# Tetra Technologies Inc: Form 10-Q for the period ended Sep 30, 2023

- Company: [Tetra Technologies Inc](/companies/tti.md) (CIK 844965)
- Form: 10-Q
- Filed: 2023-10-30
- Accepted by EDGAR: Oct 30, 2023, 17:12 ET
- Period: 2023-09-30
- Accession: 0000844965-23-000049
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/844965/000084496523000049/tti-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/844965/000084496523000049/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $151.5m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $473.1m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $37.9m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $123.4m | us-gaap:GrossProfit |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $5.6m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $16.7m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $1.2m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $5.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $5.4m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $29.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.04 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.23 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.04 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.23 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 132,089,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 130,835,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $51.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $30.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $33.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $270.4m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $472.4m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $126.5m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2023-09-30 | $156.7m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2023-09-30 | $142.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 50,657 characters.

*The following discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and accompanying notes included in this Quarterly Report. In addition, the following discussion and analysis should also be read in conjunction with our* Annual Report on Form 10-K *for the year ended December 31, 2022 filed with the Securities and Exchange Commission (“SEC”) on February 27, 2023 (“2022 Annual Report”). This discussion includes forward-looking statements that involve certain risks and uncertainties.*

### Business Overview

We are an energy services and solutions company operating on six continents, focused on calcium chloride, completion fluids and associated products and services, comprehensive water management solutions, frac flowback, and production well testing. Calcium chloride is used in the oil and gas industry, and also has broad industrial applications to the agricultural, road, food and beverage and lithium production markets. We are composed of two segments – Completion Fluids & Products Division and Water & Flowback Services Division.

Consolidated revenue for the first nine months of 2023 of $473.1 million reflects a 16.6% increase over the prior year, reflecting growth in international markets and the Gulf of Mexico, as well as a strong second quarter for our Northern Europe industrial chemicals business. Our strong results for the first nine months of 2023 reflect our employees delivering operational and financial excellence in our core businesses while simultaneously advancing our key strategic initiatives. Third-quarter consolidated revenue of $151.5 million reflects a 13.7% decrease following the strong Northern European industrial chemical business seasonal peak in the second quarter.

Completion Fluids & Products Division revenues for the first nine months of 2023 increased 16.1% compared to 2022 as pricing and market share have continued to improve. Completion Fluids & Products Division revenues decreased 25% sequentially, following a new segment record high during the second quarter, including the seasonal peak for our Northern Europe industrial chemicals business. Our offshore results declined compared to the second quarter as projects were completed or shifted into the fourth quarter.

Our Water & Flowback Services revenues remained stable compared to the second quarter of 2023 and improved slightly compared to the prior year, driven primarily by the first two early production facilities in Latin America that became operational in the third quarter of 2022 and the third early production facility which became operational in May 2023. Our growing fleet of TETRA SandStormTM advanced cyclone technology separators also remains at high utilization with continued market penetration and positive pricing progression. Water & Flowback Services margins have continued to improve, reflecting ongoing automation and cost-reduction initiatives.

We are committed to pursuing low-carbon energy initiatives that leverage our fluids and aqueous chemistry core competencies, our significant bromine and lithium assets and technologies, and our leading calcium chloride production capabilities. In June 2023, we entered into a memorandum of understanding (“MOU”) with Saltwerx LLC (“Saltwerx”), an indirect wholly owned subsidiary of a Fortune 500 company, relating to a newly-proposed brine unit in the Smackover Formation in Southwest Arkansas and potential bromine and lithium production from brine produced from the unit. We filed an amended brine unit application (the “Application”) covering approximately 6,138 acres, which expands the size of the unit area and also combines brine acreage that was previously leased by each of TETRA and Saltwerx (the “Brine Unit”), with the Arkansas Oil & Gas Commission (“AOGC”). On September 26, 2023, the AOGC held a public hearing and unanimously approved our application to establish the Brine Unit. We completed the evaluation of results from the second exploratory well on our acreage in Arkansas in the third quarter with exceptional results. These results are being used to update the lithium and bromine resource report which we plan to complete and release in the fourth quarter. Additional steps are required before making a decision to develop the bromine assets and include further studies to analyze the resource as well as completion of a pre-feasibility and/or feasibility study.

### Results of Operations

The following information should be read in conjunction with the Consolidated Financial Statements and the associated Notes contained elsewhere in this report. The analysis herein reflects the optional approach to discuss results of operations on a sequential-quarter basis, which we believe provides information that is most useful in assessing our quarterly results of operations.

***Three months ended September 30, 2023 compared with three months ended June 30, 2023.***

#### Consolidated Comparisons

*(in thousands, except percentages)*

|  | Three Months Ended September 30, 2023 | June 30, 2023 | Period to Period Change $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| **Revenues** | **$151,464** | **$175,463** | **$(23,999)** | **(13.7)%** |
| **Gross profit** | **37,924** | **49,155** | **(11,231)** | **(22.8)%** |
| Gross profit as a percentage of revenue | 25.0% | 28.0% |  |  |
| Exploration and pre-development costs | 3,775 | 2,341 | 1,434 | 61.3% |
| General and administrative expense | 23,838 | 26,225 | (2,387) | (9.1)% |
| General and administrative expense as a percentage of revenue | 15.7% | 14.9% |  |  |
| Interest expense, net | 5,636 | 5,944 | (308) | (5.2)% |
| Other income, net | (2,041) | (6,435) | (4,394) | (68.3)% |
| **Income before taxes and discontinued operations** | **6,716** | **21,080** | **(14,364)** | **(68.1)%** |
| Income before taxes and discontinued operations as a percentage of revenue | 4.4% | 12.0% |  |  |
| Provision for income taxes | 1,248 | 2,875 | (1,627) | (56.6)% |
| Income before discontinued operations | 5,468 | 18,205 | (12,737) | (70.0)% |
| Discontinued operations: |  |  |  |  |
| Loss from discontinued operations, net of taxes | (48) | (8) | 40 | 500.0% |
| Net income | 5,420 | 18,197 | (12,777) | (70.2)% |
| Loss attributable to noncontrolling interests | — | 18 | (18) | 100.0% |
| **Net income attributable to TETRA stockholders** | **$5,420** | **$18,215** | **$(12,795)** | **(70.2)%** |

Consolidated revenues decreased between the current and previous quarters primarily due to a decrease in overall activity for the Completion Fluids & Products division sales volume from the strong Northern European industrial chemical seasonality impact each year on our results in the second quarter. See Divisional Comparisons section below for a more detailed discussion of the change in our revenues.

Consolidated gross profit as a percentage of revenue decreased primarily due to our Completion Fluids & Products division lower overall activity levels and margins. See Divisional Comparisons section below for additional discussion.

Consolidated exploration and pre-development costs increased primarily due to costs associated with the lithium front-end engineering and design study and appraisal costs for the second exploratory brine well in Arkansas.

Consolidated general and administrative expenses decreased compared to the prior quarter, primarily due to a $1.3 million decrease in provision for credit losses as a provision established in the second quarter was reversed in the third quarter following improved collections, a $0.4 million decrease in general expenses and a $0.3 million decrease in legal expenses.

Consolidated other income, net, decreased in the current quarter, compared to the prior quarter primarily due to the $2.8 million decrease in credits for exploration and pre-development costs reimbursable from Saltwerx following the cumulative credit in the second quarter, and a $2.0 million increase in unrealized losses from our

Standard Lithium shares received in April 2022 and 2023, partially offset by a $0.5 million increase in unrealized gain due to the change in the unit price of the CSI Compressco common units we own.

Consolidated provision for income tax was $1.2 million during the current quarter, compared to a $2.9 million provision during the prior quarter. Our consolidated effective tax rate for the three months ended September 30, 2023 was 18.6% due to income generated during the quarter, partially offset by the utilization of net operating loss carryforwards in the United States and certain other non-U.S. jurisdictions for which a valuation allowance had been established. We establish a valuation allowance to reduce the deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Included in our deferred tax assets are net operating loss carryforwards and tax credits that are available to offset future income tax liabilities in the United States and certain other non-U.S. jurisdictions.

#### Divisional Comparisons

#### Completion Fluids & Products Division

*(in thousands, except percentages)*

|  | Three Months Ended September 30, 2023 | June 30, 2023 | Period to Period Change $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| **Revenues** | **$73,210** | **$98,222** | **$(25,012)** | **(25.5)%** |
| **Gross profit** | **25,327** | **37,133** | **(11,806)** | **(31.8)%** |
| Gross profit as a percentage of revenue | 34.6% | 37.8% |  |  |
| Exploration and pre-development costs | 3,775 | 2,341 | 1,434 | 61.3% |
| General and administrative expense | 5,829 | 8,551 | (2,722) | (31.8)% |
| General and administrative expense as a percentage of revenue | 8.0% | 8.7% |  |  |
| Interest (income) expense, net | (309) | 104 | (413) | 397.1% |
| Other income, net | (900) | (5,819) | (4,919) | (84.5)% |
| **Income before taxes and discontinued operations** | **$16,932** | **$31,956** | **$(15,024)** | **(47.0)%** |
| Income before taxes and discontinued operations as a percentage of revenue | 23.1% | 32.5% |  |  |

Revenues for our Completion Fluids & Products Division decreased primarily due to decreased volumes for industrial chemical sales following the seasonal uplift in Northern Europe in the prior quarter, as well as timing of customer completion schedules, which resulted in some planned offshore activity pushing from the third to the fourth quarter.

Gross profit for our Completion Fluids & Products Division decreased compared to the prior quarter primarily due to the decline in revenues mentioned above. Our profitability in future periods will continue to be affected by the mix of our products and services, market demand for our products and services, and drilling and completions activity.

Completion Fluids & Products Division exploration and pre-development costs associated with our potential Southwest Arkansas bromine development project increased $1.4 million due to costs associated with the lithium front-end engineering and design study and well appraisal costs. General and administrative expense for the division decreased $2.7 million, primarily due to a $1.3 million decrease in provision for credit losses as a provision established in the second quarter was reversed in the third quarter following improved collections, and a $1.3 million decrease in short-term incentive compensation expense. Other income, net decreased primarily due to the $2.8 million decrease in credits for exploration and pre-development costs from Saltwerx following the cumulative credit in the second quarter, and a $2.0 million increase in unrealized losses from our investment in Standard Lithium shares due to a decline in the share price.

#### Water & Flowback Services Division

*(in thousands, except percentages)*

|  | Three Months Ended September 30, 2023 | June 30, 2023 | Period to Period Change $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| **Revenues** | **$78,254** | **$77,241** | **$1,013** | **1.3%** |
| **Gross profit** | **12,697** | **12,893** | **(196)** | **(1.5)%** |
| Gross profit as a percentage of revenue | 16.2% | 16.7% |  |  |
| General and administrative expense | 4,457 | 5,080 | (623) | (12.3)% |
| General and administrative expense as a percentage of revenue | 5.7% | 6.6% |  |  |
| Interest expense, net | 190 | 27 | 163 | 603.7% |
| Other (income) expense, net | (425) | (228) | 197 | (86.4)% |
| **Income before taxes and discontinued operations** | **$8,475** | **$8,014** | **$461** | **5.8%** |
| Income before taxes and discontinued operations as a percentage of revenue | 10.8% | 10.4% |  |  |

Revenues for our Water & Flowback Services Division in the current quarter increased due to continued higher revenues from our early production facilities in Latin America following completion of the third facility in May 2023. The North America onshore business revenue was relatively flat compared to the prior quarter.

Gross profit for our Water & Flowback Services Division remained comparable to the previous quarter. Gross profit as a percentage of revenue also remained comparable reflecting the ongoing margin expansion efforts driven by investments in technology, integration, digitalization and the benefit of our early production facilities in Argentina. While we have seen some signs of softness in certain land segments in the United States, pricing has remained relatively stable for our differentiated products and service offerings.

The Water & Flowback Services Division income before taxes and discontinued operations increased primarily due to a $0.6 million decrease in general and administrative expense primarily due to cost reduction initiatives, partially offset by a $0.2 million increase in interest expense due to borrowings under the Argentina Credit Agreement.

#### Corporate Overhead

*(in thousands, except percentages)*

|  | Three Months Ended September 30, 2023 | June 30, 2023 | Period to Period Change $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Depreciation and amortization | $101 | $93 | $8 | 8.6% |
| Impairments and other charges | — | 777 | (777) | (100.0)% |
| General and administrative expense | 13,552 | 12,595 | 957 | 7.6% |
| Interest expense, net | 5,755 | 5,813 | (58) | (1.0)% |
| Other income, net | (717) | (388) | 329 | 84.8% |
| **Loss before taxes and discontinued operations** | **$(18,691)** | **$(18,890)** | **$199** | **(1.1)%** |

Corporate overhead loss before taxes and discontinued operations remained comparable to the prior quarter as the $1.0 million increase in general and administrative expense primarily due to higher long-term incentive expenses was substantially offset by the $0.8 million impairment associated with our corporate office lease during the prior quarter.

***Nine months ended September 30, 2023 compared with nine months ended September 30, 2022.***

#### Consolidated Comparisons

*(in thousands, except percentages)*

|  | Nine Months Ended September 30, 2023 | 2022 | Period to Period Change $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| **Revenues** | **$473,136** | **$405,765** | **$67,371** | **16.6%** |
| **Gross profit** | **123,402** | **90,000** | **33,402** | **37.1%** |
| Gross profit as a percentage of revenue | 26.1% | 22.2% |  |  |
| Exploration and pre-development costs | 6,836 | 3,500 | 3,336 | 95.3% |
| General and administrative expense | 73,254 | 68,096 | 5,158 | 7.6% |
| General and administrative expense as a percentage of revenue | 15.5% | 16.8% |  |  |
| Interest expense, net | 16,672 | 10,933 | 5,739 | 52.5% |
| Other income, net | (8,690) | (4,858) | 3,832 | 78.9% |
| **Income before taxes and discontinued operations** | **35,330** | **12,329** | **23,001** | **186.6%** |
| Income before taxes and discontinued operations as a percentage of revenue | 7.5% | 3.0% |  |  |
| Provision for income taxes | 5,612 | 2,899 | 2,713 | 93.6% |
| Income before discontinued operations | 29,718 | 9,430 | 20,288 | 215.1% |
| Discontinued operations: |  |  |  |  |
| (Income) loss from discontinued operations, net of taxes | (68) | 270 | 338 | NM(1) |
| Net income | 29,650 | 9,700 | 19,950 | 205.7% |
| Loss attributable to noncontrolling interests | 25 | 43 | (18) | (41.9)% |
| **Net income attributable to TETRA stockholders** | **$29,675** | **$9,743** | **$19,932** | **204.6%** |

(1) Percent change is not meaningful

Consolidated revenues increased in the current year primarily due to improving industry conditions compared to the prior year for both our Completion Fluids & Products and Water & Flowback Services divisions, as well as the first two early production facilities in Argentina that commenced operations in the third quarter of 2022 and a third early production facility that became operational in the second quarter of 2023. See Divisional Comparisons section below for a more detailed discussion of the change in our revenues.

Consolidated gross profit increased in the current year primarily due to the increase in revenue, partially offset by an increase in costs associated with the higher Water & Flowback Services division activity levels described above. Profit margins for both divisions also improved due to stronger market conditions, a shift to higher-margin projects as well as price improvements and cost reduction initiatives.

Consolidated exploration and pre-development costs increased $3.3 million compared to the prior year primarily due to costs associated with the lithium front-end engineering and design study and drilling and appraisal costs associated with our second exploratory brine well in Arkansas.

Consolidated general and administrative expenses increased compared to the prior year, primarily due to $5.4 million of increased wage and benefit-related expenses driven by divisional headcount additions and higher operational activity levels, as well as higher short and long-term incentive expense, including the impact of the increase in our stock price on long-term incentive awards.

Consolidated interest expense, net, increased in the current year primarily due to an increase in the interest rate on our Term Credit Agreement and increased interest on borrowings under our ABL Credit Agreement and Argentina Credit Agreement.

Consolidated other income, net, increased in the current year, compared to the prior year primarily due to $6.7 million credits for exploration and pre-development costs reimbursable from Saltwerx under the MOU entered in in June 2023, offset by a $3.0 million decrease in foreign exchange gains.

Consolidated provision for income taxes was $5.6 million during the current year, compared to $2.9 million during the prior year. Our consolidated effective tax rate for the current year was 15.9%, compared to 23.5% during the prior year. The increase in our tax provision compared to the prior year was primarily due to the increase in income, while our effective tax rate decreased because a significant portion of the increase in income was in jurisdictions for which we were able to utilize net operating losses for which we had established valuation allowances. We establish a valuation allowance to reduce the deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Included in our deferred tax assets are net operating loss carryforwards and tax credits that are available to offset future income tax liabilities in the United States as well as in certain non-U.S. jurisdictions.

#### Divisional Comparisons

#### Completion Fluids & Products Division

*(in thousands, except percentages)*

|  | Nine Months Ended September 30, 2023 | 2022 | Period to Period Change $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| **Revenues** | **$240,474** | **$207,155** | **$33,319** | **16.1%** |
| **Gross profit** | **87,469** | **66,726** | **20,743** | **31.1%** |
| Gross profit as a percentage of revenue | 36.4% | 32.2% |  |  |
| Exploration and pre-development costs | 6,836 | 3,500 | 3,336 | 95.3% |
| General and administrative expense | 21,553 | 18,517 | 3,036 | 16.4% |
| General and administrative expense as a percentage of revenue | 9.0% | 8.9% |  |  |
| Interest income, net | (600) | (1,042) | (442) | (42.4)% |
| Other income, net | (7,650) | (1,159) | 6,491 | NM(1) |
| **Income before taxes and discontinued operations** | **$67,330** | **$46,910** | **$20,420** | **43.5%** |
| Income before taxes and discontinued operations as a percentage of revenue | 28.0% | 22.6% |  |  |

(1) Percent change is not meaningful

Revenues for our Completion Fluids & Products Division increased compared to the prior year primarily due to higher European industrial chemical sales volumes, as well as favorable pricing and customer mix. The division also benefited from recent capacity expansions following investments in Brazil, the Gulf of Mexico and the United Kingdom.

Gross profit for our Completion Fluids & Products Division increased compared to the prior year due to an increase in revenues. Gross profit as a percentage of revenue for our Completion Fluids & Products division increased primarily due to favorable pricing improvements. Our profitability in future periods will continue to be affected by the mix of our products and services, market demand for our products and services, and drilling and completions activity.

Income before taxes and discontinued operations for our Completion Fluids & Products Division increased compared to the prior year driven by higher gross profit, $6.7 million of credits for exploration and pre-development costs reimbursable from Saltwerx as well as a $0.4 million decrease in unrealized losses from our investment in Standard Lithium shares, both included in other income, net. These increases were partially offset by a $3.3 million increase in costs associated with the exploratory brine project compared to the prior year; a $3.0 million increase in general and administrative costs due to higher compensation and short-term incentive expense due to increased activity levels and strong results; and a $0.8 million decrease in unrealized gains from the change in fair value of the CarbonFree convertible note embedded option.

#### Water & Flowback Services Division

*(in thousands, except percentages)*

|  | Nine Months Ended September 30, 2023 | 2022 | Period to Period Change $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| **Revenues** | **$232,662** | **$198,610** | **$34,052** | **17.1%** |
| **Gross profit** | **37,012** | **23,793** | **13,219** | **55.6%** |
| Gross profit as a percentage of revenue | 15.9% | 12.0% |  |  |
| General and administrative expense | 14,496 | 15,724 | (1,228) | (7.8)% |
| General and administrative expense as a percentage of revenue | 6.2% | 7.9% |  |  |
| Interest (income) expense, net | 243 | (3) | 246 | NM(1) |
| Other income, net | (596) | (2,736) | (2,140) | (78.2)% |
| **Income before taxes and discontinued operations** | **$22,869** | **$10,808** | **$12,061** | **111.6%** |
| Income before taxes and discontinued operations as a percentage of revenue | 9.8% | 5.4% |  |  |

(1) Percent change is not meaningful

Revenues for our Water & Flowback Services Division increased significantly for both water management and production testing due to overall higher customer drilling and completion activity. Customer activity levels have continued to improve, primarily in our North America land business. Revenues have also increased in Latin America due to two early production facilities that began operations in the third quarter of 2022 and a third early production facility that became operational in the second quarter of 2023.

Gross profit for our Water & Flowback Services Division improved substantially from the prior year primarily due to higher revenues resulting from the increased activity levels described above and pricing improvements, and a shift to higher margin projects as well as continuous efforts to increase margins through streamlining operations and automation.

Income before taxes and discontinued operations for our Water & Flowback Services Division increased in the current year primarily due to an improvement in the gross profit described above and a $1.2 million decrease in general and administrative expense from cost reduction initiatives, partially offset by a $1.6 million decrease in foreign exchange gains and a $0.7 million decrease in gains on asset sales.

#### Corporate Overhead

*(in thousands, except percentages)*

|  | Nine Months Ended September 30, 2023 | 2022 | Period to Period Change $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Depreciation and amortization | $303 | $528 | $(225) | (42.6)% |
| Impairments and other charges | 777 | — | 777 | 100.0% |
| General and administrative expense | 37,206 | 33,856 | 3,350 | 9.9% |
| Interest expense, net | 17,029 | 11,978 | 5,051 | 42.2% |
| Other income, net | (446) | (964) | 518 | 53.7% |
| **Loss before taxes and discontinued operations** | **$(54,869)** | **$(45,398)** | **$(9,471)** | **20.9%** |

Corporate overhead loss before taxes and discontinued operations increased due to a $5.1 million increase in interest expense, net due to an increase in the interest rate on our Term Credit Agreement and higher borrowings under our ABL Credit Agreement, and a $3.4 million increase in general and administrative expense as well as a $0.5 million decrease in other (income) expense, net and a $0.8 million impairment of our corporate office lease. Corporate general and administrative expenses increased compared to the prior year, primarily due to increased wage and benefit-related expenses to support higher activity levels and higher equity-based compensation expense, including the impact of the increase in our stock price. Other (income) expense, net decreased primarily due to a $1.4 million decrease in foreign exchange gains, partially offset by a $0.4 million increase in unrealized gains related to unit price changes of our investment in CSI Compressco.

### Non-GAAP Financial Measures

We use U.S. GAAP financial measures such as revenues, gross profit, income (loss) before taxes and discontinued operations, and net cash provided by operating activities, as well as certain non-GAAP financial measures, including Adjusted EBITDA, as performance measures for our business.

*Adjusted EBITDA.* We define Adjusted EBITDA as net income (loss) before taxes and discontinued operations, excluding impairments, exploration and pre-development costs, certain special, non-recurring or other charges (or credits), interest, depreciation and amortization, income from collaborative arrangement and certain non-cash items such as equity-based compensation expense. The most directly comparable GAAP financial measure is net income (loss) before taxes and discontinued operations. Exploration and pre-development costs represent expenditures incurred to evaluate potential future development of TETRA’s lithium and bromine properties in Arkansas. Such costs include exploratory drilling and associated engineering studies. Income from collaborative arrangement represents the portion of exploration and pre-development costs that are reimbursable by our strategic partner. Exploration and pre-development costs and the associated income from collaborative arrangement are excluded from Adjusted EBITDA because they do not relate to the Company’s current business operations. Adjustments to long-term incentives represent adjustments to valuation of long-term cash incentive compensation awards that are related to prior years. These costs are excluded from Adjusted EBITDA because they do not relate to the current year and are considered to be outside of normal operations. Long-term incentives are earned over a three-year period and the costs are recorded over the three-year period they are earned. The amounts accrued or incurred are based on a cumulative of the three-year period. Equity-based compensation expense represents compensation that has been or will be paid in equity and is excluded from Adjusted EBITDA because it is a non-cash item.

Adjusted EBITDA is used by management as a supplemental financial measure to assess financial performance, without regard to charges or credits that are considered by management to be outside of its normal operations and without regard to financing methods, capital structure or historical cost basis, and to assess the Company’s ability to incur and service debt and fund capital expenditures.

The following tables reconcile net income (loss) before taxes and discontinued operations to Adjusted EBITDA for the periods indicated:

*(in thousands, except percentages)*

|  | Three Months Ended September 30, 2023 Completion Fluids & Products | Water & Flowback Services | Corporate SG&A | Other and Eliminations | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| **Revenue** | **$73,210** | **$78,254** | **$—** | **$—** | **$151,464** |
| **Net income (loss) before taxes and discontinued operations** | **16,932** | **8,475** | **(13,552)** | **(5,139)** | **6,716** |
| Insurance recoveries | 174 | — | — | — | 174 |
| Exploration and pre-development costs | 3,775 | — | — | — | 3,775 |
| Adjustment to long-term incentives | — | — | 500 | — | 500 |
| Former CEO stock appreciation right expense | — | — | 1,074 | — | 1,074 |
| Transactions and other expenses | — | — | 108 | — | 108 |
| Income from collaborative arrangement | (1,933) | — | — | — | (1,933) |
| Interest (income) expense, net | (309) | 190 | — | 5,755 | 5,636 |
| Depreciation, amortization and accretion | 2,301 | 6,176 | — | 101 | 8,578 |
| Equity-based compensation expense | — | — | 1,431 | — | 1,431 |
| **Adjusted EBITDA** | **$20,940** | **$14,841** | **$(10,439)** | **$717** | **$26,059** |
| Adjusted EBITDA as % of revenue | 28.6% | 19.0% |  |  | 17.2% |
|  | **Three Months Ended** |  |  |  |  |
|  | **June 30, 2023** |  |  |  |  |
|  | **Completion Fluids & Products** | **Water & Flowback Services** | **Corporate SG&A** | **Other and Eliminations** | **Total** |
|  | (in thousands, except percentages) |  |  |  |  |
| **Revenue** | **$98,222** | **$77,241** | **$—** | **$—** | **$175,463** |
| **Net income (loss) before taxes and discontinued operations** | **31,956** | **8,014** | **(12,595)** | **(6,295)** | **21,080** |
| Insurance recoveries | (5) | — | — | — | (5) |
| Impairments and other charges | — | — | 777 | — | 777 |
| Exploration and pre-development costs | 2,341 | — | — | — | 2,341 |
| Adjustment to long-term incentives | — | — | 322 | — | 322 |
| Former CEO stock appreciation right expense | — | — | 329 | — | 329 |
| Transaction and other expenses | — | — | 57 | — | 57 |
| Income from collaborative arrangement | (4,749) | — | — | — | (4,749) |
| Interest expense, net | 104 | 27 | — | 5,813 | 5,944 |
| Depreciation, amortization and accretion | 2,193 | 6,172 | — | 93 | 8,458 |
| Equity-based compensation expense | — | — | 1,492 | — | 1,492 |
| **Adjusted EBITDA** | **$31,840** | **$14,213** | **$(9,618)** | **$(389)** | **$36,046** |
| Adjusted EBITDA as % of revenue | 32.4% | 18.4% |  |  | 20.5% |

Adjusted EBITDA is a financial measure that is not in accordance with U.S. GAAP and should not be considered an alternative to net income, operating income, cash provided by operating activities, or any other measure of financial performance presented in accordance with U.S. GAAP. This measure may not be comparable to similarly titled financial metrics of other companies, as other companies may not calculate Adjusted EBITDA in the same manner as we do. Management compensates for the limitations of Adjusted EBITDA as an analytical tool by reviewing the comparable U.S. GAAP measures, understanding the differences between the measures, and incorporating this knowledge into management’s decision-making processes.

### Liquidity and Capital Resources

We believe that our capital structure allows us to meet our financial obligations. Our liquidity at the end of the third quarter was $107.0 million. Liquidity is defined as unrestricted cash plus availability under the ABL Credit Agreement, Argentina Credit Facility, and Swedish Credit Facility. Information about the terms and covenants of our debt agreements can be found in Note 6 - Long Term Debt and Other Borrowings.

Our consolidated sources and uses of cash are as follows:

*(in thousands)*

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Operating activities | $51,331 | $25,948 |
| Investing activities | (28,918) | (28,280) |
| Financing activities | (1,894) | (2,771) |

#### Operating Activities

Consolidated cash flows provided by operating activities increased compared to the first nine months of 2022 primarily due to an increase in cash profit and working capital changes.

#### Investing Activities

Total cash capital expenditures during the first nine months of 2023 were $30.2 million, which reflects increased expenditures to accommodate industry-wide activity recoveries. Our Water & Flowback Services Division spent $22.0 million on capital expenditures, primarily to deploy additional SandStorm units to meet increased demands and to maintain, automate and upgrade its water management and flowback equipment fleet. Water and Flowback Services Division capital expenditures also included expenditures related to construction of the third early production facility in Argentina. Our Completion Fluids & Products Division spent $7.8 million on capital expenditures, primarily investing in additional capacity to support higher projected activity levels in the United States, Latin America and Europe.

Investing activities during the first nine months of 2023 and 2022 included $2.9 million and $3.8 million, respectively, of proceeds for insurance settlements from damage to our Lake Charles facility in 2020.

Historically, a significant majority of our planned capital expenditures have been related to identified opportunities to grow and expand our existing businesses. We are also focused on enhancing shareholder value by capitalizing on our key mineral assets, brine mineral extraction expertise, and deep chemistry competency to expand our offerings into the low carbon energy markets. However, we continue to review all capital expenditure plans carefully in an effort to conserve cash. We currently have no long-term capital expenditure commitments. If the forecasted demand for our products and services increases or decreases, the amount of planned expenditures on growth and expansion may be adjusted.

#### Lithium and Bromine Inferred Resources

We have rights to the brine underlying our approximately 40,000 gross acres of brine leases in the Smackover Formation in Southwest Arkansas, including rights to the bromine and lithium contained in the brine. With respect to approximately 35,000 acres of that total acreage, we granted Standard Lithium an option to acquire the lithium rights. Standard Lithium delivered a notice to exercise this option to acquire those lithium rights on October 6, 2023. The agreements governing this option contemplate a 2.5% royalty that Standard Lithium would pay us based on gross lithium revenues. A copy of the Option Agreement with certain confidential information redacted is filed as Exhibit 10.1 to this Quarterly Report. Additional information on these inferred resources is described in Part I, “Item 2. Properties” in our 2022 Annual Report.

During early 2023, we completed an initial economic assessment for a bromine extraction plant. We expect an initial economic assessment to follow in early 2024 for a lithium extraction plant, subject to the progress of early engineering. In June 2023, we entered into the MOU with Saltwerx, an indirect wholly owned subsidiary of a Fortune 500 company, relating to a newly-proposed brine unit in the Smackover Formation in Southwest Arkansas and potential bromine and lithium production from brine produced from the unit. We filed an amended Application covering approximately 6,138 acres, which expands the size of the unit area and also combines brine acreage that was previously leased by each of TETRA and Saltwerx, with the AOGC. On September 26, 2023, the AOGC held a public hearing and unanimously approved our application to establish the Brine Unit. On October 17, 2023, the AOGC issued formal orders establishing the Brine Unit and integrating all unleased parties within the Brine Unit, subject to a 60-day statutory election period for each unleased party to elect whether or not to participate and share in costs of development of the Brine Unit. If no such election is made within the election period, such unleased parties will be deemed integrated within the Brine Unit as described in the formal orders. The Brine Unit will cover approximately 6,138 acres combining brine acreage leased by each of us and Saltwerx for development. Under Arkansas law, while bromine can be commercially extracted, the AOGC will need to establish the applicable lithium royalty before we can commercially produce lithium from the Brine Unit.

The MOU includes provisions relating to: (i) initial brine ownership percentages within the Brine Unit, including the bromine and lithium contained in the brine, (ii) the transfer of certain leased acres outside the proposed Brine Unit from us to Saltwerx after the expiration of the 60-day statutory election period, (iii) Saltwerx reimbursing us for certain expenses incurred by us to date regarding the development of leased acreage to be included in the Brine Unit, and (vi) an allocation of certain future costs for the drilling of a brine production test well and other development operations, including front-end engineering and design studies for bromine and lithium production facilities. During the second quarter of 2023, we also contracted a third-party firm to execute a front-end engineering and design study for a lithium production facility. Only upon completion of an indicated resources study, pre-feasibility and/or feasibility study and attainment of capital commitment from either a joint venture partner, governments grants or loans, or other cost-effective sources of capital that will not over-lever the Company, in addition to confirmation of a successful recapitalization of the long-duration zinc-bromide battery storage manufacturers, would we proceed to a final investment decision.

#### Financing Activities

Our financing activities for the first nine months of 2023 include $97.4 million of borrowings and $98.4 million of repayments under the ABL Credit Agreement, Argentina Credit Facility and Swedish Credit Facility, as well as $0.8 million of capital lease payments associated with equipment leased primarily for the early production facilities in Argentina. We may supplement our existing cash balances and cash flow from operating activities with short-term borrowings, long-term borrowings, issuances of equity and debt securities, and other sources of capital. We are aggressively managing our working capital and capital expenditure needs in order to maximize our liquidity in the current environment.

#### Long-Term Debt

*Term Credit Agreement.* The Term Credit Agreement is scheduled to mature on September 10, 2025. As of September 30, 2023, $163.1 million in aggregate principal amount of our Term Credit Agreement is outstanding. Our Term Credit Agreement requires us to offer to prepay a percentage of Excess Cash Flow (as defined in the Term Credit Agreement) within five business days of filing our Annual Report. If our Leverage Ratio at year-end is less than 1.50 to 1.00, then no prepayment is required.

*Asset-Based Credit Agreement.* As of September 30, 2023, our ABL Credit Agreement provides for a senior secured revolving credit facility of up to $80.0 million, with a $20.0 million accordion. The credit facility is subject to a borrowing base to be determined by reference to the value of inventory and accounts receivable, and includes a sublimit of $20.0 million for letters of credit, a swingline loan sublimit of $11.5 million, and a $15.0 million sub-facility subject to a borrowing base consisting of certain trade receivables and inventory in the United Kingdom. The amounts we may borrow under the ABL Credit Agreement are derived from our accounts receivable, certain accrued receivables and certain inventory. Changes in demand for our products and services have an impact on our eligible accounts receivable, accrued receivables and the value of our inventory, which could result in significant changes to our borrowing base and therefore our availability under our ABL Credit Agreement. As of September 30, 2023, we had no balance outstanding and $11.5 million in letters of credit and guarantees against our ABL Credit Agreement and availability of $68.5 million, subject to compliance with the covenants, borrowing base, and other provisions of the ABL Credit Agreement.

*Argentina Credit Facility*. In January 2023, the Company entered into a revolving credit facility for certain working capital and capital expenditure needs for its subsidiary in Argentina (“Argentina Credit Facility”). As of September 30, 2023, we had $1.9 million outstanding and availability of $0.1 million under the Argentina Credit Agreement. Borrowings bear interest at a rate of 2.50% per annum. The Argentina Credit Facility was backed by a letter of credit under our ABL Credit Agreement, and expired and was repaid in October 2023.

*Swedish Credit Facility*. In January 2022, the Company entered into a revolving credit facility for seasonal working capital needs of subsidiaries in Sweden. As of September 30, 2023, we had a nominal amount outstanding and availability of approximately $4.6 million under this agreement. During each year, all outstanding loans under the Swedish Credit Facility must be repaid for at least 30 consecutive days. Borrowings bear interest at a rate of 2.95% per annum. The Swedish Credit Facility expires on December 31, 2023 and the Company intends to renew it annually.

*Finland Credit Agreement.* In January 2022, the Company also entered into a credit agreement guaranteed by certain accounts receivable and inventory in Finland (“Finland Credit Agreement”). As of September 30, 2023, there were $1.4 million of letters of credit outstanding against the Finland Credit Agreement. The Finland Credit Agreement expires on January 31, 2024 and the Company intends to renew it annually.

#### Other Sources and Uses of Cash

In addition to the aforementioned credit facilities, we fund our short-term liquidity requirements from cash generated by our operations and from short-term vendor financing. In addition, as of September 30, 2023, the market value of our investments in CSI Compressco and Standard Lithium were $7.2 million and $2.3 million, respectively, with no holding restrictions on our ability to monetize our interests. In addition, we are party to agreements in which Standard Lithium has the right to explore for, and an option to acquire the right to produce and extract lithium in our Arkansas leases as well as additional potential resources, in the Mojave region of California. Standard Lithium exercised its option with respect to our Arkansas leases on October 6, 2023. We also hold an investment in a convertible note issued by CarbonFree valued at $6.6 million as of September 30, 2023.

On May 5, 2022, we filed a universal shelf Registration Statement on Form S-3 with the SEC. On May 17, 2022, the Registration Statement on Form S-3 was declared effective by the SEC. Pursuant to this registration statement, we have the ability to sell debt or equity securities in one or more public offerings up to an aggregate public offering price of $400 million. This shelf registration statement currently provides us additional flexibility with regards to potential financing that we may undertake when market conditions permit or our financial condition may require.

Should additional capital be required, the ability to raise such capital through the issuance of additional debt or equity securities may currently be limited. Instability or volatility in the capital markets at the times we need to access capital may affect the cost of capital and the ability to raise capital for an indeterminable length of time. If it is necessary to issue additional equity to fund our capital needs, additional dilution of our common stockholders will occur. We periodically evaluate engaging in strategic transactions and may consider divesting non-core assets where our evaluation suggests such transactions are in the best interest of our business. In challenging economic environments, we may experience increased delays and failures by customers to pay our invoices. If our customers delay paying or fail to pay us a significant amount of our outstanding receivables, it could have an adverse effect on our liquidity. An increase in unpaid aged receivables would also negatively affect our borrowing availability under the ABL Credit Agreement.

As of September 30, 2023, we had no “off balance sheet arrangements” that may have a current or future material effect on our consolidated financial condition or results of operations.

### Critical Accounting Policies and Estimates

There have been no material changes or developments in the evaluation of the accounting estimates and

the underlying assumptions or methodologies pertaining to our Critical Accounting Policies and Estimates disclosed

in our 2022 Annual Report. In preparing our consolidated financial statements, we make assumptions, estimates, and judgments that affect the amounts reported. These judgments and estimates may change as new events occur, as new information is acquired, and as changes in our operating environments are encountered. Actual results are likely to differ from our current estimates, and those differences may be material.

### Commitments and Contingencies

#### Litigation

For information regarding litigation, see Note 7 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements and Part II, “Item 1. Legal Proceedings” in this report.

#### Long-Term Debt

For information on our credit agreements, see Note 6 - “Long-Term Debt and Other Borrowings” in the Notes to Consolidated Financial Statements.

#### Leases

We have operating leases for some of our transportation equipment, office space, warehouse space, operating locations, and machinery and equipment. We have finance leases for certain facility storage tanks and equipment rentals. Information about the terms of our lease agreements can be found in our 2022 Annual Report.

#### Product and Asset Purchase Obligations

For information on product and asset purchase obligations, see Note 7 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements.

### Cautionary Statement for Purposes of Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements in this Quarterly Report are identifiable by the use of the following words, the negative of such words, and other similar words: “anticipates”, “assumes”, “believes”, “budgets”, “could”, “estimates”, “expects”, “forecasts”, “goal”, “intends”, “may”, “might”, “plans”, “predicts”, “projects”, “schedules”, “seeks”, “should”, “targets”, “will”, and “would”.

These forward-looking statements include statements concerning the inferred mineral resources of lithium and bromine, the potential extraction of lithium and bromine from the leased acreage, the development of the assets including construction of bromine extraction plants, the economic viability thereof, the demand for such resources, and the timing and cost of such activities; the ability to obtain an indicated or measured resources report and an initial economic assessment, indicated or measured resources report, and/or pre-feasibility or feasibility studies regarding our lithium and bromine acreage; statements regarding the Company's beliefs, expectations, plans, goals, future events and performance; and other statements that are not purely historical. With respect to the Company's disclosures of inferred mineral resources, including bromine and lithium carbonate equivalent concentrations, it is uncertain if further exploration will ever result in the estimation of a higher category of mineral resource or a mineral reserve. Inferred mineral resources are considered to have the lowest level of geological confidence of all mineral resources. Investors are cautioned that inferred mineral resources do not have demonstrated economic value. Inferred mineral resources have a high degree of uncertainty as to their existence and as to whether they can be economically or legally commercialized. A significant amount of exploration must be completed in order to determine whether an inferred mineral resource may be upgraded to a higher category. Therefore, investors are cautioned not to assume that all or any part of an inferred mineral resource exists, that it can be economically or legally commercialized, or that it will ever be upgraded to a higher category. With respect to the Company’s disclosures of the MOU with Saltwerx, it is uncertain about the ability of the parties to successfully negotiate one or more definitive agreements, the future relationship between the parties, and the ability to successfully and economically produce lithium and bromine from the Brine Unit.

Management believes that these forward-looking statements are reasonable as and when made. However, investors are cautioned not to place undue reliance on any such forward-looking statements. Such statements speak only as of the date on which they are made, and the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations, forecasts or projections. These risks and uncertainties include, but are not limited to, those described in Part II, “Item 1A. Risk Factors” and elsewhere in this report and in our 2022 Annual Report, and those described from time to time in our future reports filed with the SEC.

## Market risk

As filed, 2,347 characters.

#### Interest Rate Risk

The interest on our borrowings is subject to market risk exposure related to changes in applicable interest rates. Borrowings under the Term Credit Agreement bear interest at a rate per annum equal to, at the option of TETRA, either (i) SOFR (subject to a 1% floor) plus a margin of 6.25% per annum or (ii) a base rate plus a margin of 5.25% per annum. Borrowings under our ABL Credit Agreement bear interest at an agreed-upon percentage rate spread above SOFR. Borrowings under our Argentina Credit Facility and Swedish Credit Facility bear interest at fixed rates of 2.50% and 2.95%, respectively. The following table sets forth as of September 30, 2023, the principal amount due under our long-term debt obligations and their respective weighted average interest rates. As of September 30, 2023, we had no balance outstanding under our ABL Credit Agreement. We are not a party to an interest rate swap contract or other derivative instrument designed to hedge our exposure to interest rate fluctuation risk.

*(in thousands)*

|  | Scheduled Maturity | Interest Rate | September 30, 2023 |
| --- | --- | ---: | ---: |
| Term Credit Agreement | September 10, 2025 | 11.68% | $163,071 |
| Asset-Based Credit Agreement | May 31, 2025 | 8.75% | — |
| Argentina Credit Facility | October 19, 2023 | 2.50% | 1,900 |
| Swedish Credit Facility | December 31, 2023 | 2.95% | 11 |
| TETRA total debt, including current portion |  |  | $164,982 |

33

#### Exchange Rate Risk

We have currency exchange rate risk exposure related to revenues, expenses, operating receivables, and payables denominated in foreign currencies. We may enter into short-term foreign-currency forward derivative contracts as part of a program designed to mitigate the currency exchange rate risk exposure on selected transactions of certain foreign subsidiaries. Although contracts pursuant to this program will serve as an economic hedge of the cash flow of our currency exchange risk exposure, they are not expected to be formally designated as hedge contracts or qualify for hedge accounting treatment. Accordingly, any change in the fair value of these derivative instruments during a period will be included in the determination of earnings for that period. As of September 30, 2023, we did not have any foreign currency exchange contracts outstanding.

## Controls and procedures

As filed, 839 characters.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2023, the end of the period covered by this quarterly report.

There were no changes in our internal controls over financial reporting that occurred during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

### PART II

### OTHER INFORMATION

## Risk factors

As filed, 3,381 characters.

As of the date of this filing, TETRA and its operations continue to be subject to the risk factors previously disclosed in the “Risk Factors” sections contained in our 2022 Annual Report. In addition, we are subject to the following supplemental risk factor.

*We may not be able to utilize all or a portion of our net operating loss carryforwards or other tax benefits to offset future taxable income for U.S. federal, state or foreign tax purposes, which could adversely affect our financial position, results of operations and cash flows. We have adopted a Tax Benefits Preservation Plan (the “Tax Plan”) that is designed to protect our Tax Attributes.*

As of December 31, 2022, we had United States federal, state, and foreign deferred tax assets associated with net operating loss carryforwards (“NOLs”) equal to approximately $86.2 million, $11.1 million, and $7.8 million, respectively. In those countries and states in which NOLs are subject to an expiration period, our NOLs, if not utilized, will expire at various dates from 2023 through 2042.

We may be limited in the portion of our NOLs that we can use in the future to offset taxable income for United States, federal, state, and foreign income tax purposes. Utilization of these NOLs depends on many factors, including our future taxable income, which cannot be assured.

Under Section 382 (“Section 382”) of the Internal Revenue Code of 1986, as amended (the “Code”), if a corporation experiences an “ownership change,” any NOLs, losses or deductions attributable to a “net unrealized built-in loss” and other tax attributes (“Tax Attributes”) could be substantially limited, and timing of the usage of such Tax Attributes could be substantially delayed. A corporation generally will experience an ownership change if one or more stockholders (or group of stockholders) who are each deemed to own at least 5% of the corporation’s stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a testing period (generally, a rolling three-year period). Utilization of our Tax Attributes may be subject to a significant annual limitation as a result of prior or future “ownership changes.” Determining the limitations under Section 382 is technical and highly complex, and no assurance can be given that upon further analysis our ability to take advantage of our NOLs or other Tax Attributes may be limited to a greater extent than we currently anticipate.

The Board of Directors has adopted the Tax Plan to protect the availability of the Company’s Tax Attributes. The Tax Plan is designed to reduce the likelihood that we experience an ownership change by deterring certain acquisitions of our common stock. There can be no assurances, however, that the deterrent mechanism will be effective, and, therefore, such acquisitions may still occur. In addition, the Tax Plan could adversely affect the marketability of our common stock by discouraging existing or potential investors from acquiring our common stock or additional shares of our common stock. If the Company is unable to use the Tax Attributes in years in which it has taxable income, the Company will pay significantly more in cash tax than if it were able to utilize the Tax Attributes, and those tax costs would negatively impact the Company’s financial position, results of operations and cash flows.

Filed Oct 30, 2023.
Source: SEC EDGAR, the filing index for accession 0000844965-23-000049. Last ingested by Listed: Nov 2, 2026, 19:51 ET. No prices; not investment advice.