Flotek Industries (FTK) 5 Nov 242024 Q3 Earnings call transcript

Good morning, ladies and gentlemen, and welcome to the Flotek Industries Third Quarter 2024 Earnings Conference Call. [Operator Instructions] This call is being recorded on Tuesday, November 5, 2024. I would now like to turn the conference over to Mike Critelli, Director of Finance and Investor Relations. Please go ahead.

Thank you, and good morning, everyone. We appreciate your participation in Flotek's Third Quarter 2024 Earnings Conference Call.

call Clement, Ryan Chief the Officer; Chief on Bond and Financial me today Ezell, are Executive Joining Officer.

as the First, concerning we year quarter XXXX. for the our remarks our XXXX, third business operations guidance will and financial full provide for well as prepared updated results

questions afternoon. and Following press operating will any release the third Flotek's was call up we have. quarter yesterday results that, for issued open you XXXX financial

today's we also These posted Relations QX updated be be on can call. We on found earnings presentation all will section referencing that of an the Investor our website.

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

that, subject We listeners Forward-looking risks control. our number to differ our a are risk and and materially cause results of our These which of uncertainties, actual advise to from statements to expectations. are review many earnings beyond release call and in earnings can uncertainties risks CEO, current factors the to will Ezell. reconciliation metrics refer the with discussing as this Please the our will SEC. in non-GAAP on call. With filings corporate turn be release provided management over and press to our presentation I Ryan discussed

pleased as during close I'm year laser-focused arduous Thank going today results. complementary challenge remain our of discuss our we share XXXX These performance this year growth our both profitability the out morning. and business appreciate work. are of We and the since quarter, strongest and as quarter financial elevating for months increase you, third XXXX. segments overall good be we market Mike, we final joining our everyone's our to and interest us on strategy to organization to in but operational Flotek of with in execution

results to X and our that highlights I'd of continue Flotek for trend resultant face will on detail strong moment. just shareholders. With in to touch market our to value in execute in are the Slide We turn of and team's that and key headwinds quarter delivering creation in confident ability mind, a Bond in discuss the the for like

services when of total to able weaker revenue and the North highlighting X% to With were the X% the first the of continued American have of third progress XXXX in oilfield counts our considering fact quarter is the second execution the capturing activity, we the frac have that XXXX, peak XXXX. compared share. we backdrop accomplishment strong of quite of from market XX% over made This grow sequentially over quarter and fleet active an the quarter declined

XX% Data-as-a-Service with revenues as Our Data revenue shown in segment sequentially. Analytics on third growth grew quarter, Slide XX% of the X,

we monitoring EPA's mid-July quarterly revenues. first flare recognized from August XXXX, the our comprised the revenues Revenue in and analyzer Chemistry of in our approval JPX quarter. in segment of third increased September, total segment Technologies X% from which Following of our XX%

EBITDA. Flotek's EBITDA quarter of net increase consecutive XX%, in eighth our despite Our million, quarter market, evidence profitability $X.X year-over-year of $X.X and differentiated and virtually we improvements market fifth in in chemistry declining income income that XX% gaining fleet revenue This a this of through clear net solutions. We is in year-over-year are segment, million share representing resulting growth respectively. persistent significant technology of and of delivered marks a improvement metrics, adjusted adjusted frac all consecutive

adjusted trailing time shown Slide we As guidance as improvement are EBITDA. X, XX-month of year. On $XX million has the in is a basis, for a EBITDA Flotek this adjusted result, delivered our in increasing second almost

of incidents. I'd with or the importantly, compared accomplished take And lost X all XXXX. of a results. we safety achievements and to loan to by most these market share. I to under and Finally, employees quality service to positioned be time and $X.X we continue in for these are outstanding when thank XX%, reduced well further achieving commitment Flotek work were future And believe moment of to of all million to like capture recordable asset-based outstanding our excited hard their and about borrowings year-end the

We creation to at industry data for industry multidisciplinary on and convergence be of invested address create advancements they forefront leveraging we are tailored in of the predictive the asset. Through innovation the apply imbibition, we the recovery an continue platform. Flotek capital. to to creating innovation unlocking our before hydrocarbons from utilization behavior the differentiated each leader, market. our return analytics chemistry their value chemistry water real-time customers' Flotek by data maximize solutions as the bring microfluidic remain impact drive impacts data are as that to chemistry challenges needed technologies manage of of potential will solutions reservoir to nanopore Through future common and measurements, solutions, will the our customers' the to and We of driving improve pressurential and are delivering ultimate assets that and to preferential holistically needs. new environments, AI-driven is the and modeling strive

growth environment expect systems, launch upstream and continued business the opportunities We market Data-as-a-Service going as continued the the model and expect expansion forward. our of unlocking our near-infrared of aqueous downstream next-generation measurement see Raman to with we significant

Slide in values over the As the seen is to regulations. in growth respect EPA designed for approved the to cart flare flare method new be positions new EPA, are state-of-the-art part our this with an And is of to flare According commitment space. be States and the there subject by instrument first recently monitoring to to upstream system as XXXX. of monitoring heating XX. new alternative gases United at the forefront the July innovation, approval for under we announced XX,XXX our on measurement net in This can picture the flares currently of A to regulations. of existing enacted being precise that expected is our JPX regulations and optical Flotek this be of approval are on in location

delivered, We're custody far utilization upstream receive to thus transfer field already X is majority revenue trials which X call through flare with have orders, track use full the being a imply date have been cases continue third units contracts, of the units certification fourth X mentioned our XX expand total recurring rental We for of The from committed and already a by to our which to numerous August. service and in application additional on into added in stream. Furthermore, revenues received units active up year-end. quarter. with field we on in quarter

quality application to and measurements taken and and the Our never every in been oil transparency for an hydrocarbon level in of an real-time, [ enter date. to and gas producing ] This composition achieved revolutionary industry wells that's market create to with seconds, enterprise X risk beyond. elevated creates XXXX monitor Flotek for into will ability emerging minimization

As we expected see oil through the is to requirements XXXX. we for decade, forward, look further the with needed and expand demand next for gas

expected U.S. For first decline for by nearly XX% demand of the demand. the expected natural the in incremental with bulk time XXXX, ] X provide is the to gas the electricity [ to decades, in

of substantial of all expansion service the the demand expect within will increase forms which the energy, overall for global sector. intensity to to We continue economy create

for cost efforts on As of to shareholders opportunities, and on efficiency we are revenue domestically look creating expansion, value as and at market both well remain internationally. share capitalize our gains, our focused the growth, XXXX, remainder positioned we

challenging our most a that to while problems confident variety industry's customers' chain. positions deliver are our services superior solutions We of of expanding value our to suite us unique and maximizing

key highlights. Bond Now I'll turn financial the provide over call to to

Ryan. everyone, Thanks, for joining Thank quarter. reported afternoon, third for us this we results morning. the strong you, Yesterday

increases net and even income though industry EBITDA, were the weaker. adjusted On in side, fundamentals posted statement we income, revenue, sequential

side, On sheet we working the capital down and debt. balance paid increased

of as in the during year. touching Slide Our be income second doubled. we our versus quarter. achievements. end September year third to adjusted down were was over quarter the ago improvement cash line. Quickly ABL X specific pay million from the $X balance a few the in at summarizes in results, XX% compared the of last yesterday to certain from Adjusted on third income, the the the to Net XX% net utilized presentation EBITDA slides and nearly referring operations up the DSOs all quarter XX% down flow quarter XX jumped I'll posted EBITDA to afternoon. of our website Revenues, quarter,

our revenue, party chemistry reported highlighted Data sequential well Regarding increase from we a segment, Analytics total growth in XX% which revenue. the for quarter, revenues $XX.X increase was as This a of related as increase revenue by in strong X%. million, was of

September, we bounce fourth first chemistry which to through sequentially, back X fully to delays customer large still be external quarter. customers they're that had certain We in down external to revenues It's months X% the fourth worth chemistry While experience operational revenues external chemistry up in expect pushed strong the versus sales quarter. last the X caused year. were noting

gross stemming impact sequentially, as external product basis, quarter well second from flat attributable revenues, as lower was basis a points profit compared was as our Third percentage quarter. gross the On around to down profit lower XXX chemistry which quarter. growth is shortfall contribution margin mix, the Analytics gross the order segment, our agreement, items these third meaningful supply related sequential party the penalty which our the of to profit in to was offsetting provided long-term result business. Partially a which under Data our during revenue

the so the grew gross revenue compared third upon data outlook XX% gross strong the this increase analytics segment of quarter, came X, we improvement As shown are in a profit sequentially, for at in the These we XX% quarter. touched during about quarter the Ryan that Slide margin this recurring during excited as continued earlier. margins year, quarter. on to XX% million totaled second $X.X Data why growth Analytics an are revenue from during

down overhead. an had outstanding relates Moving reducing quarter statement. as it to the income We

net third quarter XX% down last the continue XX% the resulting is improvement. the on in where million, of area or maximum to from sequential This will to Third savings, in SG&A through of last costs costs X half we and $X year-to-date months declined income. now apply X% are improvement. focus an improvement year, million quarter a SG&A first roughly $X.X compared to a year, over

for million Slide XX%, agreement $X.X revenue Moving X. under drawn we ABL. Touching Adjusted from $X.X sheet. order the EBITDA from penalty had grew X% the XX, the our under EBITDA mind, sequentially, At despite quarter. second September adjusted to or supply we increased $X.X to Keep by declining the on million. quarter shortfall balance million the in

improvement EBITDA XX to the to date fourth adjusted XXXX we've about of XX-month are solid XX%. In less would and quarter. strong an anticipate the closing, XXXX time of we is achieve to of margin a current between versus guidance, to year, our the performance call for XXXX. With hit I'll million out and our which delivered momentum. of on midpoint midpoint, in of XXXX which the operational range strong be adjusted operational be of raising for fashion. range improvement second that Ryan September to guidance consecutive a this If back several Our favorably we're quarters, we of to XX% expect We way, to another comments. for numbers now to gross and first million, XXXX increase of our million the based We're million million current profit in for XXXX updated our able than closing EBITDA we adjusted very debt $XX.X exceeds projections, the financial now our outlook closing posted our excited XX% quarter X.Xx. With guidance respect Put range trailing adjusted initial margin was we the compares updated our third and the over the EBITDA adjusted our to that, to versus ceiling $XX.X $XX the $XX build turn the guidance and compared gross $XX our Based original XXXX results range. on upon quarters guidance, to at million. in XX%, we X $XX profit guidance floor expect

Bond. Thanks,

strong ongoing Flotek Analytics Data represent about opportunities both that XXXX, growth. future continues as we remainder despite our revenue in the the for headwinds. and tremendous profitability Analytics segment to excited potential compelling a We within Data believe market investment our are Chemistry We have segments, a and opportunity. The provides catalyst of expanding growth

and chemistry Our as I'm for solutions. sustained profitability, ability the progress continue and collaborative our made, positioned of third of a we for choice be I'm quarter reporting results to partner continue Flotek, data further stakeholders, proud regarding and questions. to in growth execute look to to hope we and you delivered of confident to appreciate of forward. take support the of forward progress. Operator, going We continued all share and our future we ready the our we're that excitement now we've

comes from first Your with Partners. Alliance Global Instructions] Jeff Grampp question [Operator

on flare start market. the to Wanted

there. updates nice Some

in guys then model upstream customer curious I'm customers on First, really there. versus from can lease if also few of set you're touch going increased that'd touch dipping water those Or sales the on customers, seeing the customers curious all could on this? it guys Are that both seeing you potential their preferred toe the for If you you points, that maybe on some later? concentration with maybe broader are buy. is And a be great. in a adoption

Yes.

what notes at type. for we regulations. But say what commercial more at service for And where, they at they're monitor the out that's preferential would rental we area it the by where to push who that would agreement long doing progress. the X-week types I a on you you, set the as in I'll at I forward. are think current full-time model, period of say, are don't what's think the conversations negate really in whether are and concentration, I we a looking great focused potential environmental of the look just and monitoring, of as would we currently, obviously, purchase long-term to just we're if going But a a on we the overall had to expanding. Those where sustainability service I were consider initially, be who recent those are when today is wanting forward. In testing customers their suspect with regulations testing ongoing it's the at et customers that don't and the earlier, and agreement customer see with continue quickly made side, the in in diversification a doing tell terms In place moving be majority. customer that and we to us few that model, people in think will cetera, capital the term, with base for going performance, There the regulatory forward we've rental to the fact is that full for mentioned environment, XX EPA come look political is. We've as software, wells flare preferential the slowed wells is ongoing. had, down going expectations I monitoring have so, looking single pushing few the I the happened. is EPA, we really or multiple time each of X pushing customers it. are the

a this end So are. we're But customer diversity we from acceleration bit of more little the great of far. where so had an week expecting at we've

should impressive margins of it does you nice have For opportunities continued about where sense makes with reinvesting have my EBITDA growth grow cost do guys to you that side point had follow-up, think start the guys the cost line, results and really grow, particularly the on have I'm growing to on to you performance continuing SG&A. wondering, side, given like the come there, to things a JPX, versus with continue the how are the in the growth you've company? and there

Jeff, relative it's on the this side. potentially at the people that we're to demand question. flare Bond. marketing for adding Yes, looking we're seeing Thanks some

But folks how do sold in show yet would But to statement part that demand now. JPX up be would SG&A. of these income cost the nothing We're versus of we the as monitoring goods So can just most the see expecting next right likely a revenue on growth side to of tweak continue SG&A again, existing basis, little revenue to trend percentage might expect given in the we would we're But a up group. employee that with of year. down. the likely bit headcount

the we think color would evolve in And more the more from it likely side, I to when it's stay going to good on that model. for the side -- CapEx we're expansion. looking we're XXXX. service on cost of into direct from And there's business be additional to front bit a at an It see mine doubt Yes. field as in Jeff, curve at that, in that coming delivery than probably demand SG&A no of going not look Data-as-a-Service start we a that significant

Sweeney ROTH comes question next Your from with Capital. Gerry

that, just especially how the I gave as as little you in regulation year And think, they wanted side. details I the O bit data deals of cycle to the more to I'm the stay line? impact entrenched a the would interested little well, on long as a next Quad but how and just you hold, bit around the finish will see in just across pipeline, become it cycle, the get sales after? general. take how the take election, on Ryan, sales that then especially curious year maybe

things the some with Gerry, because we you, to bifurcate our great we what at Reid from of crude around plans when monitoring, our a pipeline. at We areas, as Analytics in opportunities side, sales to cycle. It's pressure look really those on the the looking to with around, look have into those monitoring, And business in Data usually. We're longer business those color cetera. traditional have X Data-as-a-Service some be Transmix we follow XX OpEx the the et part CAGR typically they expense, CapEx vapor And months. market core anywhere honest from have

exciting basically continuing as faster, to the intriguing and company, sales to area, are the to in opportunities meet are cycles, monitoring that people to requirements. obviously, I of emerging of much an our create new the are because government-regulated markets to start expand, the offer they have area them gas, flare growth and in a for going custody of started markets which mentioned, we've As these is these chain size the

months X XX to time than go we're weeks month. a to so, on pursuit, the from sometimes less seeing And at down a these

a we've to low, percentages still expanding you that's probably for opportunities every 'XX. of wells and look core of to double-digit start active going with of of as pieces, ensuring It's doing on and actual 'XX, great so, the the pipeline, at these we to can And look high on to if size and on a there. we custody XX% understand over all size opportunity medium, it, make how growth adding proper of coming XXX,XXX market there. a side. side, back the range forward, I chain some on XX% growth we're about of that which the But monitor, XX,XXX in you flare what's the chain business, potential at the we're math that you the when think on that our wells, just to markets, rough on for a the starting upstream look potentials we if month start and the we reinvest or potential see the into look capture custody we size doing 'XX CapEx And sure seen

it's Bond. Gerry,

follow-up. quick a Just

think it, Just $XXX,XXX. we velocity the got on the we mid-July, September the the did we about did EPA sales call flare approval, about regulations we $XXX,XXX in, of to about revenue, monitoring, August of got the

gain So some starting it's really to traction.

if go think looking wrong to I had to there, and to and think, there front, -- out X units get and I XX information this what was -- the that you a so quarter, I was, of I that's and... On I you're next apologize in have units, lot wanted you said to given

No, we...

Okay.

up. No, the question, I'll Finish then I'm finish sorry. and

gas in units a and gave as Oh, XX the is impact to take see units that for fourth Bond onboard. flare numbers to the having meaningful is more meaningful just sure more no. flare the gas And a starting impact off should come and I the monitoring, units. quarter, is to X implies just that make wanted

rental Now, sale, to I we but know there's probably versus maybe discuss some that. nuances capital can

Yes.

on clarify So just to the numbers.

in that for location. quarter. active grew And monitoring. number on Friday They of we earnings that So we and XX That were QX. in continued growth be will flare mentioned were in by we area expect the throughout in to the August X this from week, had call XX, X actually our

our where We trials X different at was That hydrocarbon field we running. one also completely discussed looking custody chain applications, a of had of piece we're composition flowing.

add We an will in number pushing that and QX units additional X up. here

flare those an quite exciting about story. would So and cases ago, growing. And chain field we it's are now and of monitoring, in X quarters I say custody. monitoring use effect gas, talked

lot a those potential So of areas. there in

A little nuanced of bit a question.

they on faster monitoring anticipated flare and growing months than track you had Are You X chain maybe ago? of or custody.

earlier, year say custody around monitoring that of lot and things what terms as -- data, back sample. of around at we the whether the there's that the it, November Difficulty] the a feel looking and with pieces And would piece in that I little because chain a of compared paying considering what thinking [Technical of relatively on of track ahead had would X, would I for to in that I kick you for back people of they're flare crude, with everybody we're do that deliveries composition look would price of on the on higher to composite cetera, et the is say is probably of they're a transparency how geopolitical those that terms in how call we to them expect I issues the gear mentioned on the flare. even half right?

say the why at ahead of would of that's measurement So But in we're now. of also about schedule the it's terms it. certification looks I market the right talking reason the how

like it's really the than anticipated. with some going everything, of doing I and with I the the is like nuances the in Obviously actually feels different some to regs, Yes. on. gas felt market stronger well election I and It things think flare monitoring changes

because in to hook of And up we're to we've some with wells success We're X the in it great again, about day And field. up testing. gone excited monitoring. the the of X Yes. able

So it's run really far. so well

comes from with Energy Josh Partners. question Instructions] next [Operator Jayne Your Daniel

in on rig the just count of weak quarter-over-quarter face and frac X% First the side. count. chemistry continued Up I had question is

electricity land demand your you going where about in from able about maybe XXXX, months thoughts if out out U.S. cycle some forecast ask the hearing over could you to talk and to as what couple not the I'm may you over quarters. the to today, to reasons that far. gave outperform But can just You you're X are -- last the of you think you XX on chemistry side. that been to next or you customers be And have we

Yes.

think we're the would QX I I it's to of us, a in I ball say be we bit going the say, little crystal would a is for spot be still where a for right? relatively, going I are would market in think relatively QX. itself is soft. to

I I business And to we've customer sticky acceleration an international in that markets. with our some really our good, see base. think chemistry transactional expect had

is all down is demand we're going QX the think quality that slower terms But what to comes of to that a XXXX, I'm will reading side. that side. When oil towards of bit hoping in our and going see of geopolitical the us that how operational environment you the the in there. over And customers strong we the I little an quarter I think in still we're intensity, a get look midyear, strength gas of I that so, are pricing quarters, to increase on be leaves the at telling -- spot. tea the think commodity natural our the I particularly the holds chemistry have price a coming and as the But

into is a You'll I an North going how we're wings us being roll a able we bit what looking right activity, of of the international and little now. And start at XXXX, the increase in we're of when Middle think wind American markets bit the to diversification of is us on some terms it supplementing extra our outperform. to give Latin doing little East in to in America see

couple over cash the of to just maybe it, for cash or forward over the so the bit converting the months. as Bond. on capital and we has reasons last, some been quarters, call built sorry, AR statement then on we the able of income may X than statement, next generating Working on move just far? you've convert little a Thoughts cash flow one to be more And

Yes.

remember, in penalty that capital annual That shortfall Josh, build is an to working on the order settles shortfall component a order of big penalty. basis. Just related

grows doesn't that throughout purchase the to extent just year requisite of the amount So receivable the ProFrac chemistry.

if change down that you we OSP the don't back in from out So lot AR of But during working one actually quarter. capital, second a the have the over. was that's control

So we're doing a I pretty good think. job

I improved penalty, the XX% than when terms As the order that were on mentioned, standard of our quarter rest during by different the business. is DSOs you pay which shortfall exclude

at no will to the are Ryan closing for Ezell, There questions further remarks. I this time. now turn call CEO, over

continue our unique innovative markets Chemistry your to call Data for The and bring QX. and of excited is the Technologies Analytics, our emerging joining forward everyone, group about we Flotek. you in look Thanks, and the call. future for our evolution Again, of be here with of business today. to synergies how our Thank time we together the

participating conference today. you call this for We Ladies for your gentlemen, lines. please your disconnect and and concludes ask you that thank