Logo of jester cap with thought bubble.

Image source: The Motley Fool.

TETRA Technologies (NYSE:TTI)
Q3 2020 Earnings Call
Nov 03, 2020, 9:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Elijio Serrano

Good morning, and welcome to TETRA Technologies' third-quarter 2020 results conference call. I would like to remind you that this conference call may contain statements that are or may be 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, gross margins, adjusted EBITDA, adjusted EBITDA gross margins, adjusted free cash flow, distributable cash flow, distribution coverage ratio, leverage ratio or other non-GAAP financial measures. Please refer to this morning's press release or to our public website for reconciliations of non-GAAP financial measures to the nearest GAAP measures. These reconciliations are not a substitute for financial information prepared in accordance with GAAP and should be considered within the context of our complete financial results for the period.

In addition to our press release announcement that we announced earlier this morning, and as posted to our website, our Form 10-Q was filed with the SEC this morning also. With that, let me turn it over to Brady.

Brady Murphy -- President and Chief Executive Officer

Thank you, Elijio. Good morning, everyone, and welcome to the TETRA Technologies' third-quarter 2020 earnings call. I'll give a recap of our third-quarter highlights and performance, and then turn it over to Elijio to provide information on the balance sheet, cash flow and liquidity. I'd like to start by first recognizing all the TETRA and CSI Compressco employees and management teams for delivering another solid quarter in a very challenging environment.

Despite the sequential 36% decline in US onshore rig count, two hurricane storms that came through the Gulf of Mexico and the continued overhang from COVID-19, our team's focus on execution of our strategies resulted in positive EBITDA for each of our segments and sequential improved EBITDA margins. I could not be more pleased with the way our management team and employees have responded to the most challenging eight months our industry has likely ever faced. On a consolidated basis, we achieved $30 million of adjusted EBITDA in the third quarter with the related margin improving 150 basis points sequentially as a result of our focus on cost management and maximizing the value of our latest technology. Compared to the third quarter of last year, we've reduced our cost by $345 million on an annualized basis or 41% as it impacts EBITDA.

This compares to an annualized decline of revenue of $373 million, reducing cost by $0.92 for every $1 decline in revenue. Our positive EBITDA in the past two quarters is reflective of the successful strategy we've executed and the diversity of our business with a short cycle North America market, longer cycle deepwater and offshore segments and the steady consistent industrial chemicals market. TETRA only generated $7.7 million of free cash flow from continuing operations in the quarter and ended the quarter with $59 million of cash at the TETRA level. Year-to-date September, we've generated $43.5 million of TETRA-only cash from continued operations, an improvement of $66.6 million from last year.

And products third-quarter revenue decreased 27% sequentially, reflecting the seasonal second-quarter peak from our industrial European business and also due to project delays in the Gulf of Mexico as we experienced two major hurricanes in the third quarter. Despite the lower revenue and sudden impact from the hurricanes, we achieved higher adjusted EBITDA margins by 110 basis points sequentially. The third-quarter adjusted EBITDA margin of 26.8% was also 310 basis points better than a year ago. International sales for completion fluids, excluding the industrial business, increased sequentially by 84%, led by some large sales for some major national oil companies in the Middle East.

Delivery for these customers is continuing into the fourth quarter. Our industrial chemicals business continues to perform well and made up approximately 36% of the total revenue for this segment. In the third quarter, we secured three new calcium chloride road maintenance contracts to add to already industry-leading portfolio in this industrial subsector. Water and flowback third-quarter adjusted EBITDA remained positive despite revenue decreasing sequentially 13%.

We continue to see price erosion in the early part of the third quarter, but believe that in most of the basins, pricing has now stabilized as activity has improved in September, again in October. During the quarter, we added a third recycling project with a super major operator in the Permian Basin. But similar to our other recycle projects, we expect this project to operate for an extended period of time. Based on our market knowledge and with this award, we believe, on a daily basis, we are cycling more produced water for frac reuse than any other service provider in the Permian Basin.

Integrated projects increased from 16 with 14 different customers at the end of the second quarter to 17 with 10 different customers at the end of the third quarter. In September, 63% of our water management work was associated with integrated projects with multiple services provided by our BlueLinx automation system. We expect this trend to continue with more integrated projects as North America activity recovers. For the quarter, our TETRA SandStorm Advanced Cyclone Technology achieved maximum utilization while being continuously introduced to new customers.

As mentioned in our press release this morning, during the quarter, we were approached by a customer in the Appalachian region to perform a head-to-head trial against their current service provider. Our SandStorm technology was able to achieve 99.4% sand filtration. We far exceeded the current solution the customer was using, with zero wash downstream and at a peak flow rate of 40 million standard cubic feet per day. As a result of this successful trial, which also showcased our SandStorm works equally well in high-pressure gas wells as it does in liquid plays, we are now working with this customer to replace our competitor's sand separation equipment.

Providing some perspective on the fourth quarter, we've seen a recovery in number of active frac crews and well completion activity. Our September and October revenue was meaningfully better than July and August. As we previously stated during our earnings call, our objective remains to keep the segment EBITDA-positive, while leveraging automation and deploying new technology, along with best-in-class services. Based on what we know today, we are cautiously optimistic that the third quarter was the bottom of activity in this segment.

Our compression business continues to perform well despite the decline in North America activity. Excluding new equipment sales, which we have now exited, revenue decreased 1% sequentially to $72 million. Third-quarter adjusted EBITDA of $22.9 million was down $3.4 million from the second quarter. Adjusted EBITDA margins improved 170 basis points sequentially.

Compression services revenue decreased 5% sequentially, and gross margins decreased 200 basis points to 52.9%. Utilization declined from 82.1% in the second quarter to 80.3% in the third quarter. We believe that our strategy to invest in high horsepower equipment will allow us to maintain utilization above the low point of 75.2% that was seen during the last downturn. In the third quarter, horsepower was on standby decreased from a peak of 20% back in May to approximately 8% at the end of September as our key customers started bringing production and units back online.

As natural gas pricing outlook improves, we believe that production enhancement strategies on existing wells will become a greater priority for producers as they look to maximize cash flow. We should see the benefit of this focus as compression is a low operating cost solution, which allows producers to increase liquids and gas production when integrated with our artificial lift strategies. As mentioned, CSI Compressco -- as mentioned in CSI Compressco's press release yesterday, we've introduced our new Helix digitally enhanced compression telemetry system. This allows the use of big data to improve performance, reliability and predictive maintenance of our compressors.

We're excited to be the only oilfield service company to have partnered with Houston's Rice University D2K program as a partnership specifically designed to analyze big data and develop machine learning modules that enhance our current predictive maintenance programs. We've completed 25% of the hardware upgrade rollouts and expect to be fully deployed by the end of 2021. Aftermarket services revenue declined 12% from the second quarter, while gross margins improved 200 basis points sequentially. We expect aftermarket services to gain momentum in '21 -- 2021 as customers catch up on different maintenance -- deferred maintenance from 2020.

We're pleased to announce that we've secured a master services agreement with a large midstream provider for the provision of parts and services, representing an immediate revenue-generating opportunities to expand into 2021 and beyond. In closing, I will mention that using all safety protocols, I and our management teams have been traveling again to visit our field locations and meet with our customers, getting direct feedback from our customers and getting in front of our field leaders is critical for our continued understanding of the rapidly changing environment. Overall, we had another solid quarter, where margins improved, EBITDA was positive, we generated free cash flow and improved our liquidity. Despite the uncertainty remaining in the market, we feel that our strategies, technologies and industry diversity will allow us to stay EBITDA profitable and come through this in a very strong position.

Now, I'll turn it over to Elijio to provide some financial comments on cash flow and the balance sheet. And then, we'll open it up for questions.

Elijio Serrano

Thank you, Brady. I'll first make some comments on TETRA's balance sheet and cash flow, then I'll do the same with CSI Compressco, and then we'll open it up for questions. Brady mentioned that we generated $43.5 million of free cash flow year to date on a TETRA-only basis, which is an improvement of $67 million from the same time a year ago. This was achieved despite the incurrence of severance and other restructuring related costs.

TETRA-only adjusted EBITDA was $7 million in the third quarter. TETRA-only capital expenditures in the third quarter were $1.6 million. Many of the service companies are generating free cash flow this year from monetizing working capital. And as business rebounds, working capital will increase and consume cash.

We believe that a true metric for measuring the performance of the oilfield services sector during difficult times is to measure their ability to generate free cash flow during the bottom of the cycle as earnings decline and without the benefit of monetizing working capital. In every quarter this year, TETRA, without CSI Compressco, has generated positive free cash flow without the benefit of monetizing working capital. Essentially, every quarter this year, cash earnings, debt -- growth in capital expenditures, less interest expense and the certain tax payments has been positive. Of the $43.5 million of free cash flow that we generated so far this year, $11.4 million is year-to-date earnings less capex, less interest expense and less taxes.

The other $32 million has been from monetizing working capital, and monetizing receivables in this environment is not easy given the financial struggles by many of our customers. Our ability to generate $11 million in free cash flow this year without the benefit of working capital talks to the aggressive cost management we have implemented, the benefit of deploying technology to the US onshore market, and a very flexible, vertically integrated business model on the fluids side. In the third quarter, we were slightly over $0.5 million positive free cash flow without the benefit of monetizing working capital. For the full year of 2020, we expect TETRA-only capital expenditures to be between 9 and $12.5 million, slightly lower than the prior guidance.

We will continue to monitor and adjust our capital spending based on market conditions. We expect total capital expenditures to be mainly for maintenance capital, and to accelerate the introduction of our new technologies such as SandStorm and our monitoring BlueLinx technologies. TETRA-only liquidity ended the third quarter improved approximately $22 million in the same period a year ago, positioning us to be able to continue to manage through this downturn as activity begins to slowly recover. TETRA-only liquidity is defined as unrestricted cash on hand plus availability under our revolving credit facility.

TETRA-only net debt at the end of September was $148 million with cash on hand of $59 million. Our $221 million term loan is not due until August 2025, and our $100 million asset-based revolver does not mature until September 2023. The only significant maintenance covenant we have to comply with is a onetime interest coverage ratio on the term loan. At the end of September, our interest coverage was three and a half times.

Annual interest expense on this term loan is approximately 15.5 to $17 million. And as always, I'd like to again remind everyone that TETRA's and CSI Compressco's debt are distinct and separate. There are no cross-defaults, no cross-guarantees on the debt between TETRA and CSI Compressco. Now, let me spend a couple of minutes on CSI Compressco.

CSI Compressco's cash on hand at the end of September was $16.7 million, up from $2.4 million at the beginning of the year. At the end of September, there were no amounts outstanding on the revolver compared to $2.6 million that was outstanding at the beginning of the year. The reduction in the outstanding amount of revolver plus the increasing cash represents almost a $17 million improvement from the beginning of the year despite very challenging market conditions. And this is how CSI Compressco paid almost $5 million of legal and advisor fees to complete the debt swap in June of this year, which resulted in a net reduction of $9 million and pushed $215 million of maturities into 2025 and 2026.

CSI Compressco sold our Midland fabrication facility and related real estate and have targeted the sale of $13 million in compressor assets in the second half of this year. They are pruning the fleet by selling older, idle smaller units to generate cash to either reduce debt, invest in technology that we believe will generate higher operating margins or invest in larger commercial units. Their objective is to generate between $15 million and $25 million of free cash flow by early in the third quarter of 2021 to partially pay down the maturing $81 million of unsecured notes and to refinance the remaining amount. For the full-year 2020, CSI Compressco expects capital expenditures of between 6 and $7 million, and maintenance capital expenditures of between 20 and $21 million.

Like TETRA, CSI Compressco continues to invest in technology to drive greater margins and enhance returns. And this year, they expect to spend between 5 and $6 million. Other than the $81 million of unsecured notes that are due August of 2022 for CSI Compressco, the $555 million of first and second lien bonds are not due until 2025 and 2026. CSI Compressco's net leverage ratio at the end of September was 5.4 times.

This compares to over seven times during the prior downturn. And as I've mentioned before, CSI Compressco does not have any maintenance covenants that they need to comply with. And also, as mentioned earlier, CSI Compressco does not have any amounts drawn on the revolver. CSI Compressco generated $14 million of free cash flow in the quarter.

And year-to-date, free cash flow is $24.7 million. Distributable cash flow was $10.5 million in the third quarter, which increased by 25% as they benefited from the sale of used assets. Through September, distributable cash flow was $27 million. On an annualized basis, distributable cash flow will be $36.5 million or approximately $0.77 per common unit.

This compares to CSI Compressco's unit price at the close of business last week of $0.85, which is not a bad cash flow yield. TETRA and CSI Compressco continued to perform well given the macro environment. If all our segments remain EBITDA positive, both TETRA and CSI Compressco are generating free cash flow even without the benefit of monetizing working capital. And other than $81 million of unsecured debt that is due August of 2022 for CSI Compressco, there are no near-term maturities.

We encourage you to read our news release from this morning and CSI Compressco's news release from yesterday for all the supporting details and additional financial and operational metrics. Additionally, both TETRA and CSI Compressco have already filed their 10-Qs with the SEC. With that, Debbie, let's open it up for questions.

Questions & Answers:


Operator

[Operator instructions] Our first question comes from Jim Roumell with Roumell Asset Management. Please go ahead.

Jim Roumell -- Roumell Asset Management -- Analyst

Thank you. Elijio, two questions. And Brady, you mentioned that you're in the process of winning a contract in Appalachia on the water flowback side. Can you give any color whether that business is being taken from a small regional player, or a kind of larger player in the space?

Brady Murphy -- President and Chief Executive Officer

Jim, we believe it's a smaller regional player. It's not what I would consider to be a large player that operates in multiple basins.

Jim Roumell -- Roumell Asset Management -- Analyst

Got it. And the second question is, I just want to make sure I heard correctly, you are estimating that you are now No. 1 in water recycling in fracking? Was that in a particular basin? Or just a little color to that. And whatever you're referencing, where would you have estimated that number to be a year ago?

Brady Murphy -- President and Chief Executive Officer

Sure. So, Jim, we had our first large recycling project award in late 2018. My reference in the current comments that I had made is this is now our third major recycling project. And based on our local knowledge in the Permian Basin, and the amount of barrels of water that we are cycling on a daily basis for frac reuse, we believe we're the largest -- we have the largest volumes of water that we refrack -- recycle on a daily basis is my reference.

Jim Roumell -- Roumell Asset Management -- Analyst

Got it.

Brady Murphy -- President and Chief Executive Officer

In the Permian Basin. Yes.

Jim Roumell -- Roumell Asset Management -- Analyst

Got it. Thanks very much, Brady.

Brady Murphy -- President and Chief Executive Officer

Thank you.

Operator

The next question comes from Stephen Gengaro with Stifel. Please go ahead.

Stephen Gengaro -- Stifel Financial Corp. -- Analyst

Thanks and good morning, gentlemen.

Brady Murphy -- President and Chief Executive Officer

Good morning.

Stephen Gengaro -- Stifel Financial Corp. -- Analyst

I had a few things, and I apologize if you hit on any of these because I got disconnected. But first, when we think about the completion fluids business and the margin progression there, you put up very good margins in the quarter despite the Gulf of Mexico storm issues. And obviously, the sequential drop from the European business. When I look at these mid-20 EBITDA margins, are they sustainable without CS Neptune work over the next few quarters?

Brady Murphy -- President and Chief Executive Officer

Yes, we believe they are. I think we've referenced several quarters ago that we had a target to maintain over 20% EBITDA margins. And I think now we're on the sixth quarter or so where we have not only been above the 20%, but well into the mid-20% range. And that's really a couple of factors.

One, we've done a great job of streamlining our industrial chemicals business with some really favorable supply contracts, supplier contracts of raw material, and streamlined our operations through several of our plants with the shutdown of our mechanical evaporation facility in Eldo. Even with that, we still have plenty of capacity left to grow from the other plants that we operate at. So, that, all in, has had a pretty significant impact on our ability to generate industrial margins similar to what you're seeing. On the fluids side, although we had -- we were hurt by the Gulf of Mexico hurricanes this quarter, we had some very nice sales into the Middle East.

We've mentioned before, we had been awarding some market share gains, including several large NOCs that operate in the Middle East. We were able to secure those at types of margins that you're seeing contributing to the margins that you're seeing, and so we believe sustainable. We'll see as we get into 2021 and what the outlook looks for the markets, especially the offshore markets on our completion fluids markets. But for the foreseeable future, we believe we can sustain the types of profitability that we've been achieving.

Elijio Serrano

And Stephen, let me remind everybody of some of the margins that we've achieved. In the second quarter of last year, we were 22.4%. Q3 a year ago, we're 23.7%, both of those quarters had no Neptune in there. In the fourth quarter with the Neptune project, we jumped all the way up to 35.2%.

And then, this year, we've done 28.7, 25.7 and 26.8% for this segment on adjusted EBITDA margins. And there was a little bit of carryover of Neptune from Q4 into Q1, but it was minor. So, it tells you that even without Neptune, we're achieving those targets already.

Stephen Gengaro -- Stifel Financial Corp. -- Analyst

And are we the -- I believe I had, in my notes, and I'm not sure if you can give us a sense. But the US land piece of that is a pretty small piece of the total revenue, I think. Can you give us any color on sort of the revenue contribution from different segments because given what's happened in the US land business, those margins are fairly stable and fairly high.

Elijio Serrano

Yes. We've mentioned that, on an annual basis, about 40% of our revenue from this area is from the industrial, both Northern Europe and the United States. The rest of it is primarily the offshore business, both Gulf of Mexico and international. There is some amount of US onshore, but not enough to move the revenue contribution.

Brady Murphy -- President and Chief Executive Officer

Yes. Just, I'll add a little bit of color to that. On the completion fluids side of the business, we have a very small contribution from the US land market. So, we're really not impacted on the completion fluids side.

However, our industrial chemicals business clearly is a contributor into the North America market segment. Geographically, obviously, it's a different segment than the oil and gas segment. But from a US perspective, our industrial US business is a very good business.

Stephen Gengaro -- Stifel Financial Corp. -- Analyst

Great. And then, as we look -- just thinking about the other piece of the business, but on the water and flowback business, I mean, that's clearly more US land focused. Should we expect that to kind of track the US land market here over the next four to six quarters? Is that a reasonable way to think about it as you sort of try to push to get EBITDA improvement?

Brady Murphy -- President and Chief Executive Officer

Yes, we believe so. We're clearly seeing an increase in activity, a meaningful increase in activity in both September from the low points in July and August and then again, in October. And we believe that that will remain fairly consistent growth throughout the fourth quarter. As you look at the next year, I mean, it's still a little bit early days with where things are with COVID, et cetera.

But based on the conversations we've had so far with our customers and from some of the projections on frac crews from Rystad and others in the industry, we expect that 150 to 175 frac crew type of activity levels, which is not quite to the levels we were pre-COVID, but in this environment, that would be a meaningful impact for us from our business to grow and improve profitability.

Stephen Gengaro -- Stifel Financial Corp. -- Analyst

And on the sand side of that business, you've gained some share on the sand side, I believe. Is that piece to the point where it's potentially 10% or more of that segment or not yet? And is that margin accretive?

Elijio Serrano

So it definitely is margin accretive. It's very automated. The amount of resources that we deploy on that relative to a typical flowback job is significantly less. It's gaining traction very rapidly with several of our key customers.

I wouldn't say that we're yet up to that, but it's holding well, it's gaining market share, and it's improving. And I think Brady mentioned either on the earnings call or earlier today, all our equipment in this area is pretty much fully utilized.

Brady Murphy -- President and Chief Executive Officer

Yes. This is going to be one area where we will need some capital investment for next year if we continue on the growth path that we're sold out of our current number of units.

Stephen Gengaro -- Stifel Financial Corp. -- Analyst

And just a follow-on from just a strategic current perspective, if we look to 2023, as we're thinking about what TETRA looks like, how do you think the business evolves if we get back to kind of a more normal level of activity in the US land market, and globally, things are settled down? I mean, what do you think about as sort of the margin potential of the entity? And how the structure of the company looks?

Brady Murphy -- President and Chief Executive Officer

Well, I think we're very happy with the components of the business that we have, the segments that we have. We're very well positioned in the water and flowback segment as that market recovers. Clearly, these are unique times with this downturn. And we feel we will get back to more normal levels of US land activity, maybe not all the way back in 2021, but certainly by 2022 and 2023, we think, from our business perspective, with some of the share gains that we've had and the fundamental cost structure that we've put in place, we will be closer to 2018 type levels of profitability.

On the fluids side, we continue to find new opportunities for our industrial chemicals business. And as I said, we changed the profitability profile of that business. Our offshore completion fluids business continues to gain share, so I don't expect 2021 to be a huge ramp-up in offshore activity, but 2022, 2023, I think you will start to see some meaningful activity return. And then our Neptune projects that we're tracking, we expect to see some contribution in 2021 and some meaningful significant contribution in 2022 based on the projects that we have been working with operators on.

So, yes, I would expect 2022 and 2023 to be perhaps our most profitable years yet to come for TETRA.

Elijio Serrano

And Stephen, I'll also remind you, in mid-2019, water and flowback was generating mid-teens EBITDA margins. And since then, we've made significant investments in automation and remote monitoring. The SandStorm has gained quite a bit of traction, and I think that we'll see that benefit in a recovery in the market. And then we also mentioned earlier that we believe that we can continue to achieve mid-20% EBITDA margins from the fluids side.

And when we pick up Neptune projects, the total can easily push up into the 30s. So, we think that we'll have the benefit of automation, technology and new introduction of equipment in the future.

Stephen Gengaro -- Stifel Financial Corp. -- Analyst

Very good. If I could just add in one more. Do you -- has there been any visibility/traction from the Halliburton alliance? And as you sort of think about the deepwater market, I mean, obviously, it seems to be a little behind, but do you see that sort of increased traction on the CS Neptune side going forward?

Brady Murphy -- President and Chief Executive Officer

Yes. In fact, we have a major project in the North Sea with an operator where Halliburton has the contract, and we are working hand in glove with them to deploy Neptune and we expect that to show results in 2021.

Stephen Gengaro -- Stifel Financial Corp. -- Analyst

OK. Great. Thank you, gentlemen.

Operator

The next question is from Joseph Von Meister with Intermarket. Please go ahead.

Joseph Von Meister -- Intermarket Group -- Analyst

Hi. Most of my questions have been answered. But I guess we could go back to your plans for CSI Compressco and the potential deconsolidation, if I could call it that.

Elijio Serrano

I think that we've been very clear in our message in the last year and a half in that both the management team of TETRA and the board of directors of TETRA are focused on enhancing shareholder value, and we're also open to evaluating all options and alternatives. Earlier this year, we completed a debt swap with CSI Compressco in June when we extended the maturities for our unsecured debt into 2025 and 2026. We also stripped any of the change of control covenants so that the $81 million of unsecured debt does not trigger any maturities on a change of control. So feel confident that both the management team and the board of TETRA are focused on enhancing value, and we'll evaluate all options.

And I'll stop my comments at that.

Joseph Von Meister -- Intermarket Group -- Analyst

Thank you.

Operator

Next, we have a follow-up question from Jim Roumell with Roumell Asset Management. Please go ahead.

Jim Roumell -- Roumell Asset Management -- Analyst

Thank you. Brady, a question we get from shareholders who contact us, so I'm just going to put it to you to kind of put up there so we don't have to answer it. We get informed a lot that the company's non-energy fluids business, the industrial side of the business, that those businesses are now trading at 10 to 12 EBITDA, which would make your non-energy fluids business potentially worth something like $200 million. My question is, first, just are the businesses separable? Are they -- my understanding is that that business was purchased several years ago.

So, I just wanted to ask, are they separable? And two, given the place where energy stocks are trading in general, notwithstanding your confidence in the market on the other side returning in the next two to three years, where do you see, if that business stays trapped, the value of that business stays trapped because of the energy narrative surrounding the company, at what point, in your mind, is it worth the company thinking of strategic actions to kind of unlock that value? Particularly, if it's true, that those industrial fluids businesses right now are -- there's just a lot of interest in them evidently in the private equity world. Just any kind of high-level color would help.

Brady Murphy -- President and Chief Executive Officer

Sure. No, it's a fair question. They are separable. Our industrial operations plants supply to both industrial applications for our chemical products, as well as feeds our offshore fluids business.

If we separated that and sold it to another party or somebody else operated, we would still be able to buy the chemical products, the calcium chloride, et cetera, that we would need to operate our completion fluids business. We might have a bit of a margin impact on that, but they are very separable and could operate independently from TETRA today. As far as unlocking the value, I mean, clearly, today, we get a lot of synergies. We think we get a lot of synergies between a lot of the fluid developments, a lot of the technologies that we developed, both on the completion fluids side and having that vertical integration, the R&D that goes with that.

And products like Neptune and other products we have in the works are a result of that synergy. But clearly, if the energy markets didn't play out as I feel they will, ultimately, we would certainly look at strategic options to unlock that value, Jim.

Jim Roumell -- Roumell Asset Management -- Analyst

Got it. Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Murphy for any closing remarks.

Brady Murphy -- President and Chief Executive Officer

Well, thank you very much. We appreciate your interest in TETRA Technologies, and thank you for taking the time to join us this morning. That will conclude our call.

Operator

[Operator signoff]

Duration: 38 minutes

Call participants:

Elijio Serrano

Brady Murphy -- President and Chief Executive Officer

Jim Roumell -- Roumell Asset Management -- Analyst

Stephen Gengaro -- Stifel Financial Corp. -- Analyst

Joseph Von Meister -- Intermarket Group -- Analyst

More TTI analysis

All earnings call transcripts

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.