Q3 2019 Earnings Call
Greetings and welcome to Flotek Industries third quarter 2019 earnings Conference call.
At this time, all participants are in listen only mode.
A question and answer session will follow management's prepared remarks.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It's now my pleasure to introduce Danielle Alan Senior Vice President Global Communications and technology commercialization for Flotek. Thank you Ma'am you may begin.
Thank you and good morning, everyone. We appreciate your participation joining me on today's call, It's John Chisholm, Floteks, President and Chief Executive Officer.
The bid Wilkinson.
Floteks Chief Financial Officer.
On today's call John analysts bodes well for my prepared remarks concerning our business and remarks for the quarter.
Including a result.
In addition, David Nierenberg Floteks Chairman of the board will provide some closing comments before we open it up for questions.
Yesterday, we released our earnings announcement for the third quarter 2019, which is available on our website.
Today's call is being webcast a replay will also be available on our website along with our update a corporate presentation.
Please note that any comments, we make on todays call regarding projections or expectations for future events are forward looking statement.
Forward looking statements are subject to a number of risks and uncertainties many of which are beyond our control. These risks and uncertainties can cause actual events to differ materially from our current expectation.
We advise listeners to review our earnings release and the risk factors discussed in our Form 10-Q , which it will be filed later today with the FCC.
Also please refer to our reconciliations are provided in our earnings press release of management May discuss non-GAAP metrics on this call.
Finally after prepared remarks, we will answer any questions you may have with that I'll turn it over to John .
Thanks, Danielle we appreciate everyone joining us for today's call.
I'm actually and I'll be dabian.
Largest center the world.
Elizabeth will be doing a lot of the coordinating the call back in Houston.
The third quarter saw another period of decreased drilling and completion activity for U.S. onshore like other oilfield service providers with significant exposure to U.S. land operations.
One results in margins were negatively impacted.
Also impacting topline results was the recent reorganization of our sales force. It further align ourselves with and provide the opportunity for expanded relationships with our clients.
This transition was clearly the right thing to do business. However, we expect it will be in the next year before we'll begin to see the full benefit.
Given the longer sales cycle times, we predominantly see in our business.
Well the fourth quarter, we expect sales to get you need to be depressed, primarily do you p. budget exhaustion and the typical typical holiday seasonality.
Supporting this view was the estimated five per cent decrease in U.S. Aktiv frac spread hydraulic horsepower account seem during the month of October .
Shorter cycles of continued and sometimes extreme volatility or part of the new normal we operate in today and something we continue to expect to see in the foreseeable future.
As a reason or its energy report noted this isn't environments in which the winners will pull away from the pack I demonstrating discipline.
Focus on cash flow and adoption of technology versus those who stick to the tried and true lesage.
As part of this enhanced approach.
Optimization of completion designs is critical to both capital efficiency and profitability.
In a recent report titled Besides bring the performance puzzle in shales, Deloitte analyze more than 80000 wells in the Permian and Eagle Ford.
They found that the previously assumed linear relationship between completion intensity and well productivity has peaked over the past several years.
Noting the right well decide not the biggest should be the focus for operators.
Further the industry is seeing a prevalence of spacing challenges, which have significantly negatively impacted production.
In Tudor Pickering Holt recent analysis over 14000 wells in the Permian Basin.
Well space too closely together.
Resulting in a loss of 15% to 20%.
The production that could ultimately be recovered.
Flotek offers a unique value proposition in this environment.
Our core competency center around being a best in class reservoir century Chemistry services company.
The partners with our clients to increase the productivity of their asset basis.
Either floteks long term success is ensuring we remain laser focused on what we can control.
In essence, we've adopted the guiding principle of controlling the controllables.
At the top of the list or our wide ranging efforts to take cost out of the business.
Through previously announced cost cutting measures, we were able to improve our results for the third quarter notwithstanding the impact of reduced sales by [noise].
This included lowering operating in corporate general administrative expenses versus the second quarter.
In addition, we implemented another round of cost cutting initiatives last week.
Furthermore, by the end of the fourth quarter, we will have fully implemented a new framework focused on improving our operational efficiency and effectiveness, which is expected to meaningfully reduced operating expenses next year.
Under Elizabeth leadership. This transformational progress has been accomplished with the support of employees across the organization and I want to thank everyone for their continued hard work dedication to that effort.
Another key facet of controlling the Controllables is aligning our products and services specifically address some of the industry's most significant reservoir challenges.
We have extensive data showing that our chemistry, which is tailored to the reservoir has a positive impact on well production in all completion designs and spacing models.
Specifically, we show that our chemistry can improve production through the mitigation of sub optimal well spacing of brackets.
Well as provide incremental production benefits at lateral length and proppant intensity rollover points.
Our extensive portfolio of case studies show both increased initial.
And sustained production.
Further we're diversifying the applications of our Chemistries beyond stimulation and have increased the intensity of our pursuit of opportunities in areas of enhanced oil recovery waterflooding remediation and other applications.
Finally, while it is clear that our current revenues have been negatively impacted by the recent transition of our sales team.
We are actively engaging with leading operators and service providers. The recognize the significant benefits that are chemistry technologies can have on their bottom line results.
Our new highly skilled technical sales team has made great progress in pursuing a number of identified near and long term opportunities.
However, as I said previously we expect it will be into next year before you begin to see the full benefits of our efforts given the longer sales cycle time, we predominantly seen our business.
With that I will turn it over to list, but to discuss our financial results in more detail Elizabeth.
Thanks, John similar to the past few quarters, the financial tables in our press release present, the operations of our C. I see teas segment as a discontinued patient for all periods as such I will focus my discussion today I'm quarterly results for continuing operations, which is.
Fluids, our energy business as well as our supporting research and innovation and corporate functions as John discussed we continued to operate in a volatile environment for U.S. onshore drilling and completions activity. This clearly impacted our topline and margin results for the third quarter on top of the impact we have.
Had related to our recent salesforce turnover and while we have taken additional aggressive steps to reduce costs and enhance cash flow. We expect the fourth quarter will be similarly challenging based on the current industry outlook for U.S. onshore.
Looking at our financial results revenue for the third quarter was 21.9 million compared to 34.7 million for the second quarter you see T. operating expenses were 23.7 million for the third quarter versus 38.3 million for the second quarter.
Well the absorption of fixed and semi variable cost Sun almost 13 million of lower revenue impacted our margins. We are pleased to show in more than 200 basis point margin improvement in operating expenses a percentage of revenue.
Driving this improvement were increased efficiencies in our logistics, including lower cost per load per mile and the impact of other operational cost reduction initiatives corporate DNA decreased 5.7 million from 6.1 million for the second quarter of 29 team.
Bite of a nonrecurring severance charge in the third quarter totaling point 5 million.
Research and innovation costs increased slightly to 2.3 million from 2.1 million in the preceding quarter.
Looking forward, we continue to anticipate Ginny <unk> corporate Genie cost to average approximately 5 million per quarter, and Arne I cost to average approximately 2 million or slightly less than that per quarter. Despite more challenging industry operating environment, We reported an improved loss from continuing operations.
Of 11.2 million or a 19 cents loss per diluted share for the third quarter compared to a loss of 13 million Alright, 22 cents loss per diluted share for the second quarter, well clearly, we're not satisfied with reporting a loss for the business. We are pleased to.
I see the financial impact of significant efforts, we have undertaken in 29 team to drive down costs and advanced process improvements and we look forward to seeing the full benefits of our continued wide ranging initiatives as we move through 2020.
On an adjusted earnings basis, we reported a third quarter loss from continuing operations of 10.7 million or and 18 cents loss per diluted share versus the second quarter loss of 12.3 million or a 21 cents loss per diluted share. Please refer to our table in the really.
Lease for more details.
Our adjusted EBITDA for the third quarter was a loss of 8.1 million compared to a loss of 9.6 million for the second quarter contributing to the smaller laws were improved operating margins and lower corporate general and administrative expenses again, please refer to our table in the middle East for more details.
Turning to the balance sheet.
We were especially pleased to grow our cash balance from the second quarter.
Given the almost 13 million decrease in.
Revenue that we saw in the third quarter as of September Thirtyth, we had cash and equivalents of 107 million as compared to 97.5 million at the end of the second quarter contributing to the sequential increase in cash was a decrease in net accounts receivable, including the successful.
Collection inflow of certain long dated receivables as a result, we ended the third quarter within days sales outstanding of 70 days compared to 85 days reported in as of June Thirtyth.
As scheduled we also collected 3.3 million of the indemnity escrow that was established at the time of the closing of the sale of Florida chemical in the first quarter. This year. Finally, we managed our inventory balances to a slightly lower level.
At the end of the third quarter, we had no debt outstanding and 12.5 million of Escrowed funds included in the other current assets account on our balance sheet.
Lifting both the Companys estimate of its claim to the post closing working capital adjustment escrow and the remaining balance of the indemnity escrow related to the sale of Florida chemical as John discussed we have continued to execute on our cost cutting initiatives during 2019 benefiting our.
Third quarter was the mid July implementation of more than 5 million of additional annualized spending cuts. This past week. We also executed on an additional 3.5 million of annualized cuts.
I'm focused on further reducing personnel and other miscellaneous costs.
Overall since the beginning of 29 team, we have reduced our annualized fixed cash costs by approximately 30 million across the business looking beyond the 30 million.
On our second quarter call I discussed our development of an action plan to execute on priority initiatives that had been identified through our engagement of a global consulting firm recognized for their extensive mens manufacturing and supply chain expertise.
Through this process, we prioritized various opportunities to reduce costs and drive greater profitability through order to cost efficiencies, including process enhancements to sales manufacturing supply chain and logistics.
As a result of this project.
Our expectation is that we will see a further reduction in operating expenses of more than 5 million on an annualized basis, beginning in 2020 <unk>.
The impact of this will be to lower our estimated quarterly adjusted EBITDA breakeven revenue level by more than 10%.
Turning attention to the strategic capital Committee as co chair of the committee with the Chairman of our board of Directors, David Nierenberg I wanted to provide some additional perspective on our ongoing process.
The committee continues to evaluate opportunities for reinvestment in the business and we continue to consider the best use of our cash is to remain focused on opportunities that will provide us with immediate positive operating cash flow greater scale and the opportunity to build on and enhance.
Our core competencies.
However at this point, we have slowed down our evaluation process as it relates to inorganic opportunities given the current industry environment, while we focus squarely on our overarching strategy of controlling the controllables that John discussed in his opening comments, namely Rightsizing our cost structure.
And improving the efficiency and effectiveness of our operations.
Having said that we're continuing to pursue a number of identified high value organic growth opportunities that we believe will overtime results in greater scale and profitability, while being capital light in nature.
As discussed on our call.
On our last call these growth opportunities.
Include targeting appliances scale commercializing differentiated next generation technologies, and leveraging our unique innovation capabilities to develop creative solutions to expand our presence across the lifecycle of the well.
One example is our ongoing long term in efforts to drive further awareness and adoption of our chemistries in the area of enhanced oil recovery as John mentioned.
I'll now turn it over to our chairman David Nierenberg for some closing comments before we open all questions David.
Thank you very much Elizabeth good morning, everyone.
Echoing Elizabeth comments, all our third quarter revenues were disappointing in frustrating the company continued to make significant progress and its efforts to further rightsizing the business.
In addition, the team thoroughly evaluated and identified important process and related enhancements, which we'll be seeing starting early next year, and which will improve the company's efficiency and effectiveness.
As Elizabeth said, we're making solid progress on the other aspects of our guiding principle of controlling the controllables.
Adding even more than the 30 million of 2019 chess savings to the savings realized late in 2017 and in 2018 as well.
Turning to the strategic capital Committee.
In my role there as its codeshare with Elizabeth.
We remain focused on protecting the substantial financial flexibility, we enjoy as a result of the sale of Florida chemical.
It was placed flotek and a strong financial position compared with many other similarly sized oilfield services companies, which is extremely important given the current industry backlog.
Backdrop.
The closing of the Florida chemical transaction, we continue to have no debt.
Over 100 million of cash and we're doing all we care to preserve liquidity as we navigate our way through challenging times and work intensively to grow the business.
Coming off of our conversations.
From last quarter.
We clearly heard from our investors as the council does to stay away from inorganic deals.
Well, we had rightsized the cost structure of the company and hired a successor to John Chisholm.
As a result, we have press the pause button on potential investments in inorganic opportunities as we continue to improve the underlying health of the company.
Finally.
Spoken in the past.
About the company search for Jogs successor, and I'm pleased to report good working with an excellent recruiting firm.
Made positive progress in identifying multiple parents students who are highly qualified to lead flow check into the future and who are eminently capable of delivering value to floteks stakeholders.
We are actively engaged in these conversations and we look forward to sharing an uptick with you. When we have more details to disclose we are encouraged by the quality of the candidate pool.
By the Karen did its appreciation of Floteks straights, particularly its balance sheet.
It's technology.
And it's field service expertise.
So with that I believe we will Merrill.
Open it up.
Two questions operator.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then tail.
As time, we'll pause momentarily to assemble our roster.
[noise].
My first question comes from George Venturatos with Johnson Rice. Please go ahead.
Hey, good morning.
Morning, John John Elizabeth maybe on the core business just given the magnitude of sequential decline we saw.
On the topline down 37% quarter over quarter.
Certainly the peers and completions activity would suggest to work towards that 10% to 15% range on average so I know you mentioned.
Some of the sales.
<unk> impact, but just wanted to get a better understanding of that type of topline decline quarter over quarter what drove it.
And also maybe a little bit of detail on the product mix.
Good operational margins.
[noise] [noise] China.
I see me apparently not one.
Yeah.
The Dhabi so the driving.
Part of that did you mention George was.
Still the time, it's taken this new sales team to get up to speed quite frankly has affected us more than we thought it might three months ago.
But we see very good progress being made as I mentioned on the earlier comments.
This is a long sales cycle, we've talked about it on numerous earnings calls these sales don't happen overnight over a week sometimes.
And so you know it.
We were disappointed with that amount the sales mix, we don't talk in great specificity about but CNS activity has held up very well during that period of time that we're encouraged about Elizabeth's anything you want to add to that.
I think that's just exactly what I was had to say as well.
Okay. Thanks, Thanks for that John second question.
Or was that you mentioned.
That break even topline number moving down 10% relative to former.
Expectations I know last quarter, you all kind of broadly talked about that range could you potentially quantify what that topline breakeven number as we enter 2020 to get a better sense.
At least what number we would need to hit on the topline perspective to get to break even for the business.
Sure. So basically at our last call I, what I had referred to is something in the neighborhood of our first quarter revenue level, which was you know neighborhood mid forties and I now think we're pushing that number below 40.
That's what it's going to be significant results of these operational efficiency and effectiveness changes we've been talking about.
[noise], Okay got it.
That's one.
And then one more but just.
Bigger picture.
Think about the landscape and whats appearing to change here, particularly in the Permian, you're seeing a larger players dominate.
The ability to continue to produce through cycles and through more difficult.
Yeah.
Benchmarks.
Exxon Chevron.
Historically, that's been very difficult for you all to tap into those types of players.
And you've been largely in the small mid cap range. What are you doing strategically maybe and maybe marks doing it on the sell side to counteract that and to move into you know some of the guys who are likely going to concentrate the activity going forward.
A key basins.
Sure Great question, George the main thing what's different now than six months ago or a year ago is the amount of statistics, that's being published by many different.
Companies in the industry, whether it's our its energy whether it's the way whether its Tudor Pickering Holt.
And.
No longer as it just us talking about what we were seeing in the trends and undoubtedly these larger companies that you mentioned are reading the same thing everybody else's reading where the.
Physical limitations of these wells are being reached whether it's in the size of the completion or the lateral length.
And we've been engaging these folks for several months now the larger players as we've talked about <unk> companies have scale, because we agree with you they're the ones are going to be around and we think that it's just the evolution of the industry at the awareness of what people had thought would be the way to continue to grow production reached a plateau.
And that's now not the case, we believe others believe that one of the things that will lead to is a much deeper closer look to customize chemistry.
And actually.
In the most recent.
Write ups that we're seeing and you're seeing them as well I'm sure that there's even predictions that the fees will decrease by 15% to 20% next year.
Due to the efficiency of the.
Pumping companies on per stage revenue or cost.
And with in basin propping that opens up a window.
Understanding and realizing are there other alternatives that could benefit from that cost savings and again, we think that speaks to chemistry.
I think that's the biggest take away that we see we're covering these accounts from the C suite down to the field level. We've got the type of expertise now with the sales group to do that and that's why we have the feeling that we do hopefully that helps.
No. That's that's helpful John and last one just.
Given the successor talk.
I wanted to.
A sense of your plans through this process and future plans and.
Enjoyed working with you.
You were there.
Oh, well thanks for the question I.
I haven't thought about it a whole lot, except I guess I'd like to figure out the way to.
He has some time to learn how to play the piano again Ah, but seriously I've been involved and then highly supportive of my replacement initiative the timing of it.
The quality the people that David mentioned.
And obviously, if I could help in any way it was my relationship network.
When that time comes going forward I, obviously certainly will.
But it's safe to say I tend to stay active in the industry I'm on a couple of boards.
But I'm not going to be at the pace that I'd been up for the last 10 years, but thanks, a lot George for the question.
Appreciate as always thanks.
Our next question comes from Alan Mitrani with Sylvan Lake Asset management. Please go ahead.
Hi, Thank you a couple of questions Elizabeth just on the breakeven so it sounds like somewhere closer to.
Maybe 150 560 million break even but this year, you're going to run about 120, so even if you go up meaningfully.
Revenues this year versus next year, you're still gonna be probably losing money next year is that the anticipation that we're going to lose money for the whole next year.
Uh huh.
I.
[noise] I'm not giving you know gave you Tim as guidance about what our expectations I have for next year, but we certainly would like to think that will shift recovering revenue levels that are in excess of where we are right now and that it's entirely possible it will get to positive EBITDA corridors.
During the year next year.
Okay, and then how many how many employees do you currently have.
About 179, I want to say.
And that's before the the latest restructuring that started last week or that's coming up.
Oh.
Yes, no actually.
I'm, sorry, we actually had 100 in.
And any nine at the moment at the end of quarter Q3.
Hundred 89, and where do you I mean, when do you anticipate this restructuring is gonna be.
Mostly people related or it's it's a closing facilities, what's maybe can you just given some insight.
It's mostly people and a variety of other miscellaneous costs.
Okay.
And then in terms of a strategic opportunities and looking at looking at have you guys look outside of just the oil and gas business as well have you been approached or looking outside or I mean are you willing to do anything a focus on shareholder value because the stock is now at the lowest point since the day, you announced that deal.
With Archer Daniels, it's really been a disappointing Europe to be honest and I'm, just wondering where the strategic committee fees. There rule in the next year I understand cutting cost internally and trying to chase the cost down or the revenue down, which clearly make sense you have to have a stable business, but given how much cash you have had the other wells you have I'm just.
Thinking about maybe looking outside an opening your eyes for field.
Well as we've mentioned before and revealed in our our investor deck.
You know, we're very much focused on cash flow, achieving greater scale and aligning ourselves with businesses that will continue to enhance our core competencies. So we're really not looking at things that would be outside the energy space that.
<unk> said I mean, you know never say never if things come our way, we're gonna look and consider whether they make sense or not.
But predominantly the things that we've been looking at our you know in in that realm and energy.
Okay and then thanks.
May I add some complimentary points to through the question.
I would.
I remind you that we are a well along in a CEO search.
That the candidates that we've seen a have all noticed a the straight through the balance sheet and they viewed that as a positive attribute a that attracts the interest.
The other thing that I would say is that we recognize the extreme volatility.
A of the drilling and completion end of the energy business.
We also are well aware of the strong market power.
The service companies and so while we were in the mode of thinking about inorganic acquisitions or most of our activity focused more on a production side of the business and other sides of the business that would.
We hope to give us less volatile more regularly recurring revenue business model.
But again as we've said we've touched the pause button on this until we complete the cost reduction work and until we have Johnson accessory place.
Thank you.
Okay, and if you'd like to ask a question. Please press Star then one.
Our next question will come from Giovani start with HM. Please go ahead.
Hi, guys.
The a quick question, what's happening in the middle East or I guess, John is over there now so maybe you could fill us in.
No what kind of interest and prospects Ah cnfs over there.
Sure. Thanks for the question the interest continues to grow not just in Saudi area, but also in the Lee.
And in other areas. We're encouraged again, it's a it's a process it took us a while to get.
Here and we've talked about in previous calls looking at forming an entity into you AG, which.
It is almost a requirement to have a stable business here, but safe to say a in our efforts again to look at costs I wouldn't be over here or couple other folks with me. If we didn't feel there was an opportunity here. Thanks for the question.
[noise] and as a quick follow up or your your stock or.
Is currently trading it evaluation that doesn't provide Ah Ah well, which you know you use you get the business for free I guess working capital less stats around 250 your share.
Why not buy back stock here it seems like a the best bargain out there.
Would you like David beyond what was the real sure Yeah. Please.
It has been.
Extensively considered.
And I'm sure that we will continue.
To think about it.
Disciplined opportunism.
Having said that go and hoping.
That we may be close to a.
Identifying and bring onboard John's successor.
As I said before.
The people that we have been interviewing a tribute considerable.
Value and attractiveness to the balance sheet as it is today.
And bringing on someone capable.
The board and the management would want to work with that person.
Ah to determine the forward strategy for the company, so while I hear you loud and clear.
About price figured valuation I think I can speak for the board and say that it's a bit premature right now until we have our person in place and until that person puts their strategic imprint going through the company.
Our next question comes from Scott sure that L. M. J capital. Please go ahead.
Two questions. The first question is a unless quarters transcript John I believe with other you Elizabeth you mentioned that one of the reasons for sales coming in late Q2 was that some orders were deferred into Q3 did those orders come through.
And part B that question is how far off from plan was your revenues in Q3.
So yeah, let's go ahead Elizabeth.
Well, yeah, I mean that you're finding it to go ahead.
Go ahead John .
Yes, so just some of the revenue that you talk about.
That was.
Delay just by the logistics and all that happened in some of it that we forecast in the third quarter will be pushed into the fourth quarter and it's kind of this accordion that.
We tried to get better with and we actually are getting better may not seem like it's the outside world, but we are internally.
And.
You know I don't know that we specifically talk about what the forecast looks like versus reality, but Elizabeth you might want to chime in as to.
Your thoughts on that but.
Yeah. Some of the worked it was pushed it happened we're not aware of losing any.
A material amount to any other type of chemical company, but Elizabeth go ahead.
Yeah, I guess the thing that I would add is just simply that you know I think that as the market has gone away. It has during the course of this year that companies have run into what they describe as budget exhaustion and we also see a certain amount of disruption with some very significantly.
Layoff exercise is being conducted but some of these players out there now saying you know thousand employee lay offs is a little bit of a distraction relative to contemplating technology adoption.
And so I think those.
Two factors together really have pushed them things down the calendar of that.
Okay second question I guess, it's really for David David can you talk about with regard to the strategic capital Committee, obviously, there's some people who would like you to possibly buy back stock you guys are looking at inorganic and organic acquisitions is part three and have you contemplated putting the company up for sale.
In reference to either you know two questions going I made this point about four quarters ago, that'd be spending $20 million year on corporate costs put some multiple on that you were materially more to somebody else, albeit you don't want to sell low no. One wants to sell low if one thinks the industry is going to turn up well we've caught that for six quarters are equal what is your 10.
Quarters. So can you can you comment on is that part of the strategic planning Committee have you have you contemplated that instead of hiring CEO , we somehow going to come in and do something brilliant that we haven't been able to do the last 12 quarters.
Thank you for the question and good morning, Scott.
I fully agree with you that.
If if we were I'm interested in.
Considering a sale would company.
We would want to be sewing it from a position of actual and perceived straight.
We have made as you've heard today.
Lot of progress on cost reduction.
And we have you finish that yet.
You are also correct that up.
If we were part of someone else's consolidation play they would take further cost up because of duplicated.
Functions, but I think we owe it to every body to complete our road cost reduction work and picked up as far as we care.
I've found in other industries over the years that there are relatively few strategic acquirers, who have the ability to operationally starch bleeding.
In an acquisition, so I'd like us to first make ourselves as a healthy as we care.
Second.
Well I share your and other People's extreme.
Australian and disappointment.
Third quarter revenue.
I think it's premature.
To decide.
To throw in the top Oh and put the company up for sale what the star.
The average person on our reorganized Salesforce has been robust probably only four or five months right now.
Customers process of evaluating and qualifying our products tweaks even longer than that.
So we haven't yet theme.
What the sales force is capable of doing.
We haven't yet seen what we can do for ourselves with enhanced oil recovery and new generations are friction reducers and I'd like to see what could happen and I think I speak for the board and saying that I'd like to see all the things that we can do to make ourselves better [noise] rugs.
<unk> of which way we go whether we remain independent or whether we consider other opportunities.
And maintain a tight focus on that in the same thing in the same right.
I think if we make a judicious a selection of John's successor.
And bring onboard a person who adds value to the company.
That person would add value to the company or whether it was a standalone company into future or whether the company was sold.
So that's that's that's the same continue adding value to it as rapidly as we care across the board because it makes the company itself better and potentially makes the company more attractive.
Do you want to mine I'll, just make one one follow up comment that I wholeheartedly disagree that time to sell the Florida chemical business on the call.
Adjusted even if you grew the core business you still had Massimo Brett to cover so instead of taking that cash and then putting the company up for sale and selling into a world class organization, who has an existing world class Salesforce, who could plug and play a phenomenal product into their world class Salesforce across 10 2050 offices around the.
World, you've decided for option b to restructure your entire Salesforce, which put you behind a year to 18 months itself you decided to now go for a CEO search for someone we don't know how capable they are not it seems like you've taken the much riskier strategy. When all this company key value is embedded in.
Product technology that we'd be plug and play for somebody else.
So just if you wouldn't mind responding to that I mean, it seems like the though the lowest risk strategy what had been at after Florida chemical admit that you have a great product, but that company epicel and fell to a larger company that has more like Salesforce. That's already established that's already world class instead of going out how greater the sales people gonna be they're gonna be hiring at a 100 million.
It kept companies fell to going down by 30% seems to me you've taken harvest the strategy. Please please respond.
[noise] or as I said before Scott my experience across multiple industries has been did the universe of strategic acquirers, who have the ability to fix what the bar is relatively limited.
And I think I speak for the board and the management in terms of saying that we are approaching.
Taking out something like $10 million per quarter of cost from the cost run rate at the time that the Florida chemical deal was negotiated that's a lot of money, we think it buys or some time in some flexibility.
And reasonable margins can differ about whether or not that's the best thing to do or whether or not something else through a different avenues should have been pursuit of but we think two to lean cost structure or more tightly focused.
Higher service oriented.
Sales organization.
Combined with possible growth in your war and friction Reducers.
There's a good strategy.
We watch it closely we're not unwilling to change our merchants on but we think it's premature.
To a <unk> to decide to determine a that the new salesforce is not working.
Operator next question please.
Again, if you have a question. Please press Star then one.
This concludes our question and answer session I would like to turn the conference back over to John Chisholm for any closing remarks.
Thank you operator, just wanted to say, thanks again for it and everyone. Joining us today, we appreciate everyone's interest in Flotek in support of our shareholders. In addition.
Given that veterans day was yesterday I wanted to offer my deep appreciation of the many better work at Flotek as well as the other countless veterans that have served our country. So faithfully selfless sacrifices they and their families. Having continued to make is extremely humbling and we wish them. All the best again, everyone. Please have a great day.
Enjoy the upcoming holidays. Thank you very much.
[noise]. The conference has now concluded. Thank you for attending todays presentation you may now disconnect.
[noise].