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TETRA Technologies Inc. (NYSE:TTI)

Q3 2009 Earnings Call

November 9, 2009 10:30 am ET

Executives

Joe Abell – Senior Vice President & Chief Financial Officer

Stuart Brightman – President & Chief Executive Officer

Analysts

Stephen Gengaro – Jefferies & Co.

Jim Rollyson – Raymond James

James West – Barclays Capital

Mike Harrison – First Analysis Corp.

Joseph Gibney – Capital One Southcoast

Victor Marchon – RBC Capital Markets

Operator

Welcome to TETRA Technologies Third Quarter 2009 results. (Operator Instructions.) It is now my pleasure to introduce your host Stuart Brightman, Chief Executive Officer for TETRA Technologies, Incorporated. Thank you, Mr. Brightman, you may begin.

Stuart Brightman

Welcome to the TETRA Technologies third quarter 2009 earnings call. Joe Abell, our Chief Financial Officer is in attendance this morning and will be available to address any of your questions. Joe will give a brief overview of our third quarter results. I will follow with a brief presentation 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.

With that, Joe, would you start the financial overview, please?

Joe Abell

Thank you, Stu. Revenue in the third quarter was $254 million, 2% above the third quarter of 2008 and 16.5% above the previous quarter. The favorable results and the favorable earnings results were due principally to the strength of our offshore services business.

Gross profit was $62.8 million, 43.6% above the prior-year's third quarter and 55.4% above the previous quarter. Gross profit as a percentage of revenue was 24.7% for the quarter just ended compared to 17.5% for the prior-year's period and 18.5% for the previous quarter.

Income before tax and discontinued operations was $33.9 million up 76.8% compared to the third quarter of 2008 and up 149% sequentially. Income before tax was negatively impacted by a $5 million hurricane repair expense and merit tax.

Income before discontinued operations for the quarter was $22.8 million or $0.30 a share fully diluted as reported. This includes $0.04 a share for the previously mentioned repair expense. The reported $0.34 a share compares to $0.16 a share fully diluted in the same period last year and $0.12 a share in the previous quarter.

Year-to-date, revenues were $667 million and income before discontinued operations was $43.4 million or $0.58 per fully diluted share. Looking at quarterly performance by segment, revenues in the fluid segment was down 22.2% compared to last year's third quarter.

However, profit before tax was $5.8 million, up 206% over last year's third quarter, which was impacted by Hurricane Ike and up 377% over the prior quarter which was impacted by a $6.8 million impairment in our European calcium chloride business.

Revenue in offshore services was up 55.9% versus the same quarter last year. Profit before tax set a second consecutive record of $40.3 million breaking last year's – last quarter's record of $23 million by 75%. Pre-tax profits were up 311% compared to last year's third quarter.

We continued to experience strong demand for heavy lift, diving, cutting and plug and abandonment services driven by Hurricane Ike remediation work and risk mitigation plug and abandonment activities for undamaged wells and structures. We will see a season downturn in the fourth quarter and the first quarter in this business segment.

Revenue in our E&P unit, Maritech Resources, was down 16.5% compared to the third quarter of 2008 due to lower production and lower oil and gas prices. Profit before tax was negative $7.2 million due largely to the $5 million hurricane repair charge.

This compares to positive $1.8 million in the third quarter of 2008 but is higher than the previous quarter which was impacted by excess decommissioning expenses, impairments and uninsured expense associated with Hurricane Ike remediation.

Production testing revenue was down 39% year-over-year and profit before tax was $2.9 million, a decrease of 65% versus the prior year's comparable quarter due to decreased domestic activity as reflected by the U.S. land rig count.

Profit before tax was down 61.4% compared to the previous quarter largely because this segment was benefited in the second quarter by a $5.8 million lawsuit settlement.

Compressco revenue was down 15.3% year-over-year and profit before tax was $5.3 million, a decrease of 34.4% versus the prior-year's comparable quarter due to the slowing domestic activity. Profit before tax was down 10.6% sequentially.

Corporate overhead and interest expense was up 38.9% quarter-over-quarter to a total of $14.3 million and was up 16.2% sequentially. It was up versus last year principally because we had a gain on oil and gas hedges in the third quarter of 2008.

We had $35.9 million of cash capital expenditures in the quarter. Our debt increased by $15 million during the quarter and was up $7.3 million year-to-date to $414.2 million. Debt to total capital was 42.7% at the end of the quarter. In addition, we decreased cash by $15.1 million in the quarter to $8.4 million.

While debt increased during the quarter that is still below where we thought we would be at quarter-end. Debt currently stands at just under $400 million. We have received, as of last Wednesday, $26.8 million of the $40 million insurance settlement proceeds and expect to receive the remainder this week. Once we receive the full $40 million debt will decrease to about $360 million once this full $40 million is applied to debt repayment.

We remain focused on cash flow, cost reduction and deleveraging. With that, I'll turn the discussion back to Stu.

Stuart Brightman

Thank you, Joe. Clearly the highlight of the third quarter was another record-setting performance by our offshore services segment. This was a major factor in our reported earnings of $0.30 per share. As we review the quarter, I will expand on the offshore services performance and review the status of our key strategic initiatives.

During the quarter, our fluids division reported a seasonal quarterly decline in revenue in gross margins. This is associated with the normal seasonal decline in our European calcium chloride business. On a positive note, we are beginning to see signs of activity in our Gulf of Mexico deep water increasing.

And we delivered fluids to our Brazil under our previously announced Petrobras contract during the third quarter. We expect this to continue in the fourth quarter and the main impact of this contract should begin in early 2010.

Our onshore fluids declined in activity and also had weaker pricing, but we believe we have seen the bottom of this market for this business. Our El Dorado calcium chloride plant is expected to start commercial production during the fourth quarter.

As previously stated, our offshore services segment achieved another record setting quarter. We saw several factors come together to enable this level of performance. The demand in the market for structures that suffered damage during Hurricane Ike was very robust.

Continued demand by our customers on their risk mitigation strategy added to the demand. The combination of out suite of services and continued excellent execution allowed us to participate in both integrated projects and discrete services.

The strategy of being able to offer plug and abandonment, diving, cutting services continues to be very successful. Our internal integration of these services and associated project management capability continues to be demonstrated in the execution of our backlog. We will see a fourth quarter activity slowdown but it should be more active than the segments' typical fourth quarter operating performance.

Maritech reported a pre-tax operating loss of $7.2 million during the third quarter. This loss was caused primarily by $5 million of repair-related expenses associated with the 2008 hurricanes. Excluding this item, Maritech was close to breakeven as we had guided during the February guidance session.

Production during the quarter declined due to several fields being shut in due to downstream pipeline problems. During the fourth quarter, we expect to commence production on a portion of our East Cameron 328 property, which was damaged during Hurricane Ike.

Our ongoing strategy continues to be managing Maritech within its free cash flow with a continued emphasis on risk mitigations through aggressive plug and abandonment. Here in October we entered into a settlement with respect to Maritech insurance litigation under which we will receive $40 million in cash during the fourth quarter. As Joe noted, to date, we've received $26.8 million and expect the balance shortly. The proceeds will be reflected as a credit to earnings in the fourth quarter.

In the production testing segment, we believe the market has stabilized domestically as evidenced by our exit rate of the third quarter. We remain cautiously optimistic that domestic activity will increase modestly tied to improved natural gas prices and rig counts. We continue to invest internationally, utilizing domestic assets whenever possible.

Compressco had a slight decrease in activity during the third quarter due to the domestic market. We are encouraged about recent trends in the market and have maintained strong margins due to cost reduction activities in international growth.

The increase in our net debt position was due to the timing of our capital expenditures and the magnitude of Meritech's decommissioning activities. Due to the timing of these items, which was expected, is significantly below our long-term debt level as noted in our February guidance. We expect a reduction in debt during the fourth quarter and anticipate ending the year below the $400 million target debt level even without the benefit of the insurance proceeds noted previously.

In summary, the very strong quarter due to TETRA offshore services, I feel very pleased that the cumulative strategy that we've embarked over several years has paid tremendous benefits for TETRA. We continue to generate profits in our other service businesses in a very tough market.

We believe we have seen the beginning of the signs of improvement in our domestic market. Our El Dorado plant will commence commercial production during the fourth quarter and we will see these benefits during 2010.

We're seeing evidence of growth in our long-term deepwater Gulf of Mexico strategy in the beginning of our contract with Petrobras. We will continue to focus on debt reduction and expect the fourth quarter to be favorable compared to our earlier guidance on debt.

[Rob] at this time, will you please open the lines for Q&A? Thank you.

Question-and-Answer Session

Operator

(Operator Instructions). The first question comes from Stephen Gengaro – Jefferies & Co.

Stephen Gengaro – Jefferies & Co.

I guess a couple things, if you don't mind, but the first is can you help us understand the – obviously offshore services had a tremendous quarter. Can you help us understand the – how we got such a high revenue number? I mean is it utilization, is it pricing, it is all the above and sort of how we should sort of think about the revenue progression going forward?

Obviously with the realization that you do have seasonality here in the next couple quarters but you generated extremely high revenue. I'm just trying to understand how you got there and if you could add some color around that?

Stuart Brightman

Yes, well it's nice to be able to take that question. So I guess first of all as I said on the call, we certainly will see the seasonal aspects of that in the fourth quarter and would expect that to continue in the first quarter.

If you look at the third quarter that just ended, we benefited from a lot of things coming together at once. We said in the past that utilization is the driver for this business and all of our major assets were pretty much fully utilized during the entire third quarter.

And we clearly benefited from a lack of hurricane season, so that negative variable didn't impact us. But all the major assets worked. We've done a very good job of taking some cost out of this business over the last year and we continue to operate even at these revenue levels with lower overhead and lower headcount than we did last year, so we've benefited from the integration savings.

We had a nice mix of discrete services and integrated business. We've had one third party asset that we've used during the third quarter that will continue for a while. And we've done a back to back contract, so there's no exposure with TETRA, again lessons learned from the previous cycle.

Pricing has been strong but it hasn't changed dramatically. I think a lot of it's just driven by the utilization, the mix of the business, the good weather, taking overhead out and some very, very good project management.

The tougher question is, I'm sure you're alluding to is when we go forward, we still think there's going to be a lot of activity over the next year on Ike-related down structures and customers' continue to spend on risk mitigation to get to a quarter like we just experienced. Clearly everything needs to line up perfectly and we had the benefit in the third quarter and hopefully in the future those events will come together again.

Stephen Gengaro – Jefferies & Co.

So if we strip out the seasonal impact and we sort of look at the middle two quarters in next year, is that – is $131 million, is that an achievable expectation or is there some things which are just things went too well to expect that? I'm just trying to get a sense for –

Stuart Brightman

Yes, I mean, we haven't put out any info on 2010 yet. We will early next year but that's a big number and without predicting the future to get to that number again you're going to have to have all those events come together. I mean, I do feel good about the market we operate in next year and our ability to execute. But that's a big number and it will always be a challenge to get back to that. We had a lot of things line up for us.

Joe Abell

Stephen, remember also we had no hurricane or tropical storm activity this year, so that plays a big part. You will need to take that into consideration as well next year.

Stephen Gengaro – Jefferies & Co.

I understand, thank you, Joe. And then the other just follow-up here is can you – if you look at the seasonality in fluids and you broke that down, can you give us a rough estimate of how big the seasonality in the European calcium chlorides business played there?

Stuart Brightman

Well, that was the major impact of the sequential move from the second to the third quarter, and that happens every year. And as I said in the press release, you get that seasonal aspect in a European chemical business. In addition, in our third quarter we continued to have a very tough market onshore for that business.

We're starting to see some positive signs on the Gulf of Mexico deep water. We started supplying product under our contract in Brazil that we talked about for awhile. So I think the third quarter was probably about what we expected in aggregate for that business. The margins were about an aggregate what we had guided for year and there were no major surprises.

Hopefully, as I stated, we've seen the bottoming of that U.S. market and we'll start to see a slow recovery in that, get the benefit of the contract in Brazil ramping up the beginning of next year, and hopefully the continued increase in the deep and ultra deep water Gulf of Mexico.

Operator

Our next question comes from Jim Rollyson – Raymond James.

Jim Rollyson – Raymond James

Stu, maybe the follow up on Stephen's question just on offshore. Obviously a lot of things came together that worked for you, the weather worked for you, etc. But if you think about just bigger picture, the market opportunity for the offshore services work, how do you think the 2010 year looks for opportunity relative to 2009?

Stuart Brightman

If you look at opportunity, clearly there's still going to be a large part of the Ike work that goes on next year. If you go back over the last year, as you recall we benefited pretty early on the diving and the cutting, which was the first stages of evaluation in getting some understanding of the extent of the damage. And as we rolled into this year, the first quarter was relatively quiet, as we had expected, ramped up in the second quarter and clearly ramped up for a full third quarter.

But I think in aggregate we should see pretty good opportunities on Ike. We'll continue to market the integrated projects, as well as the discreet services. I do believe we'll continue to see demand, in general, for normal plug and abandonment that takes place through the risk mitigation. So, I think it's going to be a good market next year. Question is, can we line up all the pieces that we did this year to get to that same level that will be the challenge. But I think overall the market should be strong for that business next year.

Jim Rollyson – Raymond James

On the fluid side, kind of couple questions here. Can you talk about the status of your longer term [grooming] contract just with respect to your supplier's financial situation? And then maybe refresh us on the incremental revenue impact that you think Brazil's going to have as you go into next year.

Stuart Brightman

First question on the status of our agreements with our partner kind of we'll continue to proceed in discussing that. Supply continues to not be disrupted so that's been very positive. We've had good discussions with our partner and remain cautiously optimistic that we'll get the new agreements in place shortly, and that we'll continue to get supply as is taken place to date.

The second part of the equation in Brazil, we've been pretty consistent in not stating the magnitude of that contract other than say when it starts it'll be a nice pop, it'll be significant but it won't be a game changer on the fluids. We still feel that way that we've seen the beginning of it and we're optimistic that the majority of it will start early next year and have an impact. But we haven't disclosed the magnitude of it.

Jim Rollyson – Raymond James

Last thing on Meritech, hurricane repair costs have been kind of in and out over the last few quarters. Do you have many more of those left and kind of, what do you see production doing as far as trending going into next year once East Cameron 328 gets back up and running?

Stuart Brightman

We kind of believe and hope that we're through the majority, if not all, of the major items that pop up on the hurricane repair side. We've been at it over a year now, so you would expect that. There are some that come up that we deal with, but I think we are at the end of that, towards the end of it.

And as you look at production, I noted we had a couple fields where some downstream pipelines constrained production. That's going to carry over through the fourth quarter, should be offset by East Cameron328 production coming on. And our guys did a real good job of getting that on a little bit earlier than what we had even envisioned, so that's positive news.

And as we start into January, I think that if those other fields come back, we should see definitely a ramp up from where we were in the third quarter and it should be similar to what we saw in the second quarter and maybe a little bit above that.

Jim Rollyson – Raymond James

Back in the mid 50s or so.

Stuart Brightman

Yes.

Operator

Our next question comes from James West – Barclays Capital.

James West – Barclays Capital

Hey, question for both of you guys. If we think about how well you've doing with cash flow in the last couple of quarters, you had the debt coming down, you have the insurance proceeds and Joe gave what the new probably debt numbers will be at the end of the year. How do you think about additional deleveraging as we go into 2010? Have we done enough, do you want to delever further? I mean, we're kind of troth of the cycle here, do you need to delever further?

Joe Abell

James, I don't think we need to delever further. I think that as we approach this market what we are balancing is opportunities to redeploy cash either as markets recover and we organically grow our businesses or find discreet acquisition opportunities. So I do think that those opportunities will present themselves.

I feel very comfortable with the debt level where we are right now. I do think that there is some additional scope to further reduce debt. Clearly, if we believe the markets improve next year, which we do, then we'll generate even more cash from operating activities than we have this year. So we'll have the opportunity to bring that debt down.

Stuart Brightman

I agree totally with what Joe said. A couple other additional comments as we look at 2010 and that delevering strategy and what we want to continue to look at, and I do feel good that we put some very good discipline in this year on a lot of these process. We've really got some real good supply chain initiatives at Compressco that as that market comes back and we look at production side, we'll benefit from that.

I feel that we'll benefit obviously next year with some of these long-term projects on the capital side behind us. So, I do like the flexibility we're going to have and as we roll into next year we'll evaluate some of the opportunities out there in conjunction with how the market's behaving.

James West – Barclays Capital

With the Arkansas plant coming on line in the fourth quarter, when do you expect that plant to be running at full capacity? I'm assuming there's some kind of sort of processes that will go through.

Stuart Brightman

I mean we've already started the start-up processes and we're proceeding pretty much on target as we cycle through the various elements of the plan. So as we get to January, we should be operating at a pretty good percentage of capacity and it will increase as we go through the year. But we'll get a significant benefit from the production level as we get into the first quarter.

Operator

Our next question comes from Mike Harrison – First Analysis Security.

Mike Harrison – First Analysis Corp.

On Meritech, I was wondering if you could give us some more details about what it is exactly that caused the shut-in of production, and how long you expect those downstream pipeline problems to persist? It sounds like they're still going on at least right now.

Stuart Brightman

It was some flow line and pipeline problems downstream that were outside of our control that are getting worked very aggressively, and we think that we'll get resolution of those probably as we get into the beginning of next year. I would not anticipate a significant change in that situation during the fourth quarter. And as I said, that should get offset by the production that's come on in East Cameron 328.

Most of that's gas production associated with those two fields and should not have a significant impact on earnings, as we've said before. With the hedges we have in place and the pricing of the market, the change in the short-term on production this year is not material in terms of earnings.

Mike Harrison – First Analysis Corp.

And you've got a tropical storm heading into the Gulf right now, or heading through the Gulf. How are you and your customers operating right now and I'm speaking both on Meritech and onshore services?

Stuart Brightman

As we always do when a storm like Ida comes through, we're very conservative. We've evacuated a lot of the Meritech, some of the Meritech and our major assets on the offshore services. We'll see if it progresses on the track it's currently at and hope to get back out there, but we certainly have demobilized the appropriate places for both of those segments.

Mike Harrison – First Analysis Corp.

On the fluid segment, your sales were down about 22% year-over-year. Can you breakout how much of that was volume and how much was pricing?

Stuart Brightman

I don't have the exact split and typically wouldn't get into that level of detail on this call. But we've seen both of those variables, pricing and activity, influence those markets. Probably the area where we've seen a significant impact on that would certainly be our domestic onshore businesses, as I stated previously. So that whole gas driven rig count part of our business suffered year-on-year. But as I said on the call, I do believe we stabilized and I'm optimistic we'll start to see that activity pick up.

Mike Harrison – First Analysis Corp.

Have you begun to see stabilization in pricing in the onshore fluids business?

Stuart Brightman

I think we're starting to get there. We certainly continue to see a lot of pressure out there, but there are signs that they're starting to stabilize.

Mike Harrison – First Analysis Corp.

A similar question on the onshore side of the testing business, have you started to see prices stabilize or start to improve since you seem to suggest you've seen a bottom in terms of demand on the onshore testing side?

Stuart Brightman

I think it's stabilized and I wouldn't characterize it as improving, but it's stabilized. And I think our exit rate in the third quarter gave us a little bit confidence in making that statement.

Operator

Your next question comes from Joseph Gibney – Capital One Southcoast.

Joseph Gibney – Capital One Southcoast

I just want to follow around on the deep water fluids side. As we get Petrobras up a little bit next year and you allude to the deep water side of things that came up. Relative to your mix, if I'm thinking about offshore fluids, is it going to weight more than 50% on the heavier deep water side next year as these projects come online, is that a fair characterization?

Stuart Brightman

I think as you look at our Gulf of Mexico business, that's a fair assumption. Then when you certainly add Brazil to that mix and you kind of look at that offshore characteristic of that business, I think that's definitely a fair characterization.

Joseph Gibney – Capital One Southcoast

I just want to circle around a little bit on international growth on production enhancement. You guys have discussed ramping up a little bit on the Compressco side and then maybe piggybacking on testing a little bit in certain international markets and Mexico in particular. Could you talk a little bit about the international growth prospects within this segment and your hopes for it next year?

Stuart Brightman

As you said, we've done a very good job leveraging our infrastructure outside the U.S. Our best examples of that have been Mexico and Brazil. And as we continue to look out, we are seeing new markets for both testing in Compressco. And where the two services can work together, we're sort of taking advantage of that and that's typically the situation.

There are instances where one business is taking the lead and starting up, and we're getting a steady increase in the number of areas beyond historical areas that we're expanding into. So we're very encouraged with the growth, and we're going to continue to spend a lot of time and effort trying to grow out those markets.

Joseph Gibney – Capital One Southcoast

One last one just circling around on Meritech and referencing Jim's question on where production is heading into next year. I understand we're in sort of restoration mode on East Cam and elsewhere coming off of Ike and Gustav.

In your production profile and your thought on next year, is there still some allocation to proving out a handful of other prospects that are out there in your portfolio, obviously with the [inaudible] restraints and discretionary capital, but focused out on the services side. But is there some other increments of wealth that you guys are looking at to prove out here? And just some updates on hedging here for thoughts next year.

Stuart Brightman

Yes, let me answer both of those questions. First of all, our Meritech group has done a wonderful job living within the capital constraints that we laid out this year on high grading opportunities. Some of it in more greater emphasis than some of the oil-related opportunities. And we've got some prospects in front of us that we desperately want to look at and see the magnitude of those opportunities.

So there's a continued emphasis on high grading and within our budget next year, which will continue to operate within free cash flow from Meritech. I expect those to go to the top and we'll do that. When you look at hedging, I believe we've got 20 million on gas next year and 200,000 barrels on oil, probably both of those, probably oil in particular, we need to top up a little bit and we'll continue to look at that. But we're close to where we need to be, but we need to do a little bit more on both of those.

Operator

Your next question comes from Victor Marchon – RBC Capital Markets.

Victor Marchon – RBC Capital Markets

First question was on Compressco. I wanted to see if you can give us a sense as into conversations with customers. Are you getting the sense that some of the units that maybe were returned this year because of shut-ins may be going back to work at some point the beginning of next year?

Stuart Brightman

Yes, I always got to be a little bit cautious on forward-looking on Compressco. But as I said, we're starting to see some signs of encouragement on that business and that usually comes from both the opportunity to add new sets out in the field, as well as what the return rate is. So I think we're starting to see positives and what you described would be part of that.

Victor Marchon – RBC Capital Markets

Second one I had was just on production testing. Looking at the margin progression from the second quarter to the third quarter up a little bit, and from your commentary it seems that the U.S. was basically flat so suggesting that international margins were higher quarter-over-quarter. And just wanted to see if one, if that was true? And two, was that from a pricing standpoint? Was that from a mixed standpoint, maybe just come color behind that?

Stuart Brightman

Again, I don't want to get into too much geographic detail, but I think I said that domestically we were relatively flat sequentially and I think that's an accurate statement. And our ability to increase the margins given that would be driven by international. So we did see some improvement there. And it's kind of a combination of mix and just some of our stronger markets growing as part of that mix equation, internationally.

Operator

Your next question comes from Stephen Gengaro – Jefferies & Co.

Stephen Gengaro – Jefferies & Co.

Just one follow-up, Joe would you be able to give us a sense for the margin progression in fluids or maybe if not specifically, kind of how we should think about the raw material cost playing in here?

Joe Abell

I'll take a stab at that. We were – just referring to gross margins here at about 27% in the first quarter, dropping to 21% in the second quarter. Remember on our first quarter call we said that we had an unusually strong first quarter and don't expect those kind of margins to hold up. And I think the 21% that we had in the second quarter was more indicative of the activity level we're seeing this year and the pricing we're seeing this year.

We were at about 20% or slightly over 20% in the third quarter, so relatively flat second quarter to third quarter. As Stu said, the activity seems to have bottomed and it is trending upwards. The rig count bottomed as you know in June, and has been trending upward almost week by week. Oil prices are not an issue at this point, having bottomed at $32-ish in December last year.

And gas prices bottomed in early September. I think there's less clarity on gas prices, but certainly up strongly from their lows in September. So those are indications to us that maybe we have seen a bottom and that the worst is behind us. I think many analysts, if you look at next year, are optimistic but not going wild with their recovery. So it's a U shape, not a V shape recovery. I think that's probably consistent with our own view.

Does that help, Stephen?

Stephen Gengaro – Jeffries & Co.

It does. If we assumed the market conditions were very similar to what you saw in the second and third quarters, would we expect because of the raw materials a 200 or 300 basis point improvement at the same activity levels or is that –

Joe Abell

I think you have some improvement as the Arkansas plant comes online. I think you've seen the – what you're going to see of the [grooming] supply contract if activity stays at this level. Obviously the greater the activity level the more benefit we receive from [line] and then processing bromine and converting it to bromide compounds. I think we're going to have to see a turnaround in that market to see the full benefit of the supply leverage that we have there, Stephen.

Operator

There are no further questions at this time. I would now like to turn the floor back to management for closing comments.

Stuart Brightman

Thank you very much and appreciate all the questions and Joe and I will look forward to updating the audience on the closure of the year and our views on 2010 after the first of the year. So thank you very much.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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