TETRA Technologies (NYSE: TTI) reported Q1 EPS of $0.02, $0.10 better than the analyst estimate of ($0.08). Revenue for the quarter came in at $223 million versus the consensus estimate of $221.65 million.

First Quarter 2020 Highlights

• Adjusted EBITDA on a consolidated basis before discontinued operations of $48 million, our highest first quarter Adjusted EBITDA in 5 years and a 33% year-on-year quarterly improvement
• Completion Fluids & Products achieved $21.6 million of Adjusted EBITDA and 25.8% income before tax margin, up from $10.4 million and 10.0%, respectively, from first quarter of 2019
• Water & Flowback Services Adjusted EBITDA increased sequentially by $1.2 million on flat revenue
• TETRA Only adjusted free cash flow from continuing operations was $4.7 million, above previous guidance and nearly a $40 million improvement over the same period last year
• Implemented multiple cost cutting initiatives to address the current downturn

Brady M. Murphy, TETRA's Chief Executive Officer stated, "TETRA's first quarter 2020 results, with the highest first quarter Adjusted EBITDA in five years and year-on-year Adjusted EBITDA improvement of 33%, are a great reflection of the successful strategies we have implemented and tremendous execution by our management team and dedicated employees. We understand very well that due to the COVID-19 pandemic the world has changed in a very short period of time since we ended our first quarter, but with TETRA Only adjusted free cash flow improvement of nearly $40 million in the first quarter of 2020 as compared to the same period last year, we believe we have positioned ourselves well for a deep and potentially prolonged downturn. The rapid and unprecedented downturn we are in requires significant cost cutting and sacrifice from every employee, but we will continue our path of differentiating the Company through innovation and service delivery for each of our business lines so that when the inevitable recovery does come, we will be well positioned to build on our excellent results demonstrated in the past two quarters where combined we delivered over $100 million of Adjusted EBITDA.

"Completion Fluids & Products segment had an outstanding first quarter with income before tax margin of 25.8% and an Adjusted EBITDA margin of 28.7%, without any significant contribution from TETRA CS Neptune® completion fluids ("CS Neptune"), a 1190 basis point year-on-year improvement. We continued to grow our international offshore fluids business with market share gains from previously announced awards in Brazil, Asia-Pacific, West Africa, Gulf of Mexico and Middle East, all for higher value completion fluids and services. In the first quarter, 35% of our Completion Fluids & Products sales came from customers' deepwater completion projects, demonstrating TETRA's value to this market segment. Although we anticipate that the deepwater market will be impacted by this downturn, we believe it will be impacted less than the North America shale market. Another 40% of our first quarter Completion Fluids & Products sales came from the non-oil and gas industrial chemicals market, as we continue to benefit from our market diversification and from our new, long-term, lower cost raw material supply agreements. With the new long-term raw material supply agreements in place for our West Virginia and Louisiana chemical process manufacturing plants, we have decided to close our mechanical evaporation process manufacturing plant in El Dorado, Arkansas. Operations for this plant are targeted to wind down during the second quarter.

"Despite the challenging economic outlook for 2020, especially for oil and gas, we expect the non-oil and gas industrial business to hold up well for the foreseeable future. In the second quarter, we expect to benefit from the seasonally strong Northern European industrial chemicals business, which is expected to contribute up to $10 million of cash from operating activities.

"Water & Flowback Services segment will be challenged in this difficult environment as it is largely dependent on North America completions activity. We are taking cost reduction actions to align with weaker activity in each of the different basins. In addition to across the Company pay reductions and other cost cutting initiatives, we expect to exit the second quarter with about 35% fewer employees in our U.S. land operations than when we started the quarter. Despite the current market environment, there are several bright spots in our Water & Flowback Services business, including the success of our SandStormTM sand separation technology which finished March at its highest utilization since it was introduced to the market in the second half of last year. Even with our reduced capital spend this year, this is one of the areas where we continue to invest, as we continue to achieve market share gains at good returns. Despite the decline in overall completion activity, Water & Flowback Services first quarter revenue was flat sequentially as we continue to gain traction with our integrated water management strategy. We ended the quarter with 30 integrated projects with 17 different customers while providing those services in all major U.S. basins. We believe the combination of aggressive cost cutting while increasing use of our automation and delivering on new technologies should help us maneuver through this downturn.

"First quarter 2020 Compression segment performed well despite the unprecedented change in market conditions beginning in March. The first quarter loss before tax of $12.8 million compares to a loss before tax of $1.3 million in the fourth quarter of 2019. Net loss in the first quarter included $6.0 million of unusual items, primarily related to impairments of long-lived assets and inventory related to the planned closure of our Midland fabrication facility. Adjusted EBITDA of $26.0 million for the first quarter was a sequential decline of $6.6 million, primarily from lower aftermarket services revenue and an unfavorable mix of parts and services and lower equipment sales. Despite the sequential decline in revenue and a 14.2% loss before tax margin, we achieved Adjusted EBITDA margins of 28.8%, which are 240 basis points above the fourth quarter of 2019. Moving into the second quarter, we expect a very different and challenging market environment for the Compression segment. Although we have seen dramatic market downturns before, unlike previous ones, customer shut-ins are having a meaningful negative impact on this business. As customers shut-in production, they are returning units or shutting the equipment in place at lower stand-by rates. As a result, we have already seen our utilization drop from 90.0% at the end of 2019 to 86.5% at the end of the first quarter. By the end of May, we expect up to 20% of our domestic horsepower to be impacted by customer shutting in production, either by going on stand-by service rates or through equipment returns. We expect utilization to quickly mimic the low point of the previous 2014-2016 downturn of 75.6%. We also announced closure of our Midland Compression fabrication facility, which we target to close within 60 to 90 days.

"In order to combat the downturn, we have already implemented many cost cutting initiatives including (1) salary reductions (2) headcount reduction across the organization, (3) a 20% reduction in Board of Directors cash retainers, (4) reduction of all discretionary expenditures and (5) suspension of the employer 401(k) matching program and (6) negotiated reductions in expenditures with many of our suppliers. In addition, we have reduced our TETRA Only capital expenditures to between $10 million and $15 million for the year with a vast majority already committed in the first half of the year. Beyond the second quarter of 2020, we expect capital expenditure to be minimal and primarily related to maintenance.

"Finally, I am pleased with the way our management team and employees have responded to the COVID-19 pandemic. The Company has implemented guidelines to keep our employees, their families, and our customers safe, all while working to deliver our same standards for service quality. We have followed guidelines from the Centers for Disease Control and Prevention (CDC) and the Occupational Safety and Health Administration (OSHA) to keep our employees working in the safest environment possible. We continue to monitor the changes in the guidelines and will communicate new recommendations as available. We also want to thank all the members of our organization for their contribution to an excellent quarter. I would like to personally thank all of our employees and their families for their continued efforts during this unprecedented period."

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