firm review of future lithium prices before publishing financial studies. Longer term, we anticipate a rebound in lithium prices that will support our increased investment in supply, particularly from the U.S. Our team, along with our Evergreen unit partners, remain focused on completing all necessary engineering studies to fully define the economics of this opportunity. In the meantime, we're prioritizing strategic initiatives that can immediately impact our near-term results. These initiatives include deploying lithium CS Neptune in the Gulf of America, shipping Tetra Pureflow to EOS Energy Enterprises, and further advancing our water desalination commercial pilot units initiatives that we expected to evolve into longer-term contracts for commercial desalination plants. Now I'll turn it over to Aligio to provide some additional commentary on the successful financing on our financial results. Then we'll open it up for questions.