Good morning, and welcome to TETRA Technologies Third Quarter 2021 Results Conference Call. The speakers for today's call are Brady Murphy, Chief Executive Officer; and Elijio Serrano, Chief Financial Officer. All participants will be in a listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded. I'll now turn the conference over to Mr. Serrano. Please go ahead.

Thank you, [Betsy]. Good morning, and thank you for joining TETRA's third quarter 2021 results call. I would like to remind you that this conference call may contain statements that are, or maybe deemed to be forward-looking. These statements are based on certain assumptions and analysis made by TETRA and are based on a number of factors. These statements are subject to a number of risks and uncertainties many of which are beyond the control of the company. You are cautioned 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 gross margins, adjusted free cash flow, net debt liquidity and other non-GAAP financial measures. Please refer to yesterday's press release or to our public website for reconciliation 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 that went out yesterday, we also encourage you to refer to our 10-Q that were filed yesterday. I'll now turn it over to Brady.

Thanks Elijio and good morning everyone. Welcome to TETRA's third quarter 2021 earnings call. I'll summarize some highlights for the third quarter, provide some perspective on the fourth quarter, and then provide an update on our low carbon energy initiatives. Before turning it back to Elijio to discuss cash flow, the balance sheet and liquidity. To start I'd like to give a special recognition to our Louisiana Gulf of Mexico employees that dealt with the devastating hurricane item. Fortunately, we suffered no serious employee injuries and our employees property repairs are well underway. But special thanks to our employees and their incredible dedication to get our Fourchon Louisiana base, which supports our Gulf of Mexico operations. Functionally back to being a 100% in order to service our customer's needs. Again, special recognition and thanks to all these employees and their families. For the quarter despite some unique challenges for the industry, including massive hurricane item impacting Gulf of Mexico operations, growing shipping port choke points, contributing to delayed deliveries across the globe, and the type of inflationary pressure that we've not seen for many years. The overall macro environment for our industry continues to improve. As we believe we're still in the early days of a multi-year oilfield services market recovery and a period of accelerating growth for our low carbon energy markets. Such as third quarter results reflect each of these macro factors. But more importantly demonstrates the success we're having executing on our strategies. Year-on-year we grew revenue by 30% and would have been over 40%, if not for the impact of Hurricane Ida and the global shipping delays, impacting the quarters completion fluid deliveries. The third quarter $15 million adjusted EBITDA grew 16% sequentially, and 104% year-over-year and is a highest level since the first quarter of…

Thank you, Brady. Third quarter adjusted free cash flow from continuing operations was $2.8 million, which compares to $1.8 million of adjusted free cash flow from continued operations in the second quarter. Free cash flow for the quarter was $1 million and improvement of $5.5 million from the second quarter. We are free cash flow positive on a year-to-date basis despite a 10% year-over-year growth in September year-to-date revenue, and capital expenditures of $10.6 million. Total debt outstanding was $164 million at the end of September, while net debt was $122 million. We have used our term loan by $44 million from $220 million on September 30 last year, [$76 million] on September 30 of this year. And we expect to reduce it by at least another $10 million in the fourth quarter from cash flow from operations. With this expected reduction in the fourth quarter, we would have paid off at least $55 million since last year, reducing the term loan by 27% and saving interest expense of $4 million on an annualized basis, which further improves free cash flow. Liquidity at the end of the third quarter was $90 million, an increase of $8 million from the end of the second quarter, despite the pay down of $8 million on our term loan is our ABL amendment in the third quarter added more than $10 million of liquidity. We also extend it to maturity of our ABL to make up 2025. At the end of the third quarter, unrestricted cash was $42 million in availability under the revolver was $48 million. And we have no amount strong on the ABL. The third quarter included a $6.2 million gain on mark-to-market adjustments in the common units that we own in CSI Compressco, and to the 1.6 million shares that…

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. And your first question comes from Stephen Gengaro with Stifel. Please go ahead.

Thanks. Good morning, gentlemen.

Good morning.

A couple of things. I just wanted to start - I just wanted to clarify something. Brad you'd mentioned on the fluid side, third query without in a mid-20s. We talk about margins excluding the mark-to-market when you with that?

Yes, Stephen. If we take the mark-to-market out, which I think pushed us over 31% with it in. And we had adjusted for the delays in the shipments and hurricane Ida. We felt a more reflective EBITDA margin would have been in the mid-20s.

Okay. That's what I just want to clarify. And so when we think about fluids going forward, and obviously excluding the mark-to-market for now. And given the delays you saw in the third quarter. I mean, can you give us an order of magnitude on what kind of revenue growth the fourth quarter should bring? And I guess and an addition to that kind of, is that mid-20s a relatively good number going forward? Are there some puts and takes there that could move you higher as you're moving to '21 - excuse me into '22?

I'll take the margin progression and I'll ask Elijio to comment on the fourth quarter revenue. Yes the margin progression we feel within the current environment in the mid-20s is appropriate. And partly because some of the inflation pressures that we're seeing, we don't know how long we will see these or if we will see some other new inflationary pressures pop-up. We are getting some price increases, because of the tightening of the market in both the bromine and calcium chloride, but the timing of which we're able to overcome some additional inflationary pressure. If we see it, it's still all a bit unknown, but we still feel pretty confident about the mid-20s until this whole inflation situation, hopefully it's behind us.

Okay, and Steven on the revenue progression, we've got the benefit of a lot of the jobs that got delayed because of hurricane Ida in Q3 to Q4. And then Brady mentioned that we picked up some long-term counts in the Gulf of Mexico and we picked up some Latin America projects. We've got a significant Latin America project scheduled towards the end of the year, it's not unlikely that this segment could be up 20% sequentially. And if all the projects come to fruition as they're scheduled, it could be as high as 30% sequential progression.

Thanks. That's pretty clear, Elijio. Thank you. And then you guys have obviously done a very good job on the other new energy front and things seems to be progressing there. It might be too early for me to ask this question. But when you think about the TETRA PureFlow opportunity. Imagine the third quarter you shipped your second one, it's probably obviously a net positive. But is there any way to frame what this could look like in '22?

So the way, I'll answer that, Stephen. Obviously, it's still a fairly small portion of our overall Completion Fluids business in 2021. Based on the forecast we're seeing for 2022, we will see a material increase in 2022. What we're projecting by the end of 2022 into 2023, it will now start to be what we would consider a meaningful impact of our overall bromine demand in business. So that if you think of it in terms of that, that progression, that's how rapidly we see things moving on that side.

Great. So I guess probably one more just for Elijio, when you think about 2022 free cash flow, do you have any guidance on CapEx and or how we should think about any big moves in working capital?

I hope working capital is a big use because revenue is ramping up materially. That would be I think a positive. But we don't see any significant capital investments even the expansion that we talked about for our European calcium chloride business. That's not a big number that would move the capital number by any significant to increase capacity by around 25% there. So now, we don't see any material step up in CapEx next year and working capital could be a burden if there's a big ramp up in business and you think that there's a good possibility that could happen.

Okay, great. Thank you, gentlemen.

Thank you, Stephen.

The next question comes from Samantha Hoh with Evercore ISI. Please go ahead.

Hey, guys. Maybe just to go back to completion margins, was there any lifts from CS Neptune in 3Q, I kind of was under the assumption that you guys were on a job in the North Sea. And I'm just kind of wondering what you're kind of building into your guidance here for 4Q?

Yes, Samantha we did mentioned, we had a small job in the North Sea somewhat of a trial job in the North Sea that we executed, it was very successful job. But was not a, I guess a material part of our results in the quarter. But it does set us up for a higher frequency number of these types of jobs going forward, that job was in the North Sea. As we talked about before, we track our Neptune project pipeline very, very carefully. And due to the COVID-19, we've estimated we'd lost the 12 months of timeline in our project pipelines that we've been tracking, I would say with the Delta variant, we've lost another six months of that timeline. But we're in discussions with many of the customers for the projects that we track. And we feel very optimistic that we will see some projects in 2022. We don't have specific dates yet. But we are advancing those discussions at a much better pace than what we have been say the last 18 months with the pandemic.

Okay, and then maybe switching to Water, I guess there's been a lot of commentary about spending up 20%, 25% for next year. Are you guys sort of anticipating about the same and the similar sort of gains on your Water side of the business?

Yes, I think if you look at our progression through this year, Samantha we would expect just a 20% jump over this year is not very meaningful over where we are right now from a quarterly run rate. So we would expect somewhat higher of an overall gain year-on-year than the 20% - the 25% numbers that have been talked about. If you look at our quarterly revenues now, we would expect to be up double digits from that in 2022.

And what kind of scenario do you need for margins to sort of return to that mid-20s level? I think that's what I heard that like, margins are right, actually. Yes. So what sort of - kind of outlines what like a best case scenario, when you could achieve that target?

Yes, that's it's difficult to say, there were over 300 frac crews operating at the peak in 2018. And clearly, we're well below that number today. I don't think we have to get back to over 300 frac crews in order for us to get back to those margins just based on the SandStorm Technology, which we didn't have in 2018. The Argentina, a business that is generating some very nice margins and returns for us. The recycling capabilities - the integrated projects with our automation kind of offsetting some of the inflation on wages. So I feel pretty good about eventually getting back to that type of profitability well below 300 frac crews, but I couldn't tell you exactly, where that number would be right now. Next year, we're shooting to try to get back to that mid-teens, EBITDA margin in the first-half of the year. And then we'll see how the market responds as we finish off 2022 and into 2023.

Okay, that's great. For these SandStorm build for Argentina. I take it, you're building that here in the States, and then you're just going to be shipping it down there? How are you seeing like a long lead time for materials that you need kind of thinking is given like the issues that we're seeing with logistics? Is there concern of maybe not able to meet the deadline for us to start those projects like you did last quarter and having to take our existing equipment? Can you address maybe how you're kind of like anticipating for that, and then also addressing higher costs on the build out?

Right. That's a good question. We do have a fairly - we had some visibility of the supply chain issues when we negotiated the contract. So we feel fairly competent with the timeline that we have to deploy the early production facility and the additional SandStorms on like the previous contracts, which were a lot shorter lead times that we had to mobilize for. But we didn't build that into this contract, and we don't believe, we don't proceed. Any major supply chain issues for us to meet that timeline.

Okay, great. Thanks, guys. Congratulations.

Thank you.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Murphy for any closing remarks. Well, thank you again for joining us for our third quarter earnings call. We look forward to our next update. Thank you for your interest.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.