Tetra Technologies, Inc.

Thank you. Good morning, everybody, and thank you for joining Tetra's first quarter 2025 results conference call. I'm Curt Hallett, VP, Treasurer, and Head of IR. The speakers for today's call are Brady Murphy, Chief Executive Officer, and Alihio Serrano, Chief Financial Officer. I'd like to remind you that this conference may contain statements that are or are 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, 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, Kurt. Good morning, everyone, and welcome to Tetra's first quarter of 2025 earnings call. I'll summarize some highlights for the first quarter and provide an update on our strategic growth initiatives before turning the call over to Aligio to provide some more details on our segments and an update on cash flow in our balance sheet. We're very pleased with our record first quarter adjusted EBITDA of $32.3 million and adjusted EBITDA margins of 20.5% at the Tetra level, led by strong performance from our completion fluids and product segment. Total revenue of $157 million increased 17% sequentially and 4% from last year, while adjusted EBITDA of $32.3 million increased 41% sequentially and also when compared to last year. During the quarter, we successfully completed the first of the three scheduled Tetra CS Neptune wells and made significant progress on the second well, which was subsequently completed in April. Year over year, we saw a 60% increase in offshore deepwater operations, having worked on 24 deepwater projects during the quarter compared to 15 in the first quarter of 2024. This is consistent with what we have been seeing for some time. that the deepwater market has been gaining momentum since the 2021 post-COVID pandemic low point for deepwater rig activity. The nature of these large, higher-pressure deepwater jobs can make our business somewhat lumpier, depending on the timing of well completions, but the year-over-year deepwater trend is a steady increase. As a result of the stronger deepwater activity and the start of the seasonally strong industrial chemicals business in northern Europe, Completion fluids and products adjusted EBITDA margins increased to 35.7% from 27.3% in the fourth quarter. Revenue for water and flow back services segment declined 2% sequentially, outperforming U.S. frack activity that declined approximately 10%. Adjusted EBITDA margins on water and flow back of 13% were down slightly from the fourth quarter, but up 340 basis points from Q4 last year, despite much lower frack activity. activity levels as cost control actions and continued focus on automation contributed to improved year-on-year margins in a weaker environment. In anticipation of weaker U.S. land activity at current oil prices, we are taking cost actions within this segment, including exit of the poly pipe business, a small lower margin subsegment of our water transfer business. As we head into the second quarter, an encouraging aspect of the water and flow back segment is that our automated sandstorm and automated drill-out units are operating at close to 100% utilization. This is strong validation that our customers see the operational benefit and cost savings of less manpower to operate what are typically manpower-intensive jobs. In this business environment, we will be reducing our overall capex for the water and flow-back segment, but with only 25% of our fleet automated, we will be prioritizing our capex to further automate our fleet. Looking towards the second quarter, we expect to see the full benefit of our European industrial chemicals seasonal peak, the first well from our recently awarded multi-well, multi-year Deepwater Brazil project, and expect to complete the last well of the three-well CS Neptune project in the Gulf of Mexico. We continue to track a healthy pipeline of CS Neptune projects across the globe. But given the significance of these projects that have on our financials, we will wait until a project is awarded with a defined date before making any announcements. With regards to tariffs, both segments within Tetra have a high percentage of products and raw materials sourced from within the U.S., so we don't expect much, if any, financial impact from tariffs. However, the current oil price environment does create more uncertainty for U.S. land activity than previously anticipated. As we've demonstrated in the past, we will be monitoring activity levels and our customer plans very closely to respond accordingly. Given our record first quarter performance and strong second quarter outlook, we have moved up the lower end of our previously communicated first half 2025 adjusted EBITDA guidance to now be between $57 million and $65 million. It was previously $55 million to $65 million. Attainment of the adjusted EBITDA guidance for the first half of the year would also be a record high for the company with Tetra's current business segments, which would be achieved despite the uncertain environment the industry is experiencing. We generated strong free cash flow in the first quarter with a year-over-year free cash flow improvement of $41 million from the base business, including the benefit of the sale of our Kodiak shares. We have a strong free cash flow generating base business that should be able to navigate us through the near-term macro uncertainty and position the company to capitalize on its emerging growth opportunities for the coming years. Before turning over to Aligio to discuss more details on each of the segments, I'd like to highlight the progress that we have made with regards to our emerging growth initiatives. 2025 will be a key year for us to complete milestones that will allow us to quantify the financial benefits for each initiative. On the desalination of produced water side, with the announcement of our commercial launch of Tetra Oasis TDS and our collaboration with EOG Resources, we are very encouraged by our prospects for desalination of produced water for beneficial reuse. During the quarter, we announced a commercial pilot with EOG for a grassland study from Delaware Basin produced water. We continue to see growing momentum across the customer base and regulatory support for this much-needed industry solution. Rystad Energy estimates that in the Permian Basin alone, over 6.3 billion barrels of produced water are discharged into saltwater disposal wells per year that could be recycled and reused for agricultural or industrial purposes. including semiconductor chip manufacturing and data center cooling. Such reuse will enable oil and gas operators to mitigate the risk associated with reducing disposal well pore space and the transport of produced water. Since our commercial launch of OASIS-TDS, our customer and regulatory engagement has increased significantly, including visits to our research facility and commercial proposal discussions. There are several reports suggesting that with the current and projected rate of water injection occurring in the Permian Basin, that by 2030, or a few years after, there will not be available pore space for water disposal injection. That is the reason why on April 21st of this year, the Wall Street Journal published an article calling this the Oil Patches Manhattan Project. On the energy storage front, as the contracted strategic supplier of electrolyte products for EOS Z3 utility energy storage systems, We're well positioned to benefit as EOS scales its manufacturing capabilities and delivers on its backlog. We believe that the high purity characteristics of our pure flow zinc bromide electrolyte, the flame retardant characteristics, and mostly US but 100% North America content makes it ideal for large scale utility use. We are encouraged by the progress of EOS implementing their automated production lines that is expected to result in significant step changes in electrolyte volume requirements from Tetra. Regarding our Arkansas evergreen brine production unit, on April 24th, we announced that the Arkansas Oil and Gas Commission, or AOGC, approved our evergreen unit expansion, which will allow us to further optimize long-term brine flow for bromine, future lithium, and other critical minerals extraction. We completed the drilling and sampling operations for our final test well on the Evergreen unit that indicated good reservoir results. The test well results also identified encouraging levels of magnesium and manganese, both of which are listed as U.S. critical minerals that are largely supplied from countries outside the United States. We are continuing to advance the bromine project with critical milestone investments funded from our base business free cash flow. We're planning to commence drilling of the Evergreen unit's first of five planned production wells in the coming months, while finalizing the plant engineering and plant site preparation for erecting the bromine tower later this year. We are also encouraged that on April 22, 2025, the AOGC approved SWA Lithium's application to establish a unit for acreage under an option agreement between Standard Lithium, SWA Lithium, and Tetra. The option agreement compensates Tetra with a 2.5% royalty on gross revenues from the lithium that Standard Lithium produces from the Tetra option acreage. In addition, Tetra maintains the ownership of the bromine and other mineral interests that will meet the planned Phase II bromine plant production capacity. To ensure clarity on our bromine project, it's important to understand that we are taking all the necessary steps, including long lead investments, to ultimately build the bromine processing facility. With our deepwater bromine fluids demand flourishing, and EOS still in the early stages of ramping production, the business case for the bromine facility is still very much intact. We have also been clear that our intention is to fund the project from our base business cash flow without issuing expensive equity or increasing debt and over-levering Tetra at a time with uncertainty in the market. We are currently balancing long lead investments with bromine demand projections from EOS, and our deep water projects while reducing risks, including bridging supply agreements in the event that bromine demand outpaces our current outlook. Given these objectives, we have not yet set a final completion date for the plant. We remain of the opinion that this year our base business will generate in excess of $50 million free cash flow, so we are moving forward with plant investments likely between $40 and $50 million on the project, advancing the engineering, putting in place the bromine tower, and bringing power requirements we need to the site. At the end of the year, we'll reassess next steps and timing of next investments and target a go-live date with our project. Each of these initiatives represent a 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. Now I'll turn it over to Aligio to give more specifics on the segments in the balance sheet.

THANK YOU, BRADY, AND GOOD MORNING, EVERYBODY. COMPLETION FLUIDS AND PRODUCTS SEGMENT FIRST QUARTER REVENUE OF $93 MILLION INCREASED 35% SEQUENTIALLY DRIVEN BY STRONG ACTIVITY. ADJUSTED EBITDA OF $33.2 MILLION INCREASED 77% SEQUENTIALLY REPRESENTING EBITDA FALL THROUGH OF NEARLY 60%. ADJUSTED EBITDA MARGINS OF 35.7% COMPARED TO 27.3% IN THE FOURTH QUARTER OF LAST YEAR, REFLECTING THE IMPACT OF NEPTUNE AND THE STRONGER OFFSHORE MARKET. WATER AND FLOWBACK SERVICES REVENUE OF $64 MILLION DECREASED 2% SEQUENTIALLY, BUT WAS UP 13% VERSUS A YEAR AGO, WHILE ADJUSTED EBITDA OF $8.3 MILLION INCREASED $1.2 MILLION YEAR ON YEAR is the fourth quarter slowdown in the U.S. onshore completions activity carried over into the first quarter. Adjusted EBITDA margins were down only slightly from the fourth quarter as our focus on leveraging technology and automation plus cost reductions to minimize the worker volumes made an impact. First quarter adjusted free cash flow was $4.2 million, of which $15.4 million was from the base business inclusive of $19 million proceeds from the sale of our investment in Kodiak. We got the timing right on when to monetize the Kodiak shares, selling them around $42 per share in early January. This morning, Kodiak was trading below $34, having dropped to as low as $29.50. Total capital expenditures in the first quarter were $18 million, inclusive of $11 million associated with the expansion of our Arkansas bromine plant, addressing some of the areas Brady mentioned earlier. We expect working capital to come down materially in the second and third quarters as we monetize the Neptune receivable and the calcium chloride inventory in Northern Europe. As Brady mentioned, we remain of the opinion that free cash flow from the base business this year will be in excess of $50 million. WE ALSO FURTHER EXPECT THE FREE CASH FLOW FROM THE BASE BUSINESS WILL FULFILL OUR CASH FLOW REQUIREMENTS FOR ARKANSAS THIS YEAR, AND WE WILL NOT NEED TO DRAW ON OUR REVOLVER NOR USE THE DELAYED DRAW FEATURE FROM OUR TURN LOAN IN 2025. THIS IS CONSISTENT WITH OUR PLANS OF SELF-FUNDING AS MUCH AS POSSIBLE OF OUR CAPITAL REQUIREMENTS FOR THE BROMING PROJECT. WE ARE MOVING METHODICALLY IN ADVANCING OUR BROMING PLANT. LIQUIDITY AT THE END OF THIS WEEK WAS APPROXIMATELY $219 MILLION. inclusive of the $75 million delayed draw picture that's available for the bromine project. At the end of the first quarter, our net leverage ratio improved to 1.5 times from 1.8 times at the end of the year. If we see a slowdown in the onshore business, we know how to manage in such an environment. We manage cost and capital expenditures aggressively. We are doing this now. We will pull back on capital expenditures in this segment, and we focus on the markets, services and customers that have technology competitive advantages. Going into the second half of the year, the volumes of zinc bromide electrolyte shipments to EOS will continue to increase as EOS scales its manufacturing capabilities and delivers on its backlogs. We stay very close to that management team. We visited their production line in Pittsburgh three weeks ago and came back very comfortable with their progress. We get a rolling forecast from MEOs that gives us confidence on the projects that they are making, and we expect every quarter to be stronger than the prior quarter. For upcoming investor events, we'll be in New York City on May 14th and 15th, attending the Deep Morale Conference, and also hosting an investor dinner and breakfast meeting. We'll be in Boston on June 3rd and 4th at the CFO Conference, and back to New York City on June 4th for the RBC Conference. We'll also participate in two virtual conferences, the Lytton Partners on May 29th and the Northland Growth Conference on June 25th. We are working to expand our investment base into the water technologies and the energy transition sectors, given the growth of our battery storage and produce water desalination technology. Please visit our website or reach out to Kurt or I for more details. It was also very encouraging to see that in the last month, Tetra shares were acquired by two water index passive funds following our OASIS, TDS, and EOG announcements. I believe that this is the start of our investor base expanding beyond the traditional oil and gas investors as we make progress with our growth initiatives. I'll turn this back to Brady for closing comments before we open up the call for questions.