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01/11 04:56
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call presents a mixed outlook. While there are positive developments in the Completion Fluids & Products business and strong confidence in future offshore markets, there are significant declines in Water & Flowback Services revenue and uncertainties in project timelines. The Q&A section reveals management's high confidence in future projects, but also highlights a lack of detailed guidance and some cautious responses. The overall sentiment is balanced, leading to a neutral rating.
Revenue Third quarter revenue was $153 million, an 8% year-over-year increase, driven by continued strength in offshore completion fluids and industrial calcium chloride business.
Adjusted EBITDA Third quarter adjusted EBITDA was $25 million, a 7% year-over-year increase, with adjusted EBITDA margins of 16%, driven by offshore completion fluids and industrial calcium chloride business.
Completion Fluids & Products Revenue Increased 39% year-over-year, with adjusted EBITDA rising by $6.9 million. Adjusted EBITDA margin for the first 9 months reached 34.5%, a 500 basis point improvement compared to 2024, driven by successful completion of TETRA Neptune wells, increased demand for zinc bromide fluids, and strong contributions from Brazil and Northern Europe.
Water & Flowback Services Revenue Declined 18% year-over-year, with adjusted EBITDA falling 33% due to lower activity. Sequential adjusted EBITDA margins improved by 200 basis points to 12%, driven by higher utilization of automated units and cost controls.
Arkansas Bromine Plant Investment Generated $58 million of base business free cash flow and invested $28 million in the project through the first 9 months. The plant is on schedule and under budget for Phase 1, expected to be fully operational by the end of 2027.
Cash on Hand Ended the third quarter with $67 million of cash on hand and a net leverage ratio of 1.2x.
Working Capital Working capital was $113 million at the end of September, an increase of only $4 million from year-end, despite a $19 million increase in revenue compared to the fourth quarter.
Completion Fluids & Products: Third quarter revenues increased 39% year-over-year, with adjusted EBITDA margins improving by 500 basis points. This was driven by successful completion of TETRA Neptune wells, increased demand for high-density zinc bromide fluids, and strong contributions from Brazil and Northern Europe.
Battery Electrolytes: Material increase in revenue expected as customer ramps up deliveries from its first automated production line. Long-term growth driven by demand for zinc bromide long-duration storage systems.
Deepwater Market Penetration: Achieved significant penetration despite a 40% lower deepwater rig count compared to 10 years ago. Completion fluids expected to reach a 10-year high in 2025.
Argentina and Middle East Expansion: Awarded contracts in Argentina's Vaca Muerta region and Saudi Arabia. Revenue in Argentina expected to almost double next year.
Cost Controls and Efficiency Gains: Sequential adjusted EBITDA margins improved by 200 basis points in Water & Flowback Services due to better cost controls and higher utilization of automated units.
Bromine Plant Development: Phase 1 on schedule and under budget, expected to be operational by 2027. Projected to generate $200-$250 million in additional revenue and $90-$115 million in adjusted EBITDA.
One TETRA 2030 Strategy: Focused on leveraging core fluid chemistry expertise into high-growth markets like battery electrolytes and water desalination. Targeting over $1.2 billion in revenue and $300 million in adjusted EBITDA by 2030.
Water Treatment & Desalination: Completed engineering design for a 25,000 barrel/day produced water treatment facility. Commercial discussions underway with potential customers.
Succession Planning and Leadership Transition: The retirement of CFO Elijio Serrano and the transition to Matt Sanderson as CFO could pose risks related to leadership continuity and execution of the One TETRA 2030 strategy. While the company has planned for a smooth transition, any missteps could impact strategic objectives.
Challenging Industry Environment: The company operates in a challenging industry environment, including a 40% lower deepwater rig count compared to 10 years ago. This could limit growth opportunities despite recent successes.
Decline in Water & Flowback Services Revenue: Water & Flowback Services revenue declined 18% year-over-year, and adjusted EBITDA fell 33% from the same period last year. This decline is attributed to lower activity and a muted outlook for the U.S. frac crew count, which could continue to impact financial performance.
U.S. Onshore Market Challenges: The U.S. onshore market remains challenging, with a 12% sequential decline in U.S. frac crew count and a 27% decrease compared to the second quarter of 2024. This could hinder revenue and margin growth in this segment.
Produced Water Management Challenges: The U.S. oil and gas industry faces challenges in managing produced water, particularly in the Permian Basin. Increasing downhole formation pressures and storage limitations make traditional underground injection methods less feasible, posing operational risks.
Project Timing and Revenue Recognition: The timing of deepwater projects can significantly impact quarterly revenue and EBITDA. Delays or shifts in project schedules could lead to financial volatility.
Economic and Market Uncertainty: Ongoing macroeconomic and energy market uncertainties could impact the company's operations and strategic initiatives, including the One TETRA 2030 strategy.
Completion Fluids & Products: For full year 2025, completion fluids may reach a 10-year high. The long-term outlook for the Completion Fluids & Products business remains strong, driven by deepwater completion activity, exceptional performance in the industrial chemicals business, and a material increase in battery electrolyte revenue as customers ramp up deliveries from automated production lines.
Water & Flowback Services: Despite a muted outlook for the U.S. frac crew count, the onshore testing and flowback business is expected to benefit from trends such as longer laterals, increased sand and water usage, and rising volumes of produced water. Internationally, unconventional activity in Argentina and the Middle East is expected to drive growth, with revenue in Argentina projected to almost double next year.
Arkansas Bromine Plant: The plant is on schedule and under budget for Phase 1, expected to be fully operational by the end of 2027. It will have the capacity to process 75 million pounds of bromine per year, generating $200-$250 million in additional revenue and $90-$115 million in adjusted EBITDA.
One TETRA 2030 Strategy: The company aims to more than double revenue to over $1.2 billion and triple adjusted EBITDA to over $300 million by 2030. This will be achieved by leveraging core fluids chemistry expertise into high-growth markets such as battery electrolytes for long-duration energy storage and oil and gas produced water desalination solutions.
Battery Electrolytes: Electrolyte volumes are expected to significantly increase in 2026 due to the installation of a bulk delivery system and the expansion of manufacturing capacity by Eos Energy.
Water Treatment & Desalination: The company is positioned to lead in solving produced water management challenges in the U.S. oil and gas industry. The first 25,000 barrel per day produced water treatment and recycling facility is in the engineering design phase, with commercial contracts expected in the coming quarters.
2025 EBITDA Guidance: Total year projected EBITDA is now expected to be between $107 million and $112 million, up from the prior estimate of $100 million to $110 million. The fourth quarter will see continued weakness onshore, but deepwater projects and international wins will provide tailwinds for next year.
The selected topic was not discussed during the call.
The earnings call presents a mixed outlook. While there are positive developments in the Completion Fluids & Products business and strong confidence in future offshore markets, there are significant declines in Water & Flowback Services revenue and uncertainties in project timelines. The Q&A section reveals management's high confidence in future projects, but also highlights a lack of detailed guidance and some cautious responses. The overall sentiment is balanced, leading to a neutral rating.
The earnings call reveals strong financial performance with record EBITDA and improved net leverage. Despite a decline in Water & Flowback margins, overall growth in industrial chemicals and strategic investments like the Arkansas Bromine Project are promising. Positive regulatory environment and strong guidance further support a positive outlook. While some uncertainties exist, such as specific details on desalination projects, the overall sentiment remains positive, with expected continued growth and potential capital returns to shareholders.
The earnings call highlights strong financial performance with record revenue in industrial chemicals, improved net leverage ratio, and a robust liquidity position. Despite some uncertainties in regulatory support and vague responses regarding EBITDA drivers, the overall sentiment is positive due to strong revenue growth, improved margins, and optimistic guidance for free cash flow. The company's focus on long-term shareholder value and emerging growth investments further supports a positive outlook. Given these factors, a positive stock price movement of 2% to 8% is expected over the next two weeks.
The earnings call indicates a balanced outlook. Strong financial metrics and optimistic guidance are offset by challenges such as regulatory issues, supply chain disruptions, and competitive pressures. No shareholder return plan was announced, and project execution risks are present. Positive developments include record-high industrial chemicals revenue and promising future projects. However, the lack of guidance and potential project delays temper enthusiasm. The market reaction is expected to be neutral, given these mixed signals.
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