Tetra Technologies Inc Q2 FY2022 Earnings Call

Thank you, Joe. Good morning, and thank you for joining TETRA's Second Quarter 2022 Results Call. I would like to remind you that this conference call may contain statements that are or may be deemed to be forward-looking. These statements are based on certain assumptions and analysis 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 EBITDA, adjusted EBITDA, adjusted EBITDA gross margins, adjusted free cash flow, net debt, net leverage ratio, liquidity or other non-GAAP financial numbers. Please refer to yesterday's press release or to our public website for reconciliations of non-GAAP financial numbers to the nearest GAAP number. These reconciliations are not a substitute for financial information prepared in accordance with GAAP and as should be considered within the context of our complete financial results for the period. In addition to our press release announcement that went out yesterday, we would also encourage you to refer to our 10-Q that will be filed later today. I will now turn the call over to Brady.

Thank you, Elijio, and good morning, everyone. Welcome to TETRA's Second Quarter 2022 Earnings Call. I will summarize some highlights for the second quarter, provide an update on our exploratory well fluid sample results, and discuss the current outlook before handing it back to Elijio to cover cash flow, the balance sheet, and liquidity. For the second quarter, financial results met our expectations, while key milestones in our low carbon energy initiatives surpassed them. Our Water & Flowback business is growing faster than the active rig and frac crew count, and we are expanding margins for the fifth consecutive quarter. Our Q2 annualized revenue per active frac crew was 33% higher than in 2018, the peak of the North America shale market. Despite a supply chain disruption in our European chemical business due to the Russia/Ukraine conflict, the segment achieved 24% adjusted EBITDA margins as the offshore and deepwater markets show signs of a multi-year growth cycle, with a forecasted five-year high in subsea tree orders in 2022. The brine fluid test results from our territory well are promising, with both lithium and bromine concentrations exceeding the values cited in an independent study for our previously announced exploration target report. Our PureFlow deliveries to Eos, which is crucial for their electrolyte used in long-duration energy storage, have doubled each of the past two quarters and are expected to continue at this pace as they work through their growing backlog. Overall, our second quarter revenue grew 8% from the first quarter of 2022 and 38% from Q2 2021. Adjusted EBITDA of $18.7 million was a decrease of $1.8 million sequentially and was negatively impacted by $2 million in charges, including a $1.3 million unfavorable impact due to the European supplier's force majeure declaration linked to the Russia/Ukraine conflict, along with unrealized mark-to-market losses on investments of $700,000, net of gains. If we exclude the supplier force majeure and mark-to-market losses, our EBITDA for Q2 2022 would have been $20.7 million. The European supplier has resumed supplying TETRA but at reduced volumes. Cash from operating activities was $17.9 million, showing a strong improvement of $11.9 million sequentially, and our Q2 cash flow significantly exceeds our Q1 2020 pre-pandemic figures. Before going into more detail about our Q2 segment financial results, I'd like to discuss the fluid sampling results from our exploratory well in Arkansas, where we hold certain brine mineral rights, including lithium and bromine. As previously reported, we completed a preliminary technical assessment to evaluate lithium and bromine exploration targets across the company's approximately 31,100 net acres of brine leases in the Smackover formation in Southwest Arkansas. The assessment focused on areas where TETRA has 100% of both bromine and lithium rights, excluding the Standard Lithium option agreement. For bromine, the technical assessment identified a brine exploration target estimated to contain between 2.54 and 8.58 million tons. For lithium, the target is estimated to contain between 85,000 and 286,000 tons of lithium carbon equivalent, based on an average concentration of 283 milligrams per liter for lithium and 4,956 milligrams per liter for bromine. Our newly drilled exploratory well on acreage where TETRA retains 100% of the lithium rights reached a depth of 10,000 feet, and fluid samples tested showed consistent lithium results across three zones with an average concentration of 473 milligrams per liter, 67% above the exploratory target. For bromine, the average concentration was 5,350 milligrams per liter, 8% above the exploratory target. These are very promising results, and we are looking forward to completing an independent resource study in the third quarter. However, the final report will depend on various geological and reservoir factors, and we do not claim to predict the full impact of these positive fluid samples. Bromine is extensively used in our completion fluids business, and more recently, in producing PureFlow, which is essential for long-duration energy storage. With the recovering offshore and deepwater oil and gas markets, along with the rapid growth in energy storage demand, access to these potential bromine assets is highly valuable. Additionally, as of yesterday, the spot price for lithium was reported at $69,000 per metric ton. A major international lithium producer noted their average selling price was $38,000 per ton in the first quarter. Our press release mentioned that we have signed an agreement for a preliminary economic assessment for bromine, expected to be completed by year-end, and we plan to follow up with a quick assessment for lithium from the same area. In the third quarter, we will also deliver our first calcium chloride supply to an international lithium producer for their processing operations, marking a new market application that is expected to generate additional revenue. Now, regarding our segments, starting with Water & Flowback Services, revenue grew 16% sequentially and 75% year-over-year as North American land activity and pricing continue to improve. The second quarter revenue for our U.S. land business was the highest since Q3 2019, even with lower active frac crew and U.S. rig counts. Our adjusted EBITDA margins reached 15.1% in Q2, achieving our full-year target earlier than expected due to advancements in technology integration and digital investments, alongside price increases that slightly outpacing significant inflation in fuel, labor, and equipment. We anticipate our margins in Q3 to surpass those of Q2, benefited by these factors and the launch of major early production facilities in Argentina. While U.S. market growth is restricted by the limited availability of frac fleets and is unlikely to change until 2023, we continue to gain profitable market share through our integrated water management model and leading water recycling capabilities, adding four new recycling projects in Q2. In the Permian, we recycled 571 million gallons in Q2, representing a 62% increase year-over-year and a 17% increase from Q1 2022. We are also implementing higher pricing for the TETRA SandStorm technology across North American plays and in Argentina. At the end of Q2, we were awarded our largest project for a major operator in the Delaware Basin and the Eagle Ford shale play, and with ongoing demand, we will enhance our fleet of SandStorms in Q3. I am pleased to report that we successfully trialed our new auto drill-out technology for a large independent producer in Appalachia, which is poised to reduce wellsite personnel, rig up and downtime significantly, positively impacting customer well economics. Our two early production facilities in Argentina began operations in late June and early July, contributing a full quarter of revenue and EBITDA starting in Q3, with another facility award anticipated shortly for the new year. In Completion Fluids & Products, Q2 revenue increased 2% sequentially, reflecting seasonal increases from our Northern Europe Industrial Chemicals business, although it was lower than expected due to the Russia/Ukraine conflict, partially offset by dips in Gulf of Mexico and international market activity. Adjusted EBITDA fell by $4 million sequentially, with adjusted EBITDA margins at 23.7%, down from 26.1% in Q1. The Russia/Ukraine conflict affected our supplier, leading to reduced production levels and the under-absorption of our Kokkola, Finland plant. Although production has since increased above Q2 levels, it hasn't returned to our normal capacity. Additionally, our TETRA Advanced Displacement Systems, or TADS, received the 2001 E&P Special Meritorious Award for Engineering Innovation for drilling fluids. This technology facilitates an efficient transition from drilling muds to clear brine completion fluids. We maintain solid engagement with a growing list of offshore project customers, where TETRA CS Neptune is viewed as the most environmentally friendly completion option. Our previously mentioned North Sea project is on schedule for completion in Q3. Looking ahead to Q3 2022, based on new customer awards and increased activity, we expect further growth and margin expansion in our Water & Flowback segment, despite the challenging inflationary environment. For Completion Fluids & Products, we anticipate the usual seasonal decrease from our Northern European chemicals business along with continued lower production volumes at least until the third quarter due to the noted supply chain disruption. For our Completion Fluids & Energy Services, strong demand for overall activity is expected, including contributions in the latter half of the year from deepwater Brazil awards. Overall, despite inflation challenges and supply chain disruptions, our management team has effectively guided us to a strong quarter. Our technology investments are yielding opportunities for growth and margin expansion, while customer activity levels are rising modestly due to limited frac crew capacity. Our focus on low carbon energy markets that require critical minerals and chemical expertise is generating substantial growth opportunities for the company and already yielding financial benefits, with more to follow. We continue to explore new markets for our existing products, collectively broadening our earnings base and tapping into high-growth market potential. Since early 2020, the onset of COVID-19 has presented us with various global challenges each quarter, and our management team and employees have responded admirably to the ever-evolving market conditions. Now, I will turn it over to Elijio for additional information before we open the floor for questions.

Thank you, Brady. In the second quarter, our adjusted earnings per share were $0.05, down from $0.06 in the first quarter but improved from a loss of $0.02 in the same quarter last year. This quarter included a $4.9 million charge from nonrecurring items, while the first quarter had a benefit of $164,000 from such credits after expenses. Adjusted EBITDA for the second quarter was $18.7 million, compared to $20.5 million in the first quarter and up 44% from $13 million a year ago. We experienced mark-to-market losses of $700,000 from our equity investments in CSI Compressco and Standard Lithium in the second quarter, which were partially offset by a non-realized gain from our convertible loan investment in CarbonFree. In the first quarter, there was a $1.1 million mark-to-market gain from the same equity holdings, indicating a negative swing of $1.8 million between the two quarters. Excluding these mark-to-market effects, our adjusted EBITDA was flat at $19.4 million for both quarters, aligning with our expectations communicated earlier. It’s worth noting that the first quarter had significant offshore fluid shipments that shifted to the second quarter, along with a $1.3 million negative impact from a supplier's force majeure declaration in Northern Europe. In late April, we received 400,000 shares in Standard Lithium valued at $2.5 million when the share price was $6.36 each, which we will amortize over a year, and we adjust quarterly based on this valuation. As of yesterday, the Standard Lithium share price was $5.49. Last year, we purchased 1.6 million shares of Standard Lithium and sold them for about $18 million at approximately $11 per share. Our cash from operating activities in the second quarter was $17.9 million, an increase of $12 million from the first quarter. Capital expenditures, after accounting for asset sales, were $10.3 million compared to $8.9 million in the first quarter. Free cash flow, calculated as cash from operating activities minus capital expenditures, stood at $6.3 million in the second quarter, an improvement of $9.3 million from the first quarter. We are raising our total year capital expenditure forecast due to investments in SandStorms, which offer paybacks significantly under 18 months, and in early production facilities in Argentina expected to have good margins and attract client purchases within 2 to 3 years. Working capital consumed $6 million in cash during the first quarter but generated $5 million in the second quarter, indicating TETRA's ability to quickly monetize revenue increases—up 15% sequentially in the first quarter and 8% in the second quarter. We plan to build inventory for significant deepwater national activities in the latter half of the year, anticipating negative free cash flow in the third quarter but positive in the fourth quarter. This year, free cash flow should exceed $10 million, even factoring in costs from our Arkansas drilling efforts and studies. This showcases the value of having strong EBITDA and cash flow from our oilfield services and industrial chemicals business to support our low-carbon initiatives in Arkansas without resorting to issuing equity or taking on debt. At the end of June, total debt was $153 million, down from a peak of $222 million in 2019, with net debt reduced to $117 million. The net leverage ratio improved to 1.7x from 2.1x at the end of the first quarter. Our liquidity at the end of the second quarter reached $103 million, up $8 million from the first quarter and the highest since 2019, consisting of unrestricted cash and revolving credit availability. We are accumulating cash and liquidity to invest in our Arkansas assets where exploratory wells have already been drilled. In the second half, we will allocate cash for resource studies, our front-end engineering design, and preliminary economic assessments. We have also been profitable before taxes for two consecutive quarters, with GAAP profit before taxes of $10.2 million year-to-date. It’s important to note our federal tax loss carryforwards that can offset over $400 million in future profits. As our oil, gas, and industrial chemicals businesses improve, we expect to generate substantial profits from our developments in bromine and lithium from our leased areas in the Smackover Formation. This positions us well for a high conversion of profit before taxes to cash flow, enabling us to fund or rapidly repay investments in low-carbon initiatives. I encourage everyone to read today's news release and the upcoming 10-Q for more details and additional financial metrics. Now, I will hand it over to Brady.

Thanks, Elijio. We'll open it up for questions now.

The first question I have was about the calcium chloride preview in the lithium extraction process. Could you maybe talk about the potential here? And is that a localized use of the calcium chloride? Or is it expected to be more widespread potentially?

Yes, it's actually an international lithium provider, not based in the U.S. This is the first application we have seen working with this provider to utilize calcium chloride in their process. We are very encouraged by the results and believe that this solution could be applicable on a broader scale. However, this is not for a provider located in the U.S.

Marty, they've given us an order, as Brady mentioned, for 6 months, and they're about to ramp up production of lithium in their facility.

Okay. And then just on the Finland calcium chloride production plant and the raw materials for that, can you maybe talk about the supplier outlook? Is there opportunity to add another supplier that might be able to provide the key raw material? And on the demand side for the output from that plant, has it essentially just been deferred? Any help you could give us on the situation there would be appreciated.

Sure, I appreciate that. The situation is quite fluid. The Ukraine/Russia conflict arose unexpectedly, which caught many of us off guard. Fortunately, there are alternative supplies available. However, as you may know, global commodities are tight, even now, making immediate replacement challenging. We are optimistic about the production volumes projected for the third quarter, but they still do not meet our full requirements. We believe this issue will eventually be resolved, but we lack clear visibility on when exactly we can expect that to happen. The demand for our products remains very high, which has aided us in securing necessary price increases due to rising logistics and energy costs in Europe. We have had significant success in this area, so there are no concerns regarding demand. The main challenge lies in replacing supply chain materials and getting operations back to normal as quickly as possible.

I was wondering if you could provide some insight. When we examine the fluids business, we typically see a loss of some European business from the second to the third quarter, along with various other factors. Considering the disruptions we experienced in the second quarter, particularly those related to supplier issues, can you share your thoughts on the outlook for the third quarter? If I calculated correctly, your EBITDA margins, excluding some of those disruptions, were around 25.5% for that business. I'm interested in your commentary on that moving forward.

Good question, Steve. So historically, we've seen about a $14 million to $15 million increase Q1 to Q2 coming from our calcium chloride sales in Northern Europe. And then that comparable drop-off Q2 to Q3. Last year, it dropped from $64.6 million down to $48.7 million, or about $16 million. This year, the second quarter was at $75 million. We're expecting a comparable dropoff, partially offset by some of the activity that we've mentioned, such as calcium chloride sales into the market for the production of lithium. Also, some of our increased sales that we expect that to be occurring with PureFlow, in addition with an uptick in deepwater activity. So $14 million to $15 million dropoff Q3 to Q2 comparable to last year.

Great. If we disregard the fluctuations in the quarter, I believe margins were around 25.7% in fluids. How should we view that trend moving forward?

So the second quarter without the mark-to-market gain or losses that we had turned out to be 24.8%. The second quarter should be around those numbers.

Okay. And then just one final one. When we think about the Water & Flowback business, I mean, you talked about some share gains. It sounds like your revenue opportunity there continues to increase against the backdrop where there's just not a lot of frac spreads going to work in the second half of the year. Do you think you'll just sort of outpace the rise in frac activity in the back half of this year and then also in 2023? I guess should we use that as kind of a benchmark and then expect that you can outpace that growth based on some share gains?

Absolutely, Stephen. If you look at the historical gains we've made on a frac crew basis, we believe those gains are sustainable, and we will continue to uphold them. We've also made progress in gaining share in the recycling space. Our SandStorms represent our largest award to date with a super major in the Delaware Basin and the Eagle Ford, from which we have not yet seen any benefits. We expect to see results in the second half of the year; Argentina is just starting for us, and we haven't yet realized any substantial benefit there either. We anticipate that we will outpace frac activity, particularly in the latter half of this year, and we expect to continue that trend into next year as well.

And Marty, the other thing that I would add as a result of those items is that last year, we generated EBITDA of $14.9 million for the entire year from Water & Flowback. And the second quarter, if you annualize it, we're already at a $40 million per year EBITDA run rate based on $10 million in the second quarter. And we've indicated that we've got the EPFs coming online in Argentina that will show the exit rate this year being quite a bit higher than the $40 million run rate EBITDA that we're at right now.

Congratulations on the adjusted EBITDA for the quarter, and it's great to see the free cash flow. I have a question regarding timing. It seems the inferred resources report is expected to be completed by late September. From what you mentioned earlier, it sounds like the preliminary economic assessment for bromine could still be done by the end of the year, but will there also be a preliminary economic assessment for lithium carbonate equivalent that might be available early next year?

Yes. We expect to complete the inferred resource report before the end of the third quarter, ideally around early to mid-September. The preliminary economic assessment for bromine is our priority because it carries minimal technology risk, and we have a strong team working with our assessment provider to expedite this process. We still anticipate finishing it before the end of the year. The situation with lithium is a bit more complex. We are collaborating with a capable direct lithium extraction technology partner, and we are encouraged by the results so far, but we still need to validate some elements. We don't want to delay our bromine investment, so we are managing both projects concurrently, albeit sequentially. If we maintain our current momentum, we fully expect to initiate the PEA for lithium early next year after completing the bromine assessment.

Great. That's terrific. Just switching gears. For the integrated water management in your automation with BlueLinx control systems, can you kind of give us a sense of that remaining opportunity for penetration? Is it fifth inning now? I mean, given it's such a good quick payback and staff reductions of up to maybe 40% in field safety improvement. I saw the project went up to 62%. But I'm just trying to get my head wrapped around how far along are you in that? Is it still kind of a runway?

That's a great question. We rolled this out at the end of 2018, 2019. So we are a couple of years into this now. I think we still have quite a bit of growth with the integrated work just because of the efficiency gains that the operators benefit from. As you can imagine, right now, labor is a real issue in this market. Customers are coming where we can run jobs with far fewer people. So we still believe we've got some pretty significant room to grow that model. I would estimate we're still only at less than 20% market share of that type of model that's available to us.

And you referenced a couple of data points that we have in our press release, and that was focused on the automated drill-up technology, which is new and above and beyond what we're doing with the automation and BlueLinx. What we have done today with this automated drill-out technology is drill out the plugs, reduce personnel, and introduce a new technology to do so. This is a new technology above and beyond what we've been doing with BlueLinx and what we've been doing with the SandStorm. So this is another in the series of efficiencies that we're bringing to the market.

Yes, great. That was nice to see for the Appalachian. Just maybe on the Water & Flowback topic. Can you elaborate, besides that good technology you just mentioned in the press release, just maybe any other opportunities as you look out to 2023? Is there opportunity for converting produced water to surface discharge quality, which seems like it could be a huge market if the EPA and some state water regulatory agencies move towards that?

Right. Well, absolutely, that's been a focus of ours as part of the next evolution of our recycling capabilities. We have some things we think we'll be able to announce in the coming weeks as it relates to beneficial reuse. We're staying very closely connected to the regulatory agencies as they're moving forward to be able to enable that market. We like the pace that that's moving out as well. So yes, there's no question that is the next step in the process. As I said, more to come on that, we think, in the coming weeks.

That's terrific. And I'm looking forward to that. It could be the highlight of my summer. And I know there's concern by some investors; the big question out there is what oil price level will be good enough for you? Towards the end of this year and most of next year to achieve maybe double-digit sales growth next year. I mean, your revenues were very strong in 2018, 2019, at $560 million; oil prices were $57 to $65 back then. Are investors just too hung up on $100 oil? I mean, it seems like you could do really well when it's averaged above $60. Is there any thoughts on that for capital spending by customers?

Yes, I mean, obviously, it's before we get into the budget cycle for our customers. But if you look at the returns that the customers are able to make right now in the shale plays with the efficiencies, like companies like us have brought to the market. Now we still have to overcome some inflation; I think that's still a big issue in our industry. But I firmly believe $70, $75 for oil would support continued double-digit growth, both on a frac crew count and certainly for our business with the projections that we have.

Great. That's very helpful. And my last question is just switching to low carbon. How has the pilot plant been for SkyCycle and CarbonFree going? It seems like there would be an uptick in interest by large emitters given the inflation.

Yes, we are actively collaborating with CarbonFree. They are currently in negotiations with their end users on several projects. We are involved in assessing the logistics costs, plant expenses, and other factors related to our role in these projects. Therefore, it's challenging for us to predict when they will announce their first plant, as they are leading that effort while we support them. However, we remain very engaged, and it continues to be an exciting opportunity for us.

I'm curious about the CarbonFree topic, particularly with Eos and the ramp-up of their products. Can you quantify how much you expect these new low-carbon services and products will contribute to fluids this year compared to the growth from last year? Is there a way to estimate a specific number for that?

Right. So the real contributions this year are coming from PureFlow sales to Eos. And we've mentioned in the past that we believe that Eos has a very sound strategy of increasing production, and we keep shipping product to them. In fact, Brady and I were in West Memphis last week, and there were quite a few tons of PureFlow ready to go to Eos that are being shipped in the third quarter. Brady mentioned earlier that the volumes in the second quarter were materially higher than the first quarter, and the third quarter continues to be high. That's going to be the majority of our revenue this year. Some have speculated that the revenue is somewhere between $8 million and $10 million. We have not pushed back on that number, and that's strictly PureFlow. In addition now to PureFlow, we mentioned this morning that we're now starting to ship calcium chloride for the production of lithium in a country overseas. So those 2 are going to be the main impact from this year. I think that those numbers can increase materially in the coming year.

Okay. I wanted to discuss the recycling work in your Water & Flowback segment. It seems like you've highlighted recycling frequently over the past few years as one of your fastest-growing products. Could you rank the biggest contributors within the segment by product or service line? Also, do you need to invest any additional capital, considering you're adding SandStorm? Will you need more steel for the recycling business?

Right. So no question about it, the 2 fastest-growing segments for our Water & Flowback business are SandStorms and recycling. And we are continuing to add capital as we gain more market share with SandStorms and with recycling. I will say both of those technologies today are less than 2-year paybacks for our capital investment. But yes, those 2 require being fed some capital, and we will continue to do so as long as we can get those types of returns.

What is the status of CS Neptune? I heard you are completing a project in the third quarter. What are your expectations over the next year, particularly regarding the projects at FID in the North Sea?

Right. So we do have a job that's planned in the third quarter in the North Sea. That high confidence level will be executed actually in the coming weeks. But again, the cycle that we're in with deepwater, I will say, is still a longer-term horizon. We don't know if there'll be additional Neptune opportunities this year. Most of the projects that we're in discussions with customers, we think, will be really starting to kick off next year. Well, that's first half of next year or second half of next year, I think, still to be determined as we get into some of the more advanced discussions with these operators. You've probably seen the subsea tree orders really start to take off. I think the forecast now is going to be a 5-year high in terms of subsea tree, and really that's the leading edge for deepwater activity. Unfortunately, on the completion side, we're at the tail end of that timing cycle. So there is a lag for us, but we clearly see it coming.

And given just that, we're really seeing the deepwater recovery expand geographically. What other markets do you think are very suitable for Neptune? Could we see some of those majors who are very sensitive to environmental risk perhaps look to use Neptune in West Africa, for example?

I believe that North Sea and Brazil are extremely sensitive regarding the use of zinc, which is becoming restricted in many of their markets, thereby creating more opportunities for Neptune. After that, it really comes down to the pressure conditions of the formations, particularly in the Gulf of Mexico, where we anticipate a return of pressure. Some of the deeper wells there will be favorable for Neptune. While West Africa isn't quite there yet, we have identified potential in other regions. Over the next 12 to 18 months, I would highlight Asia Pacific, North Sea, and Gulf of Mexico as the main opportunities for us with Neptune.

So I have two other questions, if you don't mind. The first was one of the things with PureFlow is obviously, we're tracking and trying to watch what Eos is doing. It feels like their revenue expectations, or revenue, at least what the consensus has out there, has sort of plateaued after having a downdraft since maybe 2021. But it seems like it's stabilized, and there's a renewed level of confidence in their ability and their throughput, et cetera. Can you talk at all about any insight you guys might have into the traction that they're getting on the production side? And is there any color you can add to the sort of the confidence that your PureFlow volumes are going to be ramping? That was a hard question because Eos is involved. But is there anything you can add around that to give confidence to the volume growth?

The only thing I can say, Steve, because I don't want to speak for Eos, but clearly, they're a key customer of ours. We have visited their plant facility and the work that they are putting in, the investment that they are putting in to ramp up production is real. From our lens, it's very encouraging because we see the demand that they're putting on for PureFlow. I can't comment on whether or not they'll achieve what the consensus projections are, but there's no question they're ramping up and they're making very good progress, in our opinion.

Great. That's helpful. And then you talked about maybe another public and another private company, at least you're in conversations with, for maybe taking a similar product for battery storage application. Do you have any updates on that front?

We continue to be engaged with them. Steve, we thought maybe we would have something to announce by now. Unfortunately, they've not completed their deal yet, but we do expect it in the third quarter.

Okay. And then maybe just one final one. Do you have any thoughts you can add around the direct lithium extraction technologies being used in Arkansas? And any sort of traction and progress that's being made there that makes the reserves that Standard Lithium has, and then obviously that you have, viable? And any increase in confidence level there as we kind of move forward? Because I've heard there's a lot of potential, but there's still work to be done to prove up the technology.

Right. No, it's a great question and one that we are spending a lot of time with direct lithium extraction providers and researching the landscape. First of all, let me clarify, direct lithium extraction; there are two companies that are commercial today using direct lithium extraction. It's not here in the U.S. And we have been engaged with those two companies. But even their application today is essentially on saline brine pools using direct lithium technology. So the technology is working, but it's a little bit different application than what's used in Arkansas, and that's the same case for Standard Lithium. Where we will be pulling brine from a downhole well environment on a continuous basis and reinjecting it back into a downhole formation. There's actually nobody in the world today that we know of that is commercial with that application. But we do feel very confident adapting the DLE technology from the commercial providers will be applicable in the environment that I described that we will have in Arkansas. Okay. With that, I think we will conclude our second quarter earnings call. Thank you very much for your interest, and we'll end the call.

This will conclude our question-and-answer session. This will conclude the conference. Thank you for taking the event today. You may now disconnect your lines.