Good morning, and welcome to TETRA Technologies' First Quarter 2024 Results Conference Call. Please note that this event is being recorded. I will now turn the conference over to the next speaker. 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, Constantini. 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 is well prepared to benefit from our recent strategic capacity investments in Brazil, the 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 more normalized activity levels with margins expected to recover to the mid-teens. Before discussing more details on each segment, I'd like to highlight the progress we've made with regard 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, and we are very encouraged with the progress they're making on automating their first production line. We fully expect Eos to be up and running with their Z3 zinc bromine battery automation line in the second half of this year, which is expected to result in material sales of electrolyte from TETRA. In the coming weeks, we're hopeful to have our first commercial desalination for beneficial reuse contract in place that should be operational by the first part of 2025. This is planned to be a 24,000 barrel a day South Texas facility. We're also in discussions for a 1-year commercial pilot project in the New Mexico area of the Delaware Basin using TETRA's proprietary pretreatment technology and our solution for higher total dissolved solids. The demand for beneficial reuse projects continues to build as this solution is the ultimate answer to overpressure disposal wells in areas like the Permian Basin that need usable water sources. By the end of June, we hope to publish our Arkansas Bromine Definitive Feasibility Report, which will include updated financials, taking into account the shared CapEx investment and OpEx sharing with our planned lithium joint venture, ExxonMobil. Because of the sharing with the lithium project, we expect the bromine economics to reflect material improvement from what we previously published. And with financing in place for bromine, we expect Board approval to move forward with this project. We're targeting the first half of 2026 to be operational with our bromine plant, which will give us the needed capacity to meet our growing deepwater Completion Fluids demand and the significant Eos electrolyte requirement. Finally, on the lithium side, we continue advancing the FEED study as well as finalizing the negotiations for the joint venture and joint development agreements and operating the Evergreen Brine Unit. We continue to work with ExxonMobil on many fronts to advance our project. Individually, these initiatives represent a material benefit to the company that we will quantify as we complete key milestones throughout the year. Collectively, they are transformational for the company. Now turning to the segments; our Completion Fluids & Products segment first quarter 2024 revenue of $77 million increased 7% sequentially, driven by stronger activity in the Gulf of Mexico and the Middle East. Adjusted EBITDA of $22.6 million increased 20% sequentially, representing EBITDA fall-through of nearly 79%. Adjusted EBITDA margins of 29.3% compared to the 26% in the fourth quarter of 2023. Adjusted EBITDA margins improved by 330 basis points sequentially when excluding unrealized gains and losses from both periods, driven by solid performance in our Industrial Chemicals business and growth in our offshore Completion Fluids operations, particularly in the Gulf of Mexico. As a reminder, we estimate that 70% of the deepwater wells completed in the Gulf of Mexico used bromine-based Completion Fluids. So the deepwater activity increase that we're seeing globally is resulting in higher demand for our high-value bromine-based Completion Fluids, which includes TETRA CS Neptune. Regarding CS Neptune, our outlook continues to improve as in addition to another job for a supermajor in the North Sea that is confirmed in June, discussions with two different supermajors for two different projects in the Gulf of Mexico continue to evolve for projects that are scheduled for the fourth quarter of '24 or early '25. The level of discussions with operators in the Gulf of Mexico for CS Neptune projects has been the highest in several years as many of the anticipated projects in our pipeline are moving forward. Shifting to our Water & Flowback Services segment; revenues of $74 million decreased by 5% year-on-year, while adjusted EBITDA of $7.1 million fell by $5.8 million year-on-year. Although Water Services revenue rebounded from the fourth quarter slowdown, the nonrecurring EPF sale and lower flowback activity in the first quarter resulted in revenue lower by $6.9 million or 9% quarter-over-quarter. The combination of water project start-up costs and lower activity for higher margin SandStorm activity resulted in lower adjusted EBITDA margins of 9.6%. Despite a slow start to the year, we're very encouraged about the outlook for the rest of the year as we expect Water & Flowback Services margins to rebound to the mid-teens. Our strategic priority for 2024 is to continue driving margin expansion with operational efficiencies and automation that will allow us to maximize returns on capital and generate meaningful cash flow.

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. This also included an accounts receivable increase of almost $21 million sequentially due to the timing of revenue as sales increased progressively through the quarter. 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 draw 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 has a market cap of $2.5 billion, with good global trading volumes that allow us to quickly monetize our shareholdings without having to spread this over many weeks or putting pressure on the Kodak share price. 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 these are completely and easily within our control. In January, we refinanced, extended, and expanded our term loan at more attractive interest rates than 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's 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 allowed us to invoice and collect before the quarter end. 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, we have around $30 million of very marketable securities, completely at our discretion as to when we monetize those.

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 provide us the opportunity to continue to drive long-term shareholder value. With that, we'll now open it up for questions.

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 and is being completed by and maybe the timing of this project reaching FID. Could you provide us with some more information about what's going on there?

The plus or minus 20% FEED efforts for both bromine and lithium have been completed individually. However, we are now combining those two operations into a single plant site. While the individual FEEDs have mostly been finalized, we are currently conducting an integrated FEED study to realize savings and benefits for both operations. I wouldn't say that the lithium FEED is behind schedule, but we need to complete the integration of the two studies and achieve a plus/minus 10% before we can really discuss the final investment decision.

Great. For my follow-up question, I wanted to ask about working capital during the second quarter. Typically, Northern Europe chemical sales are very strong. However, I assume there might be some inventory buildup related to the Eos business, along with collecting the receivables that increased at the end of the first quarter. Could you discuss some of the factors affecting working capital usage during the second quarter?

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, 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.

I'm interested in the water desalination dynamic. When you presented to us a month ago, you mentioned that you hoped to have developments ready around the time of your earnings release. It seems like that is on track, but it appears the customer is looking to include another project in the Permian. Could you elaborate on that? It looks like the progress with this dynamic is unfolding faster than you anticipated a month ago.

We're very pleased with the progress we're making. We've mostly agreed on the financial terms and conditions related to the South Texas project. The recent introduction of the Permian is very important for us, as we believe it will be the largest market for produced water beneficial reuse. Getting an actual commercial pilot that runs for a full year is a positive first step. We're not aware of anyone else pursuing similar discussions or projects, which we see as a positive sign. We are aligning the legal terms and conditions of the two projects, which involves some regulatory agencies concerning water use and specifications. This process is taking a bit longer than we initially hoped if we had just focused on the first project. However, overall, we view it as a significant positive for our current position and future direction.

Okay. Just to follow up on that, you mentioned the pilot taking place in the Permian and referred to a year timeframe. Does this mean we have to wait a year to get these contracts signed, or is there a possibility to move on this sooner? I understand you mentioned it in the near term, but can we expect it to take another year to get started?

No, no, no. 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 and 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.

This is a commercial pilot project as Elijio mentioned. We are fully expecting to see commercial benefits from all of our pilot projects at this point.

I understand, thank you for the information. I would like to follow up on the integrated facility for the bromine expansion and lithium opportunities. When you presented to investors, you mentioned the possibility of having a shared dynamic with potentially lower capital expenditure requirements. Can you provide any additional details on that?

No, Kurt, I believe the message remains unchanged. We have completed the individual FEEDs and are currently working on a preliminary version of the integrated FEED. As I mentioned, we aim to finalize and publish our bromine Definitive Feasibility Study by the end of June. In that report, you will see the advantages of having an integrated lithium and bromine facility, especially regarding shared capital and operational expenses. We are optimistic that the financial summary we released will show significant improvement compared to the standalone bromine FEED we did early last year. The next step is to finalize our joint venture agreements, which we are targeting for the third quarter. Following that, we aim to proceed with the FEED for the lithium component and hopefully reach a final investment decision before the end of the year.

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're not relying on significantly stronger fracking or completion 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.

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 higher value or the higher density Completion Fluids market; same in Gulf of Mexico. We acquired Newpark's completion plant facilities and have added those to our own to prepare again for what we see as 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 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.

As we've mentioned before, a typical Neptune job in the Gulf of Mexico significantly exceeds our standard deepwater completion. Historically, our Neptune jobs have generated about $15 million in revenue, with solid margin growth for each project. These figures are fairly representative of deepwater CS Neptune jobs in the Gulf. However, when we look outside the Gulf of Mexico, like in the North Sea, the Neptune jobs we are undertaking tend to be smaller but remain quite profitable.

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 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. 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 the end of 2025 as we roll out our automation technology.

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 supermajor, 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'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?

We expect the second quarter to be in the mid-teens and anticipate building on that as the year progresses. However, some of this will depend on acquiring the necessary automation equipment. Our expectation is to see gradual improvement as we move through the remainder of the year.

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?

Remember, Bobby, that if you're looking at the segment results in the 10-Q that the fluids include 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. Regarding the deepwater outlook, you have mentioned a growing pipeline in the North Sea and Gulf of Mexico, which is exciting. I noted that Brady touched on Brazil during the Q&A, but I didn't see any mention of the Latin American market in your prepared remarks or press release. Given the developments in Guyana and Suriname, I'm interested in hearing more about the prospects in Latin America. Additionally, I would like to hear how this compares to the strength you've observed in the Gulf of Mexico and the 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 Halliburton, Schlumberger, and Baker Hughes 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 that's now a 2025 event 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 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.

I see your point about the beneficial reuse. I noticed a change in the language during the discussion about the second beneficial reuse in the fourth quarter call. While you mentioned it's the same operator, I noticed that the press release referred to discussions with multiple operators. Could you elaborate on that? I'm interested in how this ties into the South Texas and First Permian projects and the potential for more operators to adopt this technology in the near term.

The South Texas and Permian projects involve an operator with whom we have developed a strong partnership following our successful pilot two years ago, which we reported on in South Texas. We are now broadening this relationship to include the Permian. Almost every operator in the Permian Basin is looking for effective reuse solutions, and there are several additional pilot projects being considered that we expect to test in the coming years. Our successful pilot positions us advantageously as we engage in commercial discussions, and we are actively talking to many customers about future projects involving this technology.

Next question comes from 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 and 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. And so when we think about your comments on free cash flow, it sounded like it would be above $40 million for the base business, but that excludes 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 lastly, since most of my questions have already been addressed, I want to touch on my second favorite topic, which is desalination or produced water. It seems like you've optimized the pretreatment process to reduce total organic compounds before they reach the filtration stage, which helps to protect the membranes and extend their lifespan. I'm curious about how capacity constrained you are in taking on additional commercial pilots like the one you mentioned. Can you replicate the KMX equipment and high rig stuff to conduct more than one or two pilots each month as you look ahead to next year?

We are discussing this topic daily and are receiving many requests for pilots. In some of the contracts we are negotiating that involve pilots, we are also including sampling from other customers who want to process water through our pilot unit to provide them with results. Our goal is to maximize the use of the units we currently have. We are considering expanding our pilot fleet, and conversations about this are ongoing. However, our main priority right now is to advance our commercial contracts, especially for the engineering work we've completed in South Texas, as we believe we are fully booked with commercial projects.

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

You mentioned a lot, and I have a couple of follow-up points. I'm not sure if you want to address this specifically, but I’d like to mention that the consensus for the second quarter shows a significant range, with the average being around $35 million. Could you share your thoughts on that?

We've generally refrained from providing guidance for the year or specific quarters unless there are significant changes. However, we have identified three factors that are advantageous for us: the reduction in costs within the onshore business, the growth of our calcium chloride operations in Northern Europe, and the Neptune project in the North Sea. I previously mentioned that we believe these elements will enable us to exceed $30 million in the second quarter.

Okay. Regarding the bromine aspect, could you share how you plan to meet your bromine needs for both your core business and the anticipated demand from Eos as they begin to ramp up? How will those needs be addressed until the new facility becomes operational in 2026? Will there be any impact on margins? Are the volumes sufficient? What should we consider regarding this situation?

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, and now 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.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.