Q1 2025 TETRA Technologies Inc Earnings Call

Unknown Executive: Good, Kim.

Hey, Ken.

Unknown Executive: Go ahead. Okay, thank you. Thank you.

Yes. It goes great go ahead, okay. Thank you. Thank you and good morning, everybody and thank you for joining tetra. Its first quarter 2025 results conference call I'm, Curt Howard VP Treasurer, and head of IR with the.

Kurt Hallead: Good morning, everybody, and thank you for joining Tetra's first quarter 2025 results conference call. I'm Kurt Hallead, VP, Treasurer, and Head of IR.

Kurt Hallead: The speakers for today's call are Brady Murphy, Chief Executive Officer, and Elijio Serrano, Chief Financial Officer. I'd like to remind you that this conference may contain statements that are or are deemed to be forward-looking, including projections, financial guidance, profitability, and estimated earnings. These statements are based on certain assumptions and analysis 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.

Speaker Change: Speakers for today's call are Brady Murphy, Chief Executive Officer, and <unk> Serrano, Chief Financial Officer, I'd like to remind you that this conference may contain statements that are or maybe deemed to be forward looking including projections financial guidance profitability and estimated earnings. These statements are based on certain.

Speaker Change: <unk> and analysis 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 the forward looking statements. In addition in the <unk>.

Kurt Hallead: Your caution 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, adjusted EBITDA, adjusted EBITDA margins, pre-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.

Speaker Change: Of course of the call we may refer to EBITDA adjusted EBITDA adjusted EBITDA 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 measure.

Speaker Change: Yours 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 and we encourage you to refer to our 10-Q. We also filed yesterday I will now.

Kurt Hallead: In addition to our press release announcement, we encourage you to refer to our 10-Q that we also filed yesterday.

Brady Murphy: I will now turn it over to Brady. Thanks, Kurt.

Speaker Change: Turn it over to Brady.

Brady Murphy: Good morning, everyone, and welcome to Tetra's first quarter of 2025 earnings call. I'll summarize some highlights for the first quarter and provide an update on our strategic growth initiatives before turning the call over to Elijio to provide some more details on our segments and an update on cash flow and our balance sheet. We're very pleased with our record first quarter adjusted EBITDA of $32.3 million and adjusted EBITDA margins of 20.5% at the Tetra level, led by strong performance from our completion fluids and product segment. Total revenue of $157 million increased 17% sequentially and 4% from last year, while adjusted EBITDA of $32.3 million increased 41% sequentially and also 1% compared to last year.

Brady Murphy: Thanks, Curt good morning, everyone and welcome to <unk> first quarter 2025 earnings call.

Curt Howard: I'll summarize some highlights for the first quarter and provide an update on our strategic growth initiatives before turning the call over to Leo to provide some more details on our segments and an update on cash flow and our balance sheet.

Yeah.

Curt Howard: We're very pleased with our record first quarter, adjusted EBITDA of $32 $3 million and adjusted EBITDA margins of 25% at the Tetra level led by strong performance from our completion fluids and product segment.

Curt Howard: Total revenue of 157 million increased 17% sequentially and 4% from last year, while adjusted EBITDA of $32 3 million increased 41% sequentially and also when compared to last year.

Brady Murphy: During the quarter, we successfully completed the first of the three scheduled Tetra CS Neptune wells and made significant progress on the second well, which was subsequently completed in April. Year over year, we saw a 60% increase in offshore deepwater operations, having worked on 24 deepwater projects during the quarter compared to 15 in the first quarter of 2024. This is consistent with what we have been seeing for some time, that the deepwater market has been gaining momentum since the 2021 post-COVID pandemic low point for deepwater rig activity. The nature of these large, higher-pressure deepwater jobs can make our business somewhat lumpier, depending on the timing of well completions, but the year-over-year deepwater trend is a steady increase.

Curt Howard: During the quarter, we successfully completed the first of the three scheduled Tetra CS Neptune wells and made significant progress on the second well, which was Subsys subsequently completed in April.

Curt Howard: Year over year, we saw a 60% increase in offshore deepwater operations, having worked on 24 deepwater projects during the quarter compared to 15 in the first quarter of 2020 for.

Curt Howard: This is consistent with what we have been seeing for some time.

Curt Howard: Water market has been gaining momentum since the 2021 post COVID-19 pandemic low point for deepwater rig activity.

Curt Howard: The nature of these large higher pressure deepwater jobs can make our business somewhat lumpier, depending on the timing of well completions, but the year over year deepwater trend is a steady increase.

Brady Murphy: As a result of the stronger deepwater activity and the start of the seasonally strong industrial chemicals business in Northern Europe, completion fluids and products adjusted to EBITDA margins increased to 35.7% from 27.3% in the fourth quarter. Revenue for water and flow back services segment declined 2% sequentially. Outperforming U.S. frack activity that declined approximately 10%. Just the EBITDA margins on water and flow back of 13% were down slightly from the fourth quarter, but up 340 basis points from Q4 last year, despite much lower FRAC activity levels as cost control actions and continued focus on automation contributed to improved year-on-year margins in a weaker environment.

Curt Howard: As a result of the stronger deepwater activity in the start of the seasonally strong industrial chemicals business in northern Europe completion fluids and products adjusted EBITDA margins increased to 35, 7% from 27, 3% in the fourth quarter.

Curt Howard: Revenue from water and Flowback services segment declined 2% sequentially outperforming U S. Frac activity declined approximately 10%.

Curt Howard: Adjusted EBITA margins on water and flowback of 13% were down slightly from the fourth quarter, but up 340 basis points from Q4 of last year, despite much lower Frac activity Act.

Curt Howard: Activity levels as cost control actions and continued focus on automation contributed to improved year on year margins in a weaker environment.

Brady Murphy: In anticipation of weaker U.S. land activity at current oil prices, we are taking cost actions within this segment, including exit of the polypipe business, a small lower margin subsegment of our water transfer business. As we head into the second quarter, an encouraging aspect of the water and flowback segment is that our automated sandstorm and automated drillout units are operating at close to 100% utilization. This is strong validation that our customers see the operational benefit and cost savings of less manpower to operate what are typically manpower-intensive jobs. In this business environment, we will be reducing our overall capex for the water and flow back segment, but with only 25% of our fleet automated, we will be prioritizing our capex to further automate our fleet.

Curt Howard: In anticipation of weaker U S land activity at current oil prices, we are taking cost actions within this segment, including exit of the poly pipe business, a small lower margin subsegment of our water transfer business.

Curt Howard: As we head into the second quarter, an encouraging aspect of the water and flowback segment is that our automated sandstorm and automated drill out units are operating at close to a 100% utilization.

Curt Howard: This is strong validation that our customers see the operational benefits and cost savings of less manpower to operate what are typically manpower intensive jobs.

Curt Howard: In this business environment, we will be reducing our overall capex for the water and flowback segment.

Curt Howard: But only with <unk>, but with only 25% of our fleet automated we will be prioritizing our capex to further automate our fleet.

Brady Murphy: Looking towards the second quarter, we expect to see the full benefit of our European industrial chemicals seasonal peak, the first well from our recently awarded multi-well, multi-year deepwater Brazil project, and expect to complete the last well of the three-well CS Neptune project in the Gulf of Mexico. We continue to track a healthy pipeline of CS-Neptune projects across the globe, but given the significance of these projects that have on our financials, we will wait until a project is awarded with a defined date before making any announcements. With regards to tariffs, both segments within Tetra have a high percentage of products and raw materials sourced from within the U.S.

Curt Howard: Looking towards the second quarter, we expect to see the full benefit of our European industrial chemicals seasonal peak the first well from a recently awarded multi well multi year deepwater, Brazil project and expect to complete the last well of the three well see a step two and project in the Gulf of Mexico.

Curt Howard: We continue to track a healthy pipeline, let's see as Neptune projects across the globe, but given the significance of these projects that have on our financials. We will wait until a project is awarded with a defined date before making any announcements.

Curt Howard: With regards to tariffs both segments within Tetra have a high percentage of products and raw material sourced from within the U S. So we don't expect much if any financial impact from tariffs.

Brady Murphy: So we don't expect much, if any, financial impact from tariffs. However, the current oil price environment does create more uncertainty for U.S. land activity than previously anticipated. As we've demonstrated in the past, we will be monitoring activity levels and our customer plans very closely to respond accordingly. Given our record first quarter performance and strong second quarter outlook, we have moved up the lower end of our previously communicated first half 2025 adjusted EBITDA guidance to now be between $57 million and $65 million. It was previously $55 million to $65 million. Attainment of the adjusted EBITDA guidance for the first half of the year would also be a record high for the company.

Curt Howard: However, the current oil price environment does create more uncertainty for U S land activity than previously anticipated.

Curt Howard: We've demonstrated in the past, we will be monitoring activity levels in our customer plans very closely.

Curt Howard: Bond accordingly.

Curt Howard: Given our record first quarter performance and strong second quarter outlook, we have moved up the lower end of our previously communicated first half 2025, adjusted EBITDA guidance to now be between 57 million and $65 million. It was previously $55 million to $65 million.

Curt Howard: Attainment of the adjusted EBITDA guidance for the first half of the year would also be a record high for the company with with Petrus current business segments, which will be achieved despite the uncertain environment the industry is experiencing.

Brady Murphy: with Tetra's current business segments, which will be achieved despite the uncertain environment the industry is experiencing. We generate strong free cash flow in the first quarter with a year-over-year free cash flow improvement of $41 million from the base business, including the benefit of the sale of our Kodiak shares. We have a strong pre-cash flow generating base business that should be able to navigate us through the near-term macro uncertainty and position the company to capitalize on its emerging growth opportunities for the coming years.

Curt Howard: Yeah.

Curt Howard: We generate strong free cash flow in the first quarter with a year over year free cash flow improvement of $41 million from the base business, including the benefit of the sale of our Kodiak shares.

Curt Howard: We have a strong free cash flow generating base business that should be able to.

Curt Howard: Navigate us through the near term macro uncertainty and position the company to capitalize on emerging growth opportunities for the coming years.

Brady Murphy: Before turning it over to Elijio to discuss more details on each of the segments, I'd like to highlight the progress that we have made with regards to our Emerging Growth Initiative. 2025 will be a key year for us to complete milestones that will allow us to quantify the financial benefits for each initiative. On the desalination of produced waterside, with the announcement of our commercial launch of Tetra Oasis TDS and our collaboration with EOG Resources. We're very encouraged by our prospects for desalination of produced water for beneficial reuse. During the quarter, we announced a commercial pilot with EOG for a grassland study from Delaware Basin produced water.

Speaker Change: Before turning it over to Leo to discuss more teeth more details on each of the segments I'd like to highlight the progress that we've made with regards to our emerging growth initiatives.

Speaker Change: 25 will be a key year for us to complete milestones that will allow us to quantify the financial benefits for each of us and each initiative.

Speaker Change: On the desalination of produced water side with the announcement of our commercial lots of Tetra Oasis T D S and our collaboration with EOG resources.

Speaker Change: We're very encouraged by our prospects for desalination of produced water for beneficial reuse.

Speaker Change: During the quarter, we announced the commercial pilot with EOG for grassland study from Delaware Basin produced water.

Brady Murphy: We continue to see growing momentum across the customer base and regulatory support for this much needed industry solution. Rystad Energy estimates that in the Permian Basin alone, over 6.3 billion barrels of produced water are discharged into saltwater disposal wells per year that could be recycled and reused for agricultural or industrial purposes, including semiconductor chip manufacturing and data center cooling. Such reuse will enable oil and gas operators to mitigate the risk associated with reducing disposal well pore space and the transport of produced water. Since our commercial launch of OASIS-TDS, our customer and regulatory engagement has increased significantly, including visits to our research facility and commercial proposal discussions.

Speaker Change: We continue to see growing momentum across the customer base and regulatory support for this much needed industry solution.

Speaker Change: Well I started energy estimates then in the Permian basin alone over $6 3 billion barrels of produced water are discharged into saltwater disposal wells per year that could be recycled and reused for agriculture, industrial purposes, including including semiconductor chip manufacturing and data center cooling.

Speaker Change: Such reuse will enable oil and gas operators to mitigate the risks associated with reducing disposal well force base and the transport of produced water.

Speaker Change: Since our commercial launch of waste to C. D. S. R. Our customer and regulatory engagement has increased significantly including visits to our research facility in commercial proposal discussions there.

Brady Murphy: There are several reports suggesting that with the current and projected rate of water injection occurring in the Permian Basin, that by 2030 or a few years after, there will not be available pore space for water disposal injection. That is the reason why on April 21st of this year, the Wall Street Journal published an article calling this the All Patches Manhattan Project. On the energy storage front, as the contracted strategic supplier of electrolyte products for EOS Z3 utility energy storage systems, we're well positioned to benefit as EOS scales its manufacturing capabilities and delivers on its backlog.

Speaker Change: There are several reports, suggesting that with the current and projected rate of water injection occurring in the Permian basin that by 2030 or a few hours. After there will not be available for space for water disposal injection.

Speaker Change: There's a reason why on April 21st of this year. The Wall Street Journal published an article calling this the oil patches Manhattan project.

Speaker Change: On the energy storage front as the contracted strategic supplier of electric light products iOS.

Speaker Change: Z three utility energy storage systems, we are well positioned to benefit as it scales its manufacturing capabilities and delivers on its backlog.

Brady Murphy: We believe that the high purity characteristics of our PureFlow zinc bromide electrolyte, the flame-retardant characteristics, and mostly U.S. but 100% North America content makes it ideal for large. Scale Utility Use. We are encouraged by the progress of U.S. implementing their automated production lines that is expected to result in significant step changes in electrolyte volume requirements from Tetra. Regarding our Arkansas Evergreen brine production unit, on April 24th, we announced that the Arkansas Oil and Gas Commission, or AOGC, approved our Evergreen unit expansion, which will allow us to further optimize long-term brine flow for bromine, future lithium, and other critical minerals extraction.

Speaker Change: We believe that the high purity characteristics of our pure.

Speaker Change: <unk> zinc bromide electric.

Speaker Change: The flame retardant characteristics.

Speaker Change: And mostly U S, but 100% North America content. It makes it ideal for large scale utility use.

Speaker Change: We were encouraged by the progress of iOS implementing their automated production lines that is expected to result in significant step changes in electronic volume requirements et cetera.

Speaker Change: Regarding our Arkansas Evergreen Brian production unit.

Speaker Change: On April 24th we announced that the Arkansas oil and gas Commission or <unk> approved our evergreen unit expansion, which will allow us to further optimize long term drive flow for bromine future lithium and other critical minerals extraction.

Brady Murphy: We completed the drilling and sampling operations for our final test well on the Evergreen unit that indicated good reservoir results. The test well results also identified encouraging levels of magnesium and manganese, both of which are listed as U.S. critical minerals that are largely supplied from countries outside the United States. We're continuing to advance the bromine project with critical milestone investments funded from our base business free cash flow. We're planning to commence drilling of the Evergreen unit's first of five planned production wells in the coming months. while finalizing the plant engineering and plant site preparation for erecting the Bromine Tower later this year.

Speaker Change: We completed the drilling and sampling operations for our final test well on the Evergreen unit that indicated good reservoir results.

Speaker Change: Well results also identified encouraging levels of magnesium and manganese both of which are listed as U S. Critical minerals that are largely supplied from countries outside the United States.

Speaker Change: We're continuing to advance the bromine project with critical milestone investments funded from our base business free cash flow, we're planning to commence drilling of the evergreen units first of five planned production wells in the coming months.

Speaker Change: While finalizing the plant engineering and plant site preparation for erecting the bromine tower later this year.

Brady Murphy: We are also encouraged that on April 22, 2025, the OGC approved SWA Lithium's application to establish a unit for acreage under an option agreement between Standard Lithium, SWA Lithium, and Tetra. The option agreement compensates Tetra with a two and a half percent royalty on gross revenues from the lithium that Standard Lithium produces from the Tetra option acreage. In addition, Tetra maintains the ownership of the bromine and other mineral interests that will meet the plan phase two bromine plant production capacity. To ensure clarity on our bromine project, it's important to understand that we are taking all the necessary steps, including long-lead investments, to ultimately build the bromine processing facility.

Speaker Change: We're also encouraged that on April 22nd 2025 D. O G C approved S that'd be a lithium.

Speaker Change: Application to establish a unit for acreage under an option agreement between standard lithium S. W. A lithium and tetra.

Speaker Change: The option agreement compensates touch them with a two 5% royalty on gross revenues from the lithium that standard of living produces from the tetra option acreage in.

Speaker Change: In addition, tetra maintains the ownership of the bromine and other mineral interest that will meet the planned phase II bromine plant production capacity.

Speaker Change: To ensure clarity on our bromine project, it's important to understand that we were taking all the necessary steps, including long lead investments to ultimately build the bromine processing facility.

Brady Murphy: With our deep water bromine fluids demand flourishing and yield still in the early stages of ramping production, the business case for the bromine facility is still very much intact. We have also been clear that our intention is to fund the project from our base business cash flow without issuing expensive equity or increasing debt and over-levering Tetra at a time with uncertainty in the market. We are currently balancing long-lead investments with bromine demand projections from EOS and our deepwater projects, while reducing risks, including bridging supply agreements in the event that bromine demand outpaces our current outlook.

Speaker Change: With our deepwater bromine fluids demand flourishing and he was still in the early stages of ramping production. The business case for bromine for bromine facility is still very much intact.

Speaker Change: We have also been clear that our intention is to fund the project from our base business cash flow without issuing expensive equity or increasing debt and over levering tetra at a time with the uncertainty in the market.

Speaker Change: Where currency currently balancing long lead investments with bromine demand projections from iOS, and our deepwater projects, while reducing risks, including bridging supply agreements in the event that bromine demand outpaces our current outlook.

Brady Murphy: Given these objectives, we have not yet set a final completion date for the plan. We remain of the opinion that this year our base business will generate in excess of $50 million free cash flow, so we are moving forward with planned investments likely between $40 and $50 million on the project, advancing the engineering, putting in place the bromine tower, and bringing power requirements we need to the site. At the end of the year, we'll recess next steps and timing of next investments and target a go live date with our project. Each of these initiatives represent a material financial benefit to the company that we will quantify as we complete key milestones for each throughout the year.

Speaker Change: Given these objectives, we have not yet set a final completion date for the plant we remain of the opinion that this year, our base business will generate in excess of $50 million free cash flow.

Speaker Change: So we're moving forward with planned investments likely between 40 and $50 million on the project advancing the engineering.

Speaker Change: Putting in place the bromine tower and.

Speaker Change: And bringing power requirements, we need to the site.

Speaker Change: At the end of the year, we will reassess next steps and timing of next investments and target go live date with our project.

Speaker Change: Each of these initiatives represent a material financial benefit to the company that we will quantify as we complete key milestones for each throughout the year collectively they are transformational for the company now.

Brady Murphy: Collectively, they are transformational for the company.

Elijio Serrano: Now I'll turn it over to Elijio to give more specifics on the segments and the balance sheet. Thank you, Brady, and good morning, everybody. Completion fluids and products segment first quarter, revenue of $93 million. increased 35% sequentially driven by strong driven by strong activity. Adjusted EBITDA of $33.2 million increased 77% sequentially. representing EBITDA fall through of nearly 60%, adjusted EBITDA margins of 35.7% compared to 27.3% in the fourth quarter of last year, reflecting the impact of Neptune and the stronger offshore market. Water and Flow Back Services revenue of $64 million decreased 2% sequentially, but was up 13% versus a year ago.

Speaker Change: Now I'll turn it over to Leo to give some more specifics on the segments and the balance sheet. Thank.

Leo: Thank you Brady and good morning, everybody.

Leo: Completion fluids <unk> products segment first quarter revenue of $93 million.

Leo: Increased 35% sequentially driven by a strong driven by strong activity.

Leo: Adjusted EBITDA of $33 $2 million increased 77% sequentially.

Leo: Representing EBITDA fall through of nearly 60%.

Leo: Adjusted EBITDA margins of 35, 7%.

Leo: Compared to 27, 3% in the fourth quarter of last year.

Leo: Reflecting the impact of Neptune and the stronger offshore market.

Leo: Water and flowback services revenue of $64 million decreased 2% sequentially.

Leo: It was up 13% versus a year ago.

Elijio Serrano: All adjusted EBITDA of $8.3 million increased $1.2 million year on year. This is a fourth quarter slowdown in the U.S. Onshore Completions activity carried over into the first quarter. Adjusted EBITDA margins were down only slightly from the fourth quarter as our focus on leveraging technology. and automation plus cost reductions to minimize the worker volumes made an impact. First quarter adjusted free cash flow was $4.2 million, of which $15.4 million was from the base business inclusive of $19 million proceeds from the sale of our investment in Kodiak. We got the timing right on when to monetize the Kodiak shares, selling them around $42 per share in early January.

Leo: While adjusted EBITDA of $8 $3 million increased $1 $2 million year on year.

Leo: As a fourth quarter slowdown in the U S onshore completions activity carried over into the first quarter.

Leo: Adjusted EBITDA margins were down only slightly from the fourth quarter as our focus on leveraging technology.

Leo: And the automation that's cost reductions to minimize the work of volumes I made an impact.

Leo: First quarter adjusted free cash flow was $4 $2 million of which $15 4 million was from the base business inclusive.

Leo: Of $19 million proceeds from the sale of our investment in Kodiak.

Leo: We got the timing right on thin to monetize the Kodiak shares domain name around $42 per share in early January.

Elijio Serrano: This morning Kodiak was trading below $34 having dropped to as low as $29.50. Total capital expenditures in the first quarter were $18 million, inclusive of $11 million associated with the expansion of our Arkansas bromine plant, addressing some of the areas Brady mentioned earlier. We expect working capital to come down materially in the second and third quarters as we monetize the Neptune receivable. and the Calcium Chloride Inventory in Northern Europe. As Brady mentioned, we remain of the opinion that free cash flow from the base business this year will be in excess of $50 million. We also further expect the free cash flow from the base business will fulfill our cash flow requirements for Arkansas this year, and we will not need to draw on our revolver nor use the delay draw feature from our current loan in 2025.

Leo: This morning, Kodiak was trading below $34 have been dropped to as low as 2950.

Leo: Total capital expenditures in the first quarter were $18 million inclusive of $11 million associated with the expansion of our Arkansas bromine plant addressing some of the areas Brady mentioned earlier.

Leo: We expect working capital to come down materially in the second and third quarters as we monetize a napkin receivable.

Leo: And the calcium chloride inventory in northern Europe.

Brady Murphy: As Brady mentioned, we remain of the opinion that free cash flow from the base business. This year will be in excess of $50 million.

Brady Murphy: We also further expect that free cash flow for the base business will fulfill our cash flow requirements of our Arkansas. This year, and we will not need to draw on our revolver and we'll use a delayed draw feature from our term loan in 2025.

Elijio Serrano: This is consistent with our plans of self-funding as much as possible of our capital requirements. for the Bromine Project. We're moving methodically in advancing our brooming plan. Liquidity is at the end of this week was approximately $219 million. Inclusive of the $75 million delayed drop pitch that is available for the bromine project. At the end of the first quarter, our net leverage ratio improved to 1.5 times from 1.8 times at the end of the year. If we see a slowdown in the onshore business, we know how to manage in such an environment. We manage cost and capital expenditures aggressively.

Brady Murphy: This is consistent with our plans of self funding as much as possible of our capital requirements.

Brady Murphy: For the bromine project.

Brady Murphy: We're moving methodically and advancing our bromine plant.

Brady Murphy: Liquidity is at the end of this week was approximately $219 million.

Brady Murphy: Inclusive inclusive this $85 million delayed draw feature is available.

Brady Murphy: For the bromine project.

Brady Murphy: At the end of the first quarter, our net leverage ratio improved to one five times from one eight times at the end of the year.

Brady Murphy: If we see a slow down in the onshore business, we know how to manage in such an environment.

Brady Murphy: We manage cost and capital expenditures aggressively we are doing this now we will pull back on capital expenditures in this segment and we focus on the markets services and customers that had to have technology competitive advantages.

Elijio Serrano: We are doing this now. We will pull back on capital expenditures in this segment, and we focus on the markets, services, and customers that have technology competitive advantages. Going into the second half of the year, the volumes of zinc, bromide, electrolyte shipments to yields will continue to increase. as EO scales his manufacturing capabilities and delivers on his backlog. We stay very close to that management team. We visited their production line in Pittsburgh three weeks ago and came back very comfortable with their progress. We get a rolling forecast for meals. It gives us confidence on the progress that they are making.

Brady Murphy: Going into the second half of the year the volumes of zinc bromide electrolyte shipments to yields will continue to increase.

Brady Murphy: S E O scales, its manufacturing capabilities and delivers on this backlog.

Brady Murphy: We stay very close to that management team.

Speaker Change: I sit at their production line in Pittsburgh three weeks ago.

Brady Murphy: Came back very comfortable with their progress.

Speaker Change: We get a rolling forecast for meals that gives us confidence are the projects that they are making and.

Elijio Serrano: And we expect every quarter to be stronger than the prior quarter.

Brady Murphy: And we expect every quarter to be stronger than the prior quarter.

Speaker Change: Yeah.

Elijio Serrano: For upcoming investor events, we'll be in New York City on May 14th and 15th, attending the Deboral Conference, and also hosting an investor dinner and breakfast meeting. will be in Boston on June 30 and 4 at the Stiefel Conference. and back to New York City on June 4th for the RBC conference. We'll also participate in two virtual conferences, the Lytham Partners on May 29, and the Northland Growth Conference on June 25.

Speaker Change: For upcoming Investor events, we'll be in New York City on May 14th and 15th attending the depot or Al Conference and also hosting an investor dinner and breakfast meeting.

Speaker Change: We'll be in Boston on June 30, and fourth at the Stifel Conference in.

Speaker Change: And back to New York City on June 4th for the RBC Conference.

Speaker Change: We will also participate in two virtual conferences the license partners on May 29.

Speaker Change: And the Northland growth conference on June 25.

Elijio Serrano: We are working to expand our investment base into the water technologies and the energy transition sectors, given the growth of our battery storage and produced water desalination technology. Please visit our website or reach out to Kurt or I for more details. It was also very encouraging to see that in the last month, Tetra shares were acquired by two water index passive funds following our Oasis TDS and EOG announcement. I believe that this is the start of our investor base expanding beyond the traditional oil and gas investors as we make progress with our growth initiatives.

Speaker Change: We are working to expand our investor base into the water technologies in the energy transition.

Speaker Change: Sectors, given the growth of our battery storage and produced water desalination technology.

Speaker Change: Please visit our website or reach out to Curtiss Wright for more details.

Speaker Change: He was also very encouraging to see that in the last month.

Speaker Change: <unk> shares were acquired by two water index passive funds.

Speaker Change: Following our Oasis Tds and EOG announcements.

Speaker Change: I believe that this is the start of our investor base, expanding beyond the traditional oil and gas investors.

Speaker Change: As we make progress with our growth initiatives.

Brady Murphy: I'll turn this back to Brady for closing comments before we open up the call for questions. Thanks, Elijio. In closing, we're off to a great start for the year and anticipate a very strong second quarter. Despite recent macroeconomic uncertainty, we have a strong conviction in the longer term outlook and our proven ability to differentiate in the markets in which we operate. Our balance sheet is solid with close to $219 million of liquidity.

Brady Murphy: I'll turn this back to Brady for closing comments before we open up the call for questions.

Brady Murphy: Thanks Leo.

Brady Murphy: In closing we're off to a great start for the year and anticipate a very strong second quarter.

Brady Murphy: Despite recent macro economic uncertainty, we have a strong conviction in the longer term outlook and our proven ability to differentiate in the markets in which we operate our balance sheet is solid with close to $219 million of liquidity. We anticipate further growth in 2025 and expect to continue to generate strong free cash flow from our base business.

Brady Murphy: We anticipate further growth in 2025 and expect to continue to generate strong free cash flow from our base business to fund our emerging growth investment. The combination of these plus advances with our produced water beneficial reuse solution, our Arkansas resource position, and strategic partnerships provides us the opportunity to continue to drive long-term shareholder value.

Brady Murphy: Fund our emerging growth investments.

Brady Murphy: The combination of these plus advances with our produced water beneficial reuse solution, our Arkansas resource position and strategic partnerships provides us the opportunity to continue to drive long term shareholder value with that we'll open it up to Q&A.

Unknown Executive: With that, we'll open it up to Q&A. Good morning. And ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by one on your touchtone phone. You will hear a prompt. that your hand has been raised. Should you wish to decline from the polling process, please press star followed by two. If you are raising speakerphone, please lift the handset before pressing any. And one moment, please, for your first question.

Brady Murphy: Yes.

Brady Murphy: Okay.

Brady Murphy: Thank you.

Brady Murphy: Good morning.

Speaker Change: Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by one on your Touchtone phone line.

Brady Murphy: You will hear from.

Brady Murphy: That has been raised should you reach a decline from the cooling process. Please.

Brady Murphy: Followed by too if you RV speaker phone please lift.

Brady Murphy: The handset before pressing any.

Speaker Change: And one moment. Please for your first question.

Bobby Brooks: And your first question comes from Mr. Bobby Brooks of Northland Capital Markets. Please go ahead. Guys, thank you for taking the question. So I was just curious, you've been engaged with customer, you've been engaging customer discussions on Oasis. from with a number of parties, both EMPs.

Speaker Change: And your first question comes from Mr. Bobby <unk> of Northland Capital markets. Please go ahead.

Speaker Change: Yeah.

Hi, guys. Thank you for taking the question. So I was just curious you've been engaged with customer you've been engaging customer discussions on our wages for from with a number of parties, both E&P and midstream and I was just really curious to hear what you guys believe is kind of the biggest hold up from these <unk>.

Brady Murphy: And I was just really curious to hear what you guys believe is kind of the biggest hold up from these prospective customers. commercial pilot and eventually an actor. Yeah, sure. Sure, Bobby. I think the first step is that the customers need to get, you know, totally comfortable, you know, with the technology itself, and with the, you know, environmental framework that that's evolving, you know, quite frankly, and it's come quite quite a long way. So I think if you track, you know, what's what's happening on the regulatory side, the legislative side, all things are starting to move in a positive direction, both both in Texas and in New Mexico.

Speaker Change: Active customers on doing a commercial pilot and eventually in our national commercial unit.

Speaker Change: Yeah sure sure Bobby.

Speaker Change: Yeah, I think the first step is that the customers need to get totally comfortable.

Speaker Change: You know with the technology itself and with the environmental framework, that's evolving quite frankly, and it has come quite a quite a long ways. I think if you track you know, what's what's happening on the <unk>.

Speaker Change: Regulatory side, the legislative side, all things are starting to move in a positive direction, both both in Texas and New Mexico.

Brady Murphy: We are, as I mentioned previously in our calls, our expectations for this year was that we would have multiple pilot projects running, and in 2026, I think we would really start to see more commercial projects being negotiated. I think that timeline now, as we look at it, could be accelerated. We're starting to see more requests by customers for commercial discussions of smaller scale commercial projects. So, you know, we'll see how things evolve as we go through the year. It's a pretty dynamic environment, but we are seeing things trending, I would say, quicker on the commercialization side than maybe we were, you know, on our last earnings call.

Speaker Change: We are as I've mentioned previously on our calls our expectations for this year was that we would have multiple pilot projects running and in 2026, I think we would really start to see more commercial projects are being negotiated.

Speaker Change: I think that timeline now as we look at it could be accelerated we're starting to see more request by customers for.

Speaker Change: Our commercial discussions of smaller scale commercial projects. So we'll see how things evolve as we go through the year, it's a pretty dynamic environment.

Speaker Change: But we are seeing things trending I would say quicker on the commercialization side didn't pay than maybe we were you know.

Speaker Change: On our last earnings call.

Speaker Change: Yeah.

Unknown Executive: very helpful caller and then just kind of piggybacking on that. You had mentioned that, I think, in the prepared remarks that.

Speaker Change: That's very helpful color and then just kind of piggybacking on that.

Speaker Change: You had mentioned that I think in the prepared remarks that.

Brady Murphy: Unknown Speaker 05. Thank you. more regulatory support for beneficial reuse. Could you maybe just point those? WebINAR Page 1 of 33 Yeah, so we're engaged very heavily with both the Texas Railroad Commission and the TECQ. that are really looking over the permitting process now for Texas. And so we have our own direct engagement with them, so that's obviously, we get a direct read from that. But I think if you look at some of the legislation that has been moving through the Texas House and Senate. As I mentioned earlier, I can't point to a specific piece of legislation right now, but there has been several pieces of legislation moving through that supports the surface discharge and use of produced water for beneficial reuse, which in the past has really been prohibited.

Speaker Change: You've seen some more regularly and you just mentioned.

Speaker Change: Answer, but like more regulatory support for beneficial reuse could you maybe just point us to some specifics where youre seeing that you know more the better the more support for this revolutionary technology.

Speaker Change: Yes, so we're engaged very heavily with both the Texas Railroad Commission and the T C Q.

Speaker Change:

Speaker Change: That that were really looking over the permitting process now for a for Texas and so we have our own direct engagement with them. So so.

Speaker Change: That's obviously, we get a direct read from that but I think if you look at some of the legislation that has been moving through the.

Speaker Change: The Texas House and Senate.

Speaker Change: All as I've mentioned earlier I can't point to a specific piece of legislation right now, but there has been several pieces of legislation moving through.

Speaker Change: That supports the surface discharge and use of produced water for beneficial reuse, which which in the press no has really been prohibited.

Bobby Brooks: So those are some key, I would say, some key things to look at, Bobby, from your perspective. Thank you. That's very helpful.

Speaker Change: So those are some key I would say some key things to look at you know Bobby from from the from your perspective.

Speaker Change: Thank you that's very helpful. And then maybe just last one for me and I'll jump back in the queue.

Bobby Brooks: And then maybe just the last one for me, and I'll jump back in the queue. You're going to commence drilling for Evergreen's first production well in the coming months. and I just.

Speaker Change: Youre going to commence drilling for evergreen first production, while in the coming months and I, just and I. Just wanted to understand is this is this kind of a scenario where you can drill it and then leave it as like a duck like uncompleted and then as you build once the processing facility is fully up you can just kind of quickly go back there.

Brady Murphy: I just wanted to understand, is this is this kind of a scenario where you can drill it and then leave it as like a duck like uncompleted and then as you build once the processing facilities is fully up you can just kind of quickly go back there and turn it online I just want to make sure I'm you Yeah, that's exactly right. We will drill, you know, obviously one well at a time. Once we drill and complete the first well, we'll essentially put it on standby without production until we have the bromine processing facility and then the full plant ready to be commissioned and then essentially you turn the brine field on.

Speaker Change: Turn it online I, just want to make sure I'm kind of understanding the timing here right.

Speaker Change: Yeah. That's it that's exactly right, we will we will drill.

Speaker Change: You know, obviously, one well at a time.

Speaker Change: Once we drill and complete the first well will essentially put it on a on standby.

Speaker Change: Without production until we have the the bromine processing facility and then the full plant ready to be commissioned and then essentially turned that you've turned the Brian field on.

Brady Murphy: And again, we'll start the first well this year. We'll announce the timing of the second through the fifth well, which is what we have planned for the Evergreen unit as we go through the year.

Speaker Change: And again as we will start the first well this year, we will announce the timing of the second through the fifth well, which is the what we have planned for the evergreen unit as we as we go through the year.

Bobby Brooks: Brady, I think it's also important to remind everybody that we have a partner for all the upstream work, and the cost of anything we do on the upstream side is shared with our partner proportional to the ownership that we have in the Evergreen unit. Correct. Very helpful. Thank you guys and congrats on the Thank you. And thank you.

Brady Murphy: Brady I think it's also important to remind everybody that we have a partner for all the upstream work and the cost of anything we do on the upstream side is shared with our partner proportional to the ownership that we have in the evergreen unit.

Speaker Change: Correct.

Speaker Change: Very helpful. Thank you guys and congrats on the strong quarter.

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: And thank you. Our next question is coming from Mr. Martin <unk>.

Martin Malloy: Our next question is coming from Mr. Martin Malloy from Johnson's Rise. Please go ahead. We lost you there, Marty, if you can repeat. Marty, can you can you hear us? We can't hear you. Yeah. I'm I'm sorry, I'll dial back. We got you now.

Johnson Rice: Johnson Rice. Please go ahead.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: We lost you there Marty Marty if you can.

Speaker Change: Repeat.

Speaker Change: Yeah.

Speaker Change: Marty can you can you hear us we can't hear you.

Speaker Change: Yes.

Speaker Change: I'm, sorry, I'll dial back in.

Speaker Change: We got we got you now.

Unknown Executive: Kim, let's go to the next one.

Speaker Change: Kim Let's go to the next one and we'll circle back to Marty who make sure we cover him.

Jesse Sobelson: And we'll circle back to Marty, make sure we cover Our next question is from Jesse Sobelson from The Borough. Go ahead. Hey guys, thanks for taking my question. Just real quick on the numbers here. Someone has a housekeeping item, but I noticed in the guidance that The I noticed that the number coming up a little bit was appreciative, but there seems to be, is it correct that you guys are implying a 30 million? And I'm just kind of curious if so, or not, sorry, yeah, second quarter of the year, and then I'm just curious if so, what the drivers of that dramatic range could be to get to both sides of the high end or the low end.

Speaker Change: Sorry.

Speaker Change: Next question is from Jesse Olson.

Speaker Change: Go ahead Sir.

Speaker Change: Hey, guys. Thanks for taking my question.

Speaker Change: Just real quick on the numbers here are somewhat of a housekeeping item, but I noticed in the guidance.

Speaker Change: The I noticed that they gave us that number coming off a little bit of accretion here, but it.

Speaker Change: There seems to be is it correct that you guys are implying a 30 milligram dose.

Speaker Change: Sure.

Speaker Change: Our range for the second quarter of the year here.

Speaker Change: Just kind of curious of so sorry second part of her and then I'm just curious if so what the drivers of that dramatic.

Speaker Change: Range could be able to get to the top of the high end of life.

Jesse Sobelson: Thank you.

Elijio Serrano: We're simply looking at the timing of the deep water projects. We've mentioned in the past that they're large projects. We believe that we're obviously going to be in the range that we've highlighted, both on the revenue and the EBITDA. I understand your question, though also you were saying a $30 million range for just Q2. That's actually for the first half of the year, the range.

Speaker Change: Yeah, we're simply looking at the timing of the deepwater projects.

Speaker Change: Mentioned in the past that there are large projects.

Speaker Change: We believe they will obviously you're going to be in the range.

Speaker Change: Highlighted both on the revenue and EBITDA.

Speaker Change: If I understood. Your question they'll also you were saying a $30 million range for just Q2, that's actually for the first half.

Speaker Change: Of the year the range.

Elijio Serrano: Unknown Speaker. And the range spread is no different than what we said coming out at the beginning of the year. We just kind of reduced the range to 315 to 345. So range is comparable to what we said, it's just a little bit lower. Okay, and the timing of the project is what's really going to What that number is and where we perform in the second quarter here. Okay, great. Thanks. Thanks for taking my question. Thank you.

Speaker Change: Just to clarify and then in the range different arrange spread is no different than what we said coming out beginning of the year, which just kind of reduced the range to $3 15 to $3 45. So range is comparable to what we said is just a little bit lower.

Speaker Change: Okay, and the timing of the projects, if that's really going to determine.

Speaker Change: What that number is.

Speaker Change: One in the second quarter here, Okay, great. Thanks, Thanks for taking my question.

Speaker Change: Yeah.

Tim Moore: And our next question is from Tim Moore from Clear Street.

Speaker Change: Thank you and our next question is from Tim Morris from clear Steve Go ahead Sir.

Tim Moore: Go ahead. Thanks, and nice operational execution in the March quarter. For my favorite perennial topic, the desalination of produced water. I mean, you have such an early first mover advantage there. You've got the prior pilot experience ahead of any of the other competitors and, you know, that recent EOG resources. important pilot project, you know, the agricultural irrigation study with the acre. So my question really is, you know, how do you decide which additional pilot plant customers to approve? You're going to have this, you know, inflow of demand. Do you have a preference for ones that you already do the pretreatment step advantage for in place?

Speaker Change: Thanks, and nice operational execution in the March quarter.

Tim Morris: For my favorite perennial topic on the desalination of produced water I mean, you have such a early first mover advantage that you've got the higher pilot experience ahead of any of the other competitors.

Speaker Change: That recent energy resources.

Speaker Change: Corn pilot project in an agricultural irrigation study with the acre. So my question really is you know how do you decide which additional pilot plant customers to prove you're going to have this.

Speaker Change: Inflow of demand do you have a preference for ones that you already do the P treatment step advantage for in place.

Brady Murphy: I'm just kind of curious how you're kind of sorting through that and waitlisting. Yeah, so I think we've announced we have seven NDAs in place with with major operators. They're all important to us. They're all actually current customers of ours that we serve for our water and flow back business and recycling and treatment today. So, you know, quite frankly, we treat them all, you know, equally as we can. Some are wanting to just do, you know, testing at our research facility to demonstrate our capabilities with OASIS. Others, you know, are looking at deploying small pilots depending on, you know, their appetite for risk and how quickly they want to move.

Speaker Change: Curious, how you are kind of sorting through that and weightlifting folks.

Speaker Change: Yeah. So I think we've announced we have Oh seven NDA is in place with with major operators, they're all important to us they're all actually current customers of ours that we serve for our water <unk> flowback business in recycling and treatment today.

Speaker Change: So you know quite frankly, we treat them all.

Speaker Change: Equally as we can.

Speaker Change: Some are are wanting to just do testing at our research facility to demonstrate our capabilities with the Oasis others are looking at deploying small pilots depending on you know their appetite for for risk and how quickly they want to move.

Brady Murphy: We're able to run multiple pilot projects, whether we're running them at our research facility or in the field. So we have the capacity to work with all of them to demonstrate and get them comfortable with the technology. That's really not a challenge at this point.

Speaker Change: We're able to run multiple pilot projects, whether we're running them at our research facility or in the field.

Speaker Change: So we have the capacity to work with with all of them to demonstrate the and get them comfortable with the technology.

Speaker Change: Really not a challenge at this point I think the challenge will be if all of them.

Tim Moore: I think the challenge will be if all of them decide to start wanting to stand up a commercial plant within a short period of time, that is where we'll have to start negotiating and discussing with them how we can handle the timing of that. Great.

Speaker Change: <unk> to start wanting to stand up a commercial plant.

Speaker Change: Within a short period of time, you know that that is where we will have to stop.

Speaker Change: Start negotiating and discussing with them, how we can handle the timing of that.

Tim Moore: That's what I was definitely getting at, more on the commercial side.

Speaker Change: Great.

Speaker Change: So it's definitely getting out more of the commercial side, but I'm just switching gears to E. O. S. I mean, you mentioned you visited there a production facility earlier this month.

Brady Murphy: But just switching gears to EOS, you mentioned you visited their production facility earlier this month. I expect you probably have a rolling production order schedule from them as they ramp up their output this summer for battery storage systems. If their first production line reaches that 2 gigawatt hours of annual production rate, maybe, I don't know, late next year, early 2027, do you have all the sourcing already in place, or do you need to sign up more third-party suppliers to meet that demand? Yeah, that's a fair question. And obviously, this is something we, you know, we, we, we track very closely for our deepwater project demands versus the EOS ramp up, we're very comfortable that for the first line of production for EOS, they're two gigawatt hours that, you know, we will be able to source and supply, you know, all that we need to meet that the timing of when they move to their additional capacity.

Speaker Change: You probably have a rolling production order schedule from them as they are.

Speaker Change: Ramp up their output this summer for battery storage systems.

Speaker Change: The first production line reaches that two gigawatt hours of annual production rate.

Speaker Change: Maybe I don't know late next year early 2027.

Speaker Change: Do you have all the sourcing are already in place or do you need to sign up more third party suppliers.

Speaker Change: To meet that demand.

Speaker Change: Yeah.

Speaker Change: Fair question.

Speaker Change: Obviously this is something we.

Speaker Change: We track very closely for our deepwater project demands versus the iOS ramp up where we're very comfortable.

Speaker Change: For the first line of production for iOS are two gigawatt hours that.

Speaker Change: We will be able to source and supply all that we need to meet that.

Speaker Change: The timing of when they move to their.

Speaker Change: Additional capacity.

Brady Murphy: which they've talked about, I think, up to eight potential gigawatt hours. You know, depending on the timing of that, that is clearly where we will need to have additional sources of certainly bromine. Everything else... We can source with the quantities that we need. Bromine will be the one that we'll have to closely match our future demand with, with their planned production. And we have those discussions with them, as Elijio said, very frequently. And we're putting in place a lot of different things to make sure we're ready, whether it's our own bromine plant that will provide plenty of bromine to meet both our deepwater and future demand, or the bridging supply agreements that we're having discussions with existing suppliers with today.

Speaker Change: Which they've talked about I think up to eight potential gigawatt hours.

Speaker Change: Depending on the timing of that that that is clearly where we will need to have additional sources of of certainly bromine everything else.

Speaker Change: We can source with the quantities that we need.

Speaker Change: Bromine will be the one that will have to closely match, our our future demand with with their their planned production and we have those discussions with them as Leo said very frequently.

Speaker Change: And we're putting in place a lot of different things to make sure we're ready whether it's our own bromine plant that will be.

Speaker Change: <unk> plenty of bromine to meet both our deepwater and iOS future demand or the bridging supply agreements that we were having discussions with the <unk>.

Speaker Change: Existing suppliers with today, so that's the balance that we're managing.

Tim Moore: So that's the balance that we're managing. Great, Brady.

Tim Moore: I got one last question for you and Elijio. So just for the potential bromine development project, I mean, it truly seems like you can self-fund it without triggering any equity dilution, you know, which I think investors aren't giving you credit for yet, but would you, I mean, you don't have to answer this now, but are you, would you consider a project financing partner for, you know, maybe, I don't know, 20, 25 percent stake, or would you rather maybe have project finance partners to roll out more desalination plans later on? I'm just trying to think about it in the back of my head, just, you know, keep your leverage low.

Speaker Change: Great and I guess, one last question for you and so.

Speaker Change: So just for the potential bromine development project I mean, it's truly seems like you can self fund it without triggering any equity dilution, which I think investors arent, giving you credit for yet but would you I mean, you don't have to answer. This now but are you would you consider a project financing partner, bringing in maybe 2025% stake or would you rather maybe high.

Speaker Change: Project Finance partners to rollout more desalination plants later on I'm, just trying to think.

Speaker Change: Think about it in the back of my head just to keep your leverage level.

Brady Murphy: Absolutely. Assume that we're constantly testing the market, we're looking for partners so that we can move with a higher degree of confidence in case the base business free cash flow does not move as fast as we expect. We are constantly looking for partners and testing the markets to find the optimal solution without diluting our shareholders and without overleveraging the company. Great.

Speaker Change: Absolutely assume that we're constantly testing the market, we're looking for partners so that.

Speaker Change: We can move with a higher degree of confidence in case of base business free cash flow does not move as fast as we expect we are constantly looking for partners and testing the market to find the optimal solution without diluting our shareholders and without over levering the company.

Tim Moore: Thanks, Elijio and Brady. That's it for my questions.

Speaker Change: Great. Thanks for taking on Brady that's it for my questions.

Unknown Executive: Thanks.

Speaker Change: Okay.

Kobi Sasso: And our next question is from Kobi Sasso from Biennial Energy Partners. Go ahead, sir. Hi, thanks for having me on the call. Your water and flow back margins for this quarter were 13%, which is down slightly quarter over quarter, but up nicely year over And you highlighted that automation and technology combined with cost controls are the reason for the expanded margins in the last 12 months. Are there still more benefits to be seen from automation technology? And can you maybe just speak to how you see the margins for this segment in the intermediate to long term?

Speaker Change: And our next question is from Colby SASSA from Danielle and as your partners go ahead Sir.

Speaker Change: Hi, Thanks for having me on the call.

Speaker Change: Year water and flowback margins for this quarter were 13%, which was down slightly quarter over quarter, but up nicely year over year.

Speaker Change: And you highlight the automation and technology combined with cost controls are the reason for the expanded margins in the last 12 months.

Speaker Change: Are they still more benefits to be seen from automation and technology and can you maybe just speak to how you see the margins for this segment in the intermediate to long term.

Brady Murphy: Yeah, absolutely. Probably one thing we didn't mention for the year-over-year improvement in margins, you mentioned the automation, certainly that's contributed, the cost management that's contributed, but we've also have a much larger portion of our water and flowback business that is treatment and recycling of produced water. That has been a rapidly growing segment of our business throughout 2024 and we expect that to continue to grow into 2025 and that is typically a higher margin profile business for us. Yeah, as we go forward, I think I mentioned on the call, we only have about 25% of our fleet automated between sandstorms and our auto drill outs.

Speaker Change: Mhm, yeah absolutely.

Speaker Change: Probably one thing we didn't mention for the year over year improvement in margins you'd mentioned the automation certainly thats contributed to the cost management. That's contributed but we've also have a lunch.

Speaker Change: Larger portion of our water <unk> flowback business that is treatment and recycling of produced water that has been a rapidly growing segment of our business throughout 2024, and we expect that to continue to grow into into 2025 and that is typically a higher margin profile business for us.

Speaker Change: Yes, as we go forward I think I've mentioned on the call. We only have about 25% of our fleet automated between.

Speaker Change: Sandstorms and our auto drill outs.

Brady Murphy: We will be looking at directing the capital that we spend for this segment into automation as a priority, and supporting our recycling treatment. Operations. So we believe we still have the ability to move margins up from where we are today. The second half, the uncertainty right now with the current climate, all prices, tariff situation... It has created some uncertainty. that it's a little bit harder to give us specific guidance for the second half of the year. But our expectations is with the things that we're putting in place, we will still be able to move, you know, margins upward from where we posted this quarter.

Speaker Change: We will be looking at directing the capital that we spend for this segment into automation as a priority and supporting our <unk>.

Speaker Change: Recycling treatment.

Speaker Change: Operations.

Speaker Change: So we believe we still have.

Speaker Change: The ability to move margins up from where we are today now.

Speaker Change: Second half uncertainty right now with the current climate oil.

Speaker Change: Oil prices tariff situation has created some uncertainty.

Speaker Change: That's a little bit harder to give us specific guidance for the second half of the year, but our expectations is with the things that we're putting in place we will still be able to move margins upward from the from where we posted this quarter.

Elijio Serrano: And Colby, to add a little bit to what Brady said, we've taken investors out to visit some of our water treatment facilities in the Permian Basin. And we've been on job sites where we're treating 100,000 barrels a day, and there's only one person at the job site per shift. And that's because of the automation that we've got in place. And obviously those are much, much higher margins. The second point is we also mentioned that some of our lower margin businesses that we're closing and exiting those. So we'll end up with a better profile of the remaining business that we have as part of these changes that we're making.

Speaker Change: And Colby to add a little bit to what Brady said, we've taken investors out to visit some of our water treatment facilities in the Permian basin.

Speaker Change: And we've been on job sites, where we're treating 100000 barrels a day and there is only one person at the job site per shift and Thats because of the automation that we've got in place.

Speaker Change: And obviously those are much much higher margins.

Speaker Change: The second point is we also mentioned that some of our lower margin businesses that we're closing and exiting those.

Speaker Change: <unk> ended up with a better profile of the remaining business that we have as part of these changes that we're making.

Kobi Sasso: That was great color. Thank you so much.

Speaker Change: That was great color. Thank you so much and just kind of switching up a little bit.

Brady Murphy: And just kind of switching up a little bit. I'm going back to Oasis. Could you talk about your expectations for the program in the Permian? And what success would look like in your opinion compared to the results you've achieved in South Texas? Are you talking about technical results or commercial results or both, Kobe? Both would be perfect. Yeah, so in South Texas, because it's a much lower TDS, total dissolved solids, we were able to achieve a... 92% recovery. of desalinated water from the feed water, which is obviously very high. The Permian is a much higher total dissolved solids, about 150,000 on average or so, compared to 30,000 in South Texas.

Speaker Change: Going back to Oasis could you talk about your expectations for the program in the Permian and what success would look like in your opinion compared to the results you've achieved in South Texas.

Speaker Change: Okay.

Speaker Change: Are you talking.

Speaker Change: Talking about technical results or commercial results or both.

Speaker Change: Uh huh.

Both would be perfect.

Speaker Change: Yeah, so so in south, Texas, because it's a much lower Tds total dissolved solids, we were able to achieve.

Speaker Change: 92% recovery.

Of Desalinated water from the from the Feedwater, which is obviously very high the Permian is a much higher total dissolved solids about 150000 on average or so compared to 30000 in south Texas. So so the yield that we will get you know were hopeful to get as.

Brady Murphy: So the yield that we will get, you know, we're hopeful to get as high as 60%. yield of desalinated water from produced water. That can go higher if we decide to start precipitating solids. Timothy Moore, Unknown Executive, Jesse Sobelson, Patrick Ouellette, Robert Brooks, Tim Moore, Still early days for that. It's actually ahead of schedule from where I thought we would be. But we'll keep you posted as we go through the year in terms of our progress with commercial discussions for commercial plants. Thanks for the color.

Speaker Change: As high as 60%.

Speaker Change: Yield of Desalinated water from produced water.

Speaker Change: That could go higher if we decide to start precipitating solids.

Speaker Change: Tip things salts out of the feedwater, but initially that would be our target from a from a performance standpoint, and an acceptable target form from the customers that we're dealing with as.

Speaker Change: As I've mentioned commercially.

Speaker Change: Got commercial pilots, we are getting paid for the pilot operations that we have we're having discussions with multiple customers on first.

Speaker Change: Commercial.

Speaker Change: Scale units.

Speaker Change: Still early days for that and it's actually ahead of schedule from where I thought we would be.

Speaker Change: But we will we will keep you posted as we go through the year in terms of our progress with the with commercial discussions for commercial plants.

Speaker Change: Thanks for the color I'll turn it back.

Stephen Gengaro: I'll turn it back.

Speaker Change: Thank you. So next question is coming from Steven <unk> from Stifel Go ahead Sir.

Stephen Gengaro: So next question is coming from Stephen Gengaro from Stusel. Go ahead. A couple for me, what I'd start with, if you don't mind, is maybe for Elijio, on the free cash flow side, you guys, during COVID and other periods, have always done a good job of maintaining cash flow at solid levels. You mentioned kind of base free cash flow, I think of about 50 million bucks, and I think 30 of that is excluding the sale of stock. How do you think about that number in the environment we're in over the next several quarters and into next year?

Speaker Change: A couple a couple for me.

Speaker Change: Well I would start with if you don't mind is is maybe for Lee.

Speaker Change: Our free cash flow side, you guys during COVID-19 and other periods have always done a good job of maintaining cash flow it at solid levels.

Speaker Change: You mentioned kind of base free cash flow I think of about $50 million box and I think 30 of that as well as <unk>.

Speaker Change: Excluding the sale of stock.

Speaker Change: How do you think about that number.

Speaker Change: And the environment, we're in over the next several quarters and into next year, you think it's sustainable at that level. How do you kind of look at the puts and takes there.

Elijio Serrano: You think it's sustainable at that level? How do you kind of look at the puts and takes there?

Elijio Serrano: Let me first clarify a comment, we keep saying in excess of 50. And we're trying to give us enough cushion in here so that we can exceed the benchmarks that we're laying out. In 2020, the first year of COVID, we generated almost $50 million of free cash flow, as we monetized a lot of the receivables and inventory. We don't think we're going to see a slowdown this year anywhere near what we saw with COVID. So while we'll monetize some of the working capital, we still think that we got a growth business occurring both with desalination and with the growth in the calcium chloride business and the electrolyte for EOS.

Speaker Change: So let me first clarify a comment we keep saying in excess of 50, and we're trying to give us enough cushion in here. So that we can exceed the benchmarks that were laying out in 2020. The first year of coal that we generated almost $50 million of free cash flow as we monetized a lot of the receivables.

Speaker Change: And inventory.

Speaker Change: We don't think we're going to see a slowdown this year anywhere near what we saw with Covid so far.

Speaker Change: We'll monetize some of the working capital we still think that we've got a growth business occurring both with desalination and with the.

Speaker Change: The growth in the calcium chloride business and the electrolyte for iOS.

Elijio Serrano: We're pulling back on capital expenditures for the onshore business, and we will be below levels that we've been at before. Also recognize that in the recent years, we had expanded capacity on the offshore fluids by building more storage and blending capacity in Brazil and also in the Gulf of Mexico. So those are behind us. We think that we can continue to pull down base business capex without impacting the slowdown, without impacting our opportunity to take advantage of that offshore market. And that's what we keep repeating will be north of $50 million of free cash flow inclusive of the Kodiak sales.

Speaker Change: We're pulling back on capital expenditures for the onshore business.

Speaker Change: We will be below levels that we've been that before also recognize that in the recent years, we have expanded capacity on the offshore fluids by building.

Speaker Change: More storage and blending capacity in Brazil, and also in the Gulf of Mexico. So those are behind US. We think we can continue to pull down base business capex without impacting the slowdown.

Speaker Change: Without impacting our opportunity to take advantage of that offshore market and Thats why we keep repeating we'll be north of $50 million of free cash flow inclusive of the Kodiak sales and that does not imply 30 for the base business.

Elijio Serrano: And that does not imply 30 for the base business. Okay, great.

Stephen Gengaro: Thank you.

Okay, great. Thank you that helps.

Stephen Gengaro: That helps. Um, the other two questions I had, but what was what was bigger picture? I get this from investors a lot.

Speaker Change: Two questions I had but what was what was bigger picture I get this from investors a lot and when you think about the water desalination opportunity in the technology.

Stephen Gengaro: And when you think about the water desal, opportunity and the technology, as it evolves, like, what should we be thinking about as far as the environment in which it's most applicable, as far as it's one thing to kind of recycle the water, it's another thing to have a beneficial reuse. So what are sort of the drivers or parameters of an area that need to be in place for it to be kind of most applicable? Yeah, Stephen, so it's a couple of components to that question. I think the first one is, is that, you know, the available pore space directly in the Permian Basin, you know, where are the waters being produced?

Speaker Change: As it evolves.

Speaker Change: What should we be thinking about as far as the.

Speaker Change: Environment in which it's most applicable.

Speaker Change: As far as it's one thing to kind of recycle the water. It's hard to have a beneficial reuse. So what are sort of the drivers or parameters of an area that needs to be in place for it to be kind of most applicable.

Stephen: Yeah, Stephen So a couple of components to that question I think the first one is.

Speaker Change: That the.

Speaker Change: The available poor space directly in the Permian Basin, where the water is being produced.

Brady Murphy: and the Delaware Basin. The available pore space is filling up. These reservoirs are overpressuring. You can see various reports that show the pressure trends within the reservoirs where they inject. That's public information. And so there is a time horizon where... The in-basin pore space, in-basin injection, is essentially going to be restricted even further, considerably further, than what it is today. So what you see now are operators who have to start designing midstream systems, working with midstream companies to carry produced water outside of the basin. And that's pretty, that's expensive, both from a capital and an OPEX perspective, I think there's, you've probably seen several announcements made in the last few months about out of basin disposal systems being set up by the midstream company.

Speaker Change: And in the Delaware Basin, the available pore space is filling up. These these reservoirs are over pressuring.

Speaker Change: You can see various reports that show the pressure trends within the reservoirs, where they inject that's public information.

Speaker Change: And so there is a time horizon, where.

Speaker Change: The in basin.

Speaker Change: Our space in basin injection is essentially going to be restricted even further considerably further than what it is today. So what what you see now our operators who have to start designing.

Speaker Change: Midstream systems, working with midstream companies to carry produced water outside of the basin.

Speaker Change: And that's pretty that's expenses, both from a capital and an Opex perspective, I think you've probably seen several announcements made in.

Speaker Change: In the last few months about out of basin disposal systems being set up by the midstream companies.

Brady Murphy: But again, ultimately, you know, that's going to face the same type of challenge that you see with the, with the in-basin, it's just such a huge volume of water that physics, you know, will ultimately take over. You know, so that's that's one part of it, that the cost, the operators have to find a solution, you know, to the problem. I think the other part of it is, you know, you know, water is a valuable resource. The Permian goes through a lot of droughts, a lot of parts of Texas, South Texas go through periods of droughts, there's incredible need for water, that we can treat this for, as we say, beneficial reuse for agricultural purposes.

Speaker Change: But again ultimately that's going to face the same type of challenge that you see with the with the in basin. It's just such a huge volume of water that physics will ultimately take over.

Speaker Change: So that's one part of it.

Speaker Change: The operators have to find a solution.

Speaker Change: The problem.

Speaker Change: I think the other part of it as you know.

Speaker Change: Water is a valuable resource the Permian goes through a lot of droughts lots of parts of Texas, South Texas go through periods of droughts there is incredible need for water.

Speaker Change: We can treat this for as we say beneficial reuse for agricultural purposes.

Brady Murphy: Industrial Purposes, the data centers that are going to be stood up, all of these, the manufacturing centers that we're talking about now, all of these applications require you know, pretty high spec water in some cases. that we can meet. So I think it's a combination of both factors that set the conditions. that are going to make this thrive, Stephen.

Speaker Change: Industrial purposes, the data centers that are going to be stood up all of these the manufacturing centers that we're talking about and that all of these applications require.

Speaker Change: Pretty high spec water in some cases.

Speaker Change: That we can meet so I think it's a combination of both factors to set the conditions.

Speaker Change: That are going to make this a disk drive Stephen.

Brady Murphy: Okay, thanks. And then my final, you, I think Elijio alluded to this response to a prior question. But when you think about the margin profile in water, and the automation, I think Elijio suggested that there is Potentially some upside in the second half of the year or was that a longer term comment? Well, so let's be clear. I think, depending on the magnitude of the pullback in the second half of the year, and how much excess capacity might be out there to compete against, that's an unknown. We think we can control our destiny by focusing on those clients that value technology, that take advantage of the differentiations that we bring, that we keep upgrading the revenue base, and keep moving towards produce water and away from the lower margin business.

Speaker Change: Okay.

Speaker Change: And then my follow.

Speaker Change: You I think you alluded to this.

Hans to a prior question, but when you think about the margin profile in water and the automation I think we have suggested that there is potentially some upside in the second half of the year or is that a longer term comment.

Speaker Change: Well, so let's be clear I think depending on the magnitude of the pullback in the second half of the year and how much excess capacity might be out there to compete against that's an unknown. We think we can control our destiny by focusing on those clients that value technology.

Speaker Change: To take advantage of the differentiation that we bring that we keep upgrading the revenue base and keep moving towards produce water and away from the lower margin business, but.

Brady Murphy: But we don't have this completely under our control. It's going to be partially market dependent. And a lot of our efforts are going to be to counter that. Got it.

Speaker Change: We don't have this completely under our control is going to be partially market dependent and a lot of our effort are going to be to counter that.

Stephen Gengaro: Great. Thank you for the details. Thanks, Stephen.

Speaker Change: Got it great. Thank you for the details.

Tim Morris: Thanks, Tim.

Bobby Brooks: Our next question is from Mr. Bobby Brooks from Northland Capital Markets.

Speaker Change: Our next question is from Mr. Ravi <unk> from Northland Capital markets go ahead.

Bobby Brooks: Go ahead. Hey guys, thanks for taking this second round of questions. Just one for me, I was just curious, not necessarily touched on in the Q&A, but I was really interested in, could you maybe just compare and contrast the deep water market outlook now? When you reported 4Q in February, and WTI was in the low 70s, does the long cycle nature of these deepwater market, deepwater products, projects really help insulate development from stalling due to commodity price downturns? Yeah, Bobby, clearly, you know, deep water is a longer a longer term cycle. So, I mean, I would I would answer that by saying, you know, we haven't seen any.

Speaker Change: Hey, guys. Thanks for taking the second round of questions. Just one for me I was just curious.

Speaker Change: Necessarily touched on in the Q&A, but I was really.

Speaker Change: Interested in could you maybe just compare and contrast, the deepwater market outlook now versus when you reported <unk> in February and <unk> was in the low seventies does the long cycle nature of these deepwater market deepwater.

Speaker Change: Deepwater products projects really help insulate development from stalling due to commodity price downturns.

Speaker Change: Yeah, Bob we clearly deepwater is a longer a longer term cycle. So I mean, I would I would answer that by saying we haven't seen any.

Brady Murphy: Changes by operator deepwater projects, you know that are scheduled for this year you know, I There is obviously some uncertainty in the market right now, commodity prices went lower. You could potentially see some projects being pushed to the right, but probably not the projects that are on the calendar for this year. They're most likely already contracted, already a lot of things put in motion to deliver those wells. So we don't expect any real change to Deepwater this year. Now, if oil prices go lower and stay lower for longer for the rest of this year, you could start to see some projects again pushed out to the right.

Speaker Change: Changes by operator deepwater projects that are scheduled for this year.

Speaker Change:

Speaker Change: There is.

Speaker Change: We see some uncertainty in the market right now commodity prices went lower you could potentially see some projects being pushed to the right.

Speaker Change: But probably not the projects that are on the calendar for this year there are most likely already contracted.

Speaker Change: Alrighty.

Speaker Change: A lot of things put in motion to deliver those wells. So we don't expect any real change to deepwater. This year now if oil prices go lower and stay lower for longer for the rest of this year.

Speaker Change: Could start to see some projects again pushed pushed out to the right.

Brady Murphy: We don't expect that.

Speaker Change: We don't expect that but clearly there is theres quite a bit of uncertainty that we cant say specifically that won't happen.

Brady Murphy: But clearly, there's there's quite a bit of uncertainty that we can't say specifically that won't Hey Bobby, just real quick, I just want to add to that. I think this week we've already had a couple of offshore drillers announce their earnings and provide some outlooks with some additional contracts, which are slated to start in 2026 and roll into 2027. So as of this juncture, there's been no real pause on these deepwater drilling programs. got it. Okay, that's, that's really helpful color. Thanks, Bob.

Bob: Hey, Bob.

Speaker Change: Yep.

Speaker Change: Just real quick just wanted to just wanted to add to that I think this week. We've already had a couple of offshore drillers have announced their earnings and provide some some outlooks with some additional contracts, which are slated to start in 2006 enrolling into 2027. So as of this juncture, there's been no real pause on on these deepwater drilling programs.

Speaker Change: Okay.

Speaker Change: Got it Okay. That's really helpful color I'll return to the queue. Thanks, guys. Thanks.

Bob: Thanks, Bob.

Brady Murphy: This concludes our question and answer session. I would like to turn the conference back over to Mr. Murphy for any closing remarks. Well, thank you very much for joining us again. We're very pleased with the start that we've got to the year. Very pleased with the outlook we have for both the second quarter and the business that we are evolving to with our future projects. So thank you for your interest and thanks for joining us.

Speaker Change: 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: Thank you very much for joining US again, we're very pleased with the start that we've got to the year very pleased with the outlook. We have for both the second quarter and the business that we are we are evolving to with our with our future projects. So thank you for your interest and thanks for joining us.

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

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

Brady Murphy: Okay.