Flotek Industries (FTK) 9 Aug 202020 Q2 Earnings call transcript

Ladies and gentlemen, greetings and welcome to Flotek Industries' Second Quarter 2020 earnings conference call. [Operator Instruction] It is now my pleasure to introduce Danielle Allen, Senior Vice President and Chief of Staff of Flotek. Welcome Danielle. Good morning.

Thank you and good morning everyone. participation. your appreciate We

Ryan and remarks Executive the Borton, Officer Koid, for will Business; Officer; today On quarter. Chemistry Gibson, call, the our today's Chief are business Chairman, TengBeng we and Global of Chief and provide President President participating me of call Technologies. prepared on first John Financial Ezell, concerning Joining President; results Michael and

or quarter, announcement supplemental which also may we available have. website. on questions expectations Yesterday, are events for and statements. our will Today's a for comments the our released webcast note forward-looking posted available our that, website. Please second Following our you projections be any earnings is that have also today's on our call Please website. presentation on being answer we we we future replay any is make will note on regarding a call

release, reconciliations the SEC. Also our now will with to risk filings our over non-GAAP John. number which provided can control. and subject on may expectations. are risks and uncertainties, to of management We statements the in results With advise discussed earnings to refer actual cause factors risks that I discuss please in press of metrics many from as These earnings call. differ listeners to our to our Forward-looking this release our materially current our beyond and turn a review are uncertainties it

Danielle. much very Thanks

speed is safe circumstances. we to customers for ingenuity under to working safety and focus a ethic, the on employees work fostering tough market As people debt position. work These our position an allow and prioritizing is priority, highly strong of with I top we highly a given for and are on integrity. be with Flotek a in face and focus. financial these grateful focused employees, It Flotek do as future. of move ahead for continue fortunate to and compromised motivated and times will extraordinary to our characteristics our the can talented, position the cash healthy very important commitment, impeccable country, of with company environment positioned this our together, company all am providing us We're extremely entrepreneurial to a communities optimally culture where extremely a as our their we little

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to travel demand XX% witnessed more not you know, below in probably to the telling gasoline challenges reductions saving, COVID-XX with by to this I've The market with career. dropping Board. XX% oil of the of experienced, a which falling pleasant oversupply prices much go you've and that anybody's with in market incredibly some you fall. macro and that but refinery one most approximately time governments utilization setting by free undoubtedly even has it the by XX% let's April by too exacerbated Now response gas May, already destruction alone. was what resulting Throughout spend caused from in quarter this unforeseen the more extraordinary stock environment. Saudi-Russia budget challenging due my price least and the that's heard I'll about the dramatically. part an the by seen in difficult was operators earning sharp levels in announcing early demand and US than We've into us quarter,

and our the cost guided quick liquidity supply ourselves and capabilities preserve we've actions and what distinctive and our to yet I'd in to to not well can the leaded at that's these and in are diversify opportunities and environment, for future, on digital team's strategic complementary areas we pillars Industries also this both high-quality to transformation financial in to for macro registered seek customers' we out focus. opportunities needs leading our Specialty control you amused Flotek's of industry strong however, decisive our our chemistry Liquidity leveraging drill are control the which improvement the adapting our Chemical from like by permanently focusing away conditions and and presented by sourced taken COVID; of by We're domestically flexibility. and products. and However, energy as position FDA to produce address to rig been for cleaners, are capturing as the count bit, certainly business surface environment sanitizers measures, challenges to the applications

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to it's and reduction take called workforce from numerous further cutting spending. in to steps lowering We to balance continue our back initiatives strengthen position, sheet compensation discretionary ranging a out to

euphemism will improve discussion liquidity believe actionable have research as we In are more improved addition, we outcome will are almost a they and we shortly. you as for have every detailed and focused data opportunities inventory on transformation see our which report, a in customers Digital to profitability. is to looking topic forward. energy this real-time on a accretionly really access is business provide an go Mike and liquidity rationalization insights impactful

digital natural critical JPX, technology of to as JPX strategic their the of in our believe and digital of June data terminals. acquisition than energy transformation noted are it our in-depth acquisition Flotek's The transformation, customers diversifies business to technology XXXX processing manage XX% play data business. key financial across age. With in segments the accelerate adoption all necessary the to transformation helping for recent from the Evercore their they a noted recent value of their our wellhead chain, cost and composition oil providing role crude drivers we in survey compelling innovative hydrocarbon profitability, are provides savings, through improving digital by and in company, product study As more will digital refined of that real-time as an gas executive benefits, and improve valuation

over the and at it four volatility time has of us JPX As of rig count. a CAGR helps purchase, the we the seen past from talked insulate to about XX% years,

not seen fuel product it conditions, the market particularly However, been to challenging decline immune the in has demand. sharp refined

its difficult business customer line maintaining near clients securing several by in of QX top new and capital conditions, orders revenue its JPX customers impacted result, both significantly a was from the from halt base, As repeat spending. winning existing customers. is Despite market its

there deep to have strong corresponding JPX's the to oil in market rebound are and demand you up, need we confident the to share Flotek. Koid. that Koid, a here him unique is of it gas data ramps to Koid? offerings, key is pleasure, a recruited the we that I about and sales, introduce I'm We for see at reason more over given customer opportunities our that TengBeng why turn are to wealth going confident growth that we expect President and Business. Global Great

speak have a midstream that here years, the I I had gas Their that pending. been believe The enhance various digital I with operations and leading joining unique also JPX month Thank analysis responses several the positive. been you, the XX digital existing of business have companies to XX data. has I've have Since customers potential be collection JPX continuous for we the game with number gas company patents real-time another customers. help a patents XX. gas value will It's past oil example work the With over for of again. then about through customers. XX transform applied to and reduction great and XX oil data to overwhelmingly cases as refined ago, a opportunity been technology a cooperation and use and our One companies John differentiated oil solutions and significant products for through transformation. to which is John. of the such has the and and a creation and with terminal have JPX, agreement Phillips since technology changing operators involved transmits that years service in value for of pleasure in we pipelines signed was created a industry a

customers competition tracking, examples to several includes blending market us of tracking. has the started enhancing XX pipeline meet Phillips customers fuel custody testament part that refined is Other selling this crude refined to our measure and such It's and delivers. of fuel technology gas value In transfer operators. have will use a to they the COX, our arrange that of services are to transportation we agreement, the need capabilities and support the competition ESG as efforts. for cases cooperation requirements, operators. area this ball rolling all As and at jointly the great our meetings natural our to on for we the to already offering,

highly American JPX's international in started five discussed, previously JPX's in the in coming Middle exploring Africa, presentations We companies have oil differentiated of pipeline ago, including been Asia. had technology from company gas market. this and in several market. weeks gas past the in to to growth operators and East, conducted interest has Middle countries East and significant we on the largest have North India. about Since in The the board in focus we As largest the one

We engines. Ryan international that to be growth addressable launched JPX I'm will to is take to actions excited a the opportunities standards of the other to this our to technology huge. and total are regulatory business taking discuss market ready XXXX. lots including address that, I'll will exports ensure turn other certification over different internationally level With call to be compliance, who in and a

I'm announce Flotek's industrial line personal for to FDA launch the sanitizers you, of quality and Thank pleased consumer Koid. applications. disinfectants and of

in responders, our existing multiple production production abilities efforts recognized delivering schools, high registered quality industrial of of facilities, you and the chemistries, supply business, a started highly Chemistry senior we natural be active And an being strong Applying initial stand our and communities. are market. is donating this communities, of to opportunity producing community pulled utilization QX outreach our food consumer it when we retail, from applied advantages into offer States. skills, we first homeless and to This enabled management, components into market including local up sports FDA stream business. that long-term hospitals, important competitive violations capabilities the ever footprint Thus, we're and major to sanitizer hospitality a the the as which potential Our existing e-commerce are Directive. rejuvenated than selling our hospitals Quality actively technical quarter capabilities, and than offers, our leverage order chain American and energy sourced know, XXX us other FDA and began due a innovating made our able to is hand facilities. want Flotek as registered extension travel the shelters, industry, our in FDA's the United a efficient ISO R&D the markets, our products cultivated regulatory diversify here markets. medical that our more In at you and entertainment, market, launched high-growth to first is Subsequently, differentiated in player we pharmaceutical R&D to Specialty result are residential respected if the to and more maximize certified manufacturing make experience. out this and in capacity, sanitizer services, chemical of products. revenue were to chemistry develop high-quality marketplace, in and products sanitizer sanitizers grade and our in that in

in formulated products and and our blended in liquid and facilities in Oklahoma. Texas Houston gel Our are

our Given chemistry capital exact potential, of our able the quickly to chemistry such business, and large the entry-level utilized revenue in investment a minimizing business we leveraging manufacturing pivot need already operations been we've flexibility the energy facilities opportunity. by technology same thereby the for for model,

basis, to sanitizer resources profile. businesses initiative capacity $X this growth and market. in XXXX have due sales February monthly markets both rates And from growth updates chemistry Furthermore, still look the exemplifies providing greater healthy our stalled and gallons that expand on forward to had specialty even demand, market of adapting how nearly returns XXXX in energy million blending world, we post COVID was of product includes we billion reallocating of XXXX% assets other COVID of chemistries in of December its excess technologies Our in total XXXX. hand we to market low-cost, given And which X.X additional experts new pandemic all anticipate a of high-margin and as drive to lines. sanitizer current are will sanitizer a our market exciting X%

back it turn to John. I'll Now,

Thank you, Ryan.

energy-focused confident position related price pause and business XX Although in short-term company to COVID restructuring that due oil, to that we impacted outlined the we've our strategy that the initiatives and our has our demand model for to intact is are in been of the future. better

We have the all have a long-term the to vision that profitability a way destination. final optimizes from platform to the products refined reservoir

the dimension that have they recovery a chemical international the the by ultimate high-growth joining Our that creates innovative us measuring new market. business new available really company, our grow JPX's profitability and data leverages business and injected new sanitizer by expand opportunity a to the enhances effectiveness markets, production chemistry reserves. offers chemistries and capital for existing into and a JPX them our to our capabilities of

the difficult normal facility team, and of preparing given that of we operations faced know there's is our do the are second oil gas to we it a and adapt exciting, high to cameras have Now risk and we the levels our but cases, we that it's world that, really to Marl-Oklahoma. to when as our COVID unemployment, the continued say diversify in potential mitigate to a monitor determine lockdown, of lot wave market. risk will consider, And by we while return

and few and the last look about talking we forklifts, if of the energy is the of that number chemistry for floor, Ryan it number weeks, the activity and up producing and Here delivering. over the the pads were you at I picking are

the exciting chemistry even momentum re-emerge. beginning to that on see So to side, it's is pretty energy

return no going know value to we good shareholder John finance our deal to our So have this Mike, a longer premium, named with an and profitability turn I'm these take really At to goal is team build think I we market. you. have the focus Gibson, of opportunity to it offering the solutions real rapidly point, to over by our capabilities interim to to differentiated let CFO to that and it's all

about speaking to be Good It's excited SaaS days shareholders in look and the based forward our and morning, to I of technology bring great space. experience my I'm ahead perspectives. in potential Flotek everyone. and the four fresh day here. and Its to your the vision understanding a with on

the chemistry acquisition as results last Ryan Given reportable segments, our but recently was now and now segment, technologies previously business the was The to our segment analytics. in analytics referred includes we sanitizer JPX technology data that of The are the energy chemistry conjunction data operations two with launched chemistry recent quarter, Chemical acquisition operations quarter technologies in related our just make as It's in business described. of make created presenting sale escrow the Please to we the important accounts. of Florida may XXXX. JPX. second for aware need to statements Company the results adjustments of note XX, and to cash only that to to our that also includes JPX May you February XXXX related flow ADM

previously are needed. financial if see clarifications statements new thoroughly reviewing our to filed We are

anticipate order, be do we earnings that XX. be we place a in will new our to will impact any the team able file around to August we our there With efficient are possible. financial manner that this issue time confident a or However, address cash we at most XX-K strong and on not this in expect position. And

a our industry both we pressures by second significant quarter discussed, faced impacting driven segments. previously John As challenging

discuss the first Let's income statement.

our to in customer activity environment result events $XX.X political a by primarily a year. and with COVIDXX reduced and during million lower million the operating cost onshore year's to second the in period expenses. below were completion XX.X% personnel, reduced result drilling in sharp of demand products XXXX, of Consolidated volatility in million continued markets. our last compared revenues for second the largely is decline our in entertainment last quarter first second and $XX.X last The quarter, macro level productivity, revenue revenue travel as of the due the of freight, and due foreign Furthermore, a million quarter of from quarter same The sales impacted impacted reduction exception economic in $XX.X decline and operations. service sanitizer of expenses was US $X.X was and consolidated $XX.X the year million. the in and During down to

reductions efficiencies a to continue spending operating manage lower These discretionary to efficiencies. significantly count last although to our going chain G&A million lower reduction supply enable head $X.X forward to memo in stock-based improve additional terpene was operational $X.X and February. on versus inventories, We negotiate work Corporate resulting compensation [ph] million fees. at will to year and actions professional contract us expense our a and and in due in and

second quarter a million depreciation year. down declined $X.X $X.X and operations versus $X.XX expense quarter, Our We and amortization compared in loss the a second million continuing million the costs million through $X.X year. last were of of $X.X reported Research to from loss million in to second the net of $X.X include loss long-lived XXXX, $X.X willing $X.X million the of development Center quarter million $X.X we at last in the last loss of year. or term loss and million employees the diluted corporate Global existing June. the discount of significant gain who Innovation end on the of of as buying Research million to out our lease moved disposal Proto assets or for remaining $X.X at headquarters all $X.XX The a share share per

sequential previously our as discussed. an XX% expenses driving in versus of the quarter, was demonstrating The is progress the our of point of operational sales, improvement last out for the primarily a to loss last narrowed adjusted adjusted in the Our EBITDA due loss $X.X improvement $X.X million, EBITDA in second flat in decline also million from that year. We efficiencies. lower to nearly which want over EBITDA quarter QX

move performance. sheet balance we our to Now,

previously, cash healthy. position mentioned has John been our As

versus of the XXXX, As equivalence XX, June $XX.X the $XX.X of in first million we cash quarter. had million

four million three, inflow of headquarters. two, related remaining our cash Florida acquisition chemical gap, part there the an act related the impacted claim that the January the reflected escrow as $X.X the outflow bridge key payment four of $XX that to lease million ADM; and our to $X to of paycheck for sell $X.X loan So position; million cash related outflow the an balance one, program factors JPX; of to million shares of the to of our of are inflow termination cash corporate protection the an an of

received a cash also $X.X provision We operating to million July CARES interest Act. act including refund back related the of carried loss recent the net in the

Now, pass remarks. back over to John let me the for final some call

hard on a I appreciate I appreciate be so kind job that Mike, be jumping onto here. the to of the call, you new guy in and with days three thrown

As is to around the intent uncertainty in we We hopefully look be break-even were at Last however, time guidance offer to do the not forward, ongoing time. there well. fiscal and that which did based not future still this we estimates our on this our best market quarter, environment. discuss year, any as intend at

though it our is goal. while the business our to towards energy in and Given now in spending pivot We the breakeven and we financial our as increasingly sector, strategy growth-oriented fiscal the flexibility. impact businesses going leveraging our model achieving is that halt differentiated during the the remain we of believe be year entrepreneurial strength and incredibly near of prolonged capital agile pandemic the still unlikely

industry retained to all, - business, our earnings mitigate say here call and just mean, us the cost decline it grow I want to everyone help to cutting In out our our even of tremendous revenues. a the adapt me actions hope [indiscernible] top to us particularly thank thanks. digital working Elan volatile close, I'd margins much accelerate their excited thank Furthermore, we've really to and in the environment, have aggressively I comments on joining for applications focus I do been particularly given want and from Misty business. acquisition with profitability. we've that taken - we have swift and call of period [ph], As chemistry succeed in they for to our given been complementaring and today, for remain strategy in drop that I and future, our and of troopers and the our challenging us took and finance away the and have enhance Kent, Mike's unprecedented recent you with I the how to about to as like team, really will market line to transformation conditions, our our We JPX EBITDA position them

build great how We We Our navigate sanitizer our and for this work bright these two are a future announcement naturally believe crisis. operation appreciate gains initiatives today extending that and the employees position to to areas. business market exemplifies We company a share company. premium we core will growth for our our the for We for of their provide support partners working hard shareholders. love we you. our thank through growth as

our want come. to growth we Danielle, move will we finding to calls questions. With initiatives I be it back. And We continue let's you turn in forward, to want some continuously as and update to take that

Burke this Please first for at Daniel. Excellent. take go We'll question remarks gentlemen. Thank you, Instruction] ahead, morning our Daniel your [Operator today Johnson from Rice.

guys. morning Good Yeah.

morning, Good Daniel.

at point is understand think challenge in that not a reason we some there still and guidance this address Let's top not your completion to you at look great is QX line sequentially be and we'll given is incremental recognize activities ticking I that up, that any contribution, make see. I but up would QX? John, visibility imagine new directly, initiatives. should

recovers. not a really we quarter well intends I it to there every are going going be a from positioned larger every And no would Well, give to as belt with from in forward. be be here believe to prayer market line up but day top that, the any, get reason to

JPX Koid so, And is hard working the front. on

strong, needs sell there to to think legal regulatory aspects, needs of on our Bigney activities ECCM there us, sanitizer the working There's be to as internationally that other a and and you us The with Nick opportunity numbers to done is for Ryan now done, but registration and and the I be some see here for work lot is technical there. biggest we continue and business. those opportunities include highlighted. that and to we the of us on are path right demand international

was quarter. that reasonably a So poor

to so that, should that that's you above the we Daniel happy I that. can I'm So on be about give bar set but the there, guidance all

think Understood, that's helpful. I

can million recap, your across about I what capacity a a perspective. capacity a month talk gallons three-year X.X trailing guess what maybe maybe two you is now that of was chemistry, utilization blending over your As like, maybe utilization and or so

a more a to Just to us us healthy. give was time the bit back take when energy market

do the past, because the the there increased in market lot capabilities stating this strategies healthier and reluctant and margins we day. to what number, at really was in we how we're as utilizing utilization really, produce a the now. much sanitizer a don't to we're can Daniel, entering business capacity competitive The an a there that capacity capacity little when lot more we eight-hour we greater it think are want But learn. a than market, the really XX% capacity our now with emerging, give had as new the way you Well, competitors the We're because know we we is much and number, trying of is to some see probably probably simple. probably are is

at of facilities, look we now, hour expanding could things hour at XX total for as and be And could probably and a complete end XXs a market, eight so eight maintenance in mid with facility the they how XX a the just sooner utilization of take talking that those hours us can number, hit period. day, start right and calculated, probably an if and and we're day, can hope somewhere and drive other you facilities in our I'm capacity Waller a the the hours we're can day that hoping beyond perfect we markets towards a quoting the Marleau hour utilization on XX Ryan the improve. Koid about But run is

of timeline mean we already comments, the Phillips a it I customer And size, the to but touched perhaps with little on good just If morning. next this that see this but in you of then just a see Got first steps progression it, want in the I there? highlighted bit maybe last was that's the the Can point when about sort on XX talk in a do helpful. decent understand from release initiative press XX is Phillips just sort to in so, customer. conversion JPX, the one, here? of forward as logical

be up? can look so that at for that a shape. we desktop good is on Koid, to are, pretty we you how that. We sites where to provide that this the going with think see us to of trying I'm going bolted of are and to match really to in at think to that But ESG and sort it's look we're tremendous I'll turn solution coming have the customers of new like match I sort that with market open third-party and already COX look ASG's Koid at saying here, we We're out start pretty to it to, go by going the associated JPX over excited. or week up have do all in modifying a so where ability but

refined and embarking. all for terminals, Thank this have present. pipelines the you, that the the value, we're lineup started and partnership see customers John. jointly - implemented believe present, across they why XX us in with and to fuel their so They the technology have actually We that's Phillips significant they

excited locations, that our jointly value to we customer so being able then customer other being this next first that having they really present have a are They're lined and these present about In we fact, there week, the at customer up up the as lining to that with with to meetings up, the us on deliver that of and others well. level this lining few first Monday customers. are one testimony senior will and

Well, leave guys. thank I'll the there. you I great. appreciate Okay, it comments

Thank you.

Daniel. morning. Thank you this for your question

Next, morning. we will hear Firestorm from Swergold, Mr. Swergold capital. from good [Operator Eric Instructions]

Swergold we're any in to took they some Eric of balance us of that team here. for to got new morning, and you structure return of what got on profitability, Flotek's Good sheet, NOLs Flotek size from before is, shareholders exactly taking introducing thanks the the came as time on nice the to we've hear you you as the questions, the of two new Thanks, some it's paying cost it when like very the job. to today, going of said doing us are, you're do the behalf can also, give and machete taxes. for to when could John long the it a the I've people. because idea seems first be you

why don't Mike, you jump in?

Yeah. Good morning.

a year. So that that July. used of back to XX around some we the received get federal nice at little the cash from we We roughly had over inflow as we talked end the in earlier, about government, last a of

and also generating about We - after so the around through same months the six year. we're think first we the net it's of think then that XX

million So that's but today. actually at in over we're the XX. and great probably yet, we're look range detail XX probably We don't

So over $X share NOLs. you in have

That's do. million it thing collect pretty and a there Eric, down did that advantage CARES of back that was by taking and think close appropriate going we but bit bring Act I in and $X to the little

the service data a a service is JPX new data acquisitions a is platform in this probably business. and is And segment further us to contemplated Yeah. that's for to to second and of the wondering as shareholders, question This really a JPX a me business, new and as most or one-off. this as is respect new it I'm as

using who is and and measurement have there energy of do buy bought and refiner, so analysis, do so measurement it as from gravity coming I it it's, industry the that continuous as one I many the of crude are a their different that thought if question, crude maintain was feedstock so to transformation important the platform, most great consistency I'm a in of It's look us. a of using a I they I things how so we and to avenues at we composition do and blend from and available that, it is are analytics because Eric, that a that how feedstock.

honest, lot working and could us, data, costly and them we we're exciting that exciting the to how figure that of the on are buying moment really different We just are and that internationalization imminently possible on outstanding based is would winning and here need between of that to and really be robotization a companies. now refinery job I'd on and sanitizer is accounts whole to doing the minor components some is there. I side at the business, first the automation ESG the like and business - particularly profitable Ryan on think the looking so we they where of analyzing component focus the of and an just the can how year the of making upstream be So side participate in at The that. think JPX to to on

opportunity straight it's in a acquisition for also growth I just new an us, So has products but it sanitizers, do engine think [indiscernible].

you more you've ton make structure into give to I and executive such money a a got of a even comp if of a - which and before said I yourselves. your executive us a guys then current all $X, the such the times having where good in prices, for be The us can of really at for the throw make Great only friendly two. payoff money of little thinking one though appears you could question, bit X.X for rest shareholder to big where team third is yourself compensation share

bit Eric. us a together all after and it hit are seven we reverse how going keep say, I'll Well, to you

of I some do in to we have talk we give seven. after I here, get - to the I'll room beginning people the idea So think you of about do the what we're confidence

mean on I reward. we because compensation program focused that's - clearly our it's that are So

that I that our so focused of and and say with is that sanitizer shareholder company over trying drives that. like through we're thing would think the and do satisfaction rolls as culture are I that into value new this well. creation And everything is about highly absolutely plan on that high what customer integrity, to delighted the that business we customers do, We want to

I is does I value. machine a cost creating think we've team cutting cost, the to got that mean. Mike and

to it thing out. So think thing it's out, take I cost another it's one keep to

thanks out get of press pretty, of months a it still happened issues having with excited share. sustain so forward the will a us that we got there. We think And growth on Mike allow is about us work help getting that that critical team can noted and manage to I'm hoping the release, the I leadership, can that those seven we focus few XX and the and in team the we're and as really ago. but bucks historical financial pretty they but to whole go

All guys, right, go get them thanks.

Thank you.

back your or thank I'll further leadership to from additional today. any remarks. Ladies have the closing and team questions Gentlemen, we it questions turn for you our gentlemen, no audience. for

profitable want for to you and I a business confident from forward to Well, to I more chain really and order more create hearing the I to call. the that new thank been business. more ability really us logistics to in really just him just outstanding manage us joining create all get. and you'll It's Ryan, you a the for look new think of listen on supply his

get of most is jargon a it's well. multiple in products tranche product opportunity, as and Koid side the kind you'll you The Matt more back think confident for which but a I whole back. all piece people to line and on go of JPX as we forward makes and shares,

have it and and and you gasoline measuring you do make how have in instead you have fuel it's have sure seconds diesel hours. that mixing don't of So you jet you then on

And allowing result customers. so from keep a I a to opportunity losing mixing profit money real mean it's a generator that's direct them as much and for so too of our

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conclude now Ladies and of session. lines that your participation, your the today's you you enjoy disconnect all may does thank rest this your for you and day. We we hope gentlemen,