Tetra Technologies Inc (TTI) 2018 Q1 法說會逐字稿

Good morning, and welcome to the TETRA Technologies First Quarter 2018 Earnings Conference Call. The speakers for today's call are Stuart M. Brightman, Chief Executive Officer; and Elijio Serrano, Chief Financial Officer for TETRA Technologies, Inc. Also in attendance is Brady Murphy, President and Chief Operating Officer. (Operator Instructions) Please note that this event is being recorded.

I will now turn the conference over to Mr. Brightman. Please go ahead, sir.

Thank you, Cole. Welcome to the TETRA Technologies First Quarter 2018 Earnings Conference Call. Elijio Serrano, our Chief Financial Officer; and Brady Murphy, our President and Chief Operating Officer, are also in attendance this morning and will be available to address any of your questions. I will highlight a few key items, then turn it over to Elijio for some additional details, which, in turn, will be followed by your questions.

I must first remind you that this conference call may contain certain statements that are or may be deemed to be forward-looking statements. These statements are based on certain assumptions and analyses made by TETRA and are based on a number of factors. These statements are subject to a number of risks and uncertainties, many of which are beyond the control of the company. You are cautioned that such statements are not guarantees of future performance and that actual results may differ materially from those projected in the forward-looking statements.

In addition, in the course of the call, we may refer to net debt, free cash flow, adjusted EBITDA, adjusted profit before tax or adjusted earnings per share, backlog or other non-GAAP financial measures. Please refer to this morning's news 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.

We have been very focused on the segments that will deliver higher and more consist-able and predictable returns on capital in the future as well as simplifying our business model. With that in mind, during the first quarter, we took a series of actions to further position us in that direction. I will talk briefly about 5 key steps we have taken, mention where we will invest in the future, touch on the first quarter highlights, then turn it over to Elijio to provide further color on the first quarter results.

As we look back over the last 3 years of this challenging and prolonged downturn, many businesses within our space have been tested. During this period, both TETRA and CSI Compressco remained EBITDA and free cash flow-positive. We believe this is a significant accomplishment given the severity and the duration of the downturn, and we believe this accomplishment reflects the business model we have and some of the competitive advantages that we have.

We have continued to evolve our organization to generate more consistent results with better returns on capital. With that in mind, last year, we began working on several initiatives that came to fruition over the first several months. The first of these actions was to divest of our offshore decommissioning business in our Maritech obligations. While the decommissioning business was EBITDA-positive through the cycle when most of the competition went through restructuring, we did not feel this was a segment that would deliver consistent and predictable returns on capital.

Additionally, we felt the uncertainties around Maritech asset retirement obligations created an overhang on our stock. And therefore, we endeavored to divest of this business. As part of the transaction, we received $3 million for the inventory, kept the balance of the working capital, received a $7.5 million note payable at the end of 2019 and relieved ourselves of the $47 million of asset retirement obligations.

In addition, to protect against the AROs reverting back to TETRA, we received surety bonds equal to the ARO liabilities. Divesting of this business simplifies our business model and reduces the volatility from the seasonality inherent in the business.

Second, it is evident that the growth in the coming years will be in the U.S. shale plays. It is also evident that the amount of water and fluids around the wellsite will continue to grow exponentially. The U.S. onshore rig count is now over 1,000. We have a strong presence in all the U.S. shale plays and are providing flowback services, water transfer services and chemicals. It is our opinion that this growth will continue in the future and that we can capitalize on our strong and diverse customer base and infrastructure by adding incremental services.

As a result, we targeted and completed the acquisition of SwiftWater during the quarter. With this acquisition, we believe we are one of the largest water management providers in the Permian Basis (sic) [Permian Basin]. When we announced the acquisition, we guided towards annualized EBITDA of $16 million to $20 million associated with this acquisition. March was the first month that this business was part of the TETRA organization, and SwiftWater generated $8.1 million of revenue and $2.3 million of EBITDA, already exceeding our original expectations.

Equally important, the cross-selling opportunities between the lay-flat hose offerings of SwiftWater and our TETRA STEEL are significant. We are already seeing the cross-selling synergy. The capabilities to sell flowback services to the SwiftWater customers is also significant, and we're seeing those opportunities.

We will be expanding our service offerings to our customers and begin to incorporate a more fulsome water and fluid solution around the wellsite, handling water for fracking, produced water and post flowback water. This integrated solution, we believe, will open further opportunities to sell to our existing customers.

The payback on water transfer CapEx are currently in the 18-month and lower period, and we continue to be focused in investing in this area. We are aggressively pushing pricing given the strong demands. Price increases for our proprietary lay-flat hose TETRA STEEL are increasing double digits. And in some cases, we are seeing an acceleration. TETRA STEEL is ideally suited to move produced and treated water for our super major and large independent customers that are highly sensitive to safe environmental practices.

The third area of focus is creating a more flexible debt structure that allows us to invest growth capital into high-return and quick payback projects. With that in mind, we launched a series of actions to refinance the maturing debt to CSI Compressco with the intention of removing maintenance covenants and creating liquidity to invest into our existing customer bases at prices approximating 15% above their rates previously in place. This was achieved with a $350 million 7-year secured bond offering that put over $100 million of cash on the balance sheet. Since the offering was complete, we have initiated plans to build and deploy to our fleet approximately 115,000 horsepower of large compression equipment targeted at the gathering systems in the Texas, New Mexico and Oklahoma markets.

All our orders for engines and compressions -- compressors to fabricate equipment for our fleet are based on committed orders from existing customers. We are also in the process of adding a $50 million asset-based revolver also with no maintenance covenants to provide access to incremental liquidity.

The fourth area of focus is building depth in our management team as we go into a growth environment. In the fourth quarter, we added Owen Serjeant, the President of CSI Compressco. In February, we hired Brady Murphy as President and Chief Operating Officer. We have added during the process of additional operations Vice Presidents in North America, supply chain and manufacturing for CSI Compressco in Midland.

Coming out of the downturn, we are lean, executing in the growth market. Maintaining our high service levels, safe practices and ensuring we deliver to support the higher prices we are pushing across all service and product lines requires a solid management team. These additions, in conjunction with the leadership from SwiftWater, give us opportunity to grow and deliver on our commitments.

Fifth, we are now reporting our results in 3 segments to increase transparency into the performance of our business. We believe water management and flowback services are better aligned, consistent with my earlier comments on managing fluids around the wellsite. This is a stand-alone segment.

Completion fluids and products revolves around our integrated business model that has been fully built out and requires very little capital to handle increased volumes. We are seeing some preliminary signs of a rebound in deepwater with some FIDs getting sanctioned and others inquiring about CS Neptune on a global basis.

Compression remains as we previously reported as a segment onto itself.

For the first quarter, I'll highlight the following items: CSI Compressco utilization continues to improve, and prices are being increased by approximately 15%. Our future investments are targeted at a select group of existing customers in our core areas of strength. Aftermarket services, one of our fastest-growing business segments, as this segment grows with no capital expenditures required and has minimal level of working capital. For fabrication, we secured in January our largest order in the company's history, pushing our fabrication backlog for third-party sales to over $100 million. We are leveraging our internal fabrication capacity in Midland, which we think gives us cost and cycle time advantages and supplementing that with outsourced vendors as we meet this growing commitment.

Water management continues to increase, driven by the high volumes of water-supporting frac activity. Production Testing in the U.S. also continues to increase. During the fourth quarter, we had an EPF. And in the second quarter, we anticipate another one. This is a focus for us internationally. Adjusted EBITDA for water management and flowback testing was 18.9%, very strong in the quarter compared to 16% in the fourth quarter and 10.2% in the first quarter of last year. We are successfully pushing across price increases as well as increasing activity and focused on differentiating our product with those customers that recognize that differentiation.

Commercial discussions are well advanced on several CS Neptune opportunities. We remain confident that 1 to 2 of these projects will materialize and have a significant impact on our results in the second half of these years. At this stage, they're all moving forward, but not to the point we can formally announce them. Equally important, in my opinion, is the sales pipeline for Neptune continues to increase, measured by inquiries, opportunities, mature discussions beyond these 2 projects I've referenced.

As a result of the actions we have taken and the momentum we are seeing, we are introducing total year guidance for 2018. Consolidated revenue is projected to be between $945 million and $985 million, while adjusted EBITDA is projected to be between $168 million and $188 million. After the capital investments that we are targeting at the high-return water management opportunities, we expect TETRA-only free cash flow to be between $15 million and $25 million, also impacted by the working capital associated with the growth environment.

We've included in our press release this morning, projections for 2018 by division, and I encourage you to review that, especially given the new segment reporting.

At this stage, I'll turn it over to Elijio for some financial details.

Thank you, Stu. Before going into the first quarter results, I'd like to address a few housekeeping items given the items Stu mentioned earlier. Following the divestiture in the first quarter of our offshore decommissioning and Maritech operations, the results of those businesses are being reported as discontinued operations. This will be for all prior periods and for all periods going forward. The 10-Q that we will follow it with, it will reflect those segments as discontinued.

We're also reporting our results in 3 segments: completion services and products, water management and flowback services and compression. Essentially, we have moved water management from Fluids and have combined it with Production Testing. Stu mentioned that this is one of the 2 areas that our growth capital will be directed towards. Our Fluids infrastructure is fully built and requires only modest maintenance capital. As the offshore market returns, we can increase production with volumes without requiring more capital.

Friday a week ago, we filed an 8-K that has our financial results for the past 3 years by quarter, reflecting the new segments and reflecting Offshore Services decommissioned and Maritech as discontinued operations. If you haven't seen that information, I encourage you to download the 8-K.

For CSI Compressco, we're accelerating our investments in large horsepower equipment. To better crack utilization amongst the various sizes of equipment and to allow for better peer comparisons, we will be reporting utilization in 3 categories: 0 to 100 horsepower, 101 to 1,000 horsepower and over 1,000 horsepower. We have posted to the CSI Compressco website utilization for those 3 categories for the past 3 years.

First quarter revenue from continuing operations for the -- was $199 million compared to $200 million in the fourth quarter and compares to $159 million from the first quarter of last year. Revenue for completion services and products was $53 million and compares to $56 million in the fourth quarter, which included the completion of a CS Neptune project in the Gulf of Mexico. Excluding the CS Neptune project, revenue increased sequentially from much stronger offshore activity in the international markets.

Water management and flowback services revenue was $61 million in the fourth quarter, flat with the fourth quarter.

The fourth quarter included a very significant EPF project overseas. Revenue from EPF sales was down $6 million sequentially. We are expecting another EPF sale in the second quarter, larger than what we had in the first quarter but less than the fourth quarter.

In the first quarter, we had revenue of $8.1 million for the 1 month of SwiftWater after the acquisition.

Compression services revenue was $85 million in the first quarter and compares to $83 million in the fourth quarter. This growth is coming from aftermarket services. Consolidated and adjusted EBITDA from continuing operations for the first quarter was 200 -- $26.2 million and compares to $29.6 million in the fourth quarter, with the fourth quarter including the CS Neptune project and a large EPF project.

Completion services and products adjusted EBITDA was $6.2 million or 11.6% of revenue. And I mentioned that the fourth quarter included the completion of the CS Neptune project. Going forward, remember that we have a meaningful step-up in activity in the second quarter in Northern Europe that is expected to materially increase revenue and EBITDA.

Water management and flowback services first quarter adjusted EBITDA was $11.6 million or 18.9% of revenue. The fourth quarter included the large EPF project I mentioned earlier. The first quarter included a smaller EPF project. The first quarter also included $2.3 million of EBITDA from 1 month of SwiftWater's results. SwiftWater's performance in March was much better than the economics we modeled when working on the transaction. We expect them to continue to deliver strong results given the demand for water management and services in the Permian Basin. We also expect that their customer base will benefit from access to TETRA STEEL, our proprietary lay-flat hose technology.

Compression EBITDA of $18.9 million compares to $19.2 million in the fourth quarter. We are seeing traction from price increases, incremental improvement in utilization, higher aftermarket services activity and new equipment sales that are expected to materially improve our results in the coming quarters.

Corporate G&A was $10.4 million and is expected to remain at this level into the coming quarters. We had a large ramp-up in activity towards the end of the first quarter. Accounts receivable increased materially at the end of the quarter, reflecting a ramp-up in activity. As a result, TETRA-only free cash flow was a use of cash of $29.9 million in the first quarter. We expect to monetize these receivables in the second and the third quarters. Historically, we have consumed working capital in the first half of the year and generated free cash flow in the second half of the year.

Stu mentioned that we are providing 2018 guidance. Capital expenditures for TETRA are projected to be $40 million and $50 million, with the vast majority of the investments targeted at quick-payback water management opportunities. For CSI Compressco, we're anticipating investing $90 million to $110 million, $35 million more than we previously guided. This incremental investment will be directed at our core customer base and existing fields to handle gas volume -- higher volumes of gas and equipment rates approximately 15% higher than the current rates. All our investments are on the back of customer commitments on orders -- or orders.

By segment, Compression -- completion services and products total year outlook implies 2 CS Neptune projects. This segment is expected to generate EBITDA margins in the 20% to 21% range for the full year. Water management and flowback services revenue is projected to be between $285 million and $295 million, generating EBITDA margins in the 21% to 22% range for the full year.

Compression services revenue is projected to be between $385 million and $400 million, generating 24% to 25% EBITDA margins, reflecting the combination of compression services revenue from our fleet of equipment, higher equipment sales and increase in the aftermarket services.

You can see a pattern here. Our expectations are that each of the 3 segments generate EBITDA margins in the 21% to 25% range. With these EBITDA and CapEx projections and taking into account some amount of working capital consumption during the year, we expect TETRA-only free cash flow of $15 million to $25 million.

TETRA balance sheet remains very strong. We have a $200 million revolver with $74 million outstanding and $14 million of cash on hand. CSI Compressco's new debt structure reflects 2 notes, with the first maturing in 2022 and the next in 2025. Neither of these notes have monthly, quarterly or annual maintenance covenants. We'll be putting in place a $50 million asset-based bank revolver, also with no maintenance covenant. This and the $100 million cash that we put on the balance sheet from the note offering gives us the liquidity we need to invest into this growing market with better returns following our higher pricing.

I'd also like to remind again everybody that TETRA and CSI Compressco's debt are distinct and separate. There are no cross defaults, cross collateral, nor cross guarantees on the debt between TETRA and CSI Compressco.

And as a general partner and shareholder of CSI Compressco, TETRA expects to receive approximately $12.6 million of distributions from CSI Compressco based on the current distribution rate.

With that, I'll turn it back to Stu.

Thank you, Elijio. And at this stage, we'll take questions.

(Operator Instructions) And the first question comes from Marshall Adkins from Raymond James.

Yesterday, you gave us a pretty bright outlook on compression pricing and utilization going forward. Stu, could you hit on the same issues for the other kind of 2 new divisions, fluids and the water division? Just tell us the landscape in terms of utilization outlook and where pricing trends have been.

Yes. I mean, we see on the water side the similar trends, as we talked about on compression yesterday. And we highlighted it again today, we see activity picking up. Very strong in the Permian, very strong in MidCon. We feel very good, as we indicated, on the initial performance from SwiftWater. The integration is going great. The organization is in place. We're hitting our internal milestones on some of the back office getting integrated. The customer reaction on cross-selling is going great. So I would say activity will continue to increase on water. We've seen pricing go up. We're -- we're at practical capacity on our TETRA STEEL, so we'll be investing in that for produced water. We're getting very close to practical capacity on the single-jacketed hose. Same thing. We're kind of putting that more in the freshwater, the TETRA STEEL more in the produced. Flowback testing, we're seeing the activity pick up -- pricing pick up at a lower inflection point than the water. But still, we're in the double-digit EBITDA margins on that business so that continues to go well. So we feel really good about that. Internationally, again, water is pretty much the U.S. But internationally in the testing side, we've got an EPF in the backlog that we expect will generate revenue and earnings in the second quarter. So we feel good about that. On the fluids -- completion fluids and product side, Neptune, that sales funnel increases. The 2 projects we've been tracking, we feel really good about that and feel more confident than we did 90 days ago. That will be H2 revenue and earnings. As I said, more importantly, we see the sales pipeline increasing. And I think as we go into 2019, we'll have a pretty good ramp-up on those opportunities, and that will translate to revenue and earnings. Gulf of Mexico activity, [the] Neptune relatively flattish, pricing relatively flattish, although we're pleased to see some major deepwater projects begin to get sanctioned. So we've always felt that was a couple years down the road before the base deepwater would pick up. And I think we're beginning to see the first signs that may come to fruition. But even absent that, we've got Neptune opportunities we think we can handle. So we feel very good about that. And again, you look at the full year guidance versus the first quarter, we see the bridge, we see the path for the balance of the year to get to those numbers. We're all very, very confident in putting the guidance out, hence, why we put it out there.

So utilization pricing across the board. On that guidance you just mentioned, your water margin expectations are meaningfully better than what you put up the last few years. How much of that is the addition of SwiftWater versus just the core business getting higher pricing and better flow-through?

Yes, it's a meaningful combination of both. SwiftWater on the kind of the metrics we quoted, that's obviously a very high-margin business. But other elements of the legacy business on the water side for TETRA is very high as well. So I think we've always had a similar margin. SwiftWater probably averages up a little bit, but we were still in that general direction on the TETRA side.

And the next question comes from Blake Hutchinson from Howard Weil.

Just first, I wanted to touch, Elijio, on your free cash flow commentary. You mentioned -- [in it] that there was a ramp in activity towards the end of the first quarter, that there was a little bit of a pull for the company. I guess I wanted also -- just when we think about second quarter, we have the European builds. And perhaps, you will be building ahead of the second half Neptune project. Do we need to think about -- or be prepared for 2Q to perhaps be another decent-sized draw before we start improving in the second half?

No. We don't think that the second quarter will be any size -- anywhere near the size of consumption that we had in the first quarter. And yes, there's a buildup in inventory and AR that we have with Northern Europe, but that inventory is drawn by the end of the second quarter, and then we start some of those collections in the June time period. We think Neptune will be closer to the back end of the year. And therefore, I think that we'll see working capital monetized Q2 and Q3.

Great. And then just a divisional question as we kind of dig deeper into understanding these new divisions. You did call out, I guess, in the release some downtime at one of your manufacturing facilities. As we look at the first quarter number, did that have perhaps an undue influence, I guess, when we think of factory downtime that, that can be quite a drag on margins? Was that as impactful perhaps for completion fluids and products as just a slow start to the year in the Gulf and U.S. land?

Good questions, Blake. A couple of areas. First, we did mention on yesterday's call for CSI Compressco that we had an unusually and abnormally hard freeze in the earlier part of January. And we expended almost $1 million of people's time and parts, either going out and unlocking equipment, or proactively addressing the equipment so that it would not lock up during that time period. So CSI Compressco took about a $1 million hit in Q1 associated with that. On the Fluids side, we did have some shutdown from our chemical plants, from heavy rains and weather conditions that we saw on the eastern side of the United States, and that also impacted us about $1 million in the first quarter. So that's reflected in our numbers that clearly we don't expect that kind of weather in Q2 and beyond.

Okay, that's great. And then just perhaps one more. I'm not sure if this was lost in the commentary. Just the base testing margins given the slow start in the U.S. I think you guys outlined the recurrence of production facilities and talked a lot about the water business, the kind of base testing business, take a step back in terms of margins during the quarter that we should expect to recoup itself as the U.S. picked up exiting the quarter.

So we've had some very strong activity on EPF Q4 with a couple of very large projects. Q1 was a slightly smaller project, and then we're expecting another project in the second quarter. To some extent, those are distorting the margins of Production Testing. But I would say that if you were to look at our run rate that we started with in Q3, that we have continued to see sequential modest increases in Production Testing base margins both for the United States and our Saudi business. And we -- with the pricing that Stu mentioned we're able to achieve and the volumes continuing to increase, we think those margins will continue to improve. And we've guided the full year in the low 20s for this segment, which includes strong performance in the Production Testing side.

And the next question comes from Martin Malloy from Johnson Rice.

Wanted to ask you about the water flowback side. And maybe if you could just give us some more perspective about the competitive dynamics there and ability to add additional -- your ability to add additional capacity.

Yes. I think there's a lot of -- it's a very -- water and flowback testing, very fragmented businesses. They always have been. We like our position with the scale that we have in the Permian now. So we feel like we've got a very, very strong position there on the water, and we think we'll have a larger position in testing as we get some of the synergy. We certainly have been very disciplined on the water side to invest in the specific areas that we see as the higher return. So if you look at all of our internal capital and our acquisition of SwiftWater and acquisitions we may look at in the near future, it's all around the water transfer at the wellsite, being focused on the produced water, recycling. Those are the main areas, and we have some ancillary services with SwiftWater we think will help us. So we're going to be very disciplined in that area. We think we can continue to grow organically. The majority of that $40 million to $50 million of capital we referenced in the guidance is going to be around that business this year. Testing continues to be very fragmented, but we're showing good gains in several of the areas. And we expect we'll continue to invest as necessary in certain sizes and areas. We're getting near full capacity, and we'll look at investment there. But we like the -- we like where we are in that water solution space. I mean, we see that as a bigger play, more integrated. We don't have to be all things to all people. But with the range of services we have, we think we can leverage that with our big customers.

Okay. And my next question is on the offshore completion fluid side. Just wanted to ask about, the first part, the Neptune projects and if these are new customers, and if it's international markets that some of these opportunities are in for second half of the year. And then as we hear more news about FIDs with Brent over $70, when that really starts to impact your deepwater completions fluid side, is it more of 2019?

Yes. I think the first part of the question on the 2 projects we referenced for the second half of the year, both of those are with new customers internationally. But both of those customers we have been working with for a long period of time, and they are very familiar with the product. They've done the testing. We've got all the elements in place. So it really becomes the timing of the drilling and then the subsequent completion. So they're new customers, but they're not -- but they're customers we have been working on Neptune with for multiple quarters. So we feel very comfortable about that. And as I said earlier, we're finding additional customers looking at additional applications, looking at how we expand the customer mix and applications on a global basis. I think when you look at the deepwater, in my opinion, at a consistent $70 oil price, you'll continue -- you will see new projects sanctioned. Our customers are all very successful in bringing down the breakeven cost over the last 3 to 4 years. I think that we'll start to see, hopefully, the impact of that new investment as we get to the second half of next year and into 2020. I think we are seeing activity pick up in the North Sea for our existing business on fluids. So I think if you kind of look at it on a global basis, we are seeing some activity picking up, some orders picking up there. I expect the international fluids piece to contribute to the positive bridge for the last 3 quarters of the year.

And the next question comes from Stephen Gengaro from Stifel.

I guess 2 questions. One is when I look at the TETRA-only cash flow guidance, can you help -- can you provide a little additional color on that? I was -- as I sort of tried to back into it, I was struggling a little bit. Can you just kind of give us a sense for how you get there? And I assume, does that include the distributions?

Yes. So what I would do, Stephen, if you look at the guidance that we provided in the press release, maybe take your midpoint of EBITDA. And then at the very back of that press release, we provided a reconciliation to PBT. So we've given you interest expense. And you can I think back off interest expense from EBITDA, back off midpoint of CapEx and then assume a small amount of cash taxes given our tax loss carryforward in the United States, and then add in the distributions of $12.6 million that I mentioned coming in from CSI Compressco. And then from there, you can assume that the delta is going to be a small use of working capital.

Okay, so that's the GAAP. The filler is the working capital, okay. Okay, great. And then second, as you provide us with the new color and the new segments, are you willing to -- particularly for the noncompression business, are you willing to give us a rough estimate even if you're looking back at 2017 on sort of the geographic split on those 2 segments?

When we file the 10-Q, you'll see that the new revenue recognition standard that went in will have a geographic split. So I'll defer to the 10-Q that will be filed on Wednesday, so you can see a little bit of color on the geographic split.

Okay. And then just one final. As we think about the growth that you're projecting relative to your guidance, I imagine that on the water side, you're layering in SwiftWater, but the bulk of that growth on the water and flowback side is driven by just increased U.S. activity. And I think, I guess, similarly on the fluid side, is that how we should think about the primary growth drivers in '18 being in the U.S. land?

Right. So look at it from 2 perspectives. The first one is that the first quarter included $8 million of revenue for March from the acquisition of SwiftWater. Q3 -- I mean, Q2 and beyond will obviously have 3 months of revenue. So that's $16 million-type pickup automatically. Then Stu mentioned that we're also adding growth capital primarily on the water transfer side, all in the United States, that I think will also be a significant driver. And then with the rig count continuing to increase and the water volumes continuing to be significant, I think the demand on the flowback testing will continue to also be higher. So yes, it'll be U.S.-driven, and it'll be the full benefit of the SwiftWater acquisition.

And the next question comes from John Watson from Simmons & Company.

Stu, I really appreciate the simplification of the story. I think we all do. Is there anything else that TETRA has planned to further simplify, to further streamline the business that you can share with us?

I think at the moment, we've accomplished an awful lot. If you go back over the last few years, we've been pretty consistent on the themes and where we're going to invest and what was noncore. As we look at it today and just take a step back, we're comfortable with the 3 businesses. We're organized internally around the 3 businesses. We have a lot of opportunity to invest in each of the 3. Again, the fluids, there's less of a need for capital just given the capacity that's in place, but we feel there's a lot of free cash flow and growth in that. So the short answer is there's nothing that we look at today that is noncore. Everything we have we like. We think we can grow it. We can scale it. We can drive positive cash flow, et cetera. I think it's easy to understand. We really try to continue to make certain the strategy, the results, our vision, the guidance this year, that's all part of making the businesses simple, transparent as possible. And I think we've tried to lay out how we go from the first quarter run rate to the full year guidance with the comments on SwiftWater's results in March, the growth of water management, the capital allocated to it, our view of the deepwater, our view on Neptune, the commentary yesterday and today on CCLP pricing utilization, CapEx, horsepower. So I think it's a very easy-to-understand strategy as well as an easy-to-understand steps to achieve the financial results this year. And I would also add, the balance sheets on the TETRA side, we're in very good shape with liquidity and leverage. On the CCLP side, we're in very good shape with no covenants, $100 million of cash that we're deploying. And I think Elijio, Brady, myself and Owen on the CSI Compressco side also understand that we need to, over a period of time, take that debt down on CCLP. We have space today with the covenants. But over a period of time, clearly, we want to have a leverage ratio lower than we have today. So we've said that. We're consistent. That's an action. We will continue to evolve as the business performs and the markets allow us to.

Right, okay. It makes sense. I know we've touched on SwiftWater and flowback quite a bit, but I'm going to try another question. It looks like, to me, and correct me if I'm mistaken, that SwiftWater's EBITDA margins are slightly higher than TETRA's legacy business. Is there anything that SwiftWater is doing operationally that explains that delta or that the TETRA legacy business could learn from to maybe bridge that margin gap?

Yes, I think that's a good observation. I think we are -- and I'll let Brady add to my comments at the end. I think we're very locked in, in understanding those processes that SwiftWater has on a comparative basis to TETRA. TETRA businesses are spread out across the North America. So there's some that are performing at that level or above, some that are underneath. The weighted average is, as I said, below what SwiftWater is producing. But I do think there are lessons learned. I think a big opportunity within the strategy that we've seen out in the Permian, and I think it's very, very important, is the differentiation of the single- versus double-jacketed hose. I think there's a clear market distinction between what is preferred in the produced water versus freshwater application. And we're starting to unlock that value. We now have the full portfolio in the Permian to really do that differentiation and price difference and fit for purpose. And I think that's a lesson that we understood, but we're seeing it graphically now that can be exported to our other regions as well. Brady, you may...

Yes. Thanks, Stuart. John, I think SwiftWater is a very efficient operation. They're concentrated in the Permian. They have a very good customer base that they've been working with to generate some good margins. But I will say, some of the highest price increases opportunities that we're seeing are coming on the TETRA STEEL side, where, as Stu mentioned, customers are looking for produced water solutions for handling the higher pressures, the environmental-sensitive fluids that are flowing through there. So I think, over time, you're actually going to see those margins converge between the TETRA legacy and what SwiftWater's been generating.

And the next question comes from Cole Sullivan from Wells Fargo.

It looks like -- it sounds like there's some visibility for Neptune over the second half for international jobs. When I look at the revenue margin guidance for the segment, the revenues are higher than our model, and margins look like they're a little bit lower. Are these jobs that are in the potential backlog, I guess, at a higher revenue level than we've seen previously but maybe lower margins just because of other factors? Can you walk us through that?

Let me add a data point, and then I'll turn it over to Stu and Brady. Remember that every second quarter of the year, when our Northern Europe business picks up, we see a bump up in revenue of $10 million to $15 million. So when you annualize Q1 and see that the projections are materially higher, take into account that there's about a $10 million to $15 million bump in Northern Europe business. And then with respect to Neptune, I'll turn it over to Stu and Brady and let them comment.

I think as you kind of look at the Neptune that we're looking at, the margins are going to be strong. I think the revenue per project will probably be a little lower than we saw on the previous Neptune. But again, directionally similar to what we've seen. So I think between that and the second half of the year, the seasonality in Europe on the chemicals business, full year, full quarter and beyond of SwiftWater and increasing investment on the water side, that's kind of the bridge to that higher -- maybe higher than you anticipated revenue and associated margins.

(Operator Instructions) And this concludes our question-and-answer session. I would like to turn the conference back to Stuart Brightman for any closing remarks.

Yes, thank you. And as always, I appreciate the great questions and the continued interest. Clearly, you can hopefully feel the excitement from our side of the changes and our view of where we're going. And we'll look forward to updating everyone after the second quarter results in early August. Thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.