FTK - Earnings call transcript Q3 2017 | Flotek Industries, Inc.

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Operator

Good morning and welcome to Flotek Industries Inc Third Quarter 2017 Earnings Conference Call. All participants will be in a listen-only mode. There will be an opportunity for you'd ask questions at the end of the Company's prepared remarks and operator will provide instructions on how to ask your questions at that time. [Operator Instructions] This conference is being recorded. At this time, I would like to turn the conference over to Matt Marietta, Flotek's Senior Vice President of Corporate Development and Investor Relations. Mr. begin. may you Marietta,

Matt Marietta

good behalf and team. the morning you of on Flotek Thank

Officer; Vice me Chisholm, Operations leadership Rich and Executive Financial John morning as Walton, board. Snively, Chairman, Chief Joining members are team Chief well Flotek's as this of Head and President our President other and our Josh of Executive our Officer;

Our the Flotek on and is earnings available press release was distributed morning this website.

webcast, In our and call addition, being a on is be website. will replay available today's

remarks, I in formal like to to Before replay participating our we a would remind everyone the this the begin, following. listening call, transcript or reading of

followed operations and of such is future to of involve within Securities statements Rich discussed in With XXXX cause of expects, and and other during Flotek's impact Commission. the from Some by or Josh an the it John Exchange of filings, this of applicable into variations call. financial anticipates, followed Exchange my identifying remarks, statements. call events statements insights Section to opening our intended and a impact Flotek's are views, risks they exclusive and statutes Securities and statements, of to by constitute XXE that, are XX-K, XXA by US means plans, not the our forward-looking but of for performance. turn These actual risks on as forward-looking pleasure outlook. with the over similar and XXXX believes, intends, our made differ could comments These expectations their seeks, the estimates comments given review results to financial forward-looking that meaning matters of our uncertainties identify and words this Words operations or results from Form such Securities such including forward-looking Act potential about are teleconference the Act reflecting expressions may Section and on

John? after with Q&A the remarks. for that, And open will We

John Chisholm

periods cash and Rich our price I'll Matt, results, you Innovation commodity strategic free our will recently segments today's financial flow at hosted joining role then summary from in you, Houston. overview our by generate the by provide followed details Josh, in Thank operations the highlights entire quarter future business of quarterly at organization. to begin of followed call was regardless a and maximizing aimed whose review Research of our Headquarters, initiatives thank and for ability ongoing Global giving Flotek scenario. for additional an financial expanded oversee by and all for Center our

initiatives are Josh operating operational vast markets citrus we're ongoing as our manufacturing, critical has this we improvements Technology organization. integrated our overview segment. Chemistry and Josh in Chemistry within this will provide Technology around accepted We our integrate and pleased will an role confident Florida experience change segment his our believe and further end Consumer subsidiary Chemical efficiency update in our and Energy at Chemistry Industrial in

related Finally, quarter primarily outlook to to challenges client slowdowns segment. questions. Hurricane Rockies were remarks in results I'll with in before faced your end but below our ECT expectations by taking third we Overall closing impacted due region also Harvey and the Flotek's

sales market place. while relatively performed citrus able global Irma expectations execute segment line the with after in we than higher our disruptions were in to CICT created expected Our Hurricane

we've technology extract specialty The CapEx from light into chemistry a cash requires the third business from provider which however, diversified play oil quarter disappointing; to an made pure company. field shift our was highlights higher asset equipment our ability

revenues in declined approximately Energy second XX.X% quarter the to CapEx generated sequentially XX.X% revenue the free million third quarter sequentially $XX.X consolidated $X update outside down significant EBITDA adjusted in can million Energy to and and attributed the revenues was region of which our CICT results. was company million operations, Chemistry an the provide and encompasses of $XX.X continuing For compared in Total declined year-over-year. Rockies X.X% EBITDA To million negatively or X.X% related Technology's up and of $X.X Technology for the be net third or Chemistry Flotek's $X.X quarter. third and ECT Chemistry Consumer Domestic issues to our of segment. decreases we our Technology Industrial and which in million. our hurricane quarter cash segments segment generated flow impacted Adjusted

the back domestic long that declining previously continue clients we've is issues run. higher some XX.X% and away of we sequentially, benefit economics over better as impacts operators prices take and away optimized This step future the or flow constraints volumes hurricane and through focus in driver limited driving performance. periods related in XX.X% commodity from away completion to well region this Our from nano-Fluids intensity completions and these for capacity complex in have are region as cases technology should disclosed. take revenues declining primary have outside This moved the capacity CnF transitory on believe increase by

driven technology. management operators has by full fluid grew with it components revenues sales. pressure Canada PCM size expanded continue of remained conventional this or XX.X% than except pricing that from in and and PRF was by emerging systems of PCM been It fluid ECT sequentially fluid higher leadership is non primarily that Latin and chemistry for to Internationally, overtime, a use in of chemistry which America completions which a our trend percentage will reducing larger margin by revenue. to or in sequential CnF significant on seasonality no techniques with regions while to markets. from believe we we quarter but or fluctuate Canada and mover remains economics. revenues slowdown due will capacity, who'll management, seasonal platform. shift. reached favorable will strong international of the globe. typical established, as this X.X% product to for The our opportunity the the also Flotek XX% blue commodities operator's are the higher believe new and trend as standard in in in will shift view patented than activity Demand were rebounded by a negligible basis high which in Our full the lines a outside began less all normal second our sequentially. $X.X trend of design represented this continue million the of Canada's around penetrate sales was shipping trend and to is expected as we our decoupling geo-market, evolve prescriptive ECT completion inventory We creates our or very for print CnF system our that most friction lumpiness orders grow influenced international is this continue downturn clear first growth as product indications and ongoing to has reducer nature chemistry well equipment large

relationships. However, opportunities and as as we're close others which and client rationalizing expand research look geo our certain may and to should to at which committed those a which also the initiatives. costs regions, deepen help areas same as also taking market in broader innovation opportunities We our our remain continues ever reduction not have G&A

of and the continued client by pipeline XX.X% trends October into positive our the facility quarter-over-quarter quarter. specific Our R&I projects fourth increased at

and pace spending and cycle working We our the the any position to of which narrower our flow equipment commercialized we've that flows do clients has industry turn capabilities this see oil aligning at shale differentiating operators on believe importance contract producers we'll addition, large Flotek demand new technology our to reservoir era once expand the We capitalize with unsustainable smooth the CapEx Flotek spending of In the needs uniquely penetrate initiatives we've when capital since is globally. a for it we and the should few or commodity consultant positioned see clients is likely stable of major welcome in We and a IBM as regions. and cash offering. the towards have more CapEx, between gas experienced not cognitive spread utilizing bring US down. geo it out market cash an in we and fluctuations hiring years.

and profitability to are Our position environment. and flat spending outlook marketplace the with chemistry G&A leadership our more completion intended chemistry a reductions coupled in in increase speciality further

ago forecasted global and Moving to segment CICT than days or XX increases citrus less Technology anticipated had pricing significant Industrial we Chemistries our crops. Consumer to due moderate to

example, For grow levels. alone is crop expected greater to the last versus Brazil than season's XX%

has quarter has in we're positioned to of Revenues penetrate continuing our Hurricane $X.X in product $X and market Irma impacted potential its million from declining in the prices and profile Florida million quarters. the for clients near Hurricane EBITDA and list the CICT a dynamic $XX.X serve prior to ideally coming quarter. was the Adjusted mix quarter segment growing channels chain to the However, of margin from intermediate believe, million We of suffered crop. believe pricing to the second needs were losses term substantial Irma. second We're lower will of as value due decrease improve continue citrus current the slightly to new clients. in and in this to

on reducing the or end second the subsequent Moving of by the or XX.X%. the million to another reduced $XX.X year our XXXX at by after to quarter million sheet, revolver million end balance $XX.X $XX.X balance to the XX% balance we million to $XX.X at end from quarter

are borrowings to by neutral I capital quarter in a in assets that backed after continue effectively growth. will our our and our free like of million during current demands current only to generated to utilize highlight we situation capital the are We expenditures. $X flow borrowing cash we fund working debt as would

to it's companywide and to of improvement. I'm G&A operational efforts while areas pleased financials efficiencies and Additionally, in taken with reflect reduce find sometime our

we far the believe coming can however are quarters. in further Our from efforts levels and believe SG&A over reduce we

we can we're an some not critical last this program. relationships million share like and in jeopardize of it seem remaining quarter, business that XXX,XXX board stated growth not shares In while As opportunities enough in we we repurchase on our million $XX.X we changes $X.X have sacrifice say or impact for to come may repurchased our will and fast have stocks the third process. of authorization our making quarter,

a continue financial to Walton to information provide we turn M&A key I'll update. it our Additionally, to an the marketplace. now of and assess review CFO, our Rich. will provide over Rich

Rich Walton

Thank you, John.

and be of product the discussed results we've deep segments as and drilling technology to As previously discontinued presented technology's liabilities operations. the continue assets

and third liabilities and year. company of related quarter, remaining $X a for sold to going $X.X these of note industrial the technology company Technology's all The months. be core expects A technology's million the customary of in The completed holdback two results businesses, cash and should over due and realized consumer as in consideration XX-Q Chemistry million drilling accurately in the forward segments one asset all segment million escrow end. continuing $X XX statements the by company's Energy our settled next substantially have should the liquidated the operations. of or the to assets more of Form sales financial the represent year During and receivable

in total quarterly XXXX. million the decline in the period million quarterly to $XX.X to $X.X and the increase period. the or the International quarter third For this or second during On quarter quarter and compared million period. or experienced sequentially third or the the sequential quarter $X.X over million XXXX. sequential down of sales $XX.X an $XX.X million chemistry. million same or $XX.X reported revenue prior chemistry of X.X% revenue down A revenue million down for $XX.X XX.X%. XXXX the $X.X segment year in year we million was of $X.X X.X% Energy prior XX.X% increased third million a of was compared basis, increase industrial revenue compared chemistry with was of quarterly for revenue $X.X million Consumer of X.X%. An of energy

second X.X%. was flat of Our reduction segment. Industrial quarter and quarter The was general in from segment $X.X was XX.X% from in chemistry Chemistry million a energy third $XX.X margin the quarter consolidated operating the third of negative and Consumer the million and Corporate of a the and operating XXXX. X.X% margin XXXX expense segment administrative

we during G&A decreased percentage as the revenue third corporate to from of reduction quarter our XX% as and XX.X% in Our in cost XXXX third initiatives. second of XXXX the the quarter quarter a progressed XX% of

took of and of execute of of a reduction revenue and nine and labor million from quarter to quarter percentage related million was to lawsuit XXXX, shareholder non-recurring million to million During XX.X% XXXX. Non-cash second million decrease compensation in reduce consulting company XXXX. expense the due expense the charges significant $X.X from the a inquiry. in as incurred quarter third Early the the $X.X the a SEC of Segment expenses. first third and months to of $X.X quarter. the selling selling third retirement quarter measure related $X $X.X fourth administrative the administrative and XX.X% Segment company was $X of decreased of from in million XXXX contract and

For the same million demands development $X.X expense in to expected $X.X of and period This property development intellectual company's increase for of meeting million the new compared product new XXXX. customer the was expand and quarter to research are in to $X.X chemistries attributable million which portfolio. and

prior For of a third million on compares This $X.XX loss quarter from million $X.X basis. representing loss of continuing net loss operations Flotek $X.X quarter, diluted the per reported the for of a a the a to share from third of year. operations continuing net fully

for the representing of months operations net of loss three tax XXXX for fully first diluted continuing to loss continuing a from $X.XX $X months of September year. compares loss basis. benefit recorded XX, prior net minor operations million per compared the This to tax months first tax share Flotek $X.X beginning XX.X income the that stock receivable an a a million ended $X.X revenue nine the of from expense now For A December of benefit days XX, $XX.X days September of on December to charged the reported Flotek a XXXX a compared million receivable rewards XXXX, the XXXX. in of at be to XX, accounts approximately At reduction $X.X million At had must at XXXX related expected million accounts million prior in year. an company XXXX. $XX of XX.X XX, income. to against XXXX compared was September based days and of nine XX,

is XX%. ended XXXX balance. XX, December XX, of XX, to than the receivable September quarter is compared first The the citrus being inventory accounts the doubtful during less or higher X% at $XX.X from XX, the totaled million the impact because $X.X for For doubtful increase At allowance pronounced year accounts was million million. This provision for million oil. inflation. At XXXX $X.X cost inventories resulted of more XXXX of September $XX.X September oil increase builds now and primarily for citrus This an year this cost historically used. half the was

the was price and constant XX, at the volume While of was average XXXX citrus XXXX September same held the oil and September unit XX, up significantly.

$X.X decreased inventory quarter third the During million.

times $XX.X turnover revolving and September per facility XXXX XX, availability there XX, was XXXX inventory under at approximately At year. X.X Our borrowing is September of credit our million. million was $XX.X undrawn

until common amount on credit Our $XX thereafter was $XX the XXXX. repurchases by $XX by capital to two million XXXX. XX, the years were and maximum maturity agreement It increased expenditures extended was on and for preferred increased a stock increased million. of and amount amended million May XXXX of Limits for permitted our advance September revolving or

same further million end million and Expected year. range During to the a toward of expenditures have XXXX of range. compared the been for were $XX.X reduced period million $X expect expenditures of to the million capital in first nine to capital $XX $X.X to months that be we prior lower the

the XXX,XXX $X.X During per price quarter, the of stock third shares common or an million of company its or $X.XX share. repurchased average

up As the XXXX, make of to additional XX, company share of repurchases $XX.X million. September may

securities Form million. on Securities declared S-X October was Exchange new public on a up to quarter the initial filing the to the shelf The by with This and price the universal Commission. shelf XX, company company maximum with third $XXX files universal to XXXX. permits registration the of SEC a During the offering sell effective

and and discontinued statements our notes. our The of This Form in Consumer report production operations technology's Industrial and segments. technology's Chemistry and our Energy a Technology Technology of foot a As provides XX-Q reminder, analysis Chemistry description the continuing financial drilling the operations.

We Josh. call of liquidity over turn capital core monitoring protecting the continue businesses. our SG&A to an be to and update growing expenditures, the cost, on I'll operational focused and provide company. performance lowering now And To our

Josh Snively

will I'm market Irma. on believe our to is the our Thank cash with ability efficiencies withstand our and role segment, to citrus for our maximize the we since CICT through Operations Hurricane industry that citrus the disruptions flow take shareholders. for Beginning organization greater we've positioned honored experiencing global you Rich. of generate to entire inventory

and is As We've expansion production. and potential any continues or announced occur office, runway position established is in we we markets. our to have and the to citrus our the quarter we our citrus and activities is this reason overview increase Brazil context, or for is of the growth impact end Asia a associated put is into we crop. Florida but work in Irma our greater from for of believe believe progress Florida than efficiencies to opportunities new To the ground segment last climb operational crop important expected with impacts G&A quarter further part our integrate in impact the visibility of last to believe industry second offsets two our and to This installed and at laid organization. by citrus our bottlenecks in early creating Chemical an capitalize of has and [indiscernible] We the cost on XX% in volume quarter this of entire the to segments. to stay level already end throughout channels market And prices And unlikely leadership crop ability the is season. in until new the our Florida have transition we are full out month changes and Japan occurred efficiencies to tower while manufacturing realized caused oils have to citrus unlikely that This demands. the changes isolate supplies. and this to we which more our It make new last G&A XXXX. can fully being have our CICT citrus enhances leverage of the our Hurricane changes our until de-layered for our these dynamic. review at lead of first to the will ahead a the in greater the that and leadership, tighter with citrus [ph] segment relieved global reduces distillation This of be these corporate market damage changed of current controls, taking our sale we on structures my business contributes in execution, strong full to the cross and to opportunities requires entire in To October. logistics drive operational capabilities sales adjusted Many Brazilian provide and outlook Under Irma of mind have global we the least Flotek XXXX. field organization. of we of temporary reporting on clients' the will alleviate keep this from

and increased will clarity more We base and that which variety our step us third to we region. quarter fairly of We the PCM have and direct activity our has region that our see as underway at our broadened occurring Provide back cost expanded are customer opportunities. in has Rockies implementations sales a transitory. in issue the this eliminate in levels. a John experienced noted, further of a optimizations number segment systems allow as ECT

in building growing experienced However, scale some out offering. cost deliveries to this this we've with related pains and and growth, inefficiencies

scale may concluding fluctuate offer As back through has I'll achieved. is turn activities. that and gross PCM noted to it John profile margin ramp be remarks. It the to manage of that our as up should to continue With we our

John Chisholm

would and and like take some offer thoughts. we to concluding Josh Thanks, outlook add an I before questions

disappointments the acknowledged we While quarter. in

pure Flotek debt flow and which company is as to progress organization balances and million has play strong on includes in that end light with and position month in model $XX.X net specialty commodity current the credit. to holiday align This regardless price. has I line XXXX. is have towards In of the chemistry a of swings cash to We began given million a visibility generate anticipated been undrawn financial of the in company's client positioned note, quarter leading continue October in asset the business since cash that desire ECT, fourth $XX.X the we flows. position liquidity slowdown, CapEx To revolving challenged a free as the commodity as

however public the in see However, with are portfolio remarks opens product To new for the utilized have flat and our million domain, their to will about where anticipate to to $XX we continue we penetration seasonal from technology. that CICT extent, excited being we the clients operators the to well names further recent by top success visibility, greater segment success. line In more public normal as slowdown range identified a client their wells of have CnF be speaking refrain expect evidenced door margins. our with we by million programs our which in in we $XX

total On G&A continue extensive we've by continuing our lower, undergone cost year around to our program headcount we the in we've time reduced to outline to operations cost drive XX% this current. last to an front, reduction strategy will

benefits spending this consulting all, XX% long-term employee project level addition, we're We've expense the target contract our also are In year [indiscernible] down a or expenses In eliminated than accounts in and labor to revenues relative by on reduces at by which salary below have more XXXX. XX% XX% in category and early by XX%. to which positions targeting from G&A operate declined is we and ago.

quarter, fourth cash cash SG&A G&A $X to will total at we million the will level the million mostly we for or the recognize of quarter an a line. savings additional recognized be which For $XX corporate $XX million believe of of

to look we time the reporting. financial which to ongoing update this savings initiatives forward We take expect through further reflect will on into XXXX

are see lower growth forward our long-term to of outperformance efficient, opportunities we move continue structurally and our more we arising As is relative to our cost business benchmarks.

open for thank clients Day employees, honor on upcoming your you all of Finally, and that weekend. this our to for I'd we operator, we'll to thank Veterans With you service to support stakeholders now veterans Flotek. shareholders, the And like call questions. and their

Operator

[Operator line with Rice. Venturatos question with from Instructions] our Johnson first your question. the of proceed Georg comes Please

Georg Venturatos

wanted to In us the wanted we've segment, discussions at and then follow certainly the Permian sense within start all terms and just the John, secondly Q given just you or customers you what updated year in the last two saw been relation there to get of investors changed quarters quarter trend and Eagle with obviously an can as targets of to you your there, share of on top we get a market kind provide but but your ECT guys ECT of to I maybe some can just one continued point or have emphasis in the segment. and just customers that's key status as in recent Rockies with at relates it so. least out seen a Ford in called penetration through this

John Chisholm

Sure.

rate the year. as throughout ever as retention is it's quarter-over-quarter been high Our

over unique bit of third a number by XX% little the increased we second quarter clients fact, In over quarter.

this on growth and like to consistently these when a you going much have you're to that way. steady predictable, would is folks said just doesn't as - I've have As as it happen technology calls not transformational have

transformational this that industry. out bears in with I the technologies over or decade last of kind other so think

as some work may we So, and the a from leveling time-to-time there even it will through its market cases, way to decrease in continue continues to penetrate. and be

technical talk in so it the contact believe to XX% not clients we clients, we've made was although direct the with directly they the have about about essentially decision in certain five for XX% that it we've available certain clients heads efficiency and frac quarter the reported think client last Another or us this of in not an gives the frustration that of trend we're but was I clients have, folks was to them taken story last a in of to and very way two directly statistic revenue approach talked specifically of and completion having amount to overall We've that capability. the that XX% our of is themselves. certainly is maybe specifically ago clients terms encouraging years expose five folks time four over the process performance have the have have does the as that that well again effect amount lack our of talking we unless followed talked weeks seen going four that about the wanted their an that us, not just about it or

two don't top we everybody those folks certain because benefit agreements we confidentially with we we and with on the any Regarding respects expanding see question the hope of to client I there, and in the you provided business in flowing in that the granularity hope increase that context. that's of kind greater that have honor gives clients, that through the there extra communication in terms and retention, increase you directly the

Georg Venturatos

provide at us appreciate that points and call. the here least can't you on sense. I what data John, makes Now those

quarter shift well a on. just improve. to of little side, the from there. coming kind and kind to get with the did maybe reversal wanted We the and for a Josh sense you in are margins we you but what were in points. recovery crop can pricing obviously terms certainly looking down margin to segment. margins factors this and lower likely saw and Can on the than breakout we On EBITDA were mix basis hit tough but XXX as see Citrus bit, kind want I of obviously aspect mid-XXXX ECT see Brazil that this we pricing really of just that looking of citrus that where at we kind in know in of particular can potential the mentioned of

John Chisholm

those giving bit flat. Josh to the margins are flux, focus of are model CnF give the little package started to really a really to impression really and a gain PCM real of essentially that. out answer take focus of my The the disaggregation, take kind they've about view kind that in you of of and think kind used you're Right that. performance whatever what over it. real so of first chemistry I'll delivering directly question want maintaining that, on on approach business XXXX, one the been gem on started self-sourcing, when talked a been made a we've different state this pricing industry responsibility location. In margins the when in I call change that momentum It's held to to We've to margins, that. because a the operators make the made is on We've up fall on to. are you decoupling expecting history seamless we that Those people and

gets that talked the directly quarter because it's I think perhaps a save people It's completely through staff it use that rationalization and if we've that there's that's understand of take sometime optimum that different undergone and now over service when than to it like it next needed were that of us ensure done us that they'd didn't to really in and provide the to part the not products pumped. to to well. on we're able still the be situation to are right. returned last working folks we've amount about service of a to tendency and it, are use selling they're when we the And all they companies

between margins, a Does logistics still our improve. with CITC help? the those that margins it's hands supply work return again which will and something logistics chain connective ECT. freight on and confident the all and of The progress So, time-to-time return the got and position that pretty it's effect there. from has in Josh's the around We're the [ph], that but we've

Georg Venturatos

in release from a Yes, and then putting today. But put guys efforts me. see no, certainly topic front, on of to been no John. long you lot that has SG&A one look been And you've a this the I that. I'll in know the discussed pleased thanks. Last re-queue.

just confirm, reduction timing. but sequential to wanted of done. sounds efforts [indiscernible] we to the Just like full that in as called terms you've look but fourth It out quarter, here

think be to it's early it. is think right largely in realized way the XXXX, the part about of full You going to

John Chisholm

talked about another with that, early and of we see Yes, believe benefits I'd as free But already that tail the say quarter. correct think all and there. George step I first in quarter of imitative. a the flow we maybe cash seeing we're assumption your you'll second kind is change

are out goes possible. the call to the folks inside really efficient to can at wanted to going looking listening we way we expense of, to in It transcript. as the accounts are think I that as terms all

top So, we as really looking to can can at want. we we deliver Flotek be able how bottom effort returns of this the make to been a has the as efficient to

Georg Venturatos

Well appreciate it. Got John. answers. the

John Chisholm

Sure.

Operator

[Operator this on time. Instructions] at we're questions lines further no the and showing audio gentlemen

John Chisholm

and operator Okay. Thank you, folks. thanks

Operator

ask does and kindly conference your that thank Have good everyone. Ladies gentlemen, for disconnect you participation. for you your the lines. day today. call And a this conclude We

Flotek Industries (FTK) 8 Nov 172017 Q3 Earnings call transcript