TTI - NYSE

Good morning, and welcome to TETRA Technologies' First Quarter 2024 Results Conference Call. [Operator Instructions] Please note that this event is being recorded. I will now turn the conference over to [indiscernible]. Please go ahead.

Thank you, Constantini. Good morning and thank you for joining TETRA's first quarter 2024 results call. The speakers for today's call are Brady Murphy, Chief Executive Officer; and Elijio Serrano, Chief Financial Officer. I would like to remind you that this conference call may contain statements that are or may be deemed to be forward-looking including projections, financial guidance, profitability and estimated earnings. These statements are based on certain assumptions and analyses made by TETRA and are based on several factors. These statements are subject to several 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 these forward-looking statements. In addition, in the course of the call, we may refer to EBITDA, adjusted EBITDA, adjusted EBITDA gross margins, free cash flow, net debt, net leverage ratio, liquidity, returns on net capital employed or other non-GAAP financial measures. Please refer to yesterday'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, we encourage you to refer to our 10-K that we also filed yesterday. I will now turn it over to Brady.

Thanks, [ Julian ]. Good morning, everyone, and welcome to TETRA's first quarter 2024 earnings call. I'll summarize some highlights for the first quarter and provide an update on our strategic initiatives before turning the call over to Elijio to discuss first quarter financials and provide an update on our balance sheet and second quarter outlook. Overall, first quarter results were in line with our expectations with strong Completion Fluids & Products results, offsetting an anticipated weaker start to the year in our Water & Flowback segment. Year-over-year, our revenue grew 3% and adjusted EBITDA grew 11%, while U.S. land rig count was down 18% in the first quarter of 2024 versus the first quarter of 2023. Adjusted EBITDA was $22.8 million with strong Completion Fluids & Products adjusted EBITDA margins at 28.1%, driven by 15 offshore deepwater operations that we serviced during the quarter. The outlook for offshore and deepwater continues to point to a longer duration upcycle and TETRA's well prepared to benefit through our recent strategic capacity investments in Brazil, Gulf of Mexico and the North Sea. For the Water & Flowback segment, the year-end 2023 customer activity slowdown, which impacted our Water Services business in the fourth quarter had a carryover effect to the first quarter for our Flowback Services, which operationally lags one quarter behind our Water Services. At the same time, our higher margin SandStorm services were slower in the first quarter. We did experience some Water Services ramp-up costs as activity levels rebounded. Looking to the second quarter, both Water Services and Flowback, including SandStorm will be operating at a more normalized activity levels with margins expected to recover to the mid-teens. Before discussing more details on each of the segments, I'd like to highlight the progress that we've made with regards to our strategic initiatives. 2024 will be a key year for us to complete milestones that will allow us to quantify the financial benefits of each initiative. On the energy storage side, we remain in close contact with Eos, are very encouraged with the progress they're making on automating their first production line. We fully expect Eos to be up and running, their

Thank you, Brady. First quarter adjusted free cash flow from continuing operations was a use of cash of $29.6 million. And this included the impact of $4 million of capital investments for our Arkansas bromine and lithium projects. And that also included an accounts receivable increase of almost $21 million sequentially due to the timing of revenue as sales increased progressively through the quarter. Also, the inventory drawdown resulting from the stronger deepwater activity was offset by our build of calcium chloride inventory for the seasonal peak in Northern Europe. We expect working capital to come down materially in the coming quarters as we monetize the calcium chloride inventory in Northern Europe. We remain of the opinion that free cash flow from the base business in 2024 will be in excess of $40 million. We further expect that the free cash flow from the base business will fulfill our cash capital requirements for Arkansas this year and that we will not need to draw on our revolver nor our delayed draw feature from our term loan in 2024. This is consistent with our plans of self-funding as much as possible our capital requirements for the bromine project. We have no intentions of issuing equity to fund our Arkansas investments. Liquidity as of the end of this week was approximately $202 million, inclusive of the $75 million delayed drop features that are available to TETRA for the bromine project. In addition to the loaded liquidity, we are also holding slightly over $13 million of marketable securities. This includes our holdings in Standard Lithium and Kodak Gas Services which recently acquired CSI Compressco. The acquisition of CSI Compressco by Kodak was very favorable to TETRA. Kodak have a market cap of $2.5 billion, with good global trading volumes that would allow us to quickly monetize our shareholdings without having to spread this over many weeks or putting pressure on the Kodak share price as would have been the case with CSI Compressco. The mark-to-market gains that we are recognizing can quickly be converted into cash given the trading volumes these two entities are seeing. Therefore, we believe that reported mark-to-market gains are very appropriate as [indiscernible] are completely and easily within our control. In January, we refinanced extended and expanded our term loan at more attractive interest rates in our prior term loan, further strengthening our balance sheet and providing us with the flexibility to execute on our growth initiatives. This includes the $75 million delayed draw feature for the bromine project that we don't anticipate utilizing until 2025. The maturity of our term loan is now January 2030. At the end of the first quarter, our net leverage ratio was 1.5x. Let me close out by summarizing what I believe to be the key items everyone should focus on from our first quarter results. First, Completion Fluids & Products segments performed very well; adjusted EBITDA margins of 29.3% without the mark-to-market losses. We are going into the second quarter when we see a seasonal peak from our calcium chloride business. This will be the catalyst to getting TETRA second quarter adjusted EBITDA above $30 million. Brady talked about the increase in visibility of CS Neptune projects, especially in the Gulf of Mexico. This visibility and level of discussion is the best that we've seen in a long time. Second, we fully expect free cash flow this year to be, like I said earlier, above $40 million, consistent with our prior message. The first quarter was a use of free cash flow activity spike towards the end of the quarter that then allow us to invoice and collect before the quarter end. As a data point, March revenue was 15% higher than January revenue. We remain confident that between our borrowing capacity and free cash flow, we can fund our bromine project requirements and have no plans to issue any equity-linked security. And as previously mentioned that we have around $30 million of very marketable securities, completely at our discretion as to when we monetize those. I'll remind everyone that the last time we did this we raised $18 million by selling our prior holdings in Standard Lithium. I'm not concerned about our free cash flow generation from our base business to cover our investments in Arkansas this year. Third, the Water & Flowback services adjusted EBITDA margins we fully expect a rebound to the mid-teens in the second quarter. The cost that we had in the first quarter have been addressed. Those are under control. And lastly, all the expected work with deals for the zinc bromide electrolyte remains as expected, for higher volumes in the fourth quarter. Our work on the bromine project with updated economics to reflect sharing of CapEx with ExxonMobil continues as expected, and our negotiations and discussions on the JV with ExxonMobil also remain as expected. Nothing in the quarter changed the tone or direction of our initiatives and instead give us further clarity and confidence on executing on those. With that, let me turn it back to Brady for closing comments.

Okay. Thanks, Elijio. So in closing, we're off to a good start with our Completion Fluids & Chemicals business with a great outlook for the rest of the year and an anticipated slower start for our Water & Flowback segment, but we do anticipate a strong second quarter for both segments. The outlook remains strong for the markets in which we operate. We have a solid balance sheet, close to $200 million of liquidity. We anticipate further growth in 2024 and expect to continue to generate strong free cash flow from our base business to fund our strategic growth investments. The combination of these plus advances with our produced water beneficial reuse solution, our Arkansas research position and strategic partnerships provides us the opportunity to continue to drive long-term shareholder value. With that, we'll now open it up for questions.

[Operator Instructions] Your first question comes from the line of Martin Malloy from Johnson Rice.

Good morning. I wanted to ask about the lithium project. It seems like the FEED may have slipped some from where you previously discussed it -- is being completed by and maybe the timing of this project reaching FID. Could you maybe provide us with some more information about what's going on there?

Yeah. The plus or minus 20% FEED efforts for both bromine and lithium -- first of all, they've been done individually standalone. But as you know, Martin, we're actually combining those two operations into a single plant site. And so although the individual FEEDs have mostly been completed to a plus/minus 20%, we're now doing an integrated FEED study that will allow us to realize the savings and the benefits to both sides of those operations. So I wouldn't say that the lithium FEED is necessarily behind schedule, but we do have to work through this integrated -- integrating the two FEED studies and get to a plus/minus 10%, which is our next objective before we can really get into an FID type discussion. And clearly, we want to get our joint venture negotiated and completed in place before we would announce that type of decision.

Great. And then my follow-up question, just wanted to ask about working capital during 2Q. Typically, the Northern Europe chemical sales are very strong. But I would guess you might have some inventory build associated with the Eos business and then collecting on your -- the receivables that ramped up at the end of 1Q. Could you maybe talk about some of the drivers of working capital usage during 2Q?

Yeah. Good question, Marty. As soon as the seasonal peak ends in Europe, almost immediately, we begin building inventory for the coming seasonal peak. So last year, as soon as June was over from July onward we started building inventory and we build inventory all the way through March and then start shipping it in April. So during the second quarter, we convert the inventory into receivables. And then in the tail end of the second quarter and into the third quarter, we convert that receivable into cash. That's the peak and the seasonality that we'll expect. So therefore, the free cash flow that we expect in the coming quarters, so we expect to be very strong to the point of putting us over $40 million for the year.

Your next question comes from the line of Kurt Hallead from Benchmark.

So I'm kind of -- got my attention here on this water desal dynamic. And I know kind of when we had you guys on the road a month ago, you talked about having something in place hopefully around the time of your earnings release now. But that seems like that's good to go, but I think is with the customer wanting to include this other Permian projects. So maybe you can kind of flesh that out a little bit more for us and just talk about -- it looks like the scaling of this dynamic is happening sooner than what you guys were even talking about a month ago.

Yeah. We're very pleased with the progress that we're making, Kurt. We've essentially, I think, mostly have agreed on the financial terms and conditions as it relates to the South Texas project. This recent introduction of the Permian, we see as very important for us. Ultimately, that's where the -- we think the biggest produced water for beneficial reuse market will be, so getting an actual commercial pilot that's going to run for a full year. We see as a very positive first step. We're not aware of anybody else having those types of discussions or projects in place. So we see this positive. We are tying the legal terms and conditions between the two projects together. And as you can imagine, that starts to involve some of the regulatory agencies as it relates to how the water is used and the specifications of the water. So that is taking a little more time than maybe we had hoped, had we just done the first project. But overall, we see it as a very big positive from where we're at and where we're going.

Okay. And then maybe just a follow-up on that. In the context of you referenced the pilot taking place in the Permian and then you kind of just referenced something about a year timeframe. Does that mean you're going to have to wait a year to kind of get these contracts signed or is it something that can -- I know you mentioned in the near term, so hard to pin down -- I get it, but just is it not going to take another year to get going, is it?

No, no, no. Well, we do have the pilot equipment pretty much available to us to start delivering the Permian pilot project. When I said a year, the actual duration of the pilot is for a year once we get started, but we will definitely be starting well ahead of that. We have essentially the pilot equipment that we need. This would involve the KMX vacuum membrane distillation technology that we've actually been running -- produced water through here at our research center for some time now. So no, I would expect to have both of these contractual arrangements finalized the legal terms and conditions -- completed within the next few weeks and off to the races from there.

And Brady, just for the sake of clarity, this is a pilot project where we will get paid.

Yeah. This is a commercial pilot project to Elijio's point. And we're -- essentially, all of our pilot projects now are at the point where we are fully expecting commercial benefits from.

Okay, got you. I appreciate that color. Now maybe just also following up, you talked about the integrated facility now for the bromine expansion as well as the lithium opportunities. And again, I think when you guys were out in front of investors, you talk about the prospect of maybe having a share [indiscernible] the share dynamics and with reduced -- potentially reduced CapEx requirements. Is there anything incremental you could flesh out on that for us as well?

No, Kurt, I think the message is still the same. We've done the individual FEEDs, and we now have a first pass of the integrated FEED in process that, as I've mentioned, we want to get our bromine Definitive Feasibility finalized and published, hopefully by the end of June. In that DFS report, you will see the benefits of having an integrated lithium and bromine facility, both in terms of sharing of CapEx as well as sharing of OpEx. And so as we mentioned in our comments, we think the -- we're optimistic that, that financial summary that we published will be materially improved from the last -- the first bromine FEED that we did as a standalone early last year. And then the next step we would like to do is get our JV agreements finalized. That's most likely in the third quarter. That's what we're targeting. And then the FEED for the lithium piece would follow on to that and hopefully, FID before the end of the year is what we're targeting.

Okay. And then maybe just one more, if I can follow up on your water business, right? Started off the year slow, but you referenced in your commentary that you still expect single-digit percentage growth in that. So is this a dynamic where there's going to be a pretty meaningful bounce in revenue in the second quarter and then it kind of flat lines from there or is there going to be potentially a steady increase in revenue for the remainder of the year to get you that single-digit percentage growth rate?

It's going to be a steady increase. We don't -- we're not relying on significantly stronger fracking or completions activity to drive our profitability. We think it's continuing to manage our costs, continuing to rely on the automation to reduce personnel at the well site and also to continue to deploy the higher margin technology such as the SandStorm systems that we have.

Your next question comes from the line of Josh Jayne from Daniel Energy Partners.

Maybe first, you've mentioned in your prepared remarks, strategic investments in Brazil, Gulf of Mexico, North Sea, as you prepare for an offshore multiyear upcycle. Could you talk about those a bit more and just your ultimate expectations for what you expect to see offshore over the next couple of years?

Yeah. We've mentioned in our prior earnings calls that we've actually acquired additional capacity. These are previous investments, so not in our 2024 cash flow impact. We've expanded Brazil by a meaningful percentage of our capacity, which we see that market continuing to grow significantly. We have a very strong position there for the -- what we call the high value or the higher density Completion Fluids market; same in Gulf of Mexico. We acquired Newpark's plant -- completion plant facilities and have added those to our own to prepare again for what we see as a longer term growth. And then we made a smaller acquisition in the North Sea. So each of those were prior period investments that we anticipated the cycle that we're seeing. And fortunately, as we look forward, we're very bullish on a continued growth outlook for the deepwater market. I think Rice said and Evercore both are seeing another 20% to 30% growth over the next four to five years in the deepwater rig activity.

And Josh, I would also add that in addition to the incremental storage and blending capacity, we moved inventory into some of those regions. We moved quite a bit of inventory into Brazil last year that allowed us to capture some significant projects, and we still have inventory to address some of the upcoming opportunities in Brazil as an example.

And then to sort of follow up there. You also mentioned in your prepared remarks, there were a couple of opportunities in Q4 of '24, early '25 in the Gulf of Mexico with two operators. How would you say the scope of those opportunities compares to projects you've completed over the last couple of years, pretty in line. Is there anything different about those? And maybe just talk about those a little bit more.

Yeah. As we've mentioned before, your typical Gulf of Mexico Neptune job is materially above our normal completion -- deepwater completion. I think if you've seen numbers in the past, when we've announced Neptune jobs, we've seen $15 million type of revenues with good margin progression on each of those projects. Those, I would say, are somewhat typical of your deepwater CS Neptune job in the Gulf of Mexico. And we get outside the Gulf of Mexico, like North Sea, where we're continuing to do Neptune jobs are quite a bit smaller, but still quite profitable for us.

And maybe just one more, if I may. One of the things you also talked about in your prepared remarks was driving margin expansion through automation. Could you expand on that a bit more, how much margins could ultimately expand based on what you're doing? And is this something we will continue to see the benefit for not only across 2024, but as we move into 2025?

Yeah, absolutely. It's a key part of our strategy. The Water Services business and Flowback are both fairly manpower-intensive. And we've been working on automation of every aspect of the Water Services side now for a few years. We're still only at around the 50% of our operations with automated services where we can reduce up to 30%, 40% of the manpower on a water job. But our objective is to be 100% by the end of this year on the Water Services side. The Flowback side is similar somewhat manpower intensive, a bigger part of our cost. And we're in the early days now of introducing new Flowback automation technology that, again, we believe, is a great way to enhance our margins. We would fully expect to be above the 20% margin levels by end of 2025 as we roll out our automation technology.

Your next question comes from the line of Patrick Ouellette from Stifel.

Pat on for Stephen Gengaro. So when thinking about 2Q, I believe you had mentioned this, but can we assume that CS Neptune job falls there? And then given the seasonality in the European Industrial Chemicals business, how can we think about the overall margin profile in the second quarter?

I'll take the Neptune job. We do have a planned Neptune job in June that is scheduled for a super major, but this is a North Sea Neptune job. This is not a Gulf of Mexico Neptune job. But we are optimistic that we will secure a deepwater Gulf of Mexico job, if not before the end of this year, fourth quarter, but early into 2025 and potentially multiple wells in that time period, maybe not necessarily all in '24, but between '24 and early '25, we have that type of visibility and optimism.

And then with respect to our margins, Patrick, we've got a couple of items working in our favor in the second quarter. The first one is that we start monetizing our inventory that we've been building up with the fall-through in Northern Europe being very attractive. Brady talked about the North Sea Neptune project that also has high margins. And then we also expect the second quarter cost structure on the U.S. onshore water management and Flowback services side to be quite strong. Therefore, that puts the EBITDA margins that we're expecting in the second quarter consistent with what we we're seeing in the third quarter of last year before we got into the year-end slowdown.

All right. I guess so given the drop in the water margin and the mid-teen guide you gave for the second quarter, is it reasonable to think that margin holds here the rest of the year or do you have visibility on how this landscape is playing out the back half?

Yeah. We'd probably take a more -- we said the second quarter would be mid-teens. We would fully expect to build on that as we go through the year. But some of that is going to depend on getting automation equipment that we need in place, but that would be our expectation is slowly improving that as we go through the rest of the year.

Your next question comes from the line of Bobby Brooks from Northland Capital Markets.

So really strong year-over-year growth in the United States Completion Fluids business, but I was kind of surprised by the small decrease in the International Completion Fluids piece of it, especially when given that there's 15 deepwater completions in the quarter. So could you just discuss why the International Completion Fluids slowed year-over-year despite those 15 deepwater completions and maybe would help just to contrast that with how many deepwater completions there you guys did in the first quarter '23?

Yeah. Remember, Bobby, that if you're looking at the segment results in the 10-Q that the fluids includes both the calcium chloride and the offshore business. We have not seen a slowdown in the international offshore oil and gas fluids business. And we expect that this year will continue to be strong. Now maybe ask the question separately, but there's no indications from our side that the international side is slower.

Got it. And then kind of just going back to that deepwater outlook, you guys have specifically highlighted a growing pipeline in the North Sea and Gulf of Mexico and the excitement there. And I know Brady kind of touched on the Brazil piece a bit in the Q&A. But I was just -- there's no mention of the LatAm market in your prepared remarks or in the press release. And obviously, that is a growing piece given what's going on in Guyana and Suriname. And so I'm just curious to hear maybe a little bit more detail on how the prospects are looking in the Latin American region. And then maybe just contrast that with the strength that you guys have noted in the Gulf of Mexico and in North Sea.

Yeah. So our base in Brazil is where we have our services operations. And so that's where we've added additional capacity to grow with what we're seeing, the growing market coming in Brazil. So that's fully part of our anticipated growth that we see in the deepwater markets. In Guyana, we do not currently have our own operations in place, but we do have opportunities to sell Completion Fluids to the major service providers. They are our customers, some of our biggest customers. And so we will be participating in those markets through sales to the likes of the Halliburton, Schlumberger and Bakers who have bases and operations in place, which is normal for us around the world where we don't have our own service operations.

Got it. Makes sense. And then I was just wanting to confirm so going over to the beneficial reuse project. It seems like the -- it seems like that's now a 2020 that getting up and running the first commercial one. It seems like that's not a summer 2024 event more something happening in 2025. Did I hear that right or was I missing something?

Yeah. I think we had always articulated that we would first get the contract in place and there will be a period of time where there's going to be some civil construction work. This is a fixed plan, 5-year fixed plan. So this is not like a service operation we can deploy in a few weeks' time. So there would be a lead time of 6 to 8 months to actually get this facility up [ and running ]. That's always been in our plans. So the impact on 2024 in terms of our financials was never really part of our plan. With the latest developments, as we've mentioned, tying these projects together with the commercial pilot in the Permian, we see now that most likely, this project will be up and running in the first quarter of 2025. So we will see the benefit financially in 2025, but we've never planned on that for '24.

And also to repeat what we mentioned earlier, the South Texas project is about a 24,000 barrel a day project, significant in scale. The project that we've talked about in the Permian Basin on a commercial pilot scale will begin generating revenue on that one this year, but obviously on a much smaller scale.

Okay. Got it. And then just sticking with the beneficial reuse. I might be reading too much into this, but I couldn't help to kind of see a verbiage change on the discussion for that second beneficial reuse on the fourth quarter call. I know you guys stated how it was the same operator, and I know that you're kind of reiterating that. But on the press release, you mentioned that you're in discussion with operators, plural. So I was just wondering is -- okay. So yeah, is that -- could you maybe just dive into that a little bit more and kind of help me understand the tie-in to the South Texas and First Permian project and then how there's -- it seems to be -- now you guys are opening the door to more operators setting this up and using this technology in a more near-term way?

Yeah. So the South Texas and Permian projects are with the operator that we've been -- we ran our pilot with now two years ago, our successful pilot that we published the results in South Texas. And so we have a -- pretty deep working relationship with this operator. And so as we've mentioned, we're expanding that relationship beyond South Texas to now include the Permian. But there are many operators. I would say almost every operator that operates in the Permian Basin that is interested in finding a beneficial reuse solution. There are other pilots that are being discussed, that will be, I'm sure, tested over the coming years. We feel we've got a leading-edge position because we did our pilot successfully over two years ago, and now we're into the kind of commercial discussions. But we have a lot of customers that are -- we are in discussions with about future projects for this technology.

[Operator Instructions] Next question comes from the line of Tim Moore from EF Hutton.

Just following up on the bromine development project, the board vote timing. If it's approved, which it seems like it should be, do you think you can probably break ground on that by January or February? Because I think I heard in your prepared remarks, Brady that you mentioned the plant could be operational in the first half of 2026.

Right. Yeah, so obviously, before we approve the full project, we will have our Definitive Feasibility Study, plus or minus 10% completed and have an FID discussion approval with our Board. But we have greenlight from our Board to continue to look at long lead items, preparing the plant site location. Many of those things we are already doing. So we're anticipating the first half of 2026, and we are maintaining our eye on those long lead items and civil works that we want to get a jump start on even ahead of FID, and we have full board approval support to do that.

That's great color. And nice to hear the board support for those long lead items getting ahead of that. Next question is for Elijio. It was really nice to hear that the working capital should improve and the first quarter was a one-off. You explained that the calcium chloride inventory seasonality build should unwind. So Elijio, I'm just wondering, can you maybe give us a rough range of what you think capital expenditures for this year would be including the project development spending? Could it be $35 million to $40 million this year?

So the base business CapEx, we believe, could be in the range of $40 million to $50 million. And then anything that we spend in Arkansas, we intend to cover with that free cash flow from the base business.

Great. Great. And so when we think about -- you were very clear about free cash flow commentary, it sounded like above $40 million for the base business to add some -- that's stripping out or excluding the Arkansas spending rate?

That's correct. And then from there, we'll fund any of the Arkansas investments, including long lead items. You saw that in the first quarter, we spent around $4 million for engineering design and work that we're working on both lithium and bromine.

Good. That's helpful. And just lastly, since most of my questions are already addressed. For my second favorite topic, the desalination or produced water. It sounds like you probably by now have optimized the pretreatment on your side to reduce the total organic compound before they move to the filtration stage to really get -- protect those membranes [indiscernible] units longer. So I guess what I'm wondering, and Brady mentioned earlier, how capacity constrained are you to take on additional commercial pilots the size the one you mentioned, you could pass around the KMX equipment, but can you get duplicates of the KMX equipment and high rig stuff and do more than one or two pilots [ a month ] as you look out to next year?

Yeah. I mean that's a subject we are having discussions on every day, Tim, and we are getting pulled on a lot of demands for pilots. Even some of the contracts that we're discussing where we have pilots, we are also including doing -- taking samples from our other customers that want to process that water through our pilot unit and giving them those results. So we're trying to maximize the utilization of the units that we have. We will look at expanding our pilot fleet, those are discussions that we're having. But obviously, our main priority right now is to get our commercial contracts moving because certainly for the South Texas type engineering work that we've already done, we feel we're full of the commercial.

Great. That's really good elaboration. Well, thanks [indiscernible]. I'm sure you'll be busy for the rest of the year and thanks.

Your next question comes from the line of Stephen Gengaro from Stifel. Stephen.

So you covered a lot -- I guess two things for me. I'm not sure you want to comment directly on this, but I'll ask the second quarter consensus has a pretty big range and the average is about $35 million. Can you just talk about any thoughts that you have around that?

Yeah. So we've made a habit of not giving guidance either in the year or specific quarters unless there's something materially different out there. We've indicated that there's three items that are working in our favor, both the costs coming down in the onshore business, the ramp-up of the calcium-chloride Northern Europe business and the Neptune project in the North Sea. Those -- and I mentioned earlier that we think that propels us to be north of $30 million in the second quarter.

Okay. And then the other one and this might be a little longer term as it pertains to the bromine side. Is there -- when you look at your fluids expectations both for your core business and for what Eos likely takes as they ramp. How are your bromine needs served until you get to that point of the new facility being operational in 2026? Are there -- any impact on margin? Can -- are the volumes available? How should we think about that?

Yeah, Stephen. So we have a long-term supply agreement, as you know, with LANXESS that progresses till the end of this decade. We have favorable pricing terms on that. But we also have to supplement that supply with spot market pricing. Fortunately, bromine prices have stabilized. They were rising quite rapidly a few years ago with the Chinese economy slowing a bit, spot market pricing has been more reasonable. So we're able to get additional bromine from the spot market to meet at least our current needs. Now as Eos starts to ramp up and the deepwater market continues to progress, we will need our Arkansas bromine, and that will also boost our margins considerably as we hope to release our DFS report will show. So that's an additional volume and an additional margin benefit, obviously, when we get to that point.

There are no further questions at this time. This concludes our question-and-answer session. I would like to hand the call back to Mr. Murphy for closing remarks.

Thank you very much for your participation. As we've reiterated several times, we feel very good about where we're at with our business and as we progress through 2024, and we will be continuing to quantify and keep you updated with our strategic initiatives as we go through 2024. Thank you very much.