Flotek Industries (FTK) 9 Aug 232023 Q2 Earnings call transcript

Greetings, and welcome to the Flotek Industries Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow management’s prepared remarks. [Operator Instructions] As a result, this conference is being recorded.

It is now my pleasure to turn the call over to Larry Busnardo, Investor Relations Representative for Flotek. you. Thank

begin. may You

and XXXX We earnings Dave, Flotek’s your second quarter conference good you, appreciate morning. participation Thank call.

On Clement, Joining are me concerning Financial our Bond the results prepared Ryan today we Officer. Chief quarter. Ezell, Chief business first on Executive Officer; remarks the provide today’s call, call for will and and

we you have. will up call the open that, Following for questions any

of yesterday Flotek’s for will afternoon, earnings call. We’ve presentation We announcement the Investor it. take second to Relations of corporate the issued time encourage We an section is which be posted to XXXX website. available also today’s enhanced updated review on our quarter you the referencing and on we that

available call. events website of statements. regarding on the conclusion In today’s note make expectations Please following for our future are and today’s addition, is be being shortly this call the or our call webcast on forward-looking comments that projections we will a replay

uncertainties, of Forward-Looking statements are and our subject which number to risks beyond control. are many a of

and SEC. risks discussed our results to to listeners advise release cause uncertainties with our actual from earnings We expectations. filings the our the review risk current in and differ factors materially can These

may our call. In earnings metrics financial to provided the as management addition, please this reconciliations discuss press refer in non-GAAP release on

call With to that, Officer. Ryan will turn over Ryan? I the Ezell, Chief Executive

everyone’s our Flotek and in today discussed We for interest results. we XXXX second quarter Thank appreciate you, operational morning. and Larry, us as and good joining financial

in Interim such to Agadi is to time the congratulate Directors in Board to return his CEO thank Flotek, honored to of on his know, and transformational be I’d moment Flotek’s As tenure of as for a like most as and role of my as him Harsha first Chairman. organization. as this call CEO earnings take you this I’m a

This in execute the the performance trajectory business and strategy. in turn unique we’ve profitability I increase complementary Flotek’s the improving in a of segments. the year. as turning fundamentals we quarter organization to second the results resulted remainder our our Furthermore, meaningful significant business continuous Now improving demonstrates progress for the quarter, Flotek’s to corporate at made of has of expect

mistake, market expansion, for focused a are And and that via laser and cost gains our share our chemistry analytics Both return efforts customers’ technologies, our while and revenue undeniable shareholders. generating growth, solution proposition no carry efficiency on chain value on make value let’s and data investment maximize our platforms. both meaningful differentiated

Slide and second second With the that XXXX. we overall in to X total in pleased turn our of quarter quarter touch highlights. XX% on with mind, the delivered in I’m I’d revenues to like as a increase results

more and also adjusted for quarter the for eighth reported which strong consecutive before profit growth quarter doubled XXXX. from We improvement in adjusted gross had than of positive quarter are an positive EBITDA showed We adjusted year-end. profit, now first forecasting consecutive second the in the gross and EBITDA

our transactional second the due fluids customer XX% prescriptive and continued quarter XXXX. exhibited XXX% nano chemistry compared quarter applications our growth to chemistry revenues our from first of business business rapidly proprietary complex the has expanding is adoption XXXX. Our to which base management of model, increased in This

These momentum data changes and had we as half revenues and have outstanding time commitment positive recordable achieving of the to of all the and of impactful importantly, achieved results what quality Also, operations. our were to results. like achieved incidences lost in with in have very their during period employees Most a zero all service milestones I’d these of all time. analytics continued our XXXX improved to have equaled gain we revenues safety XXXX. in field approximately the these of thank for reflect short first of

differentiate to E&P continues service Flotek choice XX, Slide and What and truly operators on major solutions the chemistry providing distinguishes providers. completed the chemical, oil on peers for itself presence collaborative as data optimized in shale Flotek its our for sustainable of partner highlighted worldwide. from field industry all as U.S. wells countries, is solutions expertise sustainable, extensive and and Now, basins data XX our over in global over XX,XXX including

A but our relates impact systems only customer’s to environmental being cost recent fluid Arabia. now hydraulic competitive system differentiation overall and of performance currently This is improving Saudi advanced, assets. Flotek’s Aramco, of this being efficient approved operationally also example of being slickwater advantage and not of utilized our two fracturing by one is technologically approval while reducing the only in the solution

aspect chemistry applications. of productivity our advantage our customers utilizing producer important Flotek’s well is while competitive enhanced Another reporting

Slide a prescriptive management of wells wells production Basin from the for chemistry utilizing in wells XX depicts wells. analysis comparative Permian versus Flotek’s non-Flotek

of exhibited shown management chemistry graph, of have As barrels the and in did in XX% our oil performance that to compared XX after wells increase equivalent a prescriptive months XX,XXX or wells Flotek not chemistry. uplift a cumulative employed average

This are powerful solutions chemistry how performance. highlights delivering asset improved Flotek’s in

from all represents Basin, also shale of seen we other have the only similar basins. results this sample While a Permian results in

patents, future XX, to leverage partnerships that our commercial diversifying positions technology proven advancements applications while industry sub we opportunities continue expertise This stack. growth our verticals. Slide other into to significant on Flotek providing existing capitalize market to have revenue and sectors, our emerging Turning and in proprietary collaborative

sustainable industrial, provide market solutions We believe international hydrogen. the will domestic other to chemistry and that agricultural, opportunities solar, as increase will such in continue and demand verticals geothermal, and for our

now to Slide Turning XX.

proprietary field quality of versus traditional generation prototype of on As can discussed next quarter, the spectrometer slide. time data monitor the practices. our last Verax hydrocarbons in has the analytics validation, received analyzer The shown real segment for sampling which testing and first the

manufacturing as the a the step operational, and segment a unit based next analytics When operational subscription cost service model. transition our to make Verax generation for capabilities this will represent change data we in important massive more

generation the scalability industry throughout applications penetrate what segments. believe further an market exist extensive believe we the upstream immense model upstream, Slide the have downstream and on As XX, will be opportunity. will midstream, to outlined next We

to to the highlights. turn Bond I call would financial now discuss like to over detailed the

Thanks, Ryan. this is by announced Flotek all It’s to saying excited I at results morning. great yesterday. that be start about want we with extremely everyone the you here to

lot boxes release I a that regarding been checks of we’ve items wanting hard that think have the and shareholders yesterday’s been achieve to working see. to

transactional you significant profit. X progress visibility We generated in Moving for EBITDA Slide back on business. towards from We provided updated and to reaching an securing chemistry growth before positive bit, a on revenue huge reported a we strong our we contribution adjusted gross year-end, ABL.

than in the growth which guidance, us revenues equates margin. and the full confidence $XXX gross during for year and in success XX% million of X% $XXX achieving Our last revenue our profit versus year in gives to execution to achieving adjusted half calls total annual which year between first XX% million, more of

two accomplishment $XX in a the of. obviously the of nearly Hitting we’re that achieved annual metrics represent last gross a these adjusted turnaround year, versus margin would million mid-point quite proud and improvement results we

income to during Sequentially, spite Moving the were in of land statement. pullback the revenues quarter. a upstream up in well-documented activity X%

XX% of first of a reducing in and is it from the $X jumped our making chemistry discussed, revenue source over customer total Ryan XX% up the revenues As by quarter. only ended million significant provides revenue, This terms a our in more than diversity quarter is accomplishment which concentration. up during transactional up as

gross gross our higher Slide gross our adjusted quarters first gross quarters second the profit profit non-cash quarters first the gross X% and to profit, a Gross to With margin profit achieved million cumulative XX, is two during of quarter profit, $X XXX% last up and which the XX% quarter, certain first and – positive cumulative Turning was jump for through the million our proceeding XX% quarter. profit increased the respectively. the quarter running $XX from profit gross excludes of adjusted costs year. from back-to-back nearly final margin of XXXX than two

to double-digit Contributing a this the of ProFrac freight quarter year, we This with million the were in $X.X modification costs. to freight reduction that consecutive in announced contract second during along sequential revenue XX% margins reduction earlier of the marks positive related our costs. quarter

quarter of that’s the terms less for higher of costs quarter quarter. dollars, than $X.X and were revenues second million second in and spite X% of quarter $X.X than the million first XXXX less being In fourth XXXX, freight about about

Moving adjusted XX, EBITDA quarter second to improved Slide another XX% sequentially.

discuss positive of noted reporting yesterday’s we forecasting year. to adjusted the the As improvement about no before having negative relative end are of in prospect you I are many of this EBITDA excited sure the now in release, and longer I’m numbers. very –

implemented quarter first to comp for $X.X that reminder, non-cash headcount SG&A, reductions quarter. everyone, we of credit was that with associated XXXX benefit as Moving the the stock for a a in from million first did

of final about associated by to increased and the settlement fees Excluding legacy our the stock and a of quarter cost our SG&A comp, included during million also it portion legal included transition. the related CEO second litigation, with $X.X

We three could third now we Accordingly, during of so G&A settled before to that our quarter. wrapped have legacy trend back two this litigation, the be year. in encouraged end components down the expect we’re of the up costs the

litigation settlement the of touching during costs accrued second the were Quickly quarter. with certain reverse of severance with In previously accrual that legacy associated on to the that severance this quarter, just we the expense during we credit able discussed. litigation, had connection the portion

fair about to the associated we’ll In forward. convertible gain during $XX value Touching forgiveness. of have gain this our the of change quarter the balance conversion slight that sheet. versus bottom quarter. associated delevered as Net convertible fair $X.X completely PPP from first the XX.X now million sheet balance the a convertible tranche with so with the the quarter longer with income to our June almost of associated the with tranche debt reflected. income $XX million on equity, with the first notes, earnings notes only XX value Moving to our in line, of May did we the net of total no of volatility loan a million connection going well measurement shares, loss $XXX,XXX The final million non-cash for notes converted benefit notes is final of reported as net

by quarters. Moving Slide last by Marlow, this been as we ABL currently some like The reviewing made real a few prior credit received Oklahoma company We to the was I final as report financial that am XX considerable inventory the loan quickly, is prospective the facility. simply and the from progress certain closing. recently securing The documents approval to to blending completing secured receivables, has of and items to pleased be to our lender a fact substantial administrative loan well our the Flotek towards highlights unavailable over expected ABL improvements are ago an very year facility. made

the before well the are very about the results expectation of process of excited the announcing end month. We of this

the on touching we’re trades listing Quickly issue, monitor few the going how to stock weeks. the over obviously NYSE sub-$X next

leveraging the at mentioned the our As our be well additional by from to participation positive preference as we’ve very ABL strong Conference week. deficiency cure the on financial results the an benefits our we potential reported before, next updates regarding would EnerCom as progress yesterday, organically

deadline we time we is to some compliance have so before October Our decide. XX, have

to As last we a mentioned already and quarter, necessary. six to enact up for reminder one as a approval split if we have reverse shareholder

Touching special shareholders filed scheduled have statement receiving meeting the definitive voting X, be materials. for proxy should upon September we our shareholder and

conduct a participation shareholders. from that get solicitor to an have maximum to engaged we proxy outreach campaign ensure We

a for Board unanimously recommends Our both vote proposals.

provides June the cash Flotek that’s reminder to all shareholders. million a of the As those benefit approval would XXXX the conversion warrants helpProFrac of opportunity upon $X.X pre-funded in something to Obviously, shares. shareholder that proceeds warrants receive everyone,

compared first the be gross midway terms of the $X nearly lot and in in last reported six of nearly to months accomplished year. year. million we’ve point proud a at the million EBITDA of in adjusted as what adjusted a $XX improvement Through There’s of improvement June, margin we’ve to

We keep we expect coming continue margins to and gross rise see attacking opportunity. quarters over the SG&A will to every at

corporate a recently our headquarters. it relates cuts, to we lease executed for new As SG&A

annual new office We move over expect a office reduced were will With provide footprint, significantly savings the location two versus lease current the of our next over $XXX,XXX to exiting. the weeks. we complete

concludes That back the remarks. to call my Ryan turn for over I’ll closing now comments.

Thanks, Bond.

leadership price summary, team improving business sizing our Flotek ability corporate reflected profitability going our industry investment our share experience In in Now as today to and currently forward right turnaround execute XX. Slide momentum we’ve and of new in forward. our to compelling opportunity the a in next execute I’m our deep confident on is our gained phase lead Flotek Flotek’s is not and strategy has growth. turning to

will and XX% margin revenues of profitability greater in next million partnership. of than in a future a supported that anticipate $XX growth segments improvement. greater our and annual over to have by we revenue revenue improvement We business continue is maintain ProFrac complimentary than annual sustained drive $X backlog expansion delivering and long-term We as decade the billion gross

In international analytics data addition, our high in growth gain market we continue as to businesses and expect we margin domestic chemistry and and ongoing areas. transactional both share

as from facility, we continue proposed but enhance our positive opportunity very and from by appreciate place in you the regarding profitability our us augmented – hope additional near-term. sheet are excitement and positioned cost the the And be work build has initiatives there ABL a underpin capitalize value maintain set are We we put with future that be the we transition continued of significant a all to done, EBITDA all to more stakeholders our before balance We to benefit We that that also in could realize share working the we adjusted year that support our for have the shareholders. with control end. on is finally, Flotek. strong little of debt we to we to liquidity

now are take to ready questions. we Operator,

first will ahead. go question begin question-and-answer We The Please session. the now Johnson with from Crist Instructions] Don [Operator Rice. comes

this morning all Good How are morning? guys. you

Don. Good morning,

Don. Hey,

kind wanted covering? some is on well the the out of Permian? haven’t I obviously, this Ryan, performance. XX% for two, uplift this in to many is Slide wells getting widespread Number how that how really business your XX, number data one, transactional traction seen but or And there before, start in

at Don, when this Permian in at were X,XXX doing we meticulous Yes. over very the data, look you went looked wells how basin. and we this at about we analysis

fluid More unique technologies. about data. coming we it, XXX% importantly, it’s almost data. that. our see intensity, the got available EUR us these customers to strict with what’s pursuit see on to transactional chemistry design, set we which from this fruition, type kind of in you’re for as significant and a we we is, interactions We in starting traction them publicly out system lateral looked And And by around been length, long-term months of this you and come this business pursuit, driven choice, to we started guidelines completion starting really correct at our went that proposition what’s the profit XX our see are you’re value customized ago, down can when

It’s And very question exciting other data. one on side. the cost

freight costs know working quite out coming call for that we and do a additional – been logistics I cost and going What see progress that on you you’ve are savings forward? in while. You down. where

Yes.

to almost when from freight QX this a when at revenue. down we importantly, freight our look saw where year in increasing say, drop just with costs ended QX, of the $X.X current quarter, we if QX freight, So look we increase you XXXX versus in we more had costs an $XXX,XXX revenue. at, were And $XXX,XXX million about saw in we

we also can that are terms long-term look of you in delivery. significant to we infield look start short efficiencies So what we at hauls gaining our at how and imagine

count you, Okay. but just clean share And the converted. are the today? mean, Can there, one I what’s Bond, still share we are notes count? that clean that obviously, out warrants now convertible the get there’s all a for

of shares. Yes, to pre-funded meeting shareholders. somewhere the share be assuming both million two special warrants by going of to count’s The the around be approved pass, items there’s in need XXX final tranches that

turn color the I’ll Good back. right. guys. All it I appreciate quarter.

Don. Thanks,

you, Thank Don.

go Richard Dearnley Our Longport Partners. next from with ahead. Please question comes

that Am correctly? the being XX% about would business million on $X.X about versus Doing not be that first transactional million getting math your Good the in revenue, I $XX.X quarter. comment of morning.

That’s QX. correct. It $X to was up about QX million

Right.

then down business would quarter-to-quarter? be ProFrac So your about XX%

the from XX% correct quarter. about off as It’s well. Yes. first That’s

And what were dynamics the there?

look a there’s to things So couple at.

seen what that, white maybe to is transacting lot we’ve where of market between and activities And to who between so call transitioning what would the the started activity the is bit a in speaking, E&P But see sometimes I we’ve been operators public the in spot has space we’re days completions, spoken pressure for buying of business pad, pumping this three seeing would a and days, disruption are to little seeing we’re pad in activities. to market two we pads, cetera. a lot five bigger of Traditionally one see et customers in seven days. delays about

of same the count went pumping average the your relatively days amount fleet or So down quarter-on-quarter, little although, is a bit. activity staying

similar out fleet but but was May, would a saw some total and July in fleets, average a And into in our of particularly back we at moved so volume, come down with in that, when strong on number we what that of it bit, count, little August. chemistry look coming we’ve the seen we you

And to to how see. of but is due much back much how that improvement to – the this analytics? of rest of How of due the is answer, I much Right. how that guess and soft is on due kind is a to Slide much fluids is everything? XX, productivity nano question,

So combined approach. that’s that and of have in a overall great kind question we something our

You belt have mention our heard under we the of applications that wells XX,XXX chemistry. me of

learning with with does basins the analytics of into data a and on proprietary in I lot chemistries applications group of, done So zones. we’ve say, chemistry, our combination our target what various machine would

what’s at that management, diffraction process chemistry where our cuttings customers, important at choose call and the discussions brought we the the hydrocarbons engineering reservoir, we look prescriptive also the look overall more how potential core crude we look selections, X-ray are our around we’ve coming compositional the biocide we of even samples. and with its We et And other water chemistry. And at and into the that cetera. our at opportunities look and is we of produced that look analysis at potential we out composition, of the

choosing friction customized of you a And reducer, possibility, which complex enhanced surfactant clay flowback we well when control, corrosion we a have as can fluids. as a is holistic at or as which application right give an look the them approach, a nano components, aid

would sometimes the varies see well bit side, but on complex what where just look Because look get at approach nano and it’s when say depending holistic we we type a design. and the that’s XX% to is we number. fluids, And management little completion it’s I traditionally it chemistry formation pure to well, at the higher,

saying possible the It’s just and break So analytics not big and it’s out you’re fluids so to on. nano package. the a

is terms of, to look I applied. it just complex think it can at where in being nano we have we fluids just specific

doing – investor some more at analytics, the of engineering have do We presentations system to But the the that I design we’re conferences. we of nano to that the think those some that engineering look specifically design. We’ll our the we be some have around impacts of full for scope holistic of we’ll and but utilizing. talk data full prefer detailed like complex approach versus at upcoming slickwater of and it’s fluids

Okay. Thank you.

there this go Don no ahead. next [Operator Instructions] Please comes time more are Johnson At from Rice. questions. Oh, question with Crist the

field in interest with Thanks in are for new adoption again, JPX? Obviously about and ask back just the Where Ryan, JPX. on that to had you more some I widespread some in in guys. want let seeing me we design. tests are going you

generation question the coming and coming for in having another that model testing new latter the field we QX as got grown expecting of And that’s out. business two XXXX the have into – scale the to units part I that phenomenal. testing. we’re Don, side units. good the Yes, The on going production We’ve new of has up is gone mentioned,

turbines, went up, with opened this recently field, also kind technology see the strategic we of new gas count in and applications whether of at upstream Board that’s gas. our segment you’re and We into the opportunities electrical overall, power natural look at and the by et we the generation at And over and significant looking energy look frac we quality BTUs and operations powering fleets, cetera. rigs, flare

both JPX our and applications not see domestically really internationally only chemistry see particularly So these in do when land, you North even we and JPX. And we offshore for about we’re but then chemistry. for for together, at excited look units America what significant in applications

being data because actual So between exciting what the and site. created it’s synergies the really monitoring alone is at data chemistry chemistry well about the of

very if a pretty G&A one still that’s exciting run just And by Bond, can quarter. obviously that $X rate – forward. I It’s you in as close quarter below you Are more that to well, Right. some it was year-end? or get ask of can there parts confident going you million moving this

Yes.

items We’re internally, goal working legal that had hard. – we That’s a mentioned some here, we higher just the few we costs.

to knock We’re up. two out – wrapped the three the trying to of were get components. litigation this We able

have piece CEO got left. us. behind the We one cost transition We’ve

towards. yes, internally I that’s mean, Don, goal and what that’s So the working we’re

positive to looking I’m forward. EBITDA forward going Good color. it, seeing guys. Thanks. I appreciate

Okay. See you.

would our remarks. to Larry turn question-and-answer I back conference concludes the over like any Busnardo for This session. to closing

that A I the would for will if company have the to Mountain look will Time. good Clement week. Have Flotek you many seeing a that Tuesday, Denver meetings also you website at conference presentation by be Ryan additional participating of next to discussion be the in posted of be CEO, will hosting us a.m. you – you at Energy presentation presenting you today. a today. in a.m. be Ezell to start We next the Both XX industry same will Thank service on presentation. day. us for with questions. August day. to again contact be EnerCom Conference Thank XX throughout the website of He’ll the the X:XX feel X:XX posted CFO, Ezell in Investment forward joining Dr. a Please to free The copy events Denver, copy panel at joining investors any prior webcast. the the of at like Bond to will again be joined remind August

presentation. concluded. for now has Thank conference today’s you attending The

disconnect. You may now